LLC_Glossary

Administrative Dissolution

An involuntary dissolution of an LLC by an act of the Secretary of State or similar state authority, caused by the company's failure to comply with certain statutory requirements; especially the failure to file an annual report, to pay franchise taxes or maintain a valid Registered Agent.

Alter Ego

A doctrine of law which disregards the principle of limited liability enjoyed by a legal entity when it is proven that, in fact, no separate identity of the individual and company exists. The alter ego principle may also apply to relationships between entities and their subsidiaries.

Amended Certificate of Authority

A document issued by a state to a foreign LLC evidencing that the company has amended its original certificate of authority.

Amendment

An addition to, deletion from, or a change of existing provisions of the articles of organization of a domestic LLC.

Annual Report

A required annual filing in a state, usually listing members, managers and financial information.

Apostille

Official government authentication of a document, usually by the State Department, Justice Ministry or Foreign Ministry, which legalizes it for use in another country.

Application for Certificate of Authority

The form filed in many states to qualify an LLC to transact business as a foreign entity.

Articles of Organization

The title of the document filed in many states to register a limited liability company (LLC) with the state. Also known as articles of formation.

Assumed Name

A name other than the true name, under which a business organization conducts business. Also referred to as a fictitious name, a trade name or "doing business as" (d/b/a).

Certificate of Authority

Formal evidence of qualification issued by a state to a foreign LLC.

Certificate of Good Standing

A certificate issued by a state official as conclusive evidence that an LLC is in existence or authorized to transact business in the state. The certificate generally sets forth the company's name; that it is duly incorporated or authorized to transact business; that all fees, taxes and penalties owed the state have been paid; that its most recent annual report has been filed; and, that articles of dissolution have not been filed.

Commingle

Commingling, is the sharing and pooling of personal and company assets. For example, rather than maintaining separate business and personal bank accounts, you choose to use one account for personal and business purposes. This is considered commingling and an easy way to become personally liable for LLC acts.

Compliant

This term refers to a level of completion of a legal entity's responsibilities to maintain the formalities of LLC existence under the laws of the jurisdiction in which it is formed.

Consent Resolution

A consent resolution is any resolution signed by members or managers that authorizes a particular action. This act eliminates the need for face-to-face meetings of members and managers.

Contract Creditors

Contract creditors are people or businesses which you owe money or property to because of a written or verbal contractual agreement.

Corporate Seal

A corporate seal is a device made to either emboss or imprint certain company information onto documents. This information usually includes the company's name and date and state of formation. Corporate seals are often required when opening LLC bank accounts, distributing membership certificates or conducting other company business.

Dissolution

The statutory procedure that terminates the existence of a domestic LLC.

Double Taxation

When a company must pay taxes on its earnings and individual shareholders must also pay taxes on any dividends that are distributed. General, "C" corporations are doubly taxed in this manner, unlike Limited Liability Companies.

Duration

How long a business will be recognized as a legal entity. A company with a perpetual duration will last forever unless the state dissolves the company. A 30-year duration means that the company will automatically dissolve on its 30th anniversary of existence.

Employment Agreement

An employment agreement is a contract between your company and an employee. These agreements can be written or verbal; although all employment agreements should be in writing. Employers are more likely to have employment agreements with key employees. The terms and conditions of an employment agreement should be consistent with statutes, articles, operating agreements, and any existing shareholder agreements.

Fiduciary Relationship

A relationship in which one party (the fiduciary) must act in good faith and with due regard to the best interests of the other party or parties.

Foreign LLC

A term applied to an LLC doing business in a state other than its state of formation.

Franchise Tax

A tax or fee usually levied annually upon a limited liability company or similar business entity for the right to exist or do business in a particular state. Failure to pay the franchise tax or similar fees may result in the administration dissolution of the company and forfeiture of the charter.

Good Standing

An LLC is said to be in good standing when it has remained current with the necessary reports and fees required by the regulatory jurisdictions under which it operates.


Involuntary Dissolution

The termination of an LLC's legal existence pursuant to an administrative or judicial proceeding; dissolution forced upon an LLC rather than decided upon by the company.

Judicial Dissolution

Involuntary dissolution of an LLC by a court at the request of the state attorney general, an owner or a creditor.

Jurat

Specific notary language citing, under oath, that a signature has been witnessed.

Legalization of Certified Documents

Needed for companies (overseas) that are not part of the Hague Convention. Companies in a country that is not part of the Hague will not benefit from an Apostille. (1) To make legal or lawful; authorize or sanction by law.

Limited Liability Company (LLC)

An artificial entity created under and governed by the laws of the jurisdiction in which it was formed. Limited liability companies are generally able to provide the limited personal liability of corporations and the pass-through taxation of partnerships or S Corporations.

Limited Personal Liability

The protection generally afforded a member of a limited liability company from the debts of and claims against the company.

Managers

The individuals who are responsible for the maintenance, administration and management of the affairs of a limited liability company (LLC). In most states, the managers serve a particular term and report to and serve at the discretion of the members. Specific duties of the managers may be detailed in the articles of organization or the operating agreement of the LLC. In some states, the members of an LLC may also serve as the managers.

Members

The owner(s) of a limited liability company (LLC). Unless the articles of organization or operating agreement provide otherwise, management of an LLC is vested in the members in proportion to their ownership interest in the company.

Membership Certificates

Evidence of ownership of and membership in a limited liability company.

Merger

The statutory combination of two or more business entities in which one of the companies survives and the other companies cease to exist.

Minutes

The written record of transactions taken or authorized by the members or managers. These are usually kept in the minute book in diary fashion.

Name Registration

The filing of a document in a foreign state to protect the LLC name, often in anticipation of qualification in the state.

Name Reservation

A procedure that allows an LLC to obtain exclusive use of a business name for a specified period of time.

Notice of Service of Process

Official notification of an action or proceeding by the delivery of a legal or court document, with a request to answer in a specific period of time.

Operating Agreement

A contract among the members of a limited liability company governing the membership, management, operation and distribution of income of the company.


Partnership

A business organization in which two or more persons agree to do business together.

Pass-Through Taxation

Rather than tax the income of the entity, taxation is "passed through" to the individual shareholders in S Corporations (and LLCs). Income or losses are declared on their individual tax returns.

Perpetual Existence

Unlimited term of existence; characteristics of most business corporations.

Piercing the Corporate Veil

Piercing the corporate veil is a legal theory sometimes used to impose personal liability on members and managers for LLC acts. This theory permits a court to disregard the separate identity of the business.

Qualification

The filing of required documents by an LLC to secure a certificate of authority to conduct its business in a state other than the one in which it was formed.

Registered Agent

A person or entity designated to receive important tax and legal documents on behalf of the business. The Registered Agent must be located and available at a legal address within the specified jurisdiction at all times. Failure to maintain a Registered Agent in the jurisdiction in which an LLC is registered, may result in the forfeiture of good standing status. Also known as a Resident Agent.

Registered Office

The statutory address of an LLC. In states requiring the appointment of a Registered Agent, it is usually the address of the Registered Agent.

Reinstatement

Returning an LLC that has been administratively dissolved or had its certificate of authority revoked, to good standing on a state's records.

Resolution

A formal statement of any item of business that has been voted upon.

Restated Articles of Organization

A document that combines all currently operative provisions of an LLC's articles of organization and amendments thereto.

Sole Proprietorship

An unincorporated business with a sole owner in which the owner may be personally liable for business debts and claims against the business.

Tort

A tort is any act or failure to act (if there was a duty to act) which causes harm or damage. Examples of torts include assault, battery, fraud, misrepresentation, defamation, libel, slander, invasion of privacy, and negligence. If there is a claim against your LLC, other than a claim by the government, it will likely be based in contract or tort.

Trademark

A word or mark that distinctly indicates the ownership of a product or service, and that is legally reserved for the exclusive use of that owner.

Voluntary Dissolution

Action by members or managers to dissolve an LLC.

Winding Up

The discharging of an LLC's liabilities and the distributing of its remaining assets to its members in connection with its dissolution.

Withdrawal

The statutory procedure whereby a foreign LLC obtains the consent of a state to terminate its authority to transact business there.

What is restrictive & non-restrictive idorsement

A restrictive indorsement is an indorsement that contains some sort of instruction from the indorser.

A nonrestrictive indorsement is an indorsement that has no instructions or conditions attached to the payment of funds.

What is blank & special indorsement

A blank indorsement is an indorsement that does not specify a particular indorsee. It creates bearer paper.

A special indorsement is an indorsement that contains the signature of the indorser and specifies the person (indorsee) to whom the indorser intends the instrument to be payable. It creates order paper.

How order and bearer paper can be converted ?

Instruments can be converted from order paper to bearer paper, and vice versa, many times until the instrument is paid. The deciding factor is the type of indorsement placed on the instrument at the time of each subsequent transfer. An indorsement is the signature (and other directions) written by or on behalf of the holder somewhere on the instrument.

How order and bearer paper are negotiated ?

Order paper is negotiated by indorsement and delivery.
Bearer paper is negotiated by delivery; indorsement is not necessary.

Explain parties to check

Drawer to the check—the customer who has the checking account and writes (draws) the check
Drawee of the check—the financial institution where the drawer has his or her account
Payee of the check—the party to whom the check is written

What do you mean by orders to pay and promises to pay ?

• Orders to pay are drafts or checks.
• A draft is a three party instrument that is an unconditional written order by one party that orders the second party to pay money to a third party.
• A check is a draft that is drawn on a financial institution and is payable on demand. Promises to pay are promissory notes and certificates of deposit.
• A promissory note is a two party instrument that is an unconditional written promise by one party to pay money to another party.
• A certificate of deposit is a special type of note where the maker is the financial institution that issues the certificate and the payee is the party to whom the certificate is made payable.

Difference between a negotiable and a nonnegotiable instrument

Negotiable instruments must meet certain requirements established by Article 3 of the Uniform Commercial Code. An instrument that does not meet these requirements is not a negotiable instrument and is subject to contract law.According to the UCC 3-104(a), a negotiable instrument must:

Be in writing
Be signed by the maker or drawer
Be an unconditional promise or order to pay
State a fixed amount of money
Not require any undertaking in addition to the payment of money
Be payable on demand or at a definite time
Be payable to order or bearer

Terminology of Negotiable Insturment (Commercial Paper)

allonge—A separate piece of paper attached to the instrument on which the indorsement is written.
assignee—The party to whom the right has been transferred.
assignment—The transfer of contractual rights by the obligee to another party.
assignor—The party who transfers the right.
bearer paper—Bearer paper is negotiated by delivery: indorsement is not necessary.
blank indorsement—An indorsement that does not specify a particular indorsee. It creates bearer paper.
certificate of deposit (CD)—A two-party negotiable instrument that is a special form of note created when a depositor deposits money at a financial institution in exchange for the institution's promise to pay back the amount of the deposit plus and agreed-upon rate of interest upon the expiration of a set time period agreed upon by the parties.
check—An order by the drawer to the drawee bank to pay a specified sum of money from the drawer's checking accounting to the named payee (or holder).
collateral—Security against repayment of the note that lenders sometimes require; can be a car, a house, or other property.
demand instrument—An instrument payable on demand.
demand note—A note payable on demand.
draft—A three-party instrument that is an unconditional written order by one party that orders the second party to pay money to a third party.
drawee of a check—The financial institution where the drawer has his or her account.
drawee of a draft—The party who must pay the money stated in the draft. Also called the acceptor of a draft.
drawer of a check—The checking account holder and writer of the check.
drawer of a draft—The party who writes the order for a draft.
drawer's negligence—The drawer is liable if his or her negligence led to his or her forged signature or the alteration of a check. The payor bank is not liable in such circumstances.
fictitious payee rule—A rule that says a drawer or maker is liable on a forged or unauthorized indorsement of a fictitious payee.
fixed amount—A requirement of a negotiable instrument that ensures that the value of the instrument can be determined with certainty.
fixed amount of money—A negotiable instrument must contain a promise or order to pay a fixed amount of money.
forged indorsement—The forged signature of a payee or holder on a negotiable instrument.
holder—A person who is in possession of a negotiable instrument that is drawn, issued, or indorsed to him or his order, or to bearer, or in blank.
imposter—A person who impersonates a payee and induces a maker or drawer to issue an instrument in the payee's name and to give it to the imposter.
imposter rule—A rule that says if an imposter forges the indorsement of the named payee, the drawer or maker is liable on the instrument and bears the loss.
indorsee—The person to whom negotiable instrument is indorsed.
indorsement for deposit or collection—An indorsement that makes the indorsee the indorser's collecting agent (e.g. for deposit only)
indorsement—The signature (and other directions) written by or on behalf of the holder somewhere on the instrument.
indorser—The person who indorses a negotiable instrument.
instrument—Term that means negotiable instrument.
maker of a CD—The bank (borrower).
maker of a note—The party who makes the promise to pay (borrower).
money—A "medium of exchange authorized or adopted by a domestic or foreign government."
negotiable instrument—A special form of contract that satisfies the requirements established by Article 3 of the UCC. Also called commercial paper.
negotiation—Transfer of a negotiable instrument by a person other than the issuer to a person who thereby becomes a holder.
nonnegotiable contract—Fails to meet the requirements of a negotiable instrument and, therefore, is not subject to the provisions of UCC Article 3.
nonrestrictive indorsement—An indorsement that has no instructions or conditions attached to the payment of the funds.
order paper—Order paper is negotiated by (1) delivery and (2) indorsement.
order to pay—A drawer's unconditional order to a drawee to pay a payee.
payable on demand or at a definite time requirement—A negotiable instrument must be payable either on demand or at a definite time.
payee of a CD—The depositor (lender).
payee of a check—The party to whom the check is written.
payee of a draft—The party who receives the money from a draft.
payee of a note—The party to whom the promise to pay is made (lender).
permanency requirement—A requirement of negotiable instruments that says they must be in permanent state, such as written on ordinary paper.
portability requirement—A requirement of negotiable instruments that says they must be able to be easily transported between areas.
promise to pay—A maker's (borrower's) unconditional and affirmative undertaking to repay a debt to a payee (lender).
promissory note—A two-party negotiable instrument that is an unconditional written promise by one party to pay money to another party.
restrictive indorsement—An indorsement that contains some sort of instruction from the indorser.
sight draft—A draft payable on sight. Also called a demand draft.
signature requirement—A negotiable instrument must be signed by the drawer or maker. Any symbol executed or adopted by a party with a present intent to authenticate a writing qualifies as his or her signature.
special indorsement—An indorsement that contains the signature of the indorser and specifies the person (indorsee) to whom the indorser intends the instrument to be payable. Creates order paper.
time draft—A draft payable at a designated future date.
time instrument—An instrument payable (1) at a fixed date, (2) on or before a stated date, (3) at a fixed period after sight, or (4) at a time readily ascertainable when the promise or order is issued.
time note—A note payable at a specific time.
trade acceptance—A sight draft that arises when credit is extended (by a seller to a buyer) with the sale of goods. The seller is both the drawer and the payee, and the buyer is the drawee.
unconditional—Promises to pay and orders to pay must be unconditional in order for them to be negotiable.
unconditional promise or order to pay requirement—A negotiable instrument must contain either an unconditional promise to pay (note or CD) or an unconditional order to pay (draft or check).
unqualified indorsement—An indorsement whereby the indorser promises to pay the holder or any subsequent indorser the amount of the instrument if the maker, drawer, or acceptor defaults on it.
unqualified indorser—An indorser who signs an unqualified indorsement to an instrument.

Sarbanes Oxley Act- Sec 802

This section is listed within Title VIII of the act (Corporate and Criminal Fraud Accountability), and pertains to 'Criminal Penalties for Altering Documents'.

This section imposes penalties of fines and/or up to 20 years imprisonment for altering, destroying, mutilating, concealing, falsifying records, documents or tangible objects with the intent to obstruct, impede or influence a legal investigation. This section also imposes penalties of fines and/or imprisonment up to 10 years on any accountant who knowingly and wilfully violates the requirements of maintenance of all audit or review papers for a period of 5 years

Sarbanes Oxley Act - Sec 409

This section is listed within Title IV of the act (Enhanced Financial Disclosures), and pertains to 'Real Time Issuer Disclosures'.

Issuers are required to disclose to the public, on an urgent basis, information on material changes in their financial condition or operations. These disclosures are to be presented in terms that are easy to understand supported by trend and qualitative information of graphic presentations as appropriate.

Sarbanes- Oxley Act- Sec 404

This section is listed under Title IV of the act (Enhanced Financial Disclosures), and pertains to 'Management Assessment of Internal Controls'.

Issuers are required to publish information in their annual reports concerning the scope and adequacy of the internal control structure and procedures for financial reporting. This statement shall also assess the effectiveness of such internal controls and procedures. The registered accounting firm shall, in the same report, attest to and report on the assessment on the effectiveness of the internal control structure and procedures for financial reporting.

Sarbanes-Oxley Act -Sec 401

This section is of course listed under Title IV of the act (Enhanced Financial Disclosures), and pertains to 'Disclosures in Periodic Reports'.

Financial statements are published by issuers are required to be accurate and presented in a manner that does not contain incorrect statements or admit to state material information. These financial statements shall also include all material off-balance sheet liabilities, obligations or transactions. The Commission was required to study and report on the extent of off-balance transactions resulting transparent reporting. The Commission is also required to determine whether generally accepted accounting principals or other regulations result in open and meaningful reporting by issuers.

Sarbanes-Oxley Act 2002 -Sec 302

Periodic statutory financial reports are to include certifications that:
• The signing officers have reviewed the report

• The report does not contain any material untrue statements or material omission or be considered misleading

• The financial statements and related information fairly present the financial condition and the results in all material respects

• The signing officers are responsible for internal controls and have evaluated these internal controls within the previous ninety days and have reported on their findings

• A list of all deficiencies in the internal controls and information on any fraud that involves employees who are involved with internal activities

• Any significant changes in internal controls or related factors that could have a negative impact on the internal controls

Organizations may not attempt to avoid these requirements by reincorporating their activities or transferring their activities outside of the United States

Secured Transaction

any loan or credit in which property is pledged as security in the event payment is not made

Scienter

Latin for "having knowledge." In criminal law, it refers to knowledge by a defendant that his/her acts were illegal or his/her statements were lies and thus fraudulent.

CPA_MCQ_16

Rogers and Lennon entered into a written computer consulting agreement that required Lennon to provide certain weekly reports to Rogers. The agreement also stated that Lennon would provide the computer equipment necessary to perform the services, and that Rogers' computer would not be used. As the parties were executing the agreement, they orally agreed that Lennon could use Rogers' computer. After executing the agreement, Rogers and Lennon orally agreed that Lennon would report on a monthly, rather than weekly, basis. The parties now disagree on Lennon's right to use Rogers' computer and how often Lennon must report to Rogers. In the event of a lawsuit between the parties, the parol evidence rule will:

a. Not apply to any of the parties' agreements because the consulting agreement did not have to be in writing.

b.Not apply to any of the parties' agreements because the consulting agreement did not have to be in writing

c.Not prevent the admission into evidence of testimony regarding Lennon's right to report on a monthly basis.

d.Not apply to the parties' agreement to allow Lennon to use Rogers' computer because it was contemporaneous with the written agreement.

Correct Ans. = C

CPA_MCQ_15

On June 1,2003 a CPA obtained a $100,000 personal loan from a bank client for whom CPA proved compilation services. the loan was fully secured & considered material to the CPA's net worth.He repaid the loan fully on Dec 31,2004.On april3,204, the client asked the CPA to audit the client's fin stt.for the yr ended Dec 31,2004.Is the CPA considered independent wrt the audit as of Dec 31,2004 fin stt.

a. Yes, bcoz loan is fully secured

b. Yes, bcoz the CPA was not reqd to be independent at the time loan was granted

c. No, bcoz the CPA had a loan wid the client during the period of professional engagement

d. No, bcoz the CPA had a loan wid the client during the period covered by the fin stst.

Ans. b is correct.but the expln says Independence is not reqd for compilation services

CPA_MCQ_14

Which of the following penalties is usually imposed against an accountant who, in the course of performing professional services, breaches contract duties owed to a client?

a. Specific performance.
b. Punitive damages.
c. Money damages.
d. Rescission.

Correct Ans - c

CPA_MCQ_13

A CPA firm must do which of the following before it can participate in the preparation of an audit report of a company registered with the Securities and Exchange Commission (SEC)?

a. Join the SEC Practice Section of the AICPA.
b. Register with the Public Company Accounting Oversight Board.
c. Register with the Financial Accounting Standards Board (FASB).
d. Register with the SEC pursuant to the Securities Exchange Act of 1934.

Correct Ans - b