A Company Law Jargon Buster

by James Calvin

Published on this site: December 30th, 2005 - See more articles from this month

Company law is full of confusing terms, and if you don't know what they mean then settung up a company can start to look far more scary than it really should be. Read through this jargon buster and you should find it much easier to understand what starting up is all about.

Capital. This is money that is going to be invested in a business. Example: 'I am starting my business with $5,000 capital, $2,000 of which is my own'.

Contract. When you sign a legal document, you are entering into a contract. Starting a business lets you sign and enter into contracts on behalf of the business - the contract will be between the other person and your company, not you.

Director. The people ultimately in charge of a company are its directors. For a large company, there will be a boards of directors, appointed by the shareholders. For a home business, though, you can appoint yourself as the sole director since you are also the sole shareholder (see 'shareholder').

Incorporation. This is the formal name for the process of starting a company. Example: 'My business was incorporated in March 2000'.

Insolvency. When a company cannot afford to pay its debts. The type of company you have set up will affect what happens in this situation - you may be liable for all of the debt yourself, or for none.

Limited liability. A limited liability company is one where you agree beforehand how much responsibility you will take if anything goes wrong. This protects you from being destroyed financially if something bad happens to your business.

Office. Your company's 'office' isn't just a place with computers - it's also a legal concept, meaning where your company is based. Your company must have a registered office, which means that you can't start a company unless you have an address which would be legal to use for this purpose.

Private. A home business will be private, which means that members of the public cannot invest by buying shares. This does not stop individuals from buying percentages of your company if you are willing to sell, though. Starting your company as a private one also doesn't stop you from converting it to a public one later on.

Proxy. Someone who acts as a proxy for you acts on your behalf - you have given them the legal right to speak for you. For example, if you get a lawyer to handle the incorporation of your company, they will be incorporating it for you by proxy.

Shareholders. The shareholders are the people who own the company. In your company, you will be the only shareholder (and so own 100% of your business), unless you've made a deal with someone else for them to own a share.

Latin.

When you're dealing with law, the amount of Latin involved can be confusing. Here are some Latin terms you might come across when you're setting up your company.

Bona fide: 'in good faith'. This is used to mean that someone says they are telling the truth.

De facto: 'in fact'. Used when something has happened that makes the 'real' situation take precedence from the legal one.

De jure: 'in law'. The opposite of de facto.

Ex gratia, 'out of grace'. When something will be done for no fee.

Prima facie, 'at first sight'. Something that seems true but is wrong.

Quid pro quo, 'something for something'. When a fee will be charged for a service (or services will be exchanged).

Be Careful with Jargon.

However much jargon you might begin to encounter as you start your business, don't start to use it yourself. It will make it so that only 'insiders' will understand what you mean, and everyone else will feel either a little silly or a little annoyed. By the same token, if you're speaking to someone (yor accountant, for example) and they use some jargon you don't understand, there's nothing wrong with asking them to explain what they mean - it's their fault for using an overly technical word, not yours for not knowing it.

If you're not sure, there's a simple rule: jargon is for communicating very specific, technical meanings. It shouldn't be used to replace everyday language, as it does nothing but cause confusion.

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