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Punitive Damages (Exemplary damages)

An amount of money that is awarded to a victim, with the intention of not just compensating the victim but also punishing the wrongdoer.

Public Benefit Corporation (see also Benefits Corporation)

Recently added to Delaware law, this is a corporation that has a purpose that benefits the public. It is subject to slightly different requirements than a for-profit corporation and is different from a non-profit, such as a 501(c)(3).

Promissory Note

A binding document that details an “I Owe You” between a creditor and a debtor. Examples of items listed on a promissory note include, but are not limited to: terms and conditions of the loan, when the loan will be repaid and how the loan will be repaid.

Professional LLC

This is an LLC that is an individual or group of individuals that are in a profession that requires a license, such as lawyers or doctors.

Professional Association

This is a corporation that is an individual or group of individuals who practice a license-required profession, such as lawyers or doctors.

Principal Office

This is the headquarters of a business, usually as determined by the total activities of the company. –These activities include both the muscle center (operations center) and nerve center (executive office). Some states will ask for this on formation documents, although it is not required to be in the certificate of formation for most states.

President

A president is one of the officers of a corporation, who is generally responsible for the day-to-day operations of the company and signs the contracts.

Preferred Stock

Preferred stock is a different category of stock than common stock, which can also have different value and voting rights. This is designed to maintain control of the corporation’s founders or original members.

Preemptive Rights

The right, but not obligation, of shareholders to have the first opportunity to buy new issues of stock or pre-empt the sale of stock to a third party. This allows owners to increase ownership and keep unwanted individuals from becoming stockholders.

Personal Service Corporation Tax Status

The tax status of a C-Corporation or Taxable LLC which provides consulting or personal services. A company with this tax status must pay the top Corporation tax rate on its taxable income. (Tax Loophole: The graduated corporate tax rate starting at 15% can be used if at least 6% of the stock in the Corporation or units in the taxable-LLC are given to a person not employed by the Corporation or Taxable-LLC.)

Patent

A form intellectual property protection that is registered with the USPTO. This protects useful inventions or processes, including business methods and methods of production.

Passive Income

Income from the activities of businesses that the taxpayer does not physically participate in (passive investment assets), as well as income from all rental activities. Too much passive income may disqualify a Corporation from filing a Subchapter S Election.

Pass Through Tax Entity

A Sole Proprietorship, Partnership, LLC (that has not made an election on Form 8832 to be taxed as a Corporation), or an S-Corporation in which corporate profits pass-through on the form K-1 to the owners on their personal income returns without a separate corporate tax. The entity avoids the double taxation of a C-Corporation in which the entity pays income tax on its profits and the owners also pay taxes on the dividends.

Partnership

Filed with a Certificate of Partnership or as a de facto partnership where no certificate is filed, it is a legal entity in which two or more persons agree to conduct business together. Each partner is personally liable for the acts of the partnership.

Partner

A person who is a member of a Partnership.

Par Value

Par value is the minimum amount a corporation’s stock can be sold for upon initial issuance. On the Certificate of Incorporation, the owners are required to list the par value of the authorized stock. Note: this does not correlate to the market value of the shares. Typically people want to keep the par value as low as possible for two reasons. Setting a par value above zero sets the “minimum capital” that must be maintained by the company at all times. Should the company issue dividends that take the value of the company below this, then the directors are personally responsible for allowing that dividend to be issued. Secondly, the par is the minimum amount the stock may be sold for, meaning even the founders have to actually pay into the company at least the amount listed on the stock. However if you need more than 1500 shares in Delaware you will want to keep your par value very low to keep the initial filing fees low. For example if you have one million shares of stock authorized in Delaware at zero par, the filing fee will be about $25,000. Alternatively if you attach a low par value to the shares, such as $0.0001, then the filing fee is only $89. You can always amend the par value and the authorized shares later if needed. For most corporations it is wise to “go private before you go public” to save on initial filing fees and annual maintenance fees associated with a large amount of authorized stock.