Archives for "S"


A business that is mostly or completely owned by another business (see “Umbrella Organization”).

Subchapter S-Election

(Also referred to as an S-Election) – The election by stockholders of a company or LLC members with one or more U.S. citizens or permanent residents that results in the passing-through of a corporation’s taxable income to the stockholders. Trusts, corporations, and non-U.S. citizens cannot be stockholders or LLC members without disqualifying the S-Election.

Statutory Trust

Formerly known as “Business Trusts”, statutory trusts are designed for financing purposes to hold a single significant asset, such as a cruise ship, aircraft, or office tower.

Statute of Frauds

Legal requirements that certain contracts be in writing, for example contracts for sale of real estate and sale of goods over $500. The Delaware LLC Act has waived these requirements for a Delaware LLC Operating Agreement.

Springing Member LLC

Required by lenders in special financing transactions, this is a Single Member LLC Operating Agreement which contains a second non-equity special member (an unrelated party) whose primary function is to “spring into action” should the single member go into bankruptcy, or other related triggers. The LLC Operating Agreement restricts the sole-equity member’s ability the LLC should the single member be unable to operate the entity. This is often required to be the form of entity, should the lender repackage or bundle the loan subject to certain restrictions to be sold as a marketable security. The primary purpose is to avoid the assets of the LLC from becoming part of its member’s bankruptcy estate. These LLCs are usually used in loans over $4 million. They also require attorney opinion letters from counsel where the property is located and in the state of incorporation. Lenders also require these be Delaware LLCs.

Sole Proprietorship

An individually-owned business that is not incorporated or is a one-member LLC. The owner (“sole proprietor”) is held 100% personally liable for all business debts and expenses unless they form an LLC.

Sole Proprietor

1. This literally means a “one owner” business. Usually, this refers to an unincorporated business. The operator/owner is held fully liable for all business debts and expenses of the company.
2. In the context of taxation, it can refer to a Single Member LLC taxed as a sole proprietorship, where the income and expenses go on the individual’s Schedule C of his or her Form 1040 tax return. Although, this often referred to as a “disregarded entity” that is only for tax purposes. For liability protection, a single member LLC is still regarded as an entity separate from its member.

Single Member LLC

An LLC with one owner. Also known as a member.

Single Purpose LLC

While most LLCs have general purposes that allow the LLC to engage in any purpose authorized by law, some LLCs used for special investor financing, including securitized transactions, have a very specific purpose, such as to just own and manage one defined property. Often lender requirements put other restrictions on the LLC, such as limitations on the ability of the member to amend the agreement without the lender’s consent.

Shelf Company

This is a company that is active in the eyes of the state, but does not actually carry out business. One purpose is to sell a company with a history to new businesses.

Stockholder Agreement

This is an agreement signed by stockholders to place restrictions on the transfer of shares. The purpose of this agreement is to retain rights and control of the company with the original stockholders so as to discourage unwanted third parties from obtaining voting-shares and to stipulate the terms and conditions for the valuation and purchase of shares among the stockholders. Also known as Shareholder Agreement.

Service of Process

Notifying a person that he or she has been served with a legal proceeding or order of the court in a civil or criminal matter. This process includes a summons, complaint, warrant, citation, or subpoena.

Series LLC

A unique LLC with unlimited asset segregation potential. Under one LLC, you can set up numerous “series” owning separate assets. According to the statute, 6 Del. C. Section 18-215, “the debts, liabilities, obligations, and expenses incurred, contracted for or otherwise existing with respect to a particular series shall be enforceable against the assets of such series only, and not against the assets of the company generally or any other series thereof”, as long as separate records are kept for each “series”. Delaware is one of a few states that currently have a Series LLC provision.

The Series LLC has been around since 1997 and has recently become popular as a way to create internal firewalls within one company to protect individual assets from creditors of other assets in the same LLC. This has been used as incubators for businesses and as asset holding vehicles for everything from residential real estate holdings to cargo containers. This entity is not for the novice since the record keeping requirements are much more rigorous than that of a traditional LLC.

Section 220

Section of Delaware General Corporation Law that allows members or shareholders to demand books and records from a business that they have an ownership interest in. There are various requirements for this, such as the request having proper purpose.

Section 179

Allows for the immediate deduction of 100% of the cost of certain defined assets (generally office equipment) and up to the dollar limit defined (as of publication: $105,000) in the Internal Revenue Code. This prevents assets from having to be written off by depreciation slowly during their projected useful life.


An officer position in a corporation. The secretary usually is responsible for record keeping, for example recording the minutes of the annual meeting and attesting to official corporate business.

Self-Directed IRA

An LLC can be established and funded with your qualified IRA savings through a Self-Directed IRA. This is unusual because traditionally all IRAs could only be invested in certain financial accounts with institutions. It is now possible to fund your LLC with your IRA. However, the LLC agreement must meet certain criteria. Additionally, there must be a qualified administrator named to make sure the funds are being used properly.


The election by members of a company with one or more U.S. citizens or permanent residents that results in the passing-through of a corporation’s taxable income or losses to the stockholders. The advantage of the S-Election for corporations is that profits distributed as S-Corporation dividends are treated as passive income not subject to employment taxes if reasonable compensation has been paid to stockholders performing services for the S-Corporation.


A corporation that has elected to be taxed under subchapter-S of the IRS Code (and therefore not taxed under subchapter-C) by filing a Form 2553 tax election within 75 days of incorporating or 75 days from the beginning of the calendar year. The election is limited to corporations or LLCs with one class of shareholders (or two classes where the only difference between the classes is Voting and non-Voting) with no more than 100 natural person stockholders (no entities or trusts, all of whom are U.S. citizens or green card holders). Every calendar year the corporation must file an 1120S return and therefore it is not required by law to pay income tax and thus passes its taxable income or losses through to its shareholders as reported on a Form K-1 each year. An LLC can also be taxed as an S-corporation by filing a 2553 election under what is called the “check-the-box” regulations.