Glossary

The state filing document that officially creates a corporation.

The state filing document that officially creates an LLC.

The internal governance document of a corporation that sets rules for how the board and shareholders operate.

The standard corporate structure for venture-backed startups; allows unlimited shareholders, preferred stock, and stock option plans.

A registered trade name that allows a business to operate under a name other than its legal entity name.

A nine-digit tax ID number issued by the IRS that identifies your business for tax purposes — required to open a business bank account or hire employees.

The legal process of changing a business from one entity type to another — most commonly from an LLC or S-Corp into a C-Corporation.

A default business structure created when two or more people operate a business together without forming a legal entity — each partner is personally liable for all business debts.

The legal process of forming a corporation by filing Articles of Incorporation with the state.

A legal entity that separates your personal assets from business liabilities while allowing pass-through taxation.

The internal governing document of an LLC that defines member rights, ownership percentages, decision-making rules, and what happens when someone leaves.

A person or service designated to receive official legal documents and government notices on behalf of your business.

A corporation with a special IRS tax election that allows pass-through taxation, but is restricted to 100 shareholders and cannot accept VC investment.

The default status when you operate a business without forming any legal entity — you and the business are legally the same person.

An independent appraisal of a private company's fair market value, required before issuing stock options to set a legally compliant strike price.

An IRS filing that lets you pay taxes on restricted stock at grant-date value rather than as shares vest — critical for early-stage founders.

A provision that causes unvested equity to vest immediately upon a specific event, typically an acquisition.

The maximum number of shares a corporation is legally allowed to issue, as set in its Articles of Incorporation.

A spreadsheet or database showing who owns what in a company — listing all shareholders, their share counts, and ownership percentages.

A minimum period you must work before any equity vests — leave before the cliff and you earn nothing.

The standard equity shares held by founders and employees, which participate in company value but rank behind preferred stock in liquidation.

The reduction in an existing shareholder's ownership percentage that occurs when new shares are issued.

The shares that have actually been distributed to shareholders — a subset of the authorized shares.

A block of shares reserved for future grants to employees, advisors, and consultants through a stock option plan.

A class of stock typically held by investors that has priority over common stock in liquidation and often carries additional protective rights.

An investor's contractual right to maintain their ownership percentage in future fundraising rounds by investing additional capital.

A federal tax exclusion allowing investors and founders to exclude up to 100% of capital gains on qualified C-Corp stock held for more than five years.

Actual shares granted to a recipient subject to vesting conditions — different from options in that the recipient owns shares immediately but can't sell unvested shares.

The right to purchase company shares at a fixed price in the future — the primary equity compensation vehicle for startup employees.

The price at which an employee can purchase company stock when exercising their options — set at the fair market value at the time of the grant.

The process by which someone earns their ownership over time, rather than receiving it all at once.

An individual who invests their personal capital in early-stage startups, typically at the pre-seed or seed stage.

A provision that adjusts investors' conversion ratio if the company later raises money at a lower valuation, protecting their effective ownership.

A short-term debt instrument that converts into equity at a future funding round, typically with a valuation cap and discount rate.

A percentage reduction applied to the per-share price in a SAFE or convertible note conversion, giving early investors a lower price than new investors.

The investigation a potential investor or acquirer conducts before closing a deal — reviewing corporate documents, cap table, contracts, IP, and financials.

An early funding round where founders raise small amounts from people in their personal network before seeking outside investors.

Investors' right to get their money back before common shareholders receive anything in a sale or liquidation — typically 1x their investment.

A clause in a SAFE that entitles the holder to adopt any more favorable terms given to later investors during the same fundraising campaign.

The value of a company after an investment round — calculated as pre-money valuation plus the new investment.

The value of a company before an investment round — the baseline used to calculate how much ownership investors receive for their investment.

A fundraising round where a specific per-share price and company valuation are set — such as a Series A — as opposed to a note or SAFE that defers valuation.

A list of company decisions that require approval from preferred stockholders, regardless of who controls the board.

A simple investment instrument where an investor gives money now in exchange for the right to receive equity in a future priced round.

A non-binding document outlining the key terms of an investment — the starting point for negotiating a funding round.

The maximum valuation at which a SAFE or convertible note will convert into equity, protecting early investors from excessive dilution.

An employment relationship that either party can end at any time, for any legal reason, without advance notice.

The legal distinction that determines tax treatment, benefit obligations, and IP ownership for workers — misclassification carries significant penalties.

A written agreement that transfers ownership of intellectual property from the creator to the company.

A contract that prevents one or more parties from sharing confidential information with outsiders.

A contract that restricts an employee from working for a competitor or starting a competing business for a period after leaving.

A document extending a job offer that specifies compensation, title, start date, and equity — typically at-will and not a binding employment contract.

An agreement signed by employees and founders that assigns all work product and inventions created during employment to the company.

A copyright doctrine where work created by an employee within the scope of their job is automatically owned by the employer, without needing a separate assignment.

A written amendment to an existing contract that documents changes to the scope, price, or timeline of work.

A contractual obligation where one party agrees to compensate the other for certain losses, claims, or damages arising from specified events.

A contract clause that caps the total damages one party can seek from the other, typically to the fees paid under the contract.

A contract that establishes the standard terms for all future work between two parties, with individual projects governed by separate Statements of Work.

A recurring fee paid in advance for ongoing access to a service provider's time or services over a defined period.

A document that defines exactly what work will be done under a contract — the who, what, when, and how of a project.

A contract between a business and a client that defines the services to be provided, payment terms, IP ownership, and each party's rights and obligations.

A government-issued permit authorizing a business to operate legally within a specific jurisdiction.

A bundled insurance package that combines general liability and commercial property coverage, typically the most cost-effective starting point for small business insurance.

A document issued by an insurance company that summarizes the coverage held by a business — commonly required by clients and landlords.

A state-issued license required to legally perform construction, contracting, or specialty trade work above a specified dollar threshold.

A legal claim filed against real property by a contractor or supplier who hasn't been paid, which encumbers the property title until the debt is resolved.

A state-issued permit that allows a business to collect sales tax from customers and remit it to the state.

A local government permit that confirms a business can legally operate at a particular location under the applicable zoning rules.

A private dispute resolution process where parties present their case to an arbitrator instead of going to court.

The legal separation between a business entity and its owners that protects owners from personal liability for business debts.

A legal obligation to act in the best interests of another party — directors owe fiduciary duties to their corporations and shareholders.

A contract clause that excuses performance when extraordinary events beyond a party's control — like natural disasters or pandemics — make performance impossible.

A pre-agreed sum specified in a contract that one party pays the other if they breach — typically used when actual damages would be hard to calculate.

A court doctrine that holds business owners personally liable for business debts when they have not maintained the entity as a genuinely separate legal person.