Glossary
Every term, in plain English
148 definitions covering entities, tax, banking, payments, compliance, people, finance and fundraising — each with what it means, why it matters to a founder, and the misunderstanding worth avoiding.
Entities
- Administrative dissolutionThe state closes your company because you stopped filing.
- Articles of organizationThe form that brings the company into existence.
- C-CorporationThe company type investors expect. It pays its own tax, and you pay again when money reaches you.
- Certificate of good standingThe state's written confirmation that your company is real and up to date.
- DBAA nickname for your company. Useful for branding, useless for protection.
- Disregarded entityThe company is real for liability but invisible for income tax — the profit is treated as yours.
- Foreign qualificationRegistering your company in a second state because you actually operate there.
- Holding companyA company that owns other companies instead of selling anything.
- Limited liabilityIf the company owes money, they take the company's assets — not your house.
- LLCA company that shields your personal money from business debts, without the paperwork a corporation requires.
- Multi-member LLCAn LLC with more than one owner. Taxed like a partnership unless you elect otherwise.
- Operating agreementThe rulebook for who owns and runs the company. Nobody files it; everyone asks for it.
- PartnershipA business with more than one owner, taxed by passing results to the owners.
- Piercing the corporate veilWhen a court decides your company was never really separate from you, and comes after you personally.
- Registered agentSomeone with a real address in your state who accepts legal mail for your company.
- ReinstatementBringing a company the state closed back to life.
- S-CorporationA tax election that can cut self-employment tax on a profitable company — but only if you are a US person.
- Series LLCOne LLC that contains several walled-off compartments.
- Single-member LLCAn LLC with one owner. Simplest possible company structure with liability protection.
- Sole proprietorshipWorking for yourself with no company around you. Everything the business owes, you owe.
- SubsidiaryA company owned by another company. Still has to do its own paperwork.
Tax
- 147C letterA replacement for the EIN letter you lost.
- Arm's length principleCharge your own companies what a stranger would have charged.
- CFC rulesRules that tax you at home on profits sitting in your foreign company.
- CP 575The IRS letter proving your EIN. You get it once — save it.
- Double taxationPaying tax twice on the same money.
- Economic nexusSelling enough into a state that you must collect its sales tax, even from abroad.
- Effectively connected incomeUS-connected business income. If your income is ECI, the US taxes it.
- EINYour company's tax number. Free from the IRS, and almost everything asks for it.
- Estimated taxPaying your tax bill in quarterly instalments rather than all at once.
- FDAP incomePassive US income like dividends or royalties, taxed by withholding rather than by return.
- Foreign tax creditCredit for tax you already paid elsewhere on the same income.
- Form 1040-NRThe personal US tax return for people who are not US residents.
- Form 1065The tax return for companies with more than one owner.
- Form 1099-KA report of everything a platform processed for you — before any deductions.
- Form 1099-NECThe form you send a US contractor and the IRS showing what you paid them.
- Form 1120The corporate tax return. Foreign-owned LLCs file a blank version of it as a wrapper.
- Form 1120-FThe US tax return for a company incorporated outside the US that has US income.
- Form 5472An annual IRS form for foreign-owned US companies. Missing it costs $25,000.
- Form SS-4The paper EIN application, used when you cannot apply online.
- Form W-8BENThe form that tells a US payer you are foreign, and claims a lower withholding rate.
- Form W-9The form you collect from a US contractor so you can report what you paid them.
- Franchise taxA fee for existing in a state, whether or not you made money.
- ITINA personal tax number for people who must file US taxes but cannot get an SSN.
- Marketplace facilitatorThe rule that makes Amazon, not you, collect sales tax on Amazon sales.
- NexusEnough of a link to a state that the state can tax you.
- Pass-through taxationThe company does not pay tax; the owners do.
- Permanent establishmentEnough presence in a country that it can tax your company there.
- Pro forma returnA mostly-blank form filed so another form has somewhere to go.
- Reasonable compensationA believable salary for the work you actually do, which the IRS expects you to pay yourself first.
- Resale certificatePaperwork that lets you buy stock tax-free because you will charge tax when you sell it.
- Responsible partyThe actual human the IRS holds accountable for the company.
- Safe harborA rule that stops you being penalised if you pay a defined minimum.
- Sales taxTax you collect from customers on behalf of a state and pass on.
- Sales tax permitState permission to collect sales tax. Required before you start collecting.
- Schedule K-1Your personal slice of a partnership's results, in a form you attach to your own return.
- Self-employment taxThe Social Security and Medicare tax you pay when nobody else is paying half of it.
- SSNA US personal ID number. You do not need one to own a US company.
- Substantial presence testThe day-count formula that decides whether the US treats you as a resident taxpayer.
- Tax residencyWhich country treats you as its taxpayer.
- Tax treatyAn agreement between two countries about who gets to tax what.
- Transfer pricingWhat your own companies charge each other, and whether tax authorities accept it.
- Use taxThe tax you owe on something you bought untaxed from out of state.
- Withholding taxTax taken out before the money reaches you.
Banking
- Account freezeMoney goes in, nothing comes out, until the institution finishes checking.
- ACHThe cheap, slow way US bank accounts move money between each other.
- AMLThe rules that make banks watch transactions and ask awkward questions.
- Beneficial ownerThe real human behind the company, however many layers sit in between.
- Correspondent bankA middleman bank your money passes through on the way abroad.
- Customer due diligenceThe bank's obligation to understand who you are and what your business does.
- De-riskingA bank dropping a whole type of customer because the category is too much trouble.
- FDIC insuranceGovernment protection on money held at a US bank if the bank collapses.
- FX spreadThe hidden cut taken on a currency conversion.
- IBANThe international account format used almost everywhere except the US.
- KYCThe identity checks a bank runs before it will let you open an account.
- Multi-currency accountOne account that can hold and receive several currencies.
- Routing numberThe nine-digit code that identifies a US bank.
- SWIFTThe messaging system banks use to tell each other to move money internationally.
- Wire transferFast, expensive, and you cannot get it back.
Payments
- Billing descriptorWhat shows up on the customer's statement. Make it obvious.
- ChargebackA customer's bank taking the money back, plus charging you a fee for the trouble.
- Gross revenueEverything customers paid, before anything was taken out.
- GSTThe GST-named equivalent of VAT in a number of countries.
- Interchange feeThe part of your card fee that goes to the customer's bank, not your processor.
- Merchant of recordA company that officially sells your product for you and handles the tax everywhere.
- Payment facilitatorA provider that lets you take card payments without applying for your own merchant account.
- Payment processorThe company that takes card payments on your behalf and pays you the proceeds.
- Payout scheduleHow long after a sale the money actually reaches your bank.
- Rolling reserveA slice of every payment held back for months as insurance against disputes.
- VATEurope's version of sales tax, which can apply to you even from a US company.
Compliance
- Annual reportA yearly form telling the state your company still exists and where to find it.
- BOI reportA filing naming the real owners of a company. Who must file has changed recently.
- Business licencePermission to do a specific kind of work in a specific place.
- Compliance calendarOne list of every deadline, so none of them arrive as a surprise.
- Corporate Transparency ActThe law behind beneficial ownership reporting, whose scope keeps moving.
- FinCENThe US Treasury agency behind money-laundering rules and ownership reporting.
- Intellectual propertyThe intangible things your company owns — code, brand, designs, know-how.
- IP assignmentThe clause that makes work someone did for you actually belong to your company.
- OFACThe US sanctions authority. Its lists bind your company absolutely.
- TrademarkLegal protection for your brand name, which forming a company does not give you.
People
- DistributionProfit paid out to owners. Taxed differently depending on the entity type.
- Employer of recordA company that employs your team member in their country so you do not have to set up there.
- FICAThe Social Security and Medicare tax on wages, split between employer and employee.
- Independent contractorSomeone who works for you but decides how the work gets done.
- Owner's drawTaking money out of your own company when it is not a salary.
- Payroll taxTaxes on wages, split between what you withhold and what you pay on top.
- PEOA partner that runs US payroll and benefits alongside you, rather than instead of you.
- Totalization agreementAn agreement stopping you paying social security twice on the same income.
- W-2 employeeA proper employee, with tax withheld from every paycheque.
- Worker classificationDeciding whether someone is staff or a contractor. The label you use does not decide it.
Finance
- Accounts payableBills you have received but not yet paid.
- Accounts receivableWork you have done and invoiced but not yet been paid for.
- Accrual accountingRecording income and costs when they happen, not when the money moves.
- Balance sheetWhat the company owns and owes, right now.
- Bank feedAn automatic import of your transactions into the accounting system.
- BasisYour tax stake in the company, which goes up and down with what you put in and take out.
- Burn rateHow fast you are losing money each month.
- Business creditYour company's credit reputation, separate from your personal one.
- Capital contributionMoney you put into your own company.
- Cash accountingRecording money when it actually moves.
- Cash flow statementWhere the money actually went, as opposed to what the profit figure says.
- Chart of accountsThe list of buckets every transaction gets sorted into.
- COGSWhat the things you sold actually cost you to get.
- ComminglingMixing your money with the company's. The habit that dissolves your protection.
- Customs dutyTax charged on goods entering the country.
- D-U-N-S numberA free ID number that lets Dun & Bradstreet track your company's credit.
- Gross marginThe share of each sale left after paying for the thing you sold.
- InventoryStock you own. An asset until it sells, not a cost when you buy it.
- Landed costEverything it cost to get the product into the warehouse, not just the invoice.
- Personal guaranteeA promise that you will pay personally if the company cannot.
- Profit and loss statementDid the business make money over this period?
- ReconciliationChecking your records match the bank's, and finding out why if they do not.
- RunwayHow many months of cash you have left at the current rate.
- Trade lineAn account on your business credit report. Only reported accounts count.
Fundraising
- 83(b) electionA form that taxes your shares now, while they are worth nothing, instead of later.
- Cap tableThe definitive record of who owns how much of the company.
- Capital gainProfit from selling something for more than you paid.
- CliffLeave before the first year is up and you get nothing.
- Convertible noteA loan that turns into shares — but is still a loan until it does.
- Delaware flipConverting your company into the US corporation investors expect.
- DilutionYour slice gets smaller each time new shares are issued.
- Due diligenceThe buyer checking that everything you said is true and everything is in order.
- Multi-entity structureRunning two or more connected companies in different countries.
- QSBSA tax break on selling shares in a qualifying US corporation, if you held them long enough.
- SAFEMoney now, shares later, without agreeing a valuation today.
- Stock optionThe right to buy shares later at today's price.
- Valuation capThe ceiling that decides how many shares an early investor gets.
- VestingEarning your shares gradually instead of owning them all on day one.