Thinking about starting a business, buying, or selling one? We've put together a glossary of common business terms for you. Consider this your guide to the language of business.
40 Commonly Used Business Terms You Must Know!
Business Structure and Governance
Articles of Incorporation:
A document filed during the creation of the company. It includes the name of the company, the share-capital structure, and any restrictions on the transfer of shares. The articles of incorporation serve as the constituting document of the corporation.
Certificate of Incorporation:
A certificate issued when a corporation is first registered. It confirms its legal existence.
Holding Company:
An entity that owns all of the shares of another company. Sometimes referred to as a parent company.
Corporate Restructuring:
The process of reorganizing a company's ownership or structure, often to improve efficiency or address financial challenges.
Limited Partnership:
A company governed by the Civil Code of Quebec, and made up of one or more general partners and limited partners. The limited partners enjoy the benefit of limited liability, which simple partnerships do not provide.
Partnership Agreement:
A written agreement between partners governing their interactions, and how the partnership will operate. In the absence of a formal partnership agreement, the partnership is governed by the Civil Code of Quebec.
Resolutions:
Formal decisions made by the members of a company, either the shareholders, directors, or both. They can take the form of either an ordinary resolution or a special resolution (requiring 75% or more of the votes). Resolutions may be passed at a meeting or as a written resolution.
Contracts and Agreements
Assign:
Another word used instead of transfer.
Confidentiality Agreement:
A binding contract outlining terms for exchanging confidential information between parties. These agreements may be unilateral or bilateral depending on the nature of the transaction.
Disclosure:
An action where one party shares information with another party.
Non-Disclosure Agreement:
A binding agreement designed to protect intellectual property and business practices. Commonly used during the negotiation phase of selling a business, an amalgamation, or a joint venture.
Non-Compete Agreement:
A binding contract or clause within a contract that prohibits an individual from competing with the company or its business activities. Non-competes are often limited in territory, time, and activity.
Pre-emption:
Commonly used in shareholders’ agreements. Allows a shareholder to have priority to purchase shares before they are offered to a third party. In a general context, pre-emption allows a party to have priority to purchase something before it is offered to an external third party.
Share Purchase Agreement:
A legal document containing the terms of a sale and purchase of shares in a corporation.
Unanimous Shareholder’s Agreement:
A contract amongst and between all shareholders of a corporation, and the corporation itself, governing their interactions and decisions regarding the company.
Dispute Resolution
Alternative Dispute Resolution:
A form of attempt to resolve a dispute either before it is resolved by a court or to the exclusion of courts entirely.
Arbitration:
A form of alternative dispute resolution which produces a binding resolution upon the parties. Arbitration is often, but not necessarily, preceded by mediation.
Mediation:
A form of alternative dispute resolution where parties attempt to resolve a dispute with the involvement of a neutral third party. In most cases, a mediation decision is not binding.
Financial Matters
Dividend:
Payments made to shareholders out of the profits of the corporation. The frequency and percentage are determined by individual corporations via the articles.
Legal Procedures and Protections
Due Diligence:
Research undertaken during the initial stages of an asset or share purchase to provide details on the corporation’s operations and financial obligations.
Due Diligence Checklist:
A list of items and information investigated by a buyer during the due diligence process before a business transaction.
Force Majeure:
An event beyond a party's control preventing them from fulfilling their part of an obligation enshrined in the Civil Code of Quebec.
Good Faith:
A general principle of behaviour outlined in the Civil Code of Quebec. It requires every person to exercise their rights with the requirements of good faith, i.e. openly, honestly, and with only the intention to complete the transaction on the agreed-upon terms, not with an ulterior motive to intend to cause harm to the other.
Good Will:
A reference to the standing of a company with its customers and within the industry. It carries value and forms an important part of the business asset.
Indemnity:
A contractual term aimed at safeguarding against potential loss or obligation, whether financial or resulting from an action. Frequently, one party involved in a contract will provide indemnity to the other, shielding them from potential financial or reputational harm.
Shareholder Matters
Director:
An individual responsible for the overall management of the corporation’s business. Directors are elected by the shareholders and are accountable to them but are mandataries of the corporation and must act in its best interest.
Directors Duties:
Legal duties of a corporation’s director, enshrined in the corporation’s governing law and the Civil Code of Quebec.
Drag Along:
A clause inserted in a shareholders’ agreement that allows the majority shareholder to force the minority shareholder to join the sale of shares.
Majority Shareholder:
The owner of 50% or more of the shares in a corporation.
Minority Shareholder:
Any individual or entity holding less than 50% of the shares in a corporation.
Share Certificate:
A certificate granted upon the issuance of shares.
Shareholder:
An individual or entity owning shares in the corporation.
Stock Options:
The right to purchase shares at a predetermined price. Stock options are often granted to employees as part of a compensation package.
Subsidiary:
A company whose shares are owned solely by another company, rather than an individual or group of shareholders.
Tag Along:
A clause inserted in a shareholders’ agreement that allows the minority shareholder to join the majority shareholder in its sale of shares to a third party to join the sale of shares.
Warranties:
A contractual promise given by one party to another.
Transactions
Assets:
Tangible and intangible items in a business (e.g., employees, equipment, intellectual property, goodwill).
Asset Purchase Agreement:
A contract containing the terms of the purchase and sale of a business’s assets.
Letter of Intent (LOI):
A document outlining the key terms of a proposed deal between parties, expressing an intention to negotiate further.
Leveraged Buyout (LBO):
The acquisition of a company using a significant amount of borrowed funds, often secured by the assets of the acquired company.
This blog post is not legal advice and is for general informational purposes only. Always speak with a lawyer before acting on any of the information contained herein.
Comments