Glossary of Terms Business Associations

Agency: Agency is the fiduciary relationship that arises when one person (a principal) manifests assent to another person
(an agent) that the agent shall act on the principal's behalf and subject to the principal's control, and the agent manifests
assent or otherwise consents so to act (R3d 1.01).
Apparent Authority: apparent authority arises when conduct by an apparent principal causes a third party to reasonably
believe that the apparent agent is authorized to act for the apparent principal.
Appraisal Rights: In many types of business combinations, the targets shareholders have a right of appraisal under
state law. If a shareholder feels that he has not gotten a fair price for his shares (and he hasnt voted in favor of the sale or
merger), that shareholder may have a court determine the fair value of the shares; if that fair value is greater than the
amount actually paid, the acquirer is required to pay the shareholder the balance.
As If Converted Voting Rights: the voting rights are the same as the common stock voting rights, they are as if
already converted to common stock. They dilute the voting power of those who already own common stock.
Blue Sky Statutes: A state law that imposes standards for offering and selling securities in the primary market. Such laws
aim to protect individuals from fraudulent or overly speculative investments.
Board of Directors: Every Corporation is governed by a board of directors who are elected by the shareholders.
Individual directors are not agents of the corporation; only the board itself can act as a super-agent and bind the
corporation
Bust Up Takeover: a leveraged buyout in which the target company's assets are sold to repay the loan that financed the
takeover.
Buy-Sell Agreement: also known as a buyout agreement, is a legally binding agreement between co-owners of a business
that governs the situation if a co-owner dies or is otherwise forced to leave the business, or chooses to leave the business.
This agreements may include provisions determining: Who can buy a departing partner's or shareholder's share of the
business (this may include outsiders or be limited to other partners/shareholders); What events will trigger a buyout, (the
most common events that trigger a buyout are: death, disability, retirement, or an owner leaving the company) and; What
price will be paid for a partner's or shareholder's interest in the partnership, etc.
Bylaws: rules that govern the internal affairs of a corporation; usually more detailed; no filing requirement.
C Corporation: C corporation refers to any corporation that, under federal income tax law, is taxed separately from its
owners.
Call Plans: Call plans give stockholders the right to buy cheap stock in certain circumstances. They usually work by
distributing to each target shareholder one right for each target share. The key feature is usually a flip-over provision,
which is triggered when an outsider buys, say, 20% of the targets stock. One the right has flipped over because of this
outsider share acquisition, three things usually happen: (1) The rights become separately tradable; (2) They are no longer
redeemable by the targets management; and (3) Most importantly, if the outsider gets control and causes the target to
merge with the outsider, the right entitles its holder to acquire shares of the bidder at half price.
Capital Call Provision: "is a not-uncommon, on-going capital infusion provision, not a debt-collection mechanism by
which a court can order a capital call and, by doing so, impose personal liability on the LLC's members for the entity's
outstanding debt. . . . Any such assumption of personal liability, which is contrary to the very business advantage reflected
in the name 'limited liability company,' must be stated clearly in unequivocal language which leaves no room for doubt
about the parties' intent."
Cash-out merger: a merger in which shareholders shares of a company are exchanged for cash.
Cede List: Cede & Co is one of the largest of the four regional depositories. A cede list is a list of owners of stock behind
the depositories (usually brokerage firms). The cede list just lists the brokerage companies.

Certificate of Incorporation (or Articles of Incorporation or Charter): the foundational document that states the
purpose and powers of the corporation and describes its special features, only a few provisions of which are mandatory; a
publicly-filed document.
Class of Stock: If authorized by the certificate of incorporation, a corporation may issue different classes of stock, with
different voting characteristics. In addition to preferred, can issue different classes of common stock that carry different
rights e.g., holders of Class A stock have right to elect one director, holders of Class B stock have right to elect one
director, etc.
Classified Board of Directors: A structure of r aboard of directors in which a portion of the directors serve for different
term lengths, depending on their particular classification. Under a classified system, directors serve terms usually lasting
between 1-8 years. For example, if there are nine members, they are in different classes (a third is elected in year 1, a third
is elected in year 2, a third is elected in year 3). Important to incumbent management because you cant launch a hostile
tender offer and wind up in control of the company in a single year. They are an obstacle to shareholder
democracy/activism.
Close Corporation: Sometimes the corporate contract combines partnership-type owner-management with corporatetype limited liability. This type of arrangement is called a close corporation because the membership is limited rather
than open to all, as in a publicly held corporation with freely traded shares. Such corporations normally include contracts
similar to those found in a general partnership for allocating governance functions.
Conservatively Leveraged: low debt to equity ratio, means you can borrow money if you want to end up with debt to
finance the transaction.
Consumer Financial Protection Bureau (CFPB): is tasked with preventing predatory mortgage lending, improving the
clarity of mortgage paperwork for consumers and reducing incentives for mortgage brokers to push home buyers into
more expensive loans. The CFPB has also changed the way credit card companies and other consumer lenders disclose
their terms to consumers. It requires loan terms to be presented in a new, easy-to-read-and-understand format.
Convertible Securities: securities that are convertible into another form of the corporations securities (e.g., convertible
bonds, which combine traditional bond with a warrant, or option to convert bond into corporations securities at a
specified option price).
Corporate Capital Structure: the permanent and long-term contingent claims on the corporations assets and future
earnings, issued pursuant to formal contractual instruments called securities (bank loans are not regarded as part of cap.
Structure.
Corporate Insider: officer, director, or other agent of the corporation, that has access to information that is not otherwise
publicly available.
Corporation: A corporation, like a partnership, generally has many residual claimants who contract to allocate control
and profits. The standard form corporation differs from partnership in that owners are passive and delegate to the
corporations managers the responsibility for day-to-day operations. Because owners are not actively involved in
management, they are essentially fungible capital-providers and, therefore, shares in the business can be freely
transferable. Passive ownership is facilitated by limited liability, which means that the owners are not personally liable
for the debts of the business.
Cumulative Voting: normally, in a shareholder vote, the plurality of shares voting controls; with cumulative voting, the
number of votes each shareholder may cast is determined by multiplying the number of shares owned by the number of
director positions up for election; each shareholder then may concentrate his or her votes by casting all of his or her votes
for one candidate (or distributing his or her votes among two or more candidates); this has fallen out of favor (it produces
an adversarial board) therefore most provide for such voting in articles of incorporation.

De Facto Merger Doctrine: The de facto merger doctrine states that courts will look to substance over form when
determining whether statutory merger law applies to a company's shareholders. Thus, where an asset acquisition leads to
the same result as a statutory merger, these jurisdictions demand that shareholders are given the same rights as in the
statutory merger.
Debentures: pretty much convertible bonds. A type of debt instrument that is not secured by physical assets or collateral.
Debentures are backed only by the general creditworthiness and reputation of the issuer. Both corporations and
governments frequently issue this type of bond in order to secure capital. Like other types of bonds, debentures are
documented in an indenture. Debentures have no collateral. Bond buyers generally purchase debentures based on the
belief that the bond issuer is unlikely to default on the repayment.
Debt Securities: securities representing indebtedness of corporation bonds (secured, long-term instruments); debentures
(unsecured long-term instruments); notes (short-term instruments, usually unsecured)
Demand: Virtually all states require that, as a general rule, the P must make a written demand on the board of directors
before commencing a derivative suit the demand asks the board of directors to bring a suit or take some other corrective
action to redress the wrongdoing. Only if the board refuses to act may the P then commence the suit.
Derivative Shareholder Suit: A suit is derivative if it arises out of an injury done to the corporation as an entity; it is
brought by a shareholder on the corporations behalf; the cause of action belongs to the corporation as an entity. Litigation
and recovery go to the corporation.
Direct Shareholder Suit: A suit is direct if it alleges a direct loss to the shareholder; it is brought by the shareholder in
his or her own name; the cause of action belongs to the shareholder in his or her individual capacity. The shareholder is
who will recover if he/she wins.
Director Oversight: At the very least, a director must have a rudimentary understanding of the firms business and
how it works, keep informed about the firms activities, engage in a general monitoring of corporate affairs, attend
board meetings regularly, and routinely review financial statements.
Disclosure Forms: include Form 10K (annual report), Form 10Q (quarterly form you file with SEC with unaudited
financial reports), and 8K (if there are certain important events that affect the companys operations or financial
conditions you cant wait for the next 10Q or 10K you have disclose right away).
Disinterested Director: a director is disinterested if (1) the transaction is not a directors conflict interest transaction;
and (2) the director does not have a material relationship with another director as to whom the transaction is a
directors conflicting interest transaction.
Dissociation: Withdrawal or expulsion of a member (ULLCA 601).
Dissolution: Winding up of LLC triggered (ULLCA 801).
Dividend: a sum of money paid regularly (typically quarterly) by a company to its shareholders out of its profits (or
reserves).
Dodd-Frank Wall Street Reform and Consumer Protection Act: Dodd-Frank established new government agencies
such as the Financial Stability Oversight Council and Orderly Liquidation Authority, which monitors the performance of
companies deemed too big to fail in order to prevent a widespread economic collapse.
Double Taxation/Tax Flow-Through: Unlike a partnership, which is not taxed (just the partners are taxed), a
corporation pays taxes on its net income; when it distributes profits to its shareholders by dividends, those shareholders
have to pay a second tax (now at 20%); in a close corporation, shareholders have option designating corporation as an S
corporation, which means they will pay taxes based upon their pro rata share of the corporations profits, but the
corporation pays no taxes.

Duty of Due Care: A director or officer must behave with a level of care that a reasonable person in similar
circumstances would use (objective standard).
Entrenchment: Managerial entrenchment occurs when managers gain so much power that they are able to use the firm to
further their own interests rather than the interests of shareholders.
Equity Securities: issued in the form of shares, or stock, which represent the units into which the proprietary interests in
a corporation are divided. Equity security holders or shareholders are the owners of the corporation; directors and
officers owe fiduciary duties to shareholders, but not to debt security holders; shares represent residual claim on
whatever funds are left after creditors are paid which means greater risk exposure than holders of debt securities.
Exclusionary Repurchases: One technique by which the target may true to repulse a hostile bidder is by embarking on
its own aggressive program of share repurchases if the target offers a higher price for its own shares than the bidder is
offering, the targets holders will be less likely to tender to the bidder.
Express Agency: an express agency is one that occurs when a principal and an agent expressly agree to enter into an
agency agreement with each other. Examples include an exclusive agency K and a power of attorney.
Fairness Opinion: a memorandum by the financial institution that the transaction is favorable to the company.
Financial Statements: The financial statements of a corporation are the balance sheet and the income state. They provide
a means of accurate reporting of the financial status of the corporation and a basis for informed decision-making by
directors, management, shareholders and regulators.
Flip In Provision: Works the same way as a flip over one, except that the right-holders opportunity to buy cheap stock is
triggered not only in the case of a merger but also in the case of other self-dealing transaction, including purchases by the
bidder of assets from the target at below-market prices. This gives the right-holder the right to buy the cheap shares in the
bidder, not just in the target.
Form 8-K: The corporation must file a Form 8-K within 4 days after certain important events affecting the companys
operations or financial condition. In other words, if a major event happens, the company must report it immediately
instead of waiting for the next quarterly or annual report. The Form specifies events that are considered sufficiently
important to require filing, such as sales or purchases of significant assets or a change in control of the company.
Form 10: initial form that registers the issuer and securities (under 1934 Act).
Form 10-K: The company must thereafter file a Form 10-K, which contains the audited financial statements and
managements report of the previous years activities and usually also incorporates the annual report sent to shareholders.
Form 10-Q: The company also must file a Form 10-Q for each of first three quarters of the year. It will contain unaudited
financial statements and managements report on material recent developments.
Form S-1: The basic disclosure form filed with the SEC, by which an issuer registers its securities with the SEC prior to
offering them for sale.
Freezeouts: Courts try to protect minority holders from freezeouts. In a freezeout, the controlling shareholders take
exclusive ownership of the corporation by finding a legal way to eliminate the outsiders as shareholders.
GAAP = Generally Accepted Accounting Principles: pursuant to which a firm must prepare and maintain its financial
statements. Major goal: to ensure that the financial reports are prepared honestly and in accordance with general
standards.
GAAS = Generally Accepted Auditing Standards: pursuant to which an accounting firm performs an audit of a
companys financial statements.

General Partnership: A general partnership has two or more residual claimants who share the monitoring role. Like
sole proprietors, partners are liable for the debts of the business. The difference between the sole proprietorship and the
general partnership arise primarily from the fact of multiple ownership. The owners must agree in advance how to make
decisions in the future and how to share the profits and other assets of the business. Because the owners are generally
actively involved in the business and liable for its debts, they would usually want to participate in management and have
the power to veto important decisions, such as the admission of new partners. They would also want rules specifying the
consequences of each partys withdrawing from (that is, dissolving) the relationship.
Golden Parachute: Substantial benefits given to a top executive (or top executives) in the event that the company is
taken over by another firm and the executive is terminated as a result of the merger or takeover. Golden parachutes are
contracts given to key executives and can be used as a type of antitakeover measure taken by a firm to discourage an
unwanted takeover attempt. Benefits include items such as stock options, cash bonuses, generous severance pay or any
combination of these benefits.
Greenmail: The target may simply decide to pay greenmail to the bidder. That is, the target buys back the partial stake
that the bidder has already built, by paying him an above-market price. In return, the bidder enters into a standstill
agreement, whereby he agrees not to attempt to re-acquire the target for some specified number of years. Alternatively,
the target may arrange for some third party to buy the bidders stake at a premium.
Hostile Takeovers: A hostile takeover is a process y which one corporation acquires another, over the objection of the
targets board. Takeovers are usually carried out by tender offers.
Implied Agency: an implied agency is one that occurs when a principle and an agent do not expressly create an agency;
instead, the agency is implied from the conduct of the parties. The extent of the agents authority is determined from the
particular facts and circumstances of the particular situation.
Insider: A director or officer of a company, as well as any person/entity that beneficially owns more than 10% of a
companys voting shares. For purposes of insider trading, the definition is expanded to include anyone who trades a
companys shares based on material non-public information. Insiders have to comply with strict disclosure requirements
with regard to the sale or purchase of the shares of their company.
Insider Trading: A person engages in insider trading if he buys or sells stock in a publicly traded company based on
material non-public information about that company.
Internal Affairs Doctrine: choice of law rule the law of the state of incorporation, with limited exceptions, governs the
relationships among the parties to the corporation including the rights of shareholders, the fiduciary duties of directors,
and the procedures for corporate action; state courts are bound to accept the corporate law rules of the incorporating state,
even when those rules are different or inconsistent with the rules of the forum state.
Intra Vires: means within the legal power or authority of an individual or group.
IPO: first time that an issuer goes to market to sell equity.
Issuer: a corporation that issues securities (normally, stocks or bonds) to investors or to underwriters who sell them to
other investors.
Junk Bonds: debt obligations of a corporation that are usually subordinate to other debt (they are comparable to a second
or third mortgage on a personal residence) and bear a relatively high level of risk and high interest rate.
Lead Underwriters: the investment banks that take the lead on underwriting the issuance of securities. They induce other
investment banks to join in on the process (syndicate/group of underwriters).
Leverage: ratio of debt to equity used to finance the corporation; higher debt to equity ratio produces greater returns and
losses on equity.

Leveraged Buyout (LBO): purchase of a company financed by a relatively small amount of equity (common stock) and
a large amount of debt (which provides the leverage).

Limited Liability Company: In LLCs, the owners enjoy the limited liability of limited partners and corporate
shareholders, the flexibility to take on the management of general partners without jeopardizing their limited liability, and
the flow-through taxation of general and limited partnerships. Over the last few years, this new form of business
association has emerged rapidly through statutes.
Limited Liability Partnerships: The newest type of business association is the registered LLP. This is essentially a
general partnership whose owners, by filing a registration and complying with other formalities, obtain full or partial
limited liability, depending on the statute.
Limited Partnership: Limited Partnerships combine attributed of both partnerships and corporations. Some owners are
general partners and, like general partners in general partnerships, contact for active involvement in management and
personal liability. Other owners are limited partners, and generally contract for non-management monitoring status and
limited liability. However, limited partners can sometimes lose their limited liability if they take too active a role in the
firms affairs. Limited partnership is usually viewed as a way to combine partnership-type taxation with corporate-type
organization.
Lock Up Option: A stock option offered by a target company to a white knight for additional equity or for the purchase
of a valuable portion of their company.
Management Buyout (MBO): an LBO where management of the company are the purchasers.
NASDAQ: enacted for the National Association for Securities Dealer and Quotations electronic stock exchange
(companies like Google, eBay, and Costco).
NOBO List: Non-objecting beneficial owners list has the names of the actual people that vote (the real owners.). It's the
actual list of the shareholders who say "you can tell the people who i am."
NYSE (New York Stock Exchange): oldest and largest secondary market in U.S.; still uses a large floor for an open
outcry system in which brokers participate
Officers: Officers are hired by the board of directors and act as agents of the corporation, subject to fiduciary duties of
agents.
Operation Agreement: Owners of an LLC (called members) must agree among themselves how the business will
operate (e.g., what kind of vote is necessary to sell the LLCs assets or change its principal business). They typically do so
by means of an operating agreement, which is a K among the members.
OTC: over the counter, brokers and dealers who exchange with each other (monitored by National Association of
Securities Dealers). Companies traded in this way are usually not big enough to be on one of the bigger exchanges.
Par Value Stock: stock with a stated face value; largely of historical interest, representing an amount of capital that
creditors could rely on.
Partnership Property: all property originally bought into the partnership or subsequently acquired, by purchase or
otherwise, for the partnership.
Poison Pill Plans: The best-known and most effective takeover defenses are poison pill plans. They try to ensure that bad
things will happen to the bidder if it obtains control of the target, thereby making the target less attractive to the bidder.
Preemptive Rights: Preemptive right is the right of certain stockholders to maintain ownership of a constant percentage
of a firm's stock. Such stockholders have the first opportunity to purchase new stock in the firm proportionate to the

percentage of shares already held. Its purpose is to protect shareholders from dilution of value and control when new
shares are issued.
Preferred Stock: stock which carries rights superior to that of common stock, such as dividend preference (payable
before any dividends can be paid on common stock), cumulative right to dividends (if corporation fails to pay a dividend,
missed dividend is accumulated; accumulation must be paid before any dividends on common stock can be paid),
liquidation preference (call on specified assets or percentage of assets if corporation liquidated).
Primary Market: the market in which the issuer sells them to investors (an Initial Public Offering, or IPO, for example,
takes place on the primary market).
Private Placement: private sale of securities to specific investors, not on the open market. Usually has restrictions on the
ability for investors to sell to other investors.
Private Placement Memorandum: A legal document stating the objectives, risks and terms of investment involved with
a private placement. This includes items such as the financial statements, management biographies, detailed description of
the business, etc. A private placement memorandum serves to provide buyers with information on the offering and to
protect the sellers from the liability associated with selling unregistered securities.
Prospectus: A formal legal document, which is required by and filed with the SEC, that provides details about an
investment offering for sale to the public. A prospectus should contain the facts that an investor needs to make an
informed investment decision.
Proxy: the authority or power to vote a shareholders shares.
Proxy Contest: when shareholders seek to persuade other shareholders through proxy to vote for other directors or to
oppose other actions taken by management.
Proxy Materials: materials that are distributed to shareholders, soliciting their votes via proxy and describing the
transaction that is subject to a vote.
Put Plan: These calculate a price that the targets directors think is a fair price for the targets shares. If a bidder buys
some but not all of the targets shares, the put gives each target shareholder the right to sell back his remaining shares in
the target at the fair price.
Ratification: confirmation of an action, which was not pre-approved and may not have been authorized, usually by a
principal who adopts the acts of his/her agent. In other words, confirmation and acceptance of a previous act, thereby
making the act valid from the moment it was done. Must be approved by a majority of disinterested directors in total, not
just those who vote or are present at the meeting
Registration of Securities: in order to publicly sell securities, you must register securities with SEC through a specified
form that tells you all you have to include (Form S1 1933 Act).
Roles of Directors and Shareholders: The board of directors of a corporation is charged with managing and supervising
the business. Shareholders have a limited governance role: vote to elect directors; approve fundamental changes in the
corporate charter; initiate limited reforms. But they have no power to act on behalf of the corporation.
S Corporation: S corporations are corporations that elect to pass corporate income, losses, deductions, and credits
through to their shareholders for federal tax purposes. Shareholders of S corporations report the flow-through of income
and losses on their personal tax returns and are assessed tax at their individual income tax rates. This allows S
corporations to avoid double taxation on the corporate income. S corporations are responsible for tax on certain built-in
gains and passive income at the entity level. To qualify for S corporation status, the corporation must meet the following
requirements: Be a domestic corporation; Have only allowable shareholders including individuals, certain trusts, and
estates and may not include partnerships, corporations or non-resident alien shareholders; Have no more than 100
shareholders; Have only one class of stock; Not be an ineligible corporation (i.e. certain financial institutions, insurance
companies, and domestic international sales corporations).

SarbanesOxley Act of 2002: is a United States federal law that set new or enhanced standards for all U.S. public
company boards, management and public accounting firms. As a result of SOX, top management must individually certify
the accuracy of financial information. In addition, penalties for fraudulent financial activity are much more severe. Also,
SOX increased the oversight role of boards of directors and the independence of the outside auditors who review the
accuracy of corporate financial statements.
Say on Pay: 951 of Dodd-Frank creates a so-called say on pay mandate, requiring periodic shareholder advisory votes
on executive compensation. 952 mandates that the compensation committees of the board of directors of public
companies must be fully independent and that those committees be given responsibility for setting CEO pay, among other
things. Dodd-Frank 951 creates a new 14A of the Securities Exchange Act, pursuant to which reporting companies
must conduct a shareholder advisory vote on specified executive compensation not less frequently than every three years.
At least once every six years, shareholders also must vote on how frequently to hold such an advisory vote (i.e., annually,
biannually, or triennially).
Secondary Market: The secondary market is the trading market on which investors trade securities among themselves
without any significant participation by the original corporate issuer of the shares.
Secondary Offering: The issuance of new stock for public sale from a company that has already made its initial public
offering (IPO).
SEC Regulation FD (Fair Disclosure): (supp. 351) requires issuer to disclose material nonpublic information to the
public if an agent of the issuer discloses such information to securities market professionals or shareholders of the issue
who are likely to trade on the basis of such information.
Securities Act of 1933 (1933 Act): addresses disclosure and seeks to prevent fraud in the primary market for securities.
Securities Exchange Act of 1934 (1934 Act): regulates secondary market activities and seeks to prevent fraud and
requires disclosure; also creates S.E.C.
Shareholder Preemptive Rights: rights that give shareholders the right to purchase a pro rata share of any new issue of
shares at the new issue price, to preserve the proportional interests of existing shareholders; must affirmatively include in
certificate of incorporation if you want to provide for such rights.
Shareholder Rights of Inspection: For a shareholder to be able to decide intelligently whether to sell her shares, hold
onto them, bring a shareholders derivative action, or otherwise take action on her investment, she needs information. In
the case of a publicly held corporation, the federal securities law requires that much of the needed information be sent
automatically to the shareholder. Apart from the federal securities regulatory system, state law generally provides
shareholders with a useful alternative method of getting information about the corporations affairs: This is the right to
inspect the corporations books and records
Shareholder Voting Agreements: Under a shareholder voting agreement, some or all shareholders agree to vote
together as a unit on specified matters.
Short Swing Profits: If an insider (director, officer, or 10%+ stockholder) buys-and-then-sells (or sells-and-then-buys)
within 6 months of the purchase (or the sale), the insider is automatically required to pay back to the corporation all
profits from the transaction (Exchange Act 16(b)).
Sole Proprietorship: In this type of firm, there is only one owner, or residual claimant, who has the exclusive claim to
business profits. She is the sole monitor of the other team members and has the power to buy and sell assets and to hire
and fire workers. The sole proprietor is also personally liable for all debts of the business.
Stand Still Agreement: A K that stalls or stops the process of a hostile takeover. The target company either offers to
repurchase the shares held by the hostile bidder, usually at a large premium, or asks the bidder to limit its holdings. This
act will stop the current attack and give the company time to take preventative measures against future takeovers.

Statutory Merger: a combination accomplished by using a procedure prescribed in the state corporation laws (most of
which are essentially the same in this respect). By following the procedures set out in the state corporate statute, one
corporation can merge into another, with the former ceasing to have any legal identity and the latter continuing in
existence.
Supermajority Provisions (DGCL 102(b)(4)): articles of incorporation may include provisions requiring for any
corporate action, the vote of a larger portion of the stock or of any class or series thereof; frequently used as shark
repellants to defeat a hostile tender offer.
Tax-Loss Carryforward: A tax loss carryforward takes place where a business or individual reports losses on a tax
return up to seven years after the loss occurred. Frequently the logic behind this is to reduce tax liability during a year
where the income or profits are high if losses were experienced previously. The tax loss carryforward reduces the overall
tax liability during the high-earning year by incorporating the earlier loss as a reduction to taxable income. Permits you to
take a loss that you have incurred in one tax period and apply it to earnings made in another tax period. Thus, it lets you
subtract the tax losses in one year from the profits in the next year.
Tax Pass Through: The taxation method applied to sole proprietorships, partnerships, and limited liability companies,
where the owners pay taxes on all business profits on their individual tax returns (the business income "passes through"
the business to the owners' tax returns). In contrast, a corporation, or a business that elects corporate-style taxation, is
taxed directly on all business profits.
Tender Offer: is an offer to buy shares of stock from shareholders, who are invited to tender their shares to the offeror for
purchase at a specified price within some specified period of time. Often the completion of the transaction is made
contingent on the offeror receiving some specified number of shares, sufficient, for example, to give it control of the
target corporation.
Tippee: A person who receives inside information. Unless reported to the authorities, tippees can be held legally liable for
illegal inside information, even if the tippee does not use it in trading. This exists to encourage tippees to come forward to
eliminate insider trading and increase transparency.
Trance: slice, a portion of something. In Benihana (p. 38), for example, preferred shares were to be issued in two
tranches of $10 million each.
Triangular Mergers: The acquisition of a target company by a subsidiary of the purchasing company. The only
difference between a forward triangular merger and a direct merger is that a subsidiary of the purchasing company, not the
purchasing company itself, is the entity that acquires the target.
Underwriter: investment bank that underwrites the risk of corporate securities by buying them and reselling them to
investors and making a commission.
Volcker Rule: another key component of Dodd-Frank, restricts the ways banks can invest and regulates trading in
derivatives
Voting Trusts: Under a voting trust, shareholders relinquish their voting power to a voting trustee, often one who
agrees to cast the votes in a prescribed way (e.g., so as to elect certain stockholders to the board). The shareholders retain
their economic interest in the business.
White Knight: A white knight is an individual or company that acquires a corporation on the verge of being taken over
by forces deemed undesirable by the company officials. While the target company doesnt remain independent, a white
knight is viewed as a preferred option to the hostile company completing their takeover. Unlike a hostile takeover, current
management typically remains in place in a white knight scenario, and investors receive better compensation for their
shares.