• July 2018
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Glossary

A

Accelerated depreciation:

An accounting method allocating higher amounts of depreciation in earlier years and lower amounts in later years of a fixed asset.

Accelerated filer:

Defined in Rule 12b-2 under the Exchange Act as a company that meets all of the following conditions at the end of its fiscal year: The public float of its common equity exceeds $75 million, but is not more than $700 million on the last business day of its most recently completed second fiscal quarter; The company is required by Section 13(a) or 15(d) of the Exchange Act to file reports for at least 12 calendar months; The company has filed at least one annual report pursuant to Section 13(a) or 15(d) of the Exchange Act; and The reporting requirements available to smaller companies is not available to the company. A “large accelerated filer” is subject to the same requirements, except that its public float of common equity must be greater than $700 million on the last business day of its most recently completed second fiscal quarter. A company that does not meet the definition to qualify as either is deemed a non-accelerated flier.”

Acceleration clause:

(1) A stock option agreement or a restricted stock agreement clause that accelerates vesting - in whole or in part - of a stock option or restricted stock upon the occurrence of a certain event; (2) A provision in a loan, note or debt instrument that accelerates the maturity date upon a borrower’s default.

Accredited investor:

Specific to the qualified private placement of securities that are made pursuant to Regulation D of the Securities Act, exempting issuers from registration requirements. Rule 501(a) of Regulation D defines an “accredited investor” as an entity or natural person who meets certain net worth tests or other specified quantitative criteria - e.g., (1) directors, executive officers and general partners of the issuer (issuer “insiders”); (2) individuals whose net worth or joint net worth with their spouse exceeds $1 million (excluding the value of their primary residence); and (3) individuals whose income was in excess of $200,000 in each of the two most recent years or whose joint income with their spouse was in excess of $300,000 in each of those years and who have a reasonable expectation of reaching the same income level in the current year. 

Accrual basis accounting:

Commonly used accounting method where income is reported when earned and expenses are reported when incurred, whether or not cash has been received or paid. Contrast with “Cash basis accounting.”

Accruing dividend:

Ensures a minimal rate of return for the preferred stock investors usually in connection with a private company, where there is a redemption of a class or series of preferred stock, or in the case of an issuer’s liquidation. The result is that preferred stock receives compensation for shares as if the company had declared annual cash dividends on their stock.

Adjusted basis:

The basis in an asset less depreciation or amortization. See “Basis.”

Affiliate:

Rule 144 and Rule 405 of the Securities Act defines an affiliate as an individual who controls, is controlled by, or is under common control with another person. The control can be direct or indirect. Rule 144 generally includes executive officers, directors and 10% stockholders in addition to relatives (e.g., spouses) and specified companies, trusts and other entities that meet the definition. Occasionally, a 5% or greater ownership is deemed an affiliate. See, also, “Rule 144,” “Insider” and “Reporting person.”

Aftermarket: 

The trading activity of a security in the market after its public offering. 

Allocation:

The number of securities that an investor is permitted to purchase.

Amortize:

To write off a regular portion of an asset’s cost as an expense over a fixed period of time. 

Angel:

An early funding round investor in a startup. Angel investors can be family, friends or other usually high net worth individuals who seek a return on their investment in exchange for providing funding to an emerging company. In recent years, an increasing number of angels - particularly in high tech startups - are Venture Capitalists (VCs).

Annual meeting:

A meeting of company stockholders that occurs once a year, where Directors are elected and the stockholders asked to consider any significant corporate changes. The company’s bylaws specify the governing rules for holding the meeting. SEC regulations require public companies to distribute proxies and an annual report to stockholders.

Annual report to stockholders:

The report distributed to stockholders once a year at the annual meeting that analyzes the company’s financial condition, and includes a detailed includes a description of the company’s operations, financial statements and MD&A. SEC Rule 14a-3(b) dictates the legally required content of the report.

Anti-dilution adjustment:

A formula that adjusts the price of a convertible security (such as convertible debt note) when it changes into another form of equity. The general purpose of the provision is to protect the holder of security against price dilution. In a “weighted average” formula adjusts the conversion rate using different variables including the number of shares involved with the dilutive issuance and the price of the dilutive issuance. The “ratchet” method reduces the conversion price to the price paid for the dilutive issuance, no matter how many shares were part of the dilutive issuance.

Anti-takeover provisions:

Provisions incorporated into a company’s bylaws and related formation documents created to discourage takeovers.

Appraisal:

A right created by state law that gives minority shareholders the right to have the fair market value of their stock valued by a court and to receive that value in the event of a merger. 

Audit:

An examination by an independent public accountant of a company’s financials in compliance with GAAS, SEC or PCAOB standards.

Audit committee:

A committee created by a company’s board of directors that has responsibility for (1) hiring independent counsel; (2) approving audit and tax services; (3) engaging and supervising independent auditors; and (4) creating procedures for processing complaints about the company’s accounting methods. All publicly traded companies are required to have an audit committee whose members satisfy certain minimum standards prescribed by law.

Audit opinion / Audit Report:

An opinion given by an independent certified public accountant at the end of an audited financial statement where the auditor represents that they have examined the client’s financial statements for the year in accordance with GAAS or the PCAOB. The heart of the opinion is the auditor’s opinion whether the company’s financial statements fairly represented its financial position, operations and any changes in financial position for the audited period.

Authorized shares:

The maximum number of shares a company is allowed to issue as specified in its formation documents, which can be increased by amending its charter.

B

Backdating of stock options:

The date prior to the grant date, which the board of directors approves to reflect a fair market value per share that was lower than it was on the approval date — the result being a lower exercise price. This practice is not encouraged since it subjects a company to potential charges of civil and criminal misrepresentation and securities fraud. Adverse tax consequences under Section 409A and disqualification of stock options are other potential ramifications.

Balance sheet:

A snapshot of a company’s assets that reflects its financial standing at the end of an accounting period, generally expressed as assets equal liabilities plus stockholders equity. 

Balloon note:

A promissory note that requires little or no principal payments until the final payment.

Basis:

A method for determining capital gains and capital losses for tax purposes based on the total investment in an asset, including purchase price, commissions and other expenses.

Bear market:

Low or declining prices in the securities market over a sustained period of time.

Beneficial owner / Beneficial Holder:

The person who actually receives the financial benefit of a security, commodity or asset.

Blackout period:

A period of time during which directors, executive officers, certain employees and certain other persons and related entities are prohibited from selling or buying a company’s securities. The normal blackout period is from two weeks before the end of each fiscal quarter and to the second full day of trading after the quarterly earnings report is made public. Blackouts also are imposed in connection with important corporate changes, such as mergers and acquisitions.

Block trade:

A purchase or sale of a large number of securities (at least 10,000 shares in the case of stock) as a single transaction that is negotiated as opposed to traded.

Board of Directors (BOD):

The governing body of a company that is elected by stockholders. The BOD is responsible for supervising management and has fiduciary duties that it owes to the company's stockholders. It is charged with appointing senior management, assigning committee members, issuing shares, declaring dividends and shaping company policy. The typical BOD includes both senior corporate managers (e.g., the CEO) and external directors. Meetings are regular, usually monthly or every other month.

Bond:

A corporate or governmental issued debt security that promises to pay holders a specific amount of interest for a certain period of time, in addition to repayment of the principal at maturity. 

Book entry:

The electronic registration and maintenance of securities in place of a physical certificate.

Book Value:

A company’s net worth which is calculated on the basis of its total assets minus liabilities. It is possible for book value to be more or less than its market value.

Bridge loan / Bridge Financing:

A loan that offers short term financing until long term financing is obtained.

Broker:

A person who makes securities transactions for others.

Bull market:

Rising prices of securities, assets or commodities in the market over a sustained period of time.

Burn rate:

How rapidly a company’s spends money to finance its operations.

Business judgment rule:

The legal obligation imposed on a company’s BOD to execute its duties of good faith, loyalty and care on behalf of stockholders.

Buyback:

When a company repurchases its issued stocks or bonds.

Book Value:

A company’s net worth which is calculated on the basis of its total assets minus liabilities. It is possible for book value to be more or less than its market value.

Bylaws:

A company’s detailed, formal rules that governs corporate affairs, including the rights and responsibilities of officers, directors and stockholders. They also set the guidelines for BOD and stockholder meetings.

C

Call Option / Call:

A buyer’s right - but not obligation - to purchase a specific quantity of commodities or securities at a certain price (the strike price) at a certain time.

Capital Asset:

A durable asset intended to held over a prolonged period of time, which is used to generate profit over the long term. It includes tangibles and intangibles, movable and nonmovable goods, such as real property, equipment; patents, goodwill, trademarks, and certain investments.

Capital Gain:

A profit from the sale or exchange of an investment or property.

Capitalization:

The sum of a company’s long term debt and retained earnings.

Capitalize:

An accounting method that allows companies to spread out the cost of new assets by deducting them as expenses over the long term (more than one year) without negatively impacting revenues.

Cap Table:

A table that breaks out founder and investor percentages of ownership, dilution of equity, and value of equity in each funding round.

Cash Basis Accounting:

An accounting method that records revenues at the time cash is paid or reflects expenses when they are paid in cash.

Cash Flow Statement (CFS):

A legally required component of a company’s financial reports that records all cash and cash equivalents entering and leaving the business. It identifies the sources of a company’s revenues, how it is spending, and how it is operating.

“C” Corporation:

A corporate entity that is taxed separately from its owners (shareholders), in contrast to S Corps and LLCs.

Certificate of Good Standing:

A certificate issued by the state in which a company incorporated that reflects its current compliance with state law, including tax payments and annual report filings.

Certificate of Incorporation:

Also called Articles of Incorporation of Charter, it is the document that reflects the formal establishment of the organization. Key elements include the name and purpose of the corporation, the address of its registered office, that name and address of the registered agent, and if a C-Corp, the number of authorized shares.

Closely Held Corporation:

Is a corporation that is not a personal service corporation and where more than 50% of its outstanding stock is owned by no more than five people at any time during the last half of the tax year.

Collateral:

Specific property a borrower pledges to secure repayment of a loan.

Common Stock:

A security that represents ownership in a corporation and entitles holders to elect directors and vote of significant corporate changes or policy. In liquidation, common stockholders have the lowest priority of right to corporate assets, and may be paid only after preferred shareholders, bondholders, and other debtors have been paid in full.

Compensation Committee:

A committee formed by the board of directors that responsible for compensation decisions. Compensation committees are usually required by market exchanges (e.g., NYSE, NASDAQ), with the obligation that it consist only of independent directors. Furthermore, the committee is required to have a written charter and mandatory duties, specifically relating to the supervision of compensation advisors. as required by Exchange Act Rule 10C-1. NASDAQ requires that the compensation committee have at least two members.

Convertible Debt:

A debt obligation of a corporation that changes into stock upon the next funding round or becomes due as the result of maturity or other defined event.

Corporate Governance:

The system of practices, procedures, and rules that controls and directs a company. It is the institutional framework that is designed to ensure corporate accountability, transparency, and fairness with all of its stakeholders - internal and external.

Corporate Record Book:

The combined records of a company’s organization, formation, and compliance with tax and corporate law including annual reports, minutes from BOD and shareholder meetings, and all corporate resolutions.

Crowdfunding:

Business fundraising using primarily online portals such as Kickstarter that qualifies as exempt from an array of securities regulations.

Cumulative Voting:

A method of voting that benefits minority shareholders when electing directors to the board by allowing shareholders to cast all of their votes for a single board candidate when there are multiple board openings. For example, if there are five openings available on the board, a shareholder with 100 shares would have 500 votes. They could choose to cast 100 votes per nominee or cast all 500 votes for one candidate.

D

Dealer:

In contrast to a broker, a dealer is a person or firm that buys or sells securities for their own account - i.e., a principal.

Debenture:

Similar to bonds, this type of debt instrument is issued by governments and corporations to obtain capital, but is backed by the reputation and known creditworthiness of the issuer rather than by assets or collateral.

Debt financing:

Selling bills, notes or bonds to individuals or institutional investors to raise funds for capital expenditures and working capital.

Deferred compensation:

Employee compensation to be paid at a later date. Generally, taxes are deferred on this income until it is actually paid out. Example include stock options, retirement plans and pension plans.

Derivative securities:

A type of security where its price depends on or derives from an underlying asset, such as commodities, currencies, interest rates, stocks, bonds and market indexes.

Dilution:

The reduction of ownership percentage that is caused by the issuance of new stock or when stock options holders exercise their options. As the number of shares outstanding increases, each existing stockholder owns a smaller - or diluted - percentage of the company.

Disregarded entity:

An entity that is disregarded for U.S. federal income taxes, but is recognized by state law as a separate legal entity (e.g., a single member LLC).

Dissenters’ rights:

State corporate law that gives a corporation’s shareholders the right to receive a cash payment for the fair value of their shares in an acquisition or merger they did not consent to.

Distribution:

(1) Income and capital gains mutual funds make periodically to their investors in a calendar year; (2) Cash or stock payments a company makes to its shareholders; (3) Higher volume trading than the previous day without price appreciation; (4) Assets removed from a retirement account and paid to the account owner of beneficiary.

Dividend:

A distribution of part of a company's earnings to a class of shareholders made in cash or as shares of stock or other property. Dividends are declared by a company’s Board of Directors.

Dow Jones Industrial Average (DJIA):

The price-weighted average of 30 significant stocks traded on Nasdaq and the New York Stock Exchange.

Down round:

A later round of financing where investors buy stock from a company at a lower valuation than the valuation created by earlier investors.

Drag along rights:

A right majority shareholders have to compel minority shareholders to participate in the company’s sale, giving minority shareholders the same price, terms, and conditions as any other seller.

Due diligence:

A comprehensive investigation of a potential transaction prior to entering into or completing an agreement.

Duty of care:

One of the two primary fiduciary duties directors owe to a company, requiring them to make business decisions that are in the organization’s best interests only after taking all information carefully into consideration.

Duty of loyalty:

On of the two primary fiduciary duties directors owe to a company, requiring them to all times act in the company’s best interests by avoiding potential conflicts of interest and not usurping corporate opportunity for personal gain.

E

Earnings:

Usually the quarterly post-tax net income of a company.

Earnings Per Share:

A portion of a company's profit allocated to each outstanding share of common stock.

EBIT:

Earnings Before Interest & Tax, this is an indicator of a company's profitability that is calculated as revenue minus expenses, excluding tax and interest.

EBITDA:

Earnings Before Interest, Taxes, Depreciation and Amortization, this is an indicator of a company's financial performance calculated as Revenue - Expenses (excluding tax, interest, depreciation and amortization).

Employee Stock Ownership Plan (ESOP):

A qualified (i.e., under the tax code), defined employee contribution, designed to invest primarily in the stock of the sponsoring employer.

Escrow Agreement:

Legal documents that set out the terms and conditions between parties involved in an escrow, essentially arranging for one party to deposit an asset (e.g., money) with a third person (called an escrow agent), who delivers the asset to another party if and when the specified conditions of the contract have been met.

Exchange:

A marketplace in which securities, commodities, derivatives and other financial instruments are traded.

Exchange Act:

Federal legislation enacted after the 1929 market crash to: (1) ensure certain heightened levels of transparency in financial statements to enable investors to make informed decisions about investments, and (2) penalize misrepresentation and and fraud in the securities markets.

“Exercise” a stock option:

To purchase the securities underlying an option.

Exercise Price:

Also referred to as the strike price, it is the price at which a security can be bought (“call option) or sold (“put option).

Expense:

(1) The economic costs a business incurs by its operations to earn revenue that are usually tax-deductible (i.e., they reduce taxable income).

F

Fair Value Accounting:

The estimated value of all assets and liabilities of an acquired company that is used to consolidate the financial statements of both the acquiring and acquired companies. Final prospectus.

Financial Accounting Standards Board (FASB):

The seven-member board of accounting professionals that establishes standards of financial accounting and reporting in the United States, known as the generally accepted accounting principles (GAAP), which governs the preparation of corporate financial reports.

Fixed Asset:

A l tangible piece of property that a company owns and uses in generating income and is not expected to be consumed or converted into cash in less than a year's time.

Float:

Money in the banking system that is briefly counted twice due to delays in processing checks (e.g., when a check is showing in both the payor and recipient banks). Also used to mean the total number of shares available for trading.

Form 10-K:

The comprehensive summary of a company's performance that must be submitted annually to the SEC, usually containing more detail than the annual report.

Form 10-Q:

The comprehensive report of a public company's performance that must be submitted quarterly to the SEC, requiring disclosure of relevant financial information

Form 12b-25:

An SEC filing, also referred to as the Notification of Late Filing, which is used when a company anticipates that other key filings will not be completed by their deadlines.

Form 8-K:

A report of unscheduled material events or corporate changes that could be important to the shareholders or the SEC.

Form S-1:

The initial registration for new securities required by the SEC that is also commonly referred to as the Registration Statement Under the Securities Exchange Act of 1933.

Form S-3:

A simplified security SEC registration available to companies that have met prior reporting requirements (e.g., companies that have met all reporting requirements listed under sections 12 or 15(d) of the SEA of 1934).

Form S-4:

A form that required for submission to SEC when two companies are involved in a merger or acquisition.

Form S-8:

An SEC filing used by publically traded companies to register securities that will be offered to its employees through benefit or incentive plans.

Franchise Tax:

A state tax on businesses that are incorporated or operating within that state.

Freeriding:

An illegal practice of buying and selling stock before paying for it; an illegal practice where part of a new securities issue is withheld and later sold at a higher price by a regulated underwriter.

G

Generally Accepted Accounting Principles (GAAP):

The accounting principles, standards and procedures that companies use to draft their financial statements.

Generally Accepted Auditing Standards (GAAS):

A set of guidelines used by auditors auditing a company’s finances that ensures, ensuring the accuracy, consistency and verifiability of auditors' actions and reports.

General Partner:

Partnership owner/s with unlimited liability; also commonly referred to as a Managing Partner, the person responsible for daily business operations.

Going Public/IPO (Initial Public Offering):

Selling formerly privately held shares to new, public investors for the first time.

Golden Parachute:

Significant benefits, including cash bonuses, stock options and severance pay, provided to a senior executive in the event of a merger or acquisition where the executive is terminated; often used as an antitakeover device to discourage unsolicited takeover attempts.

Goodwill:

A type of intangible asset that consists of a company’s brand value, reliable customer base, good employee and customer relations, and proprietary technology (e.g., patents), and reflected in the assets section of a company’s balance sheet.

Grant:

An award (e.g., stock option) issued to key employees.

Gross Profit:

Equivalent to total sales, it is a company's total revenue minus the cost of goods sold; the profit a company makes after deducting the costs associated with making and selling its products or the costs associated with providing its services.

H

Hedge:

An investment used to reduce the risk of adverse price movements in an asset.

I

Incentive Stock Option (ISO):

A type of employee stock option that has the specific tax advantage of paying at a capital gains rate rather than as ordinary income tax when the option is exercised.

Income Statement / P&L Statement:

A financial statement that measures a company's financial performance over a specific time and provides a summary of how the business generate revenues and incurs expenses by its operating and nonoperating activities.

Independent Director:

A member of the Board of Directors who is not employed with the company.

Initial Public Offering (IPO):

A private company’s first sale of stock to the public.

Inside Director:

A board member who is an employee, officer or other stakeholder in the company.

Insider Information:

A nonpublic fact about the plans or condition of a publicly traded company that could offer a financial advantage to someone working closely with the company in the buying or selling of that organization’s stock.

Insider:

A director, senior officer of a company, or any person or entity that beneficially owns more than 10% of a company's voting shares. Insiders must comply with strict disclosure requirements regarding the sale or purchase of their company’s stock.

Insider Trading:

When someone with access to material, nonpublic information about a company or its stock or security instruments uses that information in the sale or purchase of the security.

Institutional Investor:

An individual or organization that is not a bank and trades securities in large enough share quantities or dollar amounts that they qualify for reduced commissions and preferential treatment, such as being subject to fewer regulations than banks on the assumption that they are more sophisticated.

Intangible Asset:

A nonphysical asset such as trademarks, patents, brand value and goodwill.

Issued Shares:

The number of authorized shares sold to and held by a company’s shareholders of a company, including insiders, institutional investors and the general public.

Issuer:

A legal entity that develops, registers and sells securities to finance its operations, and are legally required for the obligations of the issue and for reporting financial conditions, material developments and any other operational activities.

J

JOBS Act / The Jumpstart Our Business Startups Act:

An act signed into law on April 5, 2012 that removes many SEC regulations on small businesses and reduces restrictions on capital raising for small businesses, specifically allowing them to go public with less than $1 billion in annual gross revenue and to raise capital through crowdfunding (public solicitation of investments in the company).

Joint Venture:

Where two or more parties agree to pool their resources for accomplishing a specific business objective, and where each JV participant is responsible for profits, losses and costs.

K

Ks and Qs:

Generally refers to three types of reports public companies must file: (1) annual reports on Form 10-K, (2) quarterly reports on Form 10-Q, and (3) current reports on Form 8-K.

L

Letter of Intent (LOI):

Similar to a term sheet, an LOI outlines the terms of a deal and is essentially an “agreement to agree.”

Leverage:

(1) Using financial instruments or borrowed capital to boost the potential return on investment (ROI); (2) debt used to finance a firm's assets.

Leveraged Buyout (LBO):

Acquiring another company using significant borrowed money to meet the cost of acquisition; also used to refer to acquisitions where the assets of the acquired company are used as collateral for the borrowed funds.

Limited Partner:

A partner with liability that is limited to the partner's share of ownership and are generally not involved in the daily activities of operating the business.

Liquidation:

Typically occurs when a company becomes insolvent (i.e., is unable to pay its obligations when they come due).

Liquidity:

The extent to which a security or asset can be quickly bought or sold in the market without affecting its price.

LLC (Limited Liability Company):

A type of corporate structure that offers its members the benefit of corporate protection from personal liability for the company’s debts or other liabilities, while allowing members to benefit from flow through taxation (i.e., individual members are taxed personally, but the corporate entity is not taxed).

M

Management Fee:

A charge made by an investment manager for managing an investment fund to compensate a manager for their time and expertise.

Market Capitalization (or Cap):

The total market value of all of a company's outstanding shares calculated by multiplying a company's outstanding shares by the current market price of one share.

Market Order:

An order that an investor places through a broker to immediately buy or sell a security at the best available current price with no restrictions on the buy/sell price or time of execution.

Maturity Date:

The date on which the principal of a note, draft, acceptance bond or other debt instrument is due to be repaid in full.

Mezzanine Financing:

A blend of debt and equity financing used to finance a company’s expansion, which gives the lender the right to convert the debt obligation to an equity or ownership interest in the company if the loan is not paid back in full and by its maturity date.

Money Market Fund:

 A portfolio of investments consisting of short-term (less than one year) securities that are high-quality, liquid monetary and debt instruments intended to earn interest for shareholders while sustaining a net asset value of $1 / share.

N

Net Income:

A company's total earnings / profit, that is calculated by adjusting for interest, taxes, depreciation and other expenses against revenues, and reflects a company’s profitability over a period of time.

Net Proceeds:

The amount a seller receives after costs and expenses are deducted from gross proceeds after the sale of an asset.

Nonstatutory (or Nonqualified) Stock Option:

A type of employee stock option where ordinary income tax is paid on the difference between the grant price and the strike price, rather than capital gains.

Notice of Meeting:

The legal notice to stockholders stating the time and place of a stockholder annual meeting that is normally attached to the front of a proxy statement.

O

Offer:

An expression of interest by one party to buy from or sell to another party an asset.

Optionee:

The holder of a stock option.

Organizational Meeting:

The initial meeting of a company, auditors, underwriters and attorneys preparing a company for public offering that is usually convened to review the timetable for the proposed offering.

Outside Director:

A member of a company's board of directors who is not an employee of the company and tend to be valued for their tendency to provide unbiased opinions.

Oversubscribed:

Where the demand for an IPO of securities exceeds the total number of issued shares. If the shares are accurately priced, then there should be no shortage or excess of shares. When demand exceeds supply, it means the share price was set too low.

P

Participating Preferred Stock:

A type of preferred stock giving the holder the right to dividends equal to the specified rate of preferred dividends plus an additional dividend based on a specified condition.

Par Value:

A bond’s face value or a stock’s as stated in its formation documents. Par value is more important for bonds than it is for shares, because of its maturity date. Shares typically have nominal or no par value (e.g., 1 cent per share) .

Participating Preferred Stock:

A defensive strategy corporations use to discourage hostile takeovers, by creating features that make its stock less of an attractive target.

“Pooling of Interests” Accounting:

A method of accounting that allows two companies to combine their balance sheets during a merger or acquisition.

Preemptive rights:

A privilege possessed by certain shareholders that gives them the right to purchase additional shares in the company prior to the general public.

Preferred Stock:

A class of corporate ownership that offers its holders higher priority over common stock on claims related to earnings and assets (e.g., dividends must be paid prior to common shareholders).

Preliminary Prospectus:

The initial draft registration statement filed with the SEC prior to an IPO, to provide material information to prospective shareholders about the company's business, management, ownership, strategic initiatives and financial statements.

Premium:

Either (1) the total cost of an option, or (2) the difference between a security’s face amount at issue and the higher price that is paid for a fixed-income security.

Price to Earnings (P/E) Ratio:

The Price-to-Earnings Ratio or P/E ratio is a ratio used to value a company, which measures current share price relative to its per-share earnings.

Pricing Term Sheet:

An outline of the pricing terms related to an offering (e.g., listing the principal amount, benchmark treasury rate, yield to maturity, interest payment dates, maturity date and relevant material terms).

Private Equity:

Equity capital not on a public exchange, that consists of investors and funds who make investments directly to private companies.

Private Placement:

The sale of securities to a small number of select investors as a way of raising capital (e.g., to mutual funds).

Pro Forma Financial Statements:

Hypothetical financial statements to show the effects of an acquisition, public offering or other occurrence.

Projections:

Verbal or written prospective statements that a company makes regarding its financial performance.

Prospectus:

A formal legal document required by and filed with the SEC that contains details about a security offering that is for public sale to the public.

Proxy:

A legally authorized agent charged with acting on behalf of another party (e.g., voting on behalf of a shareholder at an annual meeting).

Public Company:

A company that has issued securities through an IPO is traded on at least one stock exchange or OTC market.

Public Offering Price:

The price of new issues when offered to the public by an underwriter.

Put Option:

The right of an investor or entity to demand that a corporation or other investor repurchase a specified number of shares at a fixed price at or during a specified time.

Q

Qualified Institutional Buyer (QIB):

A corporate entity that qualifies as an "accredited investor,” which is defined in SEC Rule 501 of Regulation D as one that owns and invests, on a discretionary basis, at least $100 million in securities; and, if a broker-dealer, the at least $10 million.

Qualified Stock Option: See “Incentive Stock Option - ISO.”

A type of security that receives more favorable tax treatment than a nonqualified stock option, but also requires the holder to incur greater risk by holding onto the instrument for a longer period of time to receive favorable tax treatment.

Quorum:

The minimum acceptable level of individuals with a vested interest in a company needed to make the proceedings of a meeting valid under the corporate charter.

R

Raider:

An individual or entity that attempts to gain a controlling interest in a company with undervalued assets to make a significant profit in a short timeframe by selling its assets, rather than rehabilitate its operations around and restore value over the long term.

Ratchet:

An anti-dilution mechanism that protects a series of preferred stock by automatically adjusting the conversion price to a lower price in the event that the preferred series was issued at a higher amount (e.g., if the conversion price of Series A Preferred Stock is $1.00 - equal to the initial purchase price per share - and XYZ sells its Series B stock for $0.25 per share, then the Series A conversion price would be adjusted from $1.00 to $0.25).

Recapitalization:

Restructuring a company's debt and equity usually to increase the stability of its capital structure, usually by exchanging one form of financing for another (e.g., removing preferred shares and replacing them with bonds).

Receivables:

An asset designation applicable to all debts, unsettled transactions or other monetary obligations owed to a company by its customers or debtors, including all debts - even if not yet due - owed to the company.

Record Date:

The deadline a company establishes to determine which shareholders eligible to receive a dividend or distribution.

Redemption:

The return of an investor's principal as a fixed income security (e.g., bonds) or the unit sales of a mutual fund, that is either at a premium or at par price.

Registered Securities:

Either (1) Securities whose ownership is registered with the issuing company; or (2) securities unavailable for sale because of restrictions imposed at the time of issue.

Regulation D:

An SEC regulation governing exemptions for private placement, that allow smaller companies to raise capital through debt securities or sale of equity without first having to register their securities with the SEC.

Repricing:

The exchange of stock options whose exercise price is below current fair market value for options whose exercise price is above fair market value, allowing an investor to exchange worthless options for options that have value.

Restricted stock units (RSUs):

A type of deferred compensation where stock is paid out at some future date (i.e., after it has vested), assuming the employee remains with the company, entitling the recipient to the full value of the RSUs - meaning they will always have value, in contrast to options whose value can erode rendering them valueless.

Retained Earnings:

The percentage of net earnings not paid out as dividends, that are retained by the company to be reinvested in its core business.

Retention / Allotment:

The number of shares during an IPO granted to each participating underwriting for sale.

Revenue / Gross Income:

The amount of money a company receives during a specific period, including discounts and deductions for returned merchandise, calculated by multiplying the price at which goods or services are sold by the number of units or amount sold.

Rounds:

Stages of financing of a corporation. The first round of financing is the initial raising of outside capital, with later rounds usually attracting institutional investors.

Royalty:

Money paid to use intangible property (e.g., copyrighted materials).

S

Safe Harbor:

(1) A legal provision used to reduce liability as long as there is a demonstration of good faith; (2) an accounting method that avoids adverse legal or tax consequences by providing a legal, simpler method for determining taxes.

Sarbanes-Oxley Act of 2002:

Passed to protect investors from fraudulent corporate accounting activities, it requires strict financial disclosures from corporations designed to prevent accounting fraud that were associated with the Enron, WorldCom and Tyco scandals, which debilitated investor confidence.

“S” Corporation:

A type of corporation that satisfies IRS requirements allowing it to be taxed under Subchapter S of the Internal Revenue Code, and which permits a company with fewer than 100 shareholders to be taxed as a partnership, meaning that any profits earned b are not taxed at the corporate level, but pass through to the individual shareholders.

Secondary Offering:

When new stock is issued for public sale that has already gone through an IPO, usually with the aim of refinancing or raising capital for expansion.

Section 409A:

A tax code provision relating to deferred compensation arrangements, including stock options, severance arrangements and bonus plans. If the compensation arrangement fails to comply with Section 409A, the employee will be subject to severe tax consequences.

Section 83(b) election:

A tax filing that allows a holder of security, which was received as compensation and is subject to forfeiture (i.e., unvested stock) to pay taxes upon the receipt of the restricted stock rather than on the date the stock vests to avoid paying tax at the higher ordinary income rate, and to be eligible to pay tax at the lower capital gains rate.

Securities Act of 1933:

Federal legislation passed after the 1929 market crash to: (1) expand transparency of a company’s financial statements to enable investors to make informed decisions about investments, and (2) establish laws against misrepresentation and fraud in securities markets.

Securities and Exchange Commission (SEC):

A government commission established to regulate securities markets and protect investors, and to specifically oversee corporate takeovers. Its five commissioners are appointed by the President with approval from the Senate.

Securities Exchange Act of 1934:

The Securities Exchange Act of 1934 was passed to provide supervise securities transactions on the secondary market, and to regulate brokers-dealers and exchanges to protect the investing public.

Seed Capital:

Capital used by a startup in its initial operations, which is often obtained from family and friends, angel investors and sometimes the entrepreneurial founders themselves.

Shares Authorized But Unissued:

The number of shares a corporation is authorized by its charter to issue, but which have not yet been issued to stockholders.

Shares Issued and Outstanding / Outstanding Shares:

Shares issued to and currently held by stockholders.

Shares reserved for issuance:

Authorized but unissued shares a corporation’s board sets aside to be issued upon the conversion of outstanding convertible securities (e.g., stock options).

Shell Corporation:

A corporation without assets or operations that may or may not be illegal, and is often properly used for tax avoidance as opposed to tax evasion.

Short Sale:

Where an investor sells borrowed securities, expecting prices to decline, and is required to return an equal number of shares at some future date. The payoff to selling short is the opposite of a long position.

A short seller will make money if the stock goes down in price, while a long position makes money when the stock goes up. The profit that the investor receives is equal to the value of the sold borrowed shares less the cost of repurchasing the borrowed shares.

Short Term Debt:

An account reflected on a company’s balance sheet as a current liability, consisting of debt that is due within one year.

Staggered Board:

A staggered board is a board of directors whose members are grouped into different categories representing a certain percentage of the total number of board positions, and whose elections occur at different times.

Stock:

Equity ownership in a company.

Stock Certificate:

The physical piece of paper representing ownership in a company, which reflects the number of shares owned, the date, an identification number, a corporate seal and signatures, and typically have intricate designs similar to currency to discourage counterfeiting.

Stock Exchange:

A formally organized marketplace where securities are traded by members of the exchange, acting as agents (brokers) and as principals (dealers or traders), and which requires registration under the Section 6 of the Exchange Act.

Stockholder:

A person or entity that owns shares in a corporation, whether as common stock or preferred stock.

Stockholders’ Equity:

The segment of a company’s balance sheet that shows the capital it received from investors in exchange for stock, donated capital and retained earnings, and is calculated either as (1) total assets minus total liabilities; or (2) share capital plus retained earnings minus treasury shares.

Stockholders’ voting agreement:

The list of a corporation’s stockholders that records the total number of shares, the stock certificate number, and the date on which the stock was issued.

Stock option:

An assignment of a certain number of shares giving an individual - usually an employee - the right, but not the obligation buy stock at a certain price (the strike price) at a certain time.

Stock Split:

A corporate decision to divide a company’s existing shares into multiple shares, and where the total dollar value of the shares remains the equal to their pre-split amounts.

Strike Price:

The price at which a stock option or warrant can be purchased.

Syndicate:

A professional financial services group formed temporarily to handle a large transaction by pooling their resources and sharing risks, which would otherwise be difficult to achieve without the benefit of a larger group.

T

Tag-Along Agreement (or Co-Sale Agreement):

A contractual agreement between management stockholders and investors usually in connection with venture capital financing where the management stockholders agree not to sell any of their stock in the company without first giving the investors the right to participate in the sale, on the basis of their pro rata share of ownership.

Tender Offer:

An offer to purchase some or all of the shares in a corporation. The price is usually offered at a premium relative to the market price.

Trade Date:

The day, month and year that an order to buy, sell or transfer a security is executed in a market.

Transfer Agent:

A financial institution that a corporation designates to maintain investors’ records, transactions and account balances; to handle investor correspondence; and to cancel or issue security or stock certificates.

U

Unaudited Statement:

A statement that an auditor prepares or assists in preparing but does not examine in accordance with GAAS.

Underlying Security:

The security from which a derivative gets its value.

Underwriter:

A company that administers the public issuance and distribution of securities from a corporation and determines the offering price of the securities, buys them from the issuer and sells them to investors through a distribution network.

Up Round:

When a private company offers equity securities at a price per share that is greater than the price per share of the company’s last securities offering.

V

Venture Capital (or “VC”) Financing:

Raising money for a company in its early stages of growth by selling stock (usually preferred stock that converts to common stock in the event of an IPO) to one or more venture capital firms.

Venture Capital (or “VC”) Fund:

An entity, usually a limited partnership or limited liability company that invests in startup businesses with potential for a high return on investment.

Vesting or Vested:

A specified period of time over which an employee granted stock incentives begins to accrue rights to stock options or other employer contributions, and which are generally not subject to forfeiture.

Vesting Cliff:

The period of time an employee must remain employed with a company before their vesting rights are triggered, and where failure to maintain employment with the employer for less than the cliff period results in the total forfeiture of their rights to all options.

Vesting Period:

The period of time that it takes before the option to buy stock can be exercised in whole or in part provided that the holder satisfy certain conditions, typically maintaining their employment with the company.

W

Warrant:

A type of security that gives the holder a right but not the obligation to buy or sell the instrument at a specified price (the strike or exercise price)by a certain date.

Working Capital:

An indicator of a company’s liquidity, it is measured by subtracting current liabilities from current assets.

Y

Yield:

The income return on an investment, including the interest or dividends received from a security.
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