Breaking Down All That Legal Jargon
This glossary contains plain language definitions of the legal terms most frequently encountered by entrepreneurs. Our goal here is to give you the basics for making sense of whatever it is you're looking at, but remember context is everything and words may have different meanings depending on how they're used.
Abatement: The complete or partial removal of an amount due. Most frequently used with regard to tax penalty abatements.
Acceptance: When a party agrees to be bound by the terms of the contract.
Account Payable: Amount owed to a seller (creditor) for delivered goods or completed services.
Account Receivable: Claim against a buyer (debtor) for an uncollected amount, generally from a completed transaction of sales or services rendered.
Accrual Method: A method of accounting that reports revenue when earned as opposed to when received.
Actual Notice: When a party has actual knowledge of particular facts or circumstances.
Adaptation: Modifying existing material to suit a new purpose (e.g. a screenplay based on a novel).
Adjusted Gross Income: Gross income reduced by business and other specified expenses of individual taxpayers. The amount of adjusted gross income affects the extent to which medical expenses, non-business casualty and theft losses and charitable contributions may be deductible. It is also an important figure in the basis of many other individual planning issues as well as a key line item on the IRS form 1040 and required state forms.
Adjusting Journal Entry: An accounting entry made into a subsidiary ledger called the General journal to account for a periods changes, omissions or other financial data required to be reported "in the books" but not usually posted to the journals used for typical period transactions (the cash receipts journal, cash disbursements journal, the payroll journal, sales journal and so on) the entry is posted to the general ledger accounts directly and usually will be numbered itself, dated and have an explanation.
Advertising: The process of making the public aware of a product or service.
Affiliates: Individual that is compensated for promoting the products of another. Compensation is typically based on impressions, clicks, or conversions.
Agent: A person with authority to act on behalf of another.
All Rights Reserved: An author's reservation of all intellectual property rights to a work.
Amortization: Gradual and periodic reduction of any amount.
Annual Report: Report to the stockholders of a company.
Articles of Incorporation: Documents filed to establish a corporation.
Articles of Organization: Documents filed to establish an LLC.
Artistic Works: Generally any work created with some element of aristry (e.g. paintings or photographs).
Asset: Property owned by a person or company, regarded as having value and available to meet debts, commitments, or legacies.
Asset Turnover: A way of measuring how profitably and efficiently assets are being used to produce sales. This is determined by dividing net sales by average total assets.
Assignee: A person to whom rights or liabilities are transferred by an assignor.
Assignment: The transfer of rights or liabilities by an assignor to an assignee.
Assignor: A person who transfers rights or liabilities to an assignee.
Assumed Name: See Trade Name.
Attribution: Providing credit to the author or source of material.
Audit: An official review or examination, typically of a business' financial records.
Author: Creator of an artistic work, commonly used to reference the creator of literary works.
Bad Debt: All or portion of an account, loan, or note receivable considered to be uncollectible.
Balance Sheet: A statement of the business' assets, capital, and liabilities at a particular point in time.
Bank Reconciliation: A process by which an accountant determines whether and why there is a difference between the balance shown on the bank statement and the balance of the cash account in the firm’s general ledger.
Barter: An exchange of goods or services.
Baseless Threats: Threats made without a legal or factual foundation.
Berne Convention: Adopted in 1886, protects the rights of authors and creators by allowing them to control who can use their work and how their work can be used. The U.S. became a party to the Convention in 1989.
Bookkeeping: The process of recording financial transactions and keeping financial records.
Bottom Line: The line in a financial statement that shows net income or loss.
Broadcast Rights: The right to broadcast material on television, radio, or other forms of broadcast media.
Business License: Permits issued by government agencies that allow individuals or companies to conduct business within the government's geographical jurisdiction.
Business Name Registration: The process of registering a trade name (DBA) with state or local government.
Buyout: Purchase of at least a controlling percentage of a company’s stock to take over its assets and operations.
C Corporation: A C corporation, under United States federal income tax law, refers to any corporation that is taxed separately from its owners. A C corporation is distinguished from an S corporation, which generally is not taxed separately.
Capital: Any financial resources or assets owned by a business that are useful in furthering development and generating income.
Capital Expense: An amount spent to acquire or improve a long-term asset such as equipment or buildings.
Capital gain: A profit from the sale of property or of an investment.
Cash equivilants: Are investments securities that are for short-term investing, and they have high credit quality and are highly liquid.
Cash Method: A method of accounting that reports revenue when paid as opposed to when earned.
Cease and Desist Letter/Email: A letter/email in which one party, based on an assertion of legal rights, requests or demands that the party receiving the letter/email take certain actions or cease engaging in particular activities.
Character Merchandising: One of the most modern means of increasing the appeal of products or services to potential customers who have an affinity with that character or personality.
Closing Entry: A journal entry made at the end of an accounting period in order to prepare for the next accounting period by clearing the balances of temporary accounts and summarizing the period’s revenues and expenses.
Collage: A compilation of visual materials from various sources.
Collateral: Assets of value used to secure a debt.
Commissioned Work: Any artistic work created at the request of or on behalf of another party, typically in exchange for monetary compensation.
Common Law: The system of law which is based on judges' decisions and on custom rather than on written laws.
Compilation: A single work that brings together multiple works from the same or different authors.
Confidential Information: Information shared that is kept secret between a party and the lawyer or doctor. The information is not recorded. AKA priviledged information. Refer to proprietary information.
Confidentiality Agreement: A confidentiality agreement, which is also known as non-disclosure agreement or simply as an NDA, is simply a contract between two or more parties where the subject of the agreement is a promise that information conveyed will be maintained in secrecy.
Consideration: The term used when something is legally sufficient and makes a contract.
Consignment: The delivery of goods to a carrier to be shipped to a designated person for sale. A Bailment of goods for sale.
Constructive Notice: A fiction that a person got notice even though actual notice was not personally delivered to him/her.
Contract: A legal agreement between two or more parties, usually in writing, that includes details of the agreement.
Copyright: A bundle of intangible rights granted by statute to the author or originator of certain literary or artistic productions, whereby, for a limited period, the exclusive privilege is given to that person (or to any party to whom he or she transfers ownership) to make copies of the same for publication and sale.
Copyright Clearance: Before licensing your OER (Open Educational Resources), you will need to obtain copyright clearance for any copyrighted materials you intend on using. Some potential resources may be under copyright.
Copyright Infringment: Copyright infringement involves any violation of the exclusive rights of the copyright owner. It may be unintentional or intentional.
Copyright Notice: In United States copyright law, a copyright notice is a notice of statutorily prescribed form that informs users of the underlying claim to copyright ownership in a published work.
Copyright Registration: The purpose of copyright registration is to place on record a verifiable account of the date and content of the work in question, so that in the event of a legal claim, or case of infringement or plagiarism, the copyright owner can produce a copy of the work from an official government source.
Copywriter: This is separate from copyright law and is someone who rights textual copy for a business.
Corporate Tax: Tax assessed at the corporate level on any corporate profits.
Corporation: A distinct legal entity that is organized under state law and is typically owned by shareholders.
Cost of Goods Sold (COGS): The total cost of all materials used from inventory that go into producing a product.
Creative Commons: Creative Commons (CC) is an American non-profit organization devoted to expanding the range of creative works available for others to build upon legally and to share.
Creditor: Party that loans money or assets to another party.
Current Asset: Asset that one can reasonably expect to convert into cash, sell, or consume in operations within a single operating cycle, or within a year if more than one cycle is completed each year.
Damages: Monetary compensation that is awarded by a court in a civil action to an individual who has been injured through the wrongful conduct of another party.
Deduction: A deduction is a reduction in taxable income, which thereby lowers the amount of taxes owed.
Defamation: The act of communicating false statements about a person that injure the reputation of that person .
Demand Letter: A demand letter, or letter of demand (of payment), is letter stating a legal claim (usually drafted by a lawyer) which makes a demand for restitution or performance of some obligation, owing to the recipients' alleged breach of contract, or for a legal wrong.
Depreciation: The decline in value of a particular work or object.
Derivative Work: A derivative work is a work based on or derived from one or more already existing works.
Designs: Design, in the view of the patent law, is that characteristic of a physical substance which, by means of lines, images, configuration, and the like, taken as a whole, makes an impression. through the eye, upon the mind of the observer.
Disbursements: The act of paying out money especially from a fund .
Disclaimer: A statement denying responsibility intended to prevent civil liability arising for particular acts or omissions .
Distinctiveness: Trademark distinctiveness is an important concept in the law governing trademarks and service marks. A trademark may be eligible for registration, or registrable, if it performs the essential trademark function, and has distinctive character.
Doing Business As (DBA) Name: See Trade Name .
Domain Name: URL that is used to identify your website (i.e. www.example.com) .
Domain Name Registration: The process of licensing a domain name from a domain name registrar .
Double Taxation: When business income is taxed twice--once at the corporate level, then again at the individual level .
Dramatic Works: Dramatic works include plays, screenplays, scripts, choreographic notation, choreographic shows and scenarios for a film (but not the film itself).
Due Diligence: Refers to the level of judgement, care, prudence, determination, and activity that a person would reasonably be expected to do under particular circumstances.
Earned Income: Wages, salaries, professional fees, and other amounts received as compensation for services rendered.
Economic Rights: Economic, social and cultural rights are socio-economic human rights, such as the right to education, right to housing, right to adequate standard of living, right to health and the right to science and culture.
Employee: A person who performs work for a specific business for wages or compensation.
Ending Inventory: Merchandise on hand at the end of an accounting period .
Entire Agreement Clause: A clause in a written contract which declares that contract to be the complete and final agreement between the parties.
Entrepreneur: Person who takes on the risks of starting a new business.
Equity: The amount of capital contributed by the owners or the difference between a company's total assets and its total liabilities.
Estate: All the money and property owned by a particular person, especially at death.
Exclusive License: License limited to a specific scope or field, such as context, market, territory, or time .
Expenses: The money spent or cost incurred in an entity's efforts to generate revenue.
Fair Use: The doctrine that brief excerpts of copyright material may, under certain circumstances, be quoted verbatim for purposes such as criticism, news reporting, teaching, and research, without the need for permission from or payment to the copyright holder.
False Attribution: Appealing to an irrelevant, unqualified, unidentified, biased, or fabricated source in support of an argument (modern usage).
Fictitious Name: See Trade Name
Fixed Costs: Costs that remain constant within a defined range of activity, volume, or time period.
Form W-4: A form that specifies the number of exemptions claimed by each employee and that gives the employer the authority to withhold money for an employee’s federal income taxes and Federal Insurance Contributions Act (FICA) taxes.
Franchise: Legal arrangement whereby the owner of a trade name, franchisor, contracts with a party that wants to use the name on a non-exclusive basis to sell goods or services, franchisee. Frequently, the franchise agreement grants strict supervisory powers to the franchisor over the franchisee which, nevertheless, is an independent business.
Fraud: Willful misrepresentation by one person of a fact inflicting damage on another person.
Generic Use: A generic trademark, also known as a genericized trademark or proprietary eponym, is a trademark or brand name that, due to its popularity or significance, has become the generic name for, or synonymous with, a general class of product or service, usually against the intentions of the trademark's holder.
Ghost Writer: A person whose job it is to write material for someone else who is the named author.
Goodwill: The established reputation of a business regarded as a quantifiable asset, e.g., as represented by the excess of the price paid at a takeover for a company over its fair market value.
Governing Law Clause: A “Governing Law” clause is a clause used in legal agreements where you can declare which rules and laws will govern the agreement if legal issues arise.
Graffiti: Any inscriptions, words, figures or designs that are marked, etched, scratched, drawn, painted, pasted or otherwise affixed to the surface of property.
Groundless Threats: "If you have infringed an IP right, or intend to do something which will infringe an IP right, then the rights holder can threaten to sue you for infringement. But, a threat to sue for IP infringement is unjustified if: no relevant IP right exists, the IP right has expired or is invalid, or no infringement has taken place because what you are doing is sufficiently different from what is protected by the IP right"
Implied License: An implied license is an unwritten license which permits a party (the licensee) to do something that would normally require the express permission of another party (the licensor).
Income: Any money received in the course of business .
Income Tax: Tax levied by a government directly on income, especially an annual tax on personal income.
Indemnity: To compensate for loss or damage; to provide security for financial reimbursement to an individual in case of a specified loss incurred by the person.
Independent Contractor: An independent contractor is a natural person, business, or corporation that provides goods or services to another entity under terms specified in a contract or within a verbal agreement.
Independent Creation: Independent creation occurs when two people independently create the same or substantially similar work. Independent creation is a valid defense to a claim of copyright infringement.
Infringment: The action of breaking the terms of a law, agreement, etc.; violation.
Injunction: A legal action that either prevents a party from doing something, or orders them to do something.
Insolvency: Inability to pay debts when due .
Intangible Asset: Intangible assets are the long-term resources of an entity, but have no physical existence. They derive their value from intellectual or legal rights, and from the value they add to the other assets.
Inventory: Inventory is the raw materials, work-in-process products and finished goods that are considered to be the portion of a business's assets that are ready or will be ready for sale.
Itemized Invoice: An itemized invoice is a piece of paper which you are given before you pay for goods or services, listing the cost of each item purchased rather than just the total cost.
Joint Venture: A commercial enterprise undertaken jointly by two or more parties that otherwise retain their distinct identities.
Joint Works: A joint work is a work prepared by two or more individuals, with the intention that their separate contributions be merged into a single work .
Jurisdiction: The authority of a court or other body to hear and decide a case or dispute.
Liability: Legally binding obligations that are payable to another person or entity.
Libel: A published false statement that is damaging to a person's reputation; a written defamation.
License: The permission granted by competent authority to exercise a certain privilege that, without such authorization, would constitute an illegal act.
Limited Liability Company (LLC): An entity created at the state level that provides pass-through tax treatment and liability protection for the owners .
Literary Works: Literary work is a non-audiovisual work which is expressed verbally, numerically, or in other symbols, such as words or musical notation. Literary work is embodied in some type of physical object. Literary works are included in one of the eight general categories that are eligible for copyright protection.
Litigation: A lawsuit or the process of carrying one out.
Lyrics: Words written to accompany a piece of music, or added to a piece of music after being written.
Madrid Protocol: The Madrid System for the International Registration of Marks is governed by the Madrid Agreement, concluded in 1891, and the Protocol relating to that Agreement, concluded in 1989. The system makes it possible to protect a mark in a large number of countries by obtaining an international registration that has effect in each of the designated Contracting Parties.
Married Filing Jointly (MFJ): When a married couple files a joint income tax returns .
Married Filing Separately (MFS): When a married couple files separate income tax returns
Merger Clause: Typically the merger clause will state that the contract that it is part of captures the “entire agreement” between the parties.
Misleading or Deceptive Conduct:
Misrepresentation: The action or offense of giving a false or misleading account of the nature of something.
Model Release: A model release, known in similar contexts as a liability waiver, is a legal release typically signed by the subject of a photograph granting permission to publish the photograph in one form or another.
Moral Rights: Moral rights are personal rights that connect the creator of a work to their work.
Multi-Level Marketing (MLM): A marketing structure whereby individuals are compensated for thier own work, as well as the work of those that they recruited. Typically seen in sales.
Musical Works: A musical work consists of the musical notes and lyrics (if any) in a musical composition.
Network Marketing: Direct selling method in which independent-agents serve as distributors of goods and services, and are encouraged to build and manage their own sales force by recruiting and training other independent agents.
Newness: In order for an inventor to receive a patent on an invention, he or she must be the first person to have come up with the idea. This is known as the “first-to-invent” rule, and it is the foundation of the novelty requirement, the meaning of what it means for an invention to be “new.”
Noncompete Clause: In contract law, a non-compete clause (often NCC), or covenant not to compete (CNC), is a clause under which one party (usually an employee) agrees not to enter into or start a similar profession or trade in competition against another party (usually the employer).
Nondisclosure Agreement: An agreement between two or more parties not to disclose confidential or sensitive information learned in the course of doing business.
Nonsolicitation Agreement: A nonsolicitation agreement is a contract in which an employee agrees not to solicit a company's clients or customers, for his or her own benefit or for the benefit of a competitor, after leaving the company.
Offer: A explicit proposal to contract which, if accepted, completes the contract and binds both the person that made the offer and the person accepting the offer to the terms of the contract.
Owner's Draw: Money taken from a company' s revenue by the owner for his/her own personal use.
Partnership: A business or firm owned and run by two or more partners .
Patent: The exclusive right granted by a government to an inventor to manufacture, use, or sell an invention for a certain number of years.
Profit & Loss Report: Also called the income and expense report.
Resident Agent: Is a business or individual designated to receive service of process (SOP) when a business entity is a party in a legal action such as a lawsuit or summons.
S-Corporation: A tax election made by an LLC or C Corporation pursuant to Subchapter S of the internal revenue code .
Sales Tax: A tax charged by states (and in some circumstances counties and localities) on the sale of taxable goods within the jurisdiction .
Schedule C: A form to report business income and losses that is attached to an individual taxpayer's Form 1040 .
Schedule K-1: Similar to a partnership, S corporations must file an annual tax return on Form 1120S. The S corporation provides Schedule K-1s that reports each shareholder's share of income, losses, deductions, and credits. The shareholders use the information on the K-1 to report the same thing on their separate tax returns.
Severability Clause: Refers to a provision in a contract which states that if parts of the contract are held to be illegal or otherwise unenforceable, the remainder of the contract should still apply.
Shareholder: Any person, company, or institution that owns at least one share of a company's stock.
Single Member LLC (SMLLC): An LLC that is owned by a single owner.
Sole Proprietorship (SP): A sole proprietorship is an unincorporated business owned by one individual .
Subcontractor: A person who or business that contracts to provide some service or material necessary for the performance of another's contract.
Tax Credit: An amount of money that can be offset against a tax liability .
Trade Name: Any name different from a person's legal name that they use to conduct business .
Trademark: A trademark is any word, name, symbol, or design, or any combination thereof, used in commerce to identify and distinguish the goods of one manufacturer or seller from those of another and to indicate the source of the goods.
Trademark Infringement: Trademark infringement is the unauthorized use of a trademark or service mark (or a substantially similar mark) on competing or related goods and services.
Trademark Registration: A trademark registration will confer an exclusive right to the use of the registered trademark.
Use Tax: Use tax is a sales tax on purchases made outside one's state of residence for taxable items that will be used, stored or consumed in one's state of residence and on which no tax was collected in the state of purchase.
W9: Form W-9 (officially, the "Request for Taxpayer Identification Number and Certification") is used in the United States income tax system by a third party who must file an information return with the Internal Revenue Service (IRS). It requests the name, address, and taxpayer identification information of a taxpayer (in the form of a Social Security Number or Employer Identification Number).
Wholesale: The selling of goods in large quantities to be retailed by others.
Work for Hire: “Work made for hire” is a doctrine created by U.S. Copyright Law. Generally, the person who creates a work is considered its “author” and the automatic owner of copyright in that work. However, under the work made for hire doctrine, your employer or the company that has commissioned your work, not you, is considered the author and automatic copyright owner of your work.
Zoning: Zoning refers to municipal or local government laws that dictate how real property can and cannot be used in certain areas.