While most business owners will hire a lawyer to handle most of their litigation and contracts, there are various legal terms and topics that every entrepreneur should know when starting a business. Here are some of the most common legal terms you may encounter in the course of doing business.
Acquisition: In the business world, the act of gaining ownership of a company to grow or redistribute its assets.
Affidavit: A written statement notarized by a notary public and made under oath.
Articles of Incorporation: A legal document businesses must file with the state that creates a corporation and outlines its bylaws, purposes and structure.
Breach of Contract: Failure to perform any term in a contract (written or verbal), without a legitimate, legal excuse.
Bylaws: A section of the articles of incorporation that outlines the rules, regulations and operations of a corporation.
DBA (Doing Business As): A legal abbreviation that refers to the name a business goes by, as opposed to its full legal name.
Damages: The amount of money a person or business claims in a lawsuit (or plans to claim should an agreement be breached).
Defendant: The person in court defending themselves from a lawsuit.
Deposition: Formal question-and-answer session performed under oath, where a witness truthfully answers questions posed by an attorney in the presence of a court reporter or stenographer that transcribes every word.
Employer Identification Number: An IRS-issued number that businesses must use to hire employees, open bank accounts and file tax returns every year.
Escrow: Money held in a third-party account on behalf of two parties in transaction that is then released to one or both parties once certain conditions have been met.
Fair Market Value: The approximate amount an item could be sold for on the open market between a willing buyer and a willing seller under normal circumstances.
Indemnification: Provides security or compensation against loss or damages in certain situations.
Joint Venture: A business enterprise between individuals and/or businesses that join and pool their resources for the express purpose of completing a specific goal. Joint Ventures are typically short-term commitments.
Letter of Intent (LOI): An agreement that outlines, in writing, a business or individual’s intent to execute an action.
Liability: A term used to assign responsibility for a particular outcome in a defined situation. In businesses, it commonly refers to the responsibility of a business for the safety and wellbeing of their employees and customers.
Lien: A charge or claim on another party’s property used to satisfy a debt or duty.
Limited Liability Company (LLC): A type of business that combines the pass-through tax benefits of partnerships with the liability protections afforded to corporations. Profits and losses of an LLC pass through to the individual members’ tax returns.
Partnership: A business enterprise between two or more people who agree to start a business and share profits. There are two main types of partnership: Limited and General.
- General Partnership: The only requirement for this type of partnership is to file the name of your business. The one main drawback to a general partnership is that both parties share personal liability for the whole business.
- Limited Partnership: Consists of both general and limited (or “silent”) partners. General partners hold management duties and have full liability, whereas limited partners have no managerial responsibility and are liable solely for their original investment.
Plaintiff: Sometimes also called a “claimant,” a person who brings a lawsuit against a defendant in court.
Pro Se: The act of representing yourself in court without an attorney.
Quid Pro Quo: A Latin term meaning to receive a favor or advantage in exchange for something given.
Shareholder: An owner of a corporation whose percent of ownership is represented by the number of stocks they have purchased.
Sole Proprietorship: A single-owner business that operates without an entity structure (i.e. corporation or LLC) and in which there is no legal distinction between the owner and the business.
Structured Settlements: A popular way to resolve personal physical injury claims or lawsuits; money that would normally be paid as a lump sum is invested so that steady payments can be made over a specified length of time.
Tort: An injury or wrong caused by negligence of another person.
Venture Capitalist: A speculative investor who can provide capital or support to startups and small companies that don’t have access to public funding.