Business Terms & Definitions

This list was compiled to help new business owners and entrepreneurs with information on starting a business. It is by no means a complete list, but meant to be used as a resource.

 Accrual-Based Accounting

A method of accounting that records/recognizes income as its earned and expenses as incurred, regardless of whether or not cash was exchanged. 


Allocation of profit and or loss of a business to its member’s Owner’s Equity Account. 

Annual Franchise Tax

Annual fee paid to the state to keep your LLC in good standing.

Articles of Incorporation

Documents filed with the state to formally create a Corporation.  In some states, the articles are called a “Certificate of Organization.”  

Articles of Organization

Document filed with the Secretary of State to formally create a LLC.   


Estimated sales and costs of running a business during a specified period of time. 

Business License

A permit issued by city, state or county authorizing a business to operate.

Calendar Year

A 12-month period designated by a business as its accounting period, beginning January 1 and ending December 31.

Capital Contributions

Money or property contributed to LLC by an owner/member or contributed to a corporation by a shareholder.

Cash-Based Accounting

A method of accounting for transactions. Revenue is recognized and expenses are incurred only when cash changes hands, thus cash is received or cash is paid. 


A written document itemizing out approved company related events, such as the appointment of Officers, ending the company, adding or removing Members, etc.  Can be called a Board Consent in Corporations.


Stands for “Doing Business As” Statement or “Fictitious Business Name” Statement.  If you use a Trade Name for your business, you may require a DBA or FBN to be filed in your county or state.  Also can be called an Assumed Name.

Disregarded Entity

LLCs treated as a Disregarded Entity – designates that the LLC is a Single-Member (owner) LLC and all income and expenses of the LLC will be reported on the member’s tax return as a sole proprietorship, i.e. Schedule C business.  


Money PAID out to members of LLC.

Domestic LLC

LLC operating in the state that it was initially organized.

EIN (Employer Identification Number)

A unique tax Identification number issued by the IRS to identify a business for tax purposes.

Excise Taxes

A sales tax paid by a consumer as an additional cost of a taxable product, collected by a merchant during the sale of that product.  In return, the merchant pays the government said collected tax.

Fictitious Name

A name used by a business that is not its personal or legal name. 

Fiscal Year

A 12-month period designated by a business as its accounting period.  Typically, businesses use a calendar year of January 1 – December 31.

Foreign LLC

LLC operating in a state which is different than the state it was organized.  If you have employees or operations in multiple states other than your state of residence or where the LLC was organized, your LLC will be registered as a Foreign LLC in those states.


An individual providing services on a project basis for a specified fee. Also called Independent Contractor.

Independent Contractor

An individual providing services on a project basis for a specified fee.  They provide their own equipment and set their own hours, performing work agreed upon.  They should not be confused with an employee.

Limited Liability Company (“LLC”)

A state registered business that offers pass-through tax benefits while offering protection of personal liability from business debits.  It can be used to run a business or to hold assets.  It is critical that a separation of personal and business is maintained, funds are not comingled and filings and payments are made on time to be in good standing.  It is formed by filing formation documents with a State and paying the registration/filing fee.


Owners of LLC.  Can be one or multiple.

Member-Managed LLC

When the member(s) of the LLC equally manage the operations


Non-owners of the LLC that are managing the daily operations of the business.

Manager- Managed LLC

When an LLC is managed by one member and other members do not participate but share in profits OR a non- member manages the LLC.

Operating Agreement

An internal document defining your LLCs operating terms, member ownership percentage, management policies and procedures.  It helps protect your legal rights and responsibilities.


Paying another individual or company to provide services for your company.

Owner Capital / Equity

Balance Sheet Account that tracks the equity of its members.  Each member should have its own account.  (owner contributions + allocations of profits and losses – distributions)

Pass-Through Entity

When a company does not pay taxes directly to the IRS but passes income through to its members to be filed as income on their individual tax returns.

Payroll Taxes

Taxes paid to the IRS on wages paid to employees.  These can include various types of taxes and are sometimes paid by the employee, employer or split amongst the two.  As an employer, the payment to the IRS is made by the employer on a quarterly basis.

Publication of Notice

A formal public notice displayed for a specified period of time. This can provide legal notice that you are using a business name, typically required for DBA/FBN and sometimes required in states registering LLCs.

Quarterly Tax Payments

Certain businesses (Sole Proprietorships and LLCs included) are required to make quarterly tax payments based on estimates to the IRS. 

Registered Agent

Person or company you designate to accept, receive and remit filings and legal correspondence on behalf of your LLC or Corporation.  Each state has an approved listing of Registered Agents.

Reseller’s Permit / Sales Tax Id

Required by some states before your business sells taxable goods.  As a seller of taxable goods, you are required to collect and pay sales tax on taxable goods sold.

Social Security Taxes

Tax collected from both employees and employers to fund the Social Security program.  For small businesses treated as pass-through entities, the small business owners or LLC members are required to pay 100% of this self-employment tax.  However as an employee, a company typically splits this cost with an employee 50/50 by withholding payroll tax and then paying the total amount directly to the IRS.

Sole Proprietorship

A person who owns and operates an unincorporated business by himself or herself.  The business is seen in every sense as the person and vice versa. 

Statement of Good Standing

A formal statement issued by the Secretary of State stating that your business is in good standing as of a specified date (i.e. has paid its taxes and made filings on time).  Can be required of LLCs and Corporations during business dealings.

Statement of Information

An annual or biennial filing of information required for LLCs and Corporations with the Secretary of State that updates Member and Contact Information.  A small fee determined by the state is associated with this filing.

Statement of Purpose

The purpose of your LLC.  Some states allow general purpose statements like the following: “The purpose of the Limited Liability Company is to engage in any lawful activity for which a Limited Liability Company may be organized in this state.”

Trade Name

A Trade Name is used by companies to perform their business under a name that differs from the registered, legal name of the person or business. Some states also call this an assumed name.