Commercial Law Glossary

Term/PhraseArea of LawDefinition
AbandonmentGeneral Law1. General: Voluntary disclaim of a right or interest (without transferring it to anyone else) in a property, accompanied by a clear act of abandoning that property. Such acts include continuous lack of use and/or maintenance, and failure to pay property taxes. The abandoned property may then be claimed by an occupier (see adverse possession) or may be appropriated by the state. However, obligations (debts, liens, taxes) associated with a property are not discharged when it is abandoned and remain the liability of the owner.2. Accounting: Donation or voluntary disposal of a business asset where it is cheaper to abandon the asset than to restore or salvage it.The book value of an abandoned asset is written off as a loss.3. Futures: Expiration of an option instead of its exercise or sale.4. Insurance: Right of the owner of an insured property to abandon it (1) where its loss cannot be avoided (called actual total loss), or (2) where the cost of repairing the damage exceeds its value (called constructive total loss). The insured party can still claim full settlement from the insurer (who becomes the owner of the abandoned property), after serving the notice of abandonment subject to the conditions of the insurance policy.
Accord & SatisfactionContractAgreement between two parties to a contract, in which one party (which has a legal claim against the other) releases the other party from its obligations in return for some form of compensation. The agreement is the ‘accord,’ and the compensation is the ‘satisfaction.’

AccretionM&A1. Increase in the value of a firm through internal expansion, acquisitions, and/or mergers.2. Increase in value of certain assets (such as land, liquor, livestock, and timber) due to passage of time, and which can be turned into cash (realized) only upon eventual sale of the asset.3. Increase in land area due to the permanent retreat of the high-water mark of a water front property or by soil deposition by river, stream, or sea waters. See also reliction.
AcquirerM&AA person or company who gains possession or ownership of property, a business interest or other item. See also acquisition.
AcquisitionM&A1. Taking custody of records.2. Taking possession of an asset by purchase.3. Taking control of a firm by purchasing 51 percent (or more) of its voting shares.
Adverse PossessionGeneral LawClaim to the title of a private (non-governmental or non-crown) property by an occupant who has notoriously, openly, and visibly occupied the property continuously for a certain period (commonly 12 to 20 years). Adverse possession may be claimed for a property that has been abandoned, or in opposition of the rights of its actual (legal) owner who does not challenge its possession by the claimant. See also color of title.
Agent / AgencyAgencyFiduciary relationship between two parties in which one (the ‘agent’) is under the control of (is obligated to) the other (the ‘principal’) . The agent is authorized by the principal to perform certain acts, for and on behalf of the principal. The principal is bound by the acts of the agent, performed in carrying out entrusted duties and within the scope of agent’s authority. An agency can be created by (1) express agreement, whether oral or written, (2) implication, based on the custom or practice of the trade, or (3) conduct of the principal. Under the legal doctrine of estoppel, the principal is prohibited from denying the existence of a properly constituted agency.
Creation of agency is essential to commercial and financial transactions, because an organization (as a legal entity) can function only through its agents.
Agreement/ContractContractA voluntary, deliberate, and legally binding agreement between two or more competent parties. Contracts are usually written but may be spoken or implied, and generally have to do with employment, sale or lease, or tenancy.A contractual relationship is evidenced by (1) an offer, (2) acceptance of the offer, and a (3) valid (legal and valuable) consideration. Each party to a contract acquires rights and duties relative to the rights and duties of the other parties. However, while all parties may expect a fair benefit from the contract (otherwise courts may set it aside as inequitable) it does not follow that each party will benefit to an equal extent.
Existence of contractual-relationship does not necessarily mean the contract is enforceable, or that it is not void (see void contract) or voidable (see voidable Contract). Contracts are normally enforceable whether or not in a written form, although a written contract protects all parties to it. Some contracts, (such as for sale of real property, installment plans, or insurance policies) must be in writing to be legally binding and enforceable. Other contracts (see implied in fact contract and implied in law contract) are assumed in, and enforced by, law whether or not the involved parties desired to enter into a contract.
Alternative Dispute ResolutionGeneral LawA type of dispute resolution that seeks to limit the costs of litigation by using alternative, often out-of-court means, such as arbitration, conciliation and summary possession proceedings. Alternative dispute resolution options are voluntary, and often involve a neutral third party to make decisions.
AmalgamationBusiness LawCombination of two or more firms, into either an entirely new firm or a subsidiary controlled by one of the constituent firms.
Angel InvestorM&AUsually, a former entrepreneur or professional who provides starting or growth capital in promising ventures, and helps also with advice and contacts. Unlike venture capitalists, angel investors usually operate alone (or in very small groups) and play only an indirect role as advisors in the operations of the investee firm. They are deemed to be ‘angels’ in comparison with grasping investors who are termed ‘vulture capitalists.’ Also called business angel.
Anticipatory BreachContractAn anticipatory breach (also referred to as an anticipatory repudiation) is an action that shows a party’s intention to fail to perform or fulfill its contractual obligations to another party. An anticipatory breach negates the counterparty’s responsibility to perform its requirements under the contract. By demonstrating a party’s intention to breach, the counterparty may also begin legal action.
AntitrustBusiness LawUS Federal legislation which limits the growth and use of monopoly power that interferes with the preservation of a free and competitive market system. Other countries (the UK, for example) sometimes allow creation of monopolies in order to generate employment.
Apparent AuthorityAgencyLegal concept that (in agency agreements) a principal is liable for the acts of the agent if the principal (by his or her actions or by a failure to act) gives an impression to a third party that the agent acts or speaks for the principal. See also actual authority.
AppraisalSales1. Impartial analysis and evaluation conducted according to established criteria to determine the acceptability, merit, or worth of an item.2. Evaluation by a qualified appraiser to (1) assess the current market value of a property, (2) estimate the extent of damage to an insured property and cost of repairs, or (3) determine if a total loss occurred. A written appraisal is usually a key requirement when a property is bought, sold, insured, or mortgaged. It is required also when a claim is filed for compensation for damage or destruction of the insured property. See also appraisal value.3. Alternative term for valuation.
ArbitrationGeneral LawSettlement of a dispute (whether of fact, law, or procedure) between parties to a contract by a neutral third party (the arbitrator) without resorting to court action. Arbitration is usually voluntary but sometimes it is required by law. If both sides agree to be bound by the arbitrator’s decision (the ‘award’) it becomes a binding arbitration. The exact procedure to be followed (if not included in the contract under dispute) is governed usually by a country’s arbitration laws, or by the arbitration rules prescribed by the International Chamber Of Commerce (ICC).
Arm’s LengthContractBasis of determining fair market value (FMV), it is a dealing between independent, unrelated, and well informed parties looking out for their individual interests. Transactions involving family members, and parent companies and subsidiaries, are deemed arm-in-arm dealings. To qualify as an arm’s length transaction, neither of the involved parties may have any interest in the transaction’s consequences to the other party.
Asset DealM&AAn asset deal occurs when a buyer is interested in purchasing the operating assets of a business instead of stock shares. It is a type of M&A transaction. In these cases, the buyer completes the transaction by providing the selling company consideration for some or all of the assets they own. In terms of legalese, an asset deal is any transfer of a business that is not in the form of a share acquisition. This means that the transfer of a business is largely either a share deal/stock acquisition or an asset deal. The buyer’s accounting records must reflect the assets and liabilities at fair market value.
AvulsionGeneral LawSudden and abrupt change in the boundary between two pieces of land due to flood waters or a change in a river’s course. Avulsion does not change the ownership of the removed land which remains the property of the original owner.
Backward IntegrationM&AType of vertical integration in which a consumer of raw materials acquires its suppliers, or sets up its own facilities to ensure a more reliable or cost-effective supply of inputs.
Bad FaithContractLack of honesty or trust, such as to knowingly misrepresent a thing or situation as what it is not in reality. Called ‘mala fides’ in Latin.
Bait & SwitchSalesA selfish marketing strategy used to allure consumers into purchasing products or services by offering one product but then changing to a more high-end product once the consumer agrees to make a purchase.
BankruptcyBusiness LawLegal procedure for liquidating a business (or property owned by an individual) which cannot fully pay its debts out of its current assets. Bankruptcy can be brought upon itself by an insolvent debtor (called ‘voluntary bankruptcy’) or it can be forced on court orders issued on creditors’ petition (called ‘involuntary bankruptcy’). Two major objectives of a bankruptcy are (1) fair settlement of the legal claims of the creditors through an equitable distribution of debtor’s assets, and (2) to provide the debtor an opportunity for fresh start. Bankruptcy amounts to a business-failure, but voluntary winding up does not.See also insolvency.
BeneficiaryGeneral LawPerson or other legal entity for whose present or future interest (benefit) an annuity, assignment (such as a letter of credit), contract, insurance policy, judgment, promise, trust, will, etc., is made.
Bill of LadingSalesA document issued by a carrier, or its agent, to the shipper as a contract of carriage of goods. It is also a receipt for cargo accepted for transportation, and must be presented for taking delivery at the destination. Among other items of information, a bill of lading contains (1) consignor’s and consignee’s name, (2) names of the ports of departure and destination, (3) name of the vessel, (4) dates of departure and arrival, (5) itemized list of goods being transported with number of packages and kind of packaging, (6) marks and numbers on the packages, (7) weight and/or volume of the cargo, (8) freight rate and amount.
It serves as a proof of ownership (title) of the cargo, and may be issued either in a negotiable or non-negotiable form. In negotiable form, it is commonly used in letter of credit transactions, and may be bought, sold, or traded; or used as security for borrowing money. A bill of lading is required in all claims for compensation for any damage, delay, or loss; and for the resolution of disputes regarding ownership of the cargo. The rights, responsibilities, and liabilities of the carrier and the shipper under a bill of lading (often printed on its back) are governed generally either by the older Hague rules, or by the more recent Hague-Visby rules. See also lading.
Black KnightM&ACorporate raider who makes an acquisition bid deemed unwelcome by the target firm’s management. The threatened management may then seek a white knight to rescue it.
BootstrapingM&A1. Building a business out of very little or virtually nothing. Boot strappers rely usually on personal income and savings, sweat equity, lowest possible operating costs, fast inventory turnaround, and a cash-only approach to selling. Many of today’s largest corporations (such as Apple computer, Clorox Co., Coca Cola, Dell Computer, Hewlett-Packard, Microsoft) began as boot-strapped ventures. Most of world’s startups still follow this road; either because there is no alternative, or because of the unmatched control and independence it offers.2. Forecasting beyond one period by relying on the forecasted data for that period itself.3. A type of business funding that seeks to avoid relying on outside investors.By not relying on outside sources of funding, the business will not have to dilute ownership through issuing equity, and will not rely on outside banks for debt. This type of funding increases the level of risk for the business owner, since the money for the business is coming more or less out of pocket. For example, a movie director might finance a project through credit cards or a second mortgage rather than by obtaining funds from a movie studio. The term derives its meaning from the expression “lifting oneself up by one’s own bootstraps”, referring to raising oneself up by one’s own means. Also called bootstrap funding. See also self-financing.
Breach of ContractContractContracting party’s actual failure or refusal to perform (or a clear indication of its intentions to not perform) its obligations under the contract. A breach could be effected by (1) repudiation of obligations before the beginning of the contract, (2) repudiation of obligations before its completion, or (3) a conduct that prevents the contract’s proper performance (such as interfering with the other party’s performance). Breach of a major term (condition) of the contract (called ‘fundamental breach’) entitles the aggrieved party to (1) treat the contract as discharged, (2) consider itself free from its own obligations under the contract, and (3) sue the offending party for damages arising from the breach.Breach of a minor term (warranty) allows for suing for damages arising from the breach, but does not allow any party to treat the contract as discharged except where terms of the contract override this implied legal-provision. In contrast to ‘rescission of contract,’ a breach of contract does not operate retrospectively.
Breach of WarrantyContractViolation of an agreement between a seller and a buyer as to the condition, content, quality, or title of the item sold.
Capital (Expenditure)Business Law1. Wealth in the form of money or assets, taken as a sign of the financial strength of an individual, organization, or nation, and assumed to be available for development or investment.2. Accounting: Money invested in a business to generate income.3. Economics: Factors of production that are used to create goods or services and are not themselves in the process.
CapitalizationM&A1. Accounting: Recording of a cost as a fixed asset (written off as depreciation over several accounting periods) instead of an expense (charged off against earnings in one accounting period).2. Corporate: Conversion of the retained earnings of a firm into capital through a new issue of stock.3. Finance: Structure and amount of long-term equity and debt capitals of a firm expressed as percentage of the total (equity and debt) capital.4. Leasing: Conversion of an operating lease into a capital lease by classifying the leased asset as a purchased asset, and showing the lease obligations as loan on the books of the lessee firm.
CarrierGeneral Law1. Communications: Company that offers communication services (usually to a few corporate customers) over land-wire, sea cable, mobile (cellular), point-to-point microwave, and/or satellite systems.2. Insurance: Company that underwrites and issues an insurance policy, or is responsible for the administration of a range of insurance policies.3. Shipping: Company that transports goods and/or people by air, land, or sea, in its own or chartered vessels or equipment, and is named as the carrier in the contract of carriage.
Cash ConsiderationM&ACash consideration is the purchase of the outstanding shares of a company using cash as the form of payment. An all-cash offer is one way that an acquirer may use to acquire a stake in another company during a merger or acquisition transaction. Cash consideration is usually preferred by shareholders when they are unable to sell the company for other forms of consideration such as debt and stock.
Casualty LossContractInsurance industry term for an economic loss resulting from a casualty. Uninsured casualty loss may be written off against that or the previous year’s income. See also disaster loss.
Cease & Desist OrderGeneral LawProhibitory order directing a party to immediately discontinue a particular course of action or conduct.
Chattel MortgageContractLien on the personal and movable property of a borrower, instead of on land or building. Chattel mortgage is used often in the credit (hire purchase) sale of automobiles or big-ticket household appliances.
Class ActionGeneral LawLegal action that concerns a large group (class) of people. One or more individuals may initiate a court case as representatives of a class, without requiring every member of the class to join the action.
Clean Hands DoctrineContractLegal principle that the party petitioning for equity and judicial action must itself be free of inequitable or fraudulent dealings. In other words, a thief robbed of stolen property cannot get court’s help in its recovery.
Close CorporationBusiness LawFirm (1) whose most (but not all) issued shares are held by a family or a small group of investors, (2) the number of its shares held by the outsiders or public is large enough to provide a basis for it to be listed on a stock exchange. See also closed corporation.
Co-PartnerBusiness LawSomeone who is a member of a partnership
Collusive ActionGeneral LawCourt case in which the litigant parties are not adversaries, but instead are trying to settle a legal question or to obtain a judgment that might set a favorable precedent for another case.
Commercial FrustrationBusiness LawAn event not foreseen or controllable by either party to a written or oral contract that excuses one party from performance of his or her duties under the contract without penalty. For example, a reception hall can break a contract to host a wedding reception if the hall is accidentally destroyed by fire.
ComminglingBusiness Law1. Accounting: Mixing a firm’s cash with personal funds, a practice that always attracts adverse attention from the taxation authorities, and may make the offender personally liable for the firm’s obligations.2. Shipping: Packing two or more articles or commodities (each subject to a different rate of duty) in a manner that the quantity and/or value of the individual items cannot be assessed without segregating them. Customs usually levy the highest rate of duty (applicable to any component of a commingled shipment) on the entire shipment.
ConditionContract1. Law: An uncertain future act or event, the occurrence of which determines the existence or extent of an interest or right, or liability or obligation; or which initiates, halts, or terminates the performance of a duty.2. Contracts: The central instrument in a contract. A condition (1) invests or divests the rights and duties of the parties to the contract, or (2) stipulates that the occurrence or nonoccurrence of a certain event creates or terminates a contract.An actual or stipulated condition is called an express condition or condition in deed, and a condition deemed to be automatically present is called an implied condition or condition in law.
Breach of a condition constitutes breach of the contract, and entitles the aggrieved party to call for setting aside (rescission) of the contract, and to claim for damages. A minor term (incidental point) of the contract is called a warranty, breach of which may call for damages as compensation but not rescission of the contract. See also condition precedent, condition subsequent, innominate term, and intermediate term.
Condition PrecedentContractExpress or implied stipulation in a contract that (1) a contracting party must perform its part before it can demand performance from the other(s), or (2) a certain event must occur before a party has right to performance or to demand damages for non-performance. See also conditions concurrent and condition subsequent.
Condition SubsequentContractStipulation in a contract that provides for divestment of a right, or defeat of an interest, if a particular event occurs or does not occur. See also conditions concurrent and condition precedent.
Conflict of InterestGeneral Law1. A situation that has the potential to undermine the impartiality of a person because of the possibility of a clash between the person’s self-interest and professional interest or public interest.2. A situation in which a party’s responsibility to a second-party limits its ability to discharge its responsibility to a third-party.
ConglomerateM&ALarge corporation run as a single business, but made up of several firms (acquired through mergers or takeovers) supplying diverse goods and/or services. Berkshire Hathaway Inc. is one of the biggest conglomerates in the world, with ownership of insurance, utilities, financial, and retail companies.
Consequential DamagesGeneral LawDamage or injury that does not directly and immediately result from a wrongful act, but instead indirectly and/or after elapse of some time. Consequential damage usually cannot be foreseen and is often unrecoverable through litigation, unless the offending party was notified in advance that the aggrieved party would suffer such damage. Also called indirect damage or special damage. See also consequential loss.

ConsolidationM&A1. Accounting: (1) Combining assets, equity, liabilities and operating accounts of a parent firm and its subsidiaries into one financial statement. See also consolidated financial statement. (2) Combining two or more firms through purchase, merger, or ownership transfer to form a new firm.2. Banking: Paying off two or more old loans with a new loan. See also consolidation loan.3. Law: Combining two actions (involving the same parties and the same issues) into one action on court orders. Consolidation may or may not result in a single judgment.4. Shipping: Combining several smaller shipments into a full container load or a large shipment to avail of better freight rates.Also called groupage.
ConsortiumBusiness Law1. Short-term arrangement in which several firms (from the same or different industry sectors or countries) pool their financial and human resources to undertake a large project that benefits all members of the group. A consortium lasts for a period that is usually shorter than that for a syndicate.2. Benefits the parties to an agreement or arrangement are entitled to receive from one another.
Constructive Discharge / Constructive DismissalEmploymentSituation where an employer creates such working conditions (or so changes the terms of employment) that the affected employee has little or no choice but to resign. In such cases, the employee retains the right to seek legal compensation as having been dismissed unfairly. Also called constructive discharge. See also unfair dismissal.
Constructive FraudContract1. Unintentional deception or misrepresentation.2. Obtaining of a legal but unconscientious advantage through an unfair transaction, such as in dealings with the ignorant, poor, or weak. Courts may set aside or refuse to enforce an agreement where the terms are such that no person with free volition or proper advice would have agreed to.
Constructive NoticeGeneral Law1. Knowledge which, according to law, a person is presumed (or duty bound) to acquire by making normal and reasonable enquiries. For example, the purchaser of a property (or one dealing with an incorporated or registered firm) is presumed to know the legal status of the property (or the firm) from documents available for public inspection.2. Notice of a court action in newspapers that in law is considered to be a sufficient notice to the concerned party or parties. See also actual notice and implied notice.
Constructive PossessionSalesControl over a material object or property without having actual possession or custody, such as the seller’s possession of sold and delivered, but not yet paid for, goods.
Contract of AdhesionContractBoilerplate contract, prepared entirely by the party with preponderant bargaining power, and offered to the weaker party on (in effect) a ‘take it or leave it’ basis. Most insurance policies and small business loans, and some contracts of employment (although legal), are contracts of adhesion because they provide little or no opportunity to negotiate the terms. If the disadvantaged party finds some provisions unacceptable, it cannot suggest changes and must do without the loan or service. In case of a dispute, courts scrutinize such contracts to ensure their terms are not oppressive or unconscionable, and frequently refuse to enforce the contract.The name comes from the reality that the stronger party draws up the contract and the weaker party simply ‘adheres’ to the terms. Also called contract of adhesion.
ConversionTort1. Computing: Converting data stored in one file format into another, or from one type of storage media to another.2. Law: Wrongful possession or disposal (whether deliberate or negligent) of personal property belonging to another, thereby denying him or her the rights of its ownership. For example, borrowing something and not giving it back. Conversion is usually a civil offense.3. Manufacturing: Changing the form of a material to serve a different purpose, without changing its essential characteristics or properties.
ConveyanceSales1. Transfer of ownership (title) of land from a seller to a buyer through a document called a deed because it cannot be transferred otherwise (by a mere contract of sale). Such transfer effected through a will is not a conveyance.2. Voluntary transfer of a right from one living person to another.
CooperativeBusiness LawFirm owned, controlled, and operated by a group of users for their own benefit. Each member contributes equity capital, and shares in the control of the firm on the basis of one-member, one-vote principle (and not in proportion to his or her equity contribution).
CopyrightCreative RightsLegal monopoly that protects published or unpublished original work (for the duration of its author’s life plus 50 years) from unauthorized duplication without due credit and compensation. Copyright covers not only books but also advertisements, articles, graphic designs, labels, letters (including emails), lyrics, maps, musical compositions, product designs, etc. According to the major international intellectual-property protection treaties (Berne Convention, Universal Copyright Convention, and WIPO Copyright Treaty) five rights are associated with a copyright: the right to: (1) Reproduce the work in any form, language, or medium.(2) Adapt or derive more works from it. (3) Make and distribute its copies. (4) Perform it in public. (5) Display or exhibit it in public. To acquire a valid copyright, a work must have originality and some modicum of creativity. However, what is protected under copyright is the ‘expression’ or ’embodiment’ of an idea, and not the idea itself. A copyright is not equivalent of legal-prohibition of plagiarism (which is an unethical and unprofessional conduct, but not an offense), and does not apply to factual information.
Cornering the MarketBusiness LawSituation where an individual, firm, or cartel controls the supply of a commodity and dictates its price. Because cornering is often ruthless in its anti-social behavior, governments enact anti-monopoly or anti-trust laws to prevent its occurrence. Attempts to corner a market, however, do not usually last long because high prices encourage people to unearth the untapped supplies and create substitutes which ‘break’ the corner. See also Black Friday.
Corporate FraudBusiness LawA business activity that is deliberately designed to defraud creditors. For example, the executives of a manufacturing plant might take deposits for a large order of product, knowing that the company will be unable to deliver the product due to impending bankruptcy. If a liquidator expects that a business has engaged in fraudulent trading during the winding up of a company during bankruptcy, the liquidator can bring a case to court that could require parties aware of the fraudulent activity to pay. It is often hard to prove that fraudulent trading has taken place due to the high burden of proof, since a third party often has to come forward indicating that it has benefited from the fraudulent activity.Fraudulent trading is not the same as insider trading. See also wrongful trading, cross-firing.
Corporate VeilBusiness LawA legal concept that separates the personality of a corporation from the personalities of its shareholders, and protects them from being personally liable for the company’s debts and other obligations. This protection is not ironclad or impenetrable. Where a court determines that a company’s business was not conducted in accordance with the provisions of corporate legislation (or that it was just a façade for illegal activities) it may hold the shareholders personally liable for the company’s obligations under the legal concept of lifting the corporate veil.
CorporationBusiness Law1. Firm that meets certain legal requirements to be recognized as having a legal existence, as an entity separate and distinct from its owners. Corporations are owned by their stockholders (shareholders) who share in profits and losses generated through the firm’s operations, and have three distinct characteristics (1) Legal existence: a firm can (like a person) buy, sell, own, enter into a contract, and sue other persons and firms, and be sued by them. It can do good and be rewarded, and can commit offence and be punished. (2) Limited liability: a firm and its owners are limited in their liability to the creditors and other obligors only up to the resources of the firm, unless the owners give personal-guaranties.(3) Continuity of existence: a firm can live beyond the life spans and capacity of its owners, because its ownership can be transferred through a sale or gift of shares.2. Municipal authority of a town or city.3. A very large, usually diversified, firm.For more information, see The Difference between an S Corporation and an LLC.
Counter OfferContractOffer given in response to an offer. It implies rejection of the original offer and puts the ball back in the court of the original offerer who has three options: to (1) accept it, expressly (by replying) or by implication (by not replying), (2) issue another (counter-counter) offer, or (3) reject it expressly. No binding contract can be created until one party accepts the other’s offer. Counter offers come in many guises; a seller’s acknowledgment (with estimated delivery dates) of a purchase order may, in fact, constitute a counter-offer.
CounterfeitCreative RightsImitation made to pass off as a genuine article, such as counterfeit money.
Course of EmploymentEmploymentRegular activities through which an employee carries out (or is supposed to carry out) the orders of his or her employer. A wrong is considered committed during the course of employment only if what the employee was doing (at the time the wrong happened) falls within the scope of those activities.
Covenant not to competeEmploymentProvision in a business sale agreement that restricts the seller from starting or working in a similar business for a certain number of years (typically three) in a specified geographical area.
Creeping InflationBusiness LawCircumstance where the inflation of a nation increases gradually, but continually, over time. This tends to be a typically pattern for many nations. Although the increase is relatively small in the short-term, as it continues over time the effect will become greater and greater.
CrowdsourcingM&AThe outsourcing of job functions to groups of people who operate independently and who are willing to provide their services in exchange for experience, recognition or low rates of pay. Recognizing that technology advances have enabled people to develop superior technical skills and talent in the comfort of their homes, companies are now using social media and internet forums to invite them to participate on specific projects.
Crown Jewels DefenseM&ATakeover defense strategy in which the target firm sells off (or agrees to sell) its most valuable assets to a third party to become a less attractive acquisition target.
Cumulative VotingBusiness LawSystem of voting which (unlike regular or statutory voting) allows minority stockholder (shareholders) a chance to name one or more directors to the firm’s board. In cumulative voting, each share has as many votes as there are vacant positions on the board, and each shareholder can apportion the shares as he or she wishes, or can cast all votes for any one of the candidates.
d.b.a.Business LawUS equivalent of ‘trading as’ (T/A), it indicates that the owners of a firm want neither to incorporate it nor to do business under their own names, but to operate under a fictitious name. Also called assumed name.
Dawn RaidM&AA dawn raid refers to the practice of buying up a large amount of shares right at the open of the day’s trading. The goal is to amass a large number of shares in a target company by one company to influence a potential takeover of the target.
De facto corporationBusiness LawFirm that is not a de jure corporation, but may be treated as such (in providing limited liability cover to its stockholders) by courts because its promoters or owners made a sincere effort to incorporate.
De jure corporationBusiness LawFully formed incorporated company, recognized in law as a corporation for all purposes.
DebentureBusiness LawA promissory note or a corporate bond which (in the US) is backed generally only by the reputation and integrity of the borrower and (in the UK) by the borrower’s specific assets.When unsecured, it is called a bare debenture or naked debenture; when secured by a charge on a specific property, it is called a mortgage debenture.
DebtGeneral LawA duty or obligation to pay money, deliver goods, or render service under an express or implied agreement. One who owes, is a debtor or debitor; one to whom it is owed, is a debtee, creditor, or lender.
Debt Issuance FeesM&AWhen a company borrows money, either through a term loan or a bond, it usually incurs third party financing fees (called debt issuance costs). These are fees paid by the borrower to the bankers, lawyers and anyone else involved in arranging the financing.
Deceptive Trade PracticesBusiness Law
Declaratory judgmentGeneral LawThat expresses a court’s opinion on a question of law, or establishes the rights of and/or relationships between the litigant parties. Although binding, it generally does not provide for an enforcement order.
DefamationTortMaking of false, derogatory statement(s) in private or public about a person’s business practices, character, financial status, morals, or reputation. Oral defamation is a slander whereas printed or published defamation is a libel. The plaintiff must prove that the defamation was communicated to someone other than him or her. And, if the statement is not obviously defamatory, it must be shown that it carries a defamatory meaning (see innuendo) and that reasonable people would think that it refers to the plaintiff. In case of unintentional defamation, the defendant may mitigate damages or escape liability by offering an apology. 
Default judgmentGeneral LawJudgment awarded in a civil case in the favor of a plaintiff when a defendant fails to (1) file an acknowledgement of service, (2) make an appearance despite due notice, or (3) enter a defense. If a plaintiff does not comply with a court order (such as to permit discovery, or to supply the required documents) the defendant can apply for dismissal of the case. An interlocutory default judgment establishes a liability but not its amount, whereas a final default judgment establishes both. Also called default order.
Defensive MergerM&AA defensive merger is a situation where a target organization wants to avoid acquisition by a particular takeover firm. For this to happen, the target organization chooses to merge with another organization so that they cannot be acquired by the initial acquisition firm.
DemurrerGeneral LawA statement in a court case avowing that there is no grounds for action, even if the other party’s claims are accurate.
DepreciationBusiness Law1. Accounting: The gradual conversion of the cost of a tangible capital asset or fixed asset into an operational expense (called depreciation expense) over the asset’s estimated useful life.The objectives of computing depreciation are to (1) reflect reduction in the book value of the asset due to obsolescence or wear and tear, (2) spread a large expenditure (purchase price of the asset) proportionately over a fixed period to match revenue received from it, and (3) reduce the taxable income by charging the amount of depreciation against the company’s total income. In effect, charging of depreciation means the recovery of invested capital, by gradual sale of the asset over the years during which output or services are received from it.  Depreciation is computed at the end of an accounting period (usually a year), using a method best suited to the particular asset. When applied to intangible assets, the preferred term is amortization.2. Commerce: The decline in the market value of an asset.3. Economics: The decrease in the economic potential of an asset over its productive or useful life.4. Foreign exchange: The reduction in the exchange value of a currency, either by a government or due to weakening of the underlying economy in a floating exchange rate system.
Derivative ActionBusiness LawLawsuit brought on behalf of a corporation by one or more of its shareholders against its directors and/or officers to seek redress for a breach of fiduciary duty, gross negligence, mismanagement, or other serious matter. Also called derivative suit.
DilutionM&AAn investor’s percentage of ownership is reduced by additional stock issued during future rounds of financing.
DissolutionBusiness LawEnd of the independent existence of a firm, brought about by consolidation or merger, creditors, government, or the stockholders (shareholders). See also: Winding up.
DividendBusiness LawA share of the after-tax profit of a company, distributed to its shareholders according to the number and class of shares held by them. Smaller companies typically distribute dividends at the end of an accounting year, whereas larger, publicly held companies usually distribute it every quarter. The amount and timing of the dividend is decided by the board of directors, who also determine whether it is paid out of current earnings or the past earnings kept as reserve. Holders of preferred stock receive dividend at a fixed rate and are paid first. Holders of ordinary shares are entitled to receive any amount of dividend, based on the level of profit and the company’s need for cash for expansion or other purposes.
Corporate legislation generally forbids payment of dividend out of anticipated but not yet received (unrealized) profit. Normally all dividend payments are taxable, often at the source.
DividendBusiness LawA share of the after-tax profit of a company, distributed to its shareholders according to the number and class of shares held by them.  Smaller companies typically distribute dividends at the end of an accounting year, whereas larger, publicly held companies usually distribute it every quarter. The amount and timing of the dividend is decided by the board of directors, who also determine whether it is paid out of current earnings or the past earnings kept as reserve. Holders of preferred stock receive dividend at a fixed rate and are paid first. Holders of ordinary shares are entitled to receive any amount of dividend, based on the level of profit and the company’s need for cash for expansion or other purposes.
Corporate legislation generally forbids payment of dividend out of anticipated but not yet received (unrealized) profit. Normally all dividend payments are taxable, often at the source.
Drop Dead DateContractDate that a deadline is final without exception. For example, the drop-dead day for many salespersons would be the last day of a quarter before quarterly sales results are compiled and reported upon.
Due Diligence M&A1. General: Measure of prudence, responsibility, and diligence that is expected from, and ordinarily exercised by, a reasonable and prudent person under the circumstances.2. Business: Duty of a firm’s directors and officers to act prudently in evaluating associated risks in all transactions.3. Investing: Duty of the investor to gather necessary information on actual or potential risks involved in an investment.4. Negotiating: Duty of each party to confirm each other’s expectations and understandings, and to independently verify the abilities of the other to fulfill the conditions and requirements of the agreement.
DuressContractCoercion to effect an unwilling person’s agreement to a transaction. It may take the form of a (1) compulsive act, (2) threat that causes fear, or (3) use of moral or social pressure to overpower the will of the individual. Agreements entered into, or testaments signed under, duress are judged illegal and invalid. See also coercion and undue influence.
Earnest MoneySalesEarnest money is a deposit made to a seller that represents a buyer’s good faith to buy a home. The money gives the buyer extra time to get financing and conduct the title search, property appraisal, and inspections before closing. In many ways, earnest money can be considered a deposit on a home, an escrow deposit, or good faith money.
Economies of ScaleM&AThe reduction in long-run average and marginal costs arising from an increase in size of an operating unit (a factory or plant, for example). Economics of scale can be internal to an organization (cost reduction due to technological and management factors) or external (cost reduction due to the effect of technology in an industry). See also diseconomies of scale.
Economies of ScopeM&AReduction in long-run average and marginal costs, due to the production of similar or related goods or services where the output or provision of an item ‘A’ reduces the cost of item ‘B.’ See also economies of scale.
Eminent DomainGeneral LawLegal doctrine of the right and inherent power of a government to take private property (such as land) for public use (such as for bridges, canals, roads) on reimbursing the owner with fair market value of the property. Although the concept of eminent domain is not a part of common law, in international law the state is regarded as the representative-owner of the national territory and all property within its national boundaries. See also confiscation and expropriation.
EmolumentGovernmentAdvantage, benefit, profit, or wage received as compensation for being employed or holding an office.
Empire BuildingM&AEmpire building is the act of attempting to increase the size and scope of an individual or organization’s power and influence. In the corporate world, this is seen at the intra-company level when managers or executives are more concerned with expanding their business units, their staffing levels and the dollar value of assets under their control than they are with developing and implementing ways to benefit shareholders.
Empire building can also occur in the larger public arena when corporations take steps to acquire competitors or other firms that might offer downstream or upstream integration or other synergies. A corporation might attempt to control a larger market share or form a conglomerate to branch into other industries in an attempt to grow the corporation’s influence, assets under control, and influence.
Equitable EstoppelGeneral LawLegal bar that prevents a (first) party from taking advantage of another (second) party where the second party is injured from relying on the misrepresentations of the first party.
EquityBusiness Law1. Fairness and impartiality towards all concerned, based on the principles of evenhanded dealing. Equity implies giving as much advantage, consideration, or latitude to one party as it is given to another. Along with economy, effectiveness, and efficiency, Equity is essential for ensuring that extent and costs of funds, goods and services are fairly divided among their recipients. See also equitable.2. Accounting: (1) Ownership interest or claim of a holder of common stock (ordinary shares) and some types of preferred stock (preference shares) of a company.On a balance sheet, equity represents funds contributed by the owners (stockholders) plus retained earnings or minus the accumulated losses. (2) Net worth of a person or company computed by subtracting total liabilities from the total assets. In case of cooperatives, equity represents members’ investment plus retained earnings or minus losses.3. Law: (1) The English system of justice that developed during 17th to 19th centuries, separate and distinct from the system of common law. Not bound by the precedents, it tempered the harshness and inflexibility of common law, especially in cases involving families and children. Although both systems of law merged by 1875, the rules of equity prevail in case of a conflict with the rules of common law. (2) Any right to an asset or property, held by a creditor, proprietor, or stockholder (shareholder).
Equity Issuance FeesM&A“Equity issuance fees” is the accounting term used to reference the costs a company accrues when they introduce securities into the market. A company commonly introduces shares of capital stock when it’s looking to grow its business, expand its operating setup, and establish a broader value base for shareholders.
EstoppelEvidenceLegal rule of evidence (and not a cause of action) which (1) prevents a party from making an allegation or denial that contradicts what it had previously stated, or what has been legally established, as the truth, (2) supports a claim for damages of the party that had a good-faith reliance on a misleading representation of another party.
Extenuating CircumstancesGeneral LawA circumstance that renders conduct less serious and thereby serves to reduce the damages to be awarded or the punishment to be imposed.
Extrinsic FraudContractFraudulent acts which keep a person from obtaining information about his/her rights to enforce a contract or getting evidence to defend against a lawsuit. This could include destroying evidence or misleading an ignorant person about the right to sue.
Extrinsic Fraud / Collateral FraudContractFraudulent acts which keep a person from obtaining information about his/her rights to enforce a contract or getting evidence to defend against a lawsuit. This could include destroying evidence or misleading an ignorant person about the right to sue.
Face/Par ValueBusiness LawApparent worth or the nominal value shown on the principal (‘face’ or ‘head’) side of a bill of exchange, currency, security (stock/share, bond), or other type of financial instrument. The par value of a loan stock (bond, preferred stock/preference share) is the value at which it will be redeemed. Some jurisdictions allow shares to be issued with no par value (see no par value share). Par value is typically different from the market price. If the market price is higher than the par value, the difference is called a ‘premium;’ if it is lower, the difference is called a ‘discount.’ Also called face value, nominal value, or redemption value.
FiduciaryBusiness LawPerson or a legal entity (firm, bank, credit union) holding assets (cash, property, securities) or information as an agent-in-trust for a principal (stockholder, customer, member). A fiduciary owes (among other obligations) the duty of loyalty, full disclosure, obedience, diligence, and of accounting for all monies handed over, to the principal. A fiduciary must not exploit his or her position of trust and confidence for personal gain at the expense of the principal. Law demands a fiduciary to exercise highest degree of care and utmost good faith in maintenance and preservation of the principal’s assets and rights, and imposes compensatory as well as punitive damages on the erring fiduciary.
Fiduciary DutyBusiness LawA legal obligation of one party to act in the best interest of another. The obligated party is typically a fiduciary, that is, someone entrusted with the care of money or property. Also called fiduciary obligation.
ForeclosureSalesLegal process by which a lender cancels (forecloses) a borrower’s right of redemption of the mortgaged property through a court order (called foreclosure order). The court sets a date up to which the borrower can redeem the property by paying off the entire loan balance (including foreclosing expenses). Thereafter, the lender is free to sell the property and, upon the sale, applies the sale proceeds first to the due amount and pays the remainder (if any) to the borrower. The borrower remains liable for the due amount if the property remains unsold, and for the shortfall if the sale proceeds are insufficient to pay off the entire debt.
Forward IntegrationM&AType of vertical integration where a manufacturer acquires the channels of distribution of its outputs to achieve greater economies of scale or higher market share.
FranchiseBusiness Law1. A right conferred or established by a government, such as the right to vote (exercise one’s franchise) in a local or national election.2. Commerce: (1) A privilege granted to make or market a good or service under a patented process or trademarked name. (2) A business operating under such privilege.3. Law: A government-conferred right to exist as a legal business entity within a particular jurisdiction and to exercise corporate powers.
FraudGeneral LawAct or course of deception, an intentional concealment, omission, or perversion of truth, to (1) gain unlawful or unfair advantage, (2) induce another to part with some valuable item or surrender a legal right, or (3) inflict injury in some manner. Willful fraud is a criminal offense which calls for severe penalties, and its prosecution and punishment (like that of a murder) is not bound by the statute of limitations. However incompetence or negligence in managing a business or even a reckless waste of firm’s assets (by speculating on the stockmarket, for example) does not normally constitute a fraud.
Fraudulent MisrepresentationContractInstance of false statement where (1) the party making the statement is aware that it is false or disregards the possibility of it being false, (2) the party making the statement does so to induce another party to enter into a contract, and (3) the other party enters the contract as a result of the statement and consequently suffers a loss. See also: fraud in the inducement.
Friendly TakeoverM&AAcquisition of one firm by another where the owners of both firms agree to the terms of the takeover transaction.
Fruit of the Poisonous TreesGeneral LawA legal standard by which evidence that is illegally obtained may not be used during the presentation of a case.
GarnishmentEmploymentLegal process under which the personal property of a debtor or defendant in the hands of a third party (bank, customer, employer, etc.) is seized in part or in full to satisfy a debt or court award.
Generally Accepted Accounting Practices (GAAP)Business Law
Godfather OfferM&AAn agreement to take over assets from one company during a potential hostile buyout. Coining the phrase from The Godfather, the acquiring company gives the desired company an offer they cannot refuse.
Golden ParachuteM&AHuge bonus and/or a lucrative contract offered to a director or key employee to compensate for loss of office after a takeover or merger. It may also include a stockholding (shareholding) in the new setup.
Good FaithContractEffort made, information given, or transaction done, honestly and without a deliberate intention to defraud the other party. However, good-faith does not necessarily mean ‘without negligence.’ Also called bona fides, it is implied by law into commercial contracts.
Good WillBusiness LawAssumed value of the attractive force that generates sales revenue in a business, and adds value to its assets. Goodwill is an intangible but saleable asset, almost indestructible except by indiscretion. It is built painstakingly over the years generally with (1) heavy and continuous expenditure in promotion, (2) creation and maintenance of durable customer and supplier relationships, (3) high quality of goods and services, and (4) high quality and conduct of management and employees. Goodwill includes the worth of corporate identity, and is enhanced by corporate image and a proper location. Its value is not recognized in account books but is realized when the business is sold, and is reflected in the firm’s selling price by the amount in excess over the firm’s net worth.In well established firms, goodwill may be worth many times the worth of its physical assets. GAAP require the firm’s purchaser to write off (amortize) the amount paid as goodwill over a period (usually 10 to 30 years) for financial reporting purposes.
Grace PeriodM&AExtra time allowed for meeting with a requirement, satisfaction of an obligation, or implementation of an agreement.
GrievanceEmployment1. Law: (1) Injury, injustice, or wrong that affords reason for resistance or a formal expression as a complaint. (2) The complaint itself.2. HR: Specific complaint or formal notice of employee dissatisfaction related to adequacy of pay, job requirements, work conditions, other aspects of employment, or an alleged violation of a collective bargaining agreement.
Gross IncomeBusiness LawThe amount by which sales revenue exceeds production costs (cost of sales). Though operating income gives a more accurate picture of a company’s profitability, gross income provides a top-line view of a company’s production or (in case of a merchant) sales related cost structure. It is a measure of how well (or badly) a company is utilizing its capital, capacity, and other resources, and shows its competitive strengths and weaknesses in comparison with other companies in the same industry. A high gross income means stability in times of economic downturn because the company can afford to cut prices; a low gross income may mean low creditworthiness or inability to fight off competition.
Gross NegligenceTortSo high a degree negligence that it shows a reckless disregard for one’s legal duty, the safety of others’ life, limb, property, or a conscious indifference to the rights of others. Gross negligence, however, does not have a precise legal meaning except in involuntary manslaughter (causing death through reckless driving, for example).
HearsayGeneral LawOral or written testimony about an out-of-court statement attributed to someone other than the testifying person. Such evidence is generally inadmissible because the person to whom the statement is attributed cannot be cross-examined to ascertain its factual basis. However, there are numerous exceptions to this rule, such as admissibility of first-hand hearsay evidence in certain civil proceedings.
Hold HarmlessContractA provision in an agreement under which one or both parties agree not to hold the other party responsible for any loss, damage, or legal liability. In effect, this clause indemnifies the parties on a unilateral or reciprocal basis (as the case may be). See also indemnity clause.
Holding CompanyBusiness LawType of business organization that allows a firm (called parent) and its directors to control or influence other firms (called subsidiaries). This arrangement makes venturing outside one’s core industry possible and, under certain conditions, to benefit from tax consolidation, sharing of operating losses, and ease of divestiture. The legal definition of a holding company varies with the legal system. Some require holding of a majority (80 percent) or the entire (100 percent) voting shares of the subsidiary whereas other require as little as five percent.
Horizontal IntegrationM&AThe merger of companies at the same stage of production in the same or different industries. When the products of both companies are similar, it is a merger of competitors. When all producers of a good or service in a market merge, it is the creation of a monopoly. If only a few competitors remain, it is termed an oligopoly. Also called lateral integration. See also vertical integration.
Hostile Work EnvironmentEmploymentAn antagonistic situation that might occur in the workplace when any employee experiences harassment due to the offensive, intimidating or oppressive behavior of one or more people. Many staff members are intimidated by harassment and become too afraid to continue to work in a hostile work atmosphere. This can lead to substantial and costly staff turnover problems or even lawsuits.
Identifiable Tangible AssetsM&AAn asset that is physical and can be seen and touched, such as a building or piece of machinery. The opposite is an intangible asset that is unable to actually be seen or felt, such as a copyright, a trademark, or a company’s brand name.
Illusory PromiseContractA statement which appears to be formed into a legal contract but includes the option for the person making a promise to have no actual obligation to perform as stated. The agreement is typically very indefinite and there is no guarantee the stated actions will be taken regardless of whether or not they get paid or other such compensation from the other person.
Implied ContractContractA legally enforceable agreement that arises from conduct, from assumed intentions, from some relationship among the immediate parties, or from the application of the legal principle of equity.For example, a contract is implied when a party knowingly accepts a benefit from another party in circumstances where the benefit cannot be considered a gift. Therefore, the party accepting the benefit is under a legal obligation to give fair value for the benefit received. Opposite of express contract. See also express contract, implied in fact contract, and implied in law contract.
IncotermsSalesInternational commercial terms. Thirteen terms of sale accepted worldwide in assignment of costs and responsibilities between the buyer and the seller. Proposed, updated, and copyrighted by the International Chamber Of Commerce (ICC), they serve as global standards for uniform interpretation of common contract clauses in international trade. The last revision (1999) is named ‘INCOTERMS 2000.’ In brief these terms are (1) C&F (Cost And Freight), (2) CIF (Cost, insurance, And Freight), (3) Delivered At Frontier, (4) Delivered Duty Paid, (5) Ex quay, (6) Ex ship, (7) Ex works, (8) FAS (Free Alongside Ship), (9) FOB (Free On Board), (10) FOB Airport, (11) FOR/FOT (Free On Rail/Free On Truck), (12) Free carrier, (13) Free Carriage Paid To and Free Carriage Paid To And insurance.
IndemnityGeneral LawUndertaking given to compensate for (or to provide protection against) injury, loss, incurred penalties, or from a contingent liability. A shipping company, for example, will ask for a bank’s indemnity for releasing a shipment to a consignee who has lost original shipping documents. The bank in turn will require the consignee to sign a counter-indemnity before issuing its indemnity to the shipping company. This way the consignee gets the release of shipment in completion of a transaction, and both the shipping company and the bank are protected in case some dispute arises out of that transaction.
Insider TradingM&ABuying or selling the securities of a publicly traded firm by an insider to benefit from insider information. Insider trading is commonly restricted or prohibited by law. Also called insider dealing.
InsubordinationEmploymentRefusal or deliberate failure to carry out a legal assignment entrusted by a superior. In cases of doubt about the legality of the assignment, the correct procedure is to do the work under protest and follow it up with a grievance letter. In other words, ‘work now, grieve later.’
Intellectual PropertyCreative RightsIntellectual property is a property right that can be protected under federal and state law, including copyrightable works, ideas, discoveries, and inventions. The term intellectual property relates to intangible property such as patents, trademarks, copyrights, and tradesecrets.
Intrinsic FraudContractIntrinsic fraud is an intentionally false representation that goes to the heart of what a given lawsuit is about, in other words, whether fraud was used to procure the transaction. (If the transaction was fraudulent, it probably does not have the legal status of a contract.) Intrinsic fraud is distinguished from extrinsic fraud (a/k/a collateral fraud) which is a deceptive means of keeping a person from discovering and/or enforcing legal rights. It is possible to have both intrinsic and extrinsic frauds.
Joint & Several LiabilityTortTogether and in separation liability. In joint and several agreements, the liability for default is enforceable against all of the signatories as a group (not necessarily on a proportional or pro-rata basis), or against any one of them as an individual at the choice of the enforcing party. See also jointly and severally.
Joint EnterpriseBusiness Law1. Activity undertaken together by two or more entities, so that each has equal rights to control and benefit from it and is equally liable for obligations arising out of it. See also joint venture.2. Participation by two or more persons to conspire and/or commit an offense. See also joinder of offenders.
Joint VentureBusiness LawNew firm formed to achieve specific objectives of a partnership like temporary arrangement between two or more firms. JVs are advantageous as a risk reducing mechanism in new-market penetration, and in pooling of resource for large projects. They, however, present unique problems in equity ownership, operational control, and distribution of profits (or losses). Research indicates that two out of five JV arrangements last less than four years, and are dissolved in acrimony. See also strategic alliance.
Juridical PersonGeneral LawEntity (such as a firm) other than a natural person (human being) created by law and recognized as a legal entity having distinct identity, legal personality, and duties and rights. Also called artificial person, juridical entity, juristic person, or legal person. See also body corporate.
Labor Union / Trade UnionEmploymentAn organization whose membership consists of workers and union leaders, united to protect and promote their common interests.The principal purposes of a labor union are to (1) negotiate wages and working condition terms, (2) regulate relations between workers (its members) and the employer, (3) take collective action to enforce the terms of collective bargaining, (4) raise new demands on behalf of its members, and (5) help settle their grievances. A trade union may be: (a) A company union that represents interests of only one company and may not have any connection with other unions.
LachesGeneral LawNeglect and unreasonable delay in the assertion of one’s claims or rights. Courts expect reasonable diligence from a claimant, in addition to conscience and good faith. Under the legal doctrine of laches, they may refuse to enforce or recognize an individual’s rights if he or she waits more than a reasonable length of time to assert them. Unlike the statute of limitations this doctrine, however, does not define ‘reasonable time’ but leaves its determination to the courts. Laches is French for, loose, slack, or sluggish.
Latent DefectTortHidden defect in material and/or workmanship of an item which may cause failure or malfunction, but is not discoverable through general inspection. Also called hidden defect. See also patent defect.
LibelTortNegligent or intentional publication or broadcast of a defamatory statement that exposes a person to contempt, disrespect, hatred, or ridicule. The defamation, whether expressed in print, writing, pictures, gestures, or signs via newspapers, radio, television, movies, or plays, is either a civil wrong or (if it tends to provoke a breach of peace) a criminal wrong. A libel is actionable per se, without proof of financial loss or special damages. However, if a defamatory statement is true and the libeled person is a public figure or celebrity then its publication or broadcast may not constitute a libel if it can be shown that the statement was published for public benefit because of its newsworthiness.
LienSalesCreditor’s conditional right of ownership (called security interest) against a debtor’s asset or property that bars its sale or transfer without paying off the creditor. In a contractual arrangement, a lien is the right of a contracting-party to take possession of a specific asset of the other contracting party, in case the contract is not performed according to its terms. A mortgage agreement is a lien on the mortgaged property and a bond is a lien on the bond issuer’s assets. Liens are also granted by the courts to satisfy a judgment against a losing defendant. All liens are for a limited period (which varies with the jurisdiction), apply only to the asset or property that forms part of an express or implied contract, and (if attached to a real property) must be properly registered to be valid and enforceable.In case of a default, the party holding the lien (called lienholder or lienor) generally does not except in the case of a special lien have an automatic right to seize and sell the asset or property, but must obtain a foreclosure order after giving a reasonable notice to the debtor or obligor (called lienee).
Limited Liability CompanyBusiness LawRelatively recent type of US business structure that combines the limited personal liability feature of a corporation with the single taxation feature of a partnership or sole-proprietorship firm. Its profits and tax benefits are split any way the stockholders/ shareholders (whether individuals or other firms) choose. Tax return for a LLC is filed with the taxation authorities only for the purpose of information, and each shareholder files own tax return separately. Also called company limited by share. See also limited company.For more information, see The Difference between an S Corporation and an LLC.
Limited PartnershipBusiness LawBusiness structure that combines features of a limited company with that of a partnership for use as a tax shelter, but does not create a legal entity separate and distinct from its owners. It is usually formed by at least one general partner (or full partner) and at least one limited partner (or nominal partner). General partners are the operators who control and manage the partnership, and are jointly and severally liable for all its debts and obligations. The limited partners (1) cannot, in any way, control or participate in the management of the partnership (otherwise they will lose their limited liability protection), (2) are liable only up to the sums invested by them, and (3) cannot withdraw their investments without the consent of the general partners.Both types of partners benefit from the firm’s profits, capital gains, accelerated depreciation, and investment credits, but the general partners are paid management fees as well. Limited partnerships can be formed for any type of business but they are most popular in equipment-leasing, movie making, oil and gas exploration, and real estate development industries. When the business begins to show taxable profits, a limited partnerships is often terminated and reorganized as a regular limited company. See also general partnership.
LiquidateBusiness LawWinding up of a firm by selling off its free (un-pledged) assets to convert them into cash to pay the firm’s unsecured creditors. (The secured creditors take control of the respective pledged assets on obtaining foreclosure orders). Any remaining amount is distributed among the shareholders in proportion to their shareholdings. Liquidation process is initiated either by the shareholders (voluntary liquidation) or by the creditors after obtaining court’s permission (compulsory liquidation).
MalpracticeGeneral LawDereliction of duty due to negligence or incompetence by a professional or institution, specially a health practitioner (doctor, surgeon, psychiatrist, psychologist, nurse, etc.) or a hospital.
MandateBusiness LawWritten authorization and/or command by a person, group, or organization (the ‘mandator’) to another (the ‘mandatary’) to take a certain course of action. Normally revocable until executed, a mandate is automatically terminated on the bankruptcy, incapacitation, removal from office, or death of the mandator. A check, for example, is a mandate issued by a customer of a bank, to pay it as instructed, from a customer’s account balance.
Material RepresentationContractMaterial representation is a convincing statement, information or explanation made to a person to induce that person to enter into a contract or to take a decision, which s/he would not have done without such persuasion.
MediationGeneral LawUse of an independent, impartial, and respected third party (called the conciliator or mediator) in settlement of a dispute, instead of opting for arbitration or litigation. Unlike an arbitrator, a mediator has no legal power to force acceptance of his or her decision but relies on persuasion to reach an agreement. Also called conciliation.
Meeting of the MindsContractManifestation of mutual accord between the parties to a contract required under the older (early 19th century) subjective theory of contract. Modern (late 19th century) objective theory of contract requires only evidence of express or implied consent.
Memorandum of UnderstandingBusiness LawA memorandum of understanding (MOU or MoU) is an agreement between two or more parties outlined in a formal document. It is not legally binding but signals the willingness of the parties to move forward with a contract.
The MOU can be seen as the starting point for negotiations as it defines the scope and purpose of the talks. Such memoranda are most often seen in international treaty negotiations but also may be used in high-stakes business dealings such as merger talks.
MergerBusiness LawVoluntary amalgamation of two firms on roughly equal terms into one new legal entity. Mergers are effected by exchange of the pre-merger stock (shares) for the stock of the new firm. Owners of each pre-merger firm continue as owners, and the resources of the merging entities are pooled for the benefit of the new entity. If the merged entities were competitors, the merger is called horizontal integration, if they were supplier or customer of one another, it is called vertical integration.
MisappropriationBusiness Law1. Dishonest use of another’s funds or property for one’s own use.2. Unfair competition whereby an individual or firm appropriates or dishonestly copies a creation of another that is not protected under copyright, patent, or trademarks laws.
MitigationGeneral LawThe elimination or reduction of the frequency, magnitude, or severity of exposure to risks, or minimization of the potential impact of a threat or warning.
NegotiationContract1. General: Bargaining (give and take) process between two or more parties (each with its own aims, needs, and viewpoints) seeking to discover a common ground and reach an agreement to settle a matter of mutual concern or resolve a conflict. Noun form of the verb negotiate.2. Banking: Accepting or trading a negotiable instrument.3. Contracting: Use of any method to award a contract other than sealed bidding.4. Trading: Process by which a negotiable instrument is transferred from one party (transferor) to another (transferee) by endorsement or delivery. The transferee takes the instrument in good faith, for value, and without notice of any defect in the title of the transferor, and obtains an indefeasible title.
Net Book Value of AssetsM&AThe value of an asset as it is carried on the company’s books. Net book value is calculated by subtracting accumulated depreciation from the original cost of the asset.
NoticeGeneral LawWritten or formal information, notification, or warning about a fact, required to be made in law or imparted by an operation of law. A party is deemed to have cognizance of a fact if the party (1) has actual knowledge of it, (2) has received notice of it, (3) ought reasonably to know it, (4) knows about a related or associated fact, or (5) would have known by making reasonable enquiries about it.
NovationContractSubstitution of an original party to a contract with a new party, or substitution of an original contract with a new contract. Upon substitution, the obligations of the withdrawing-party are automatically discharged and no express-release is required. To be effective, however, the substitution must be agreed-to by all the original and new parties to the contract. Novation is never presumed; if the novation agreement is not in writing, it must be established from the acts and conduct of the parties. Novation is not the same as assignment of an agreement where no new agreement is needed and the rights and duties are transferred from the assignor to the assignee.
Parent CorporationBusiness LawFirm that owns or controls other firms (called subsidiaries) which are legal entities in their own right. Also called parent corporation. See also holding company.
PartnershipBusiness LawA type of business organization in which two or more individuals pool money, skills, and other resources, and share profit and loss in accordance with terms of the partnership agreement. In absence of such agreement, a partnership is assumed to exit where the participants in an enterprise agree to share the associated risks and rewards proportionately.
PatentCreative Rights1. Limited legal monopoly granted to an individual or firm to make, use, and sell its invention, and to exclude others from doing so. An invention is patentable if it is novel, useful, and non-obvious. To receive a patent, a patent application must disclose all details of the invention so that others can use it to further advance the technology with new inventions. Patentable items fall under four classes (1) Machine: apparatus or device with interrelated parts that work together to perform the invention’s designed or intended functions, (2) Manufacture: all manufactured or fabricated items, (3) Process: chemical, mechanical, electrical or other process that produces a chemical or physical change in the condition or character of an item, and (4) Composition of matter: chemical compounds or mixtures having properties different from their constituent ingredients.
2. Clear or obvious on the fact of it.
Payable on DemandContractPayable at any time, without little or no notice period.
Poison PillM&ADefensive tactics that make hostile takeover by a corporate-raider prohibitively expensive or unattractive. Poison pill takes several forms: (1) provision that makes the firm’s all debts immediately payable if the board of directors is changed; (2) distribution of warrants or purchase rights for buying the firm’s stock (shares) at a heavy (usually 50 percent) discount when a triggering event (takeover attempt) occurs, thus immediately diluting the raider’s ownership interest and voting rights; and/or (3) issuance of a new series of preferred stock (preference shares) that gives stockholders/shareholders (not including the raider) right to redeem them at a hefty premium after a takeover. See also leveraged recapitalization and shark repellant.
Ponzi schemeBusiness LawScam in which a gullible group is enticed with the promise of very high returns in a very short time, but is based on paying off the early ‘investors’ from the cash from (hopefully ever increasing number of) new ‘investors.’ The whole structure collapses when the cash outflow exceeds the cash inflow. The originators of the scheme, however, usually disappear with large sums a few days before the crash. Named after Charles Ponzi (1882-1949), an Italian immigrant to the US who, during 1919-20 collected more than fifteen million dollars from some 40,000 eager people by promising to double their investment in 90 days.
PossessionSalesDominion over, and exclusive control and use of, a material object or property resulting from the fact of holding it (whether rightly or wrongly) in one’s power. Possession is said to be the “nine-tenths of the law” and is a prima facie evidence of ownership-good against any other claim, except that of the legal owner. It may mature into legal ownership due to passage of time, as in adverse possession.
Potestative ConditionContract
Preemptive RightBusiness Law1. Privilege granted in articles of association or bylaws of a firm under which the current stockholders (shareholders) are given the first option to buy a new issue of common stock (ordinary shares). It enables them to maintain their percentage of the total ownership of the firm, and is usually exercised on the basis of current stockholding. Also called subscription privilege or subscription right.2. Contractual right under which a party has the first opportunity to buy an asset before it is offered to a third party. Compare with right of first refusal. Also called preemptive right or right of preemption.
PresumptionGeneral LawIn law, assumption or inference that a fact exists, on the basis of the known existence of other fact(s). Although a presumption shifts the burden of proof from the party it favors to the opposing party, almost every presumption is a rebuttable presumption allowed only until it is not proven wrong.
PrivilegeGeneral LawAdditional, exceptional, exclusive, or special advantage, benefit, exemption, immunity, or power, granted to a person or a group as a favor or honor, or belonging to an entity by virtue of formal certification, office, rank, status, or operation of law. See also franchise, prerogative, and right.
Privity of ContractContractLegal doctrine that a contract confers rights and imposes liabilities only on its contracting parties. They, and not any third-party, can sue each other (or be sued) under the terms of the contracts.
Pro FormaM&AAssumed, forecasted, or informal information presented in advance of the actual or formal information. The common objective of a pro forma document is to give a fair idea of the cash outlay for a shipment or an anticipated occurrence. Pro forma financial statements give an idea of how the actual statement will look if the underlying assumptions hold true. Latin for, according to form or for form’s sake.
Pro rataGeneral LawProportionate allocation or distribution of a quantity (such as costs, income, shares, taxes) on the basis of a common factor. For example, profit is generally divided among several stockholders (shareholders) on the basis of the amount of stock (number of shares) held by each. Latin for, according to the rate.
Product LiabilityTortGeneral liability or obligation of a producer (or supplier) of a good or service to make restitution for loss associated with its use, such as personal injury or property damage. Commonly, the aggrieved party does not have to prove that the producer (or supplier) was negligent because the fault is inherent to the item. See also absolute liability.
Promotional StrategyBusiness LawMarketing: The choice of a target market and formulation of the most appropriate promotion mix to influence it.
ProprietaryCreative Rights1. Characteristic of, or relating to, a proprietor.2. Made, offered, or sold only under the exclusive rights of the property ownership (governed by copyright, patent, and trade secret laws) of a manufacturer, offeror, or seller. Proprietary items usually have distinctive characteristics or features, and are often incompatible with competing items.
ProspectusBusiness LawLegally mandated document published by every firm offering its securities to public for purchase. It must comply with strict legal requirements and is filed for approval with the country’s securities inspectorate such as the Securities & Exchange Commission (SEC) of the US, or the Securities & Investment Board (SIB) of the UK. A prospectus must disclose essential information such as (1) firm’s objectives, (2) primary business activity, (3) background and qualification of principal officers, (4) current financial position, (5) projected financial statements, (6) assumptions underlying the projections, (7) foreseeable risks to the firm, (8) offering price on the stock (shares), and (9) (in case of bonds and notes) how the interest and principal will be paid.
ProxyBusiness LawWritten authorization from an absent member (or a shareholder, called the ‘principal’) that confers a limited power of attorney on another person, member, or management of the firm (called ‘agent’ or ‘proxy’) to vote on behalf of, and in accordance with the directions of, the principal.
Public PolicyGeneral LawDeclared State objectives relating to the health, morals, and well being of the citizenry. In the interest of public policy, legislatures and courts seek to nullify any action, contract, or trust that goes counter to these objectives even if there is no statute that expressly declares it void.
Public SectorGovernmentThe part of national economy providing basic goods or services that are either not, or cannot be, provided by the private sector. It consists of national and local governments, their agencies, and their chartered bodies. The public sector is one of the largest sectors of any economy; in the US, for example, it accounts for about 20 percent of the entire economy.
Punitive DamagesGeneral LawCourt awarded sum that is considerably or greatly higher than the measurable value of the injury. Punitive damages are meant not to compensate the aggrieved party but to punish the offending party for its reckless or unconscionable actions or conduct.
RatificationContractAcceptance or confirmation of an act or agreement that was signed (executed) by the confirming party itself. A treaty, for example, is not enforceable or valid until the ratification process is complete.
RecourseBusiness Law1. Loan agreements: Legal right of a lender to seek repayment of the loan from the borrower’s (and/or the guarantor’s) unpledged personal property, in addition to the property pledged to the lender as collateral.2. Negotiable instrument: Legal right of the holder to demand and require payment from the drawer, maker, or endorser if the instrument (such as a check, draft, promissory note) is dishonored. See also with recourse and without recourse.
Registration StatementBusiness LawDocuments filed with the Securities & Exchange Commission (SEC) by a privately held company, declaring its intent to offer shares of its stock to the general public. See Form S-1; Initial Public Offering.
RegulationGovernment1. General: Principle or rule (with or without the coercive power of law) employed in controlling, directing, or managing an activity, organization, or system.2. Law: Rule based on and meant to carry out a specific piece of legislation (such as for the protection of environment). Regulations are enforced usually by a regulatory agency formed or mandated to carry out the purpose or provisions of a legislation. Also called regulatory requirement.
ReorganizationBusiness Law1. Restructuring of a firm’s operations, in order to concentrate on core activities and outsource peripheral ones, often requiring reduction in workforce.2. Combination of two or more organizational units resulting in a new entity in which the combined units remain essentially intact.3. Readjustment of a firm’s debt and capital structure after a bankruptcy or receivership order.
Respondeat SuperiorEmploymentLegal doctrine that a principal, employer, or superior is responsible for the acts of commission and omission of an agent, employee, or subordinate, performed within the scope of his or her duties. Latin for, let the chief (master) answer.
Restructuring ChargesM&AWhen a company goes through a change in the operations of a business, a fee is required for this transaction. This does not affect a shareholder’s stake in the company because this fee is only incurred one time in a financial statement.
SandbaggingM&ASandbagging is a strategy of lowering the expectations of a company or an individual’s strengths and core competencies, in order to produce relatively greater-than-anticipated results.
In a business context, sandbagging is most often seen when a company’s top brass shrewdly tempers the expectations of its shareholders by producing guidance that is well below what they know will be realistically achievable. In other words: management personnel low-ball projected earnings and other performance indicators.
Service of ProcessGeneral LawFormal delivery of a notice, summons, or writ.
Severance PayEmploymentAmount granted to an employee whose job has been eliminated, under a union (collective bargaining) agreement and for no other reason.
Shareholders’ AgreementBusiness LawContract between a firm and its shareholders which details, among other items, how the firm’s internal affairs will be managed, how internal disputes will be resolved, and what will happen when a shareholder becomes bankrupt, is discharged, resigns, retires, becomes incapacitated, or dies. See also stock purchase agreement.
Shell CompanyBusiness LawNon-trading firm formed (and often listed on a stock exchange) as a vehicle to (1) raise funds before starting operations, (2) attempt a takeover, (3) for going public, or (4) as a front for an illegal business. See also shelf company.
SlanderTortBase, defamatory, untrue words said aloud, and tending to prejudice another person in business, means of livelihood, or reputation. Damages for slander (unlike those for libel) are not presumed and must be proved by the complainant, except in cases where slander constitutes an obvious defamation.
Sole ProprietorshipBusiness LawSimplest, oldest, and most common form of business ownership in which only one individual acquires all the benefits and risks of running an enterprise. In a sole-proprietorship there is no legal distinction between the assets and liabilities of a business and those of its owner. It is by far the most popular business structure for startups because of its ease of formation, least record keeping, minimal regulatory controls, and avoidance of double taxation.
Solicitation of ProxyBusiness LawAttempt by a group to obtain the authorization of other members to vote on their behalf in an organizational ballot. In corporate settings, a proxy solicitation is usually accompanied by a ‘proxy statement.’
SolvencyBusiness LawFinancial soundness of an entity that allows it to discharge its monetary obligations as they fall due. It is measured by solvency ratios.
SpoliationGeneral LawIntentional alteration, concealment, destruction, or mutilation of an evidence, specially a document, to make it invalid or unusable. A conviction of spoliation generally establishes that the evidence was unfavorable to the convicted party.
Statute of FraudsGeneral LawRequirement that certain contracts (such as for sale of land, sale of goods exceeding a certain value, a debt guaranty) must be in writing and properly executed to prevent fraud and perjury. Otherwise such contracts cannot be enforced in the courts although they remain legal (are not rendered void).
Stock OptionBusiness LawOption that gives its holder the right to buy or sell a firm’s common stock (ordinary shares) at a specified price and by a specified date. Stock options are customarily a part of executive compensation package.
SubsidiaryBusiness LawAn enterprise controlled by another (called the parent) through the ownership of greater than 50 percent of its voting stock. See also affiliate.
SustainabilityBusiness Law1. General: (1) Ability to corroborate or substantiate a statement. (2) Ability to maintain or support an activity or process over the long term.2. Economics: Continued development or growth, without significant deterioration of the environment and depletion of natural resources on which human well-being depends. This definition measures income as flow of goods and services that an economy can generate indefinitely without reducing its natural productive capacity. See also sustainable development.
SyndicateBusiness Law1. Temporary association of two or more individuals or firms to carryout a specific business venture or project such as large scale real estate development. Syndicates are commonly treated as corporations or partnerships for tax purposes.2. Group of brokers or insurance underwriters who together accept the risk of buying and distributing a new stock issue or an insurance risk.
SynergiesM&AA state in which two or more things work together in a particularly fruitful way that produces an effect greater than the sum of their individual effects. Expressed also as “the whole is greater than the sum of its parts.”
TakeoverM&AAssumption of control of another (usually smaller) firm through purchase of 51 percent or more of its voting shares or stock.
TargetM&A1. Any objective of economic policy.2. The value of an economic variable that policy makers regard as ideal and use as the basis for setting policy. Contrasts with instrument.3. The level of an exchange rate that guides exchange market intervention by a central bank or exchange stabilization fund.
TerminationEmployment1. Final step in the progressive employee discipline process where his or her employment with the employer is permanently severed.2. Cancellation by a customer, either in whole or in part, of any work or performance remaining to be done under a contract. See also termination for convenience and termination for default.
Third-Party BeneficiaryContractEntity that is not a direct or principal party to a contract (such as an insurance policy) but stands to benefit from its performance, or has legally enforceable rights under it. A third party need not be named in the contract if it can be shown that he or she belongs to the group for whose benefit the contract was drawn.
Toehold PositionM&AA toehold purchase is an accumulation of less than 5% of a target firm’s outstanding stock by another company or individual investor with a particular goal in mind. If the toehold purchase is made by another company, it may be a precursor to an acquisition strategy, such as a takeover bid or tender offer.
If an individual investor makes the toehold purchase, they usually accompany their purchase with demands that the target company take steps to increase the shareholder value of the firm.
Trade SecretCreative RightsType of intellectual property such as formulary, know how, process, system, or confidential information that gives its owner a competitive advantage and unauthorized disclosure of which will harm the owner. Courts generally grant injunctions to prevent a threatened disclosure of a trade secret by the current or former employees because otherwise the relationship of trust between the employer and employee will be destroyed. The employer must, however, demonstrate that he or she actively safeguarded the trade secret and had informed the employees that it was to remain confidential.
TrademarkCreative RightsDistinctive design, graphics, logo, symbols, words, or any combination thereof that uniquely identifies a firm and/or its goods or services, guarantees the item’s genuineness, and gives it owner the legal rights to prevent the trademark’s unauthorized use. A trademark must be (1) distinctive instead of descriptive, (2) affixed to the item sold, and (3) registered with the appropriate authority to obtain legal ownership and protection rights. Trademark rights are granted usually for 7 to 20 years and, unlike in case of patents, are renewable indefinitely. These rights are protected worldwide by international intellectual property treaties and may be assigned by their owner to other parties.
Transfer AgentBusiness LawBank, person, or trust company that is entrusted by a firm to issue, register, and redeem securities on its behalf. In case of bonds and other debt securities a transfer agent is called a registrar.
UnconscionabilityContractThat degree of unfairness or unreasonableness of a deal or contract which prompts a court to nullify or modify it. It occurs specially where the terms of the contract put one party at the mercy of the other by concentrating all or most of negotiating power in one party without giving a meaningful advantage to the other party.
Undue InfluenceContractMental, moral, or physical domination (even if natural or right) that deprives a person of independent judgment and substitutes another person’s objectives in place of his or her own. Exercise of undue influence is characterized often by excessive insistence, superiority of physical power, mind, or will, or pressure applied due to authority, position, or relationship in relation to the strength of the person submitting to it. Consent obtained for a contract, relationship, or transaction is voidable if it can be shown that an unfair advantage has been taken of an involved party. In dealings between parent and child, husband and wife, attorney and client, or doctor and patient, undue influence is generally presumed to have been exercised unless proven otherwise. See also coercion and duress.
Union ShopEmploymentClause in a union (collective bargaining) agreement that requires all employees to become members of the union (association) usually within 30 days of hiring, and to retain their membership as a condition of employment in the firm. Also called association shop.
Unjust EnrichmentGeneral Law1. Retention of a benefit without providing or offering any consideration in return, in situations where a consideration is reasonably expected.2. Money or other benefit obtained from another which, when not intended as a gift, is legally unjustifiable or unconscionable and for which the beneficiary must make a restitution. See also quasi contract.
Vertical IntegrationM&AMerger of companies at different stages of production and/or distribution in the same industry.  When a company acquires its input supplier it is called backward integration. When it acquires companies in its distribution chain it is called forward integration. For example, a vertically integrated oil company may end up owning oilfields, refineries, tankers, trucks, and gas (petrol) filling stations. Also called vertical merger. See also horizontal integration.
VestingBusiness LawProcess by which authority, benefit, or privilege, or rights to or interest in an asset or property, passes unconditionally to a particular entity.
Vicarious LiabilityEmploymentObligation that arises from the relationship of one party with another. For example, a principal is generally liable for the agent’s acts performed in the course of the agent’s duties assigned by the principal; and an employer for the action or inaction of an employee in the normal course of her or her employment or duties. Also called vicarious responsibility.
Voting TrustBusiness LawVoting agreement under which shareholders transfer their voting shares to a trustee in exchange for voting-trust certificates. The trustee votes the trust shares as a block in accordance with the terms of the agreement.
WaiverGeneral Law1. General: (1) Expressed or implied voluntary and intentional relinquishment or abandonment of a legal advantage, claim, requirement, or right. (2) Document (instrument) by which a such abandonment or relinquishment is effected.2. Insurance: Agreement or supplementary clause attached to a policy which (1) excludes certain type of losses, (2) limits the amount of claim to a specified sum, or (3) extends the coverage to include items not included in a standard policy. See also rider.
WarrantySales1. General: Legally binding assurance (which may or may not be in writing) that a good or service is, among other things, (1) fit for use as represented, (2) free from defective material and workmanship, (3) meets statutory and/or other specifications. A warranty describes the conditions under, and period during, which the producer or vendor will repair, replace, or other compensate for, the defective item without cost to the buyer or user. Often it also delineates the rights and obligations of both parties in case of a claim or dispute.2. Contracting: Expressed or implied undertaking that a certain fact regarding the subject matter of a contract is, or will be, true.Unlike conditions (the central points), warranties are deemed incidental points, and a breach of warranty is usually not a valid reason for voiding a contract but it entitles the aggrieved party to damages. See also innominate term and intermediate term.3. Insurance: Written pledge by the insured party that a specified condition exists or does not exist. Breach of warranty entitles the insurer to treat the insurance contract as void even if the actual loss is unaffected by the breach. See also representation.
Watered StockBusiness LawShares issue offered to the public at prices that are highly inflated when compared with the book value of the issuer’s assets. An illegal practice when it can be established that the issuer’s management sanctioned it with the full knowledge of the facts, its gets its name from the cattlemen’s practice of increasing the livestock’s size and weight before its sale by inducing it to drink inordinate amounts of water.
White Collar CrimeBusiness LawCheating, fraud, and commercial offences committed by administrative or managerial employees, business persons, professionals, or public officials.
White Knight DefenseM&AParty that appears with a more palatable offer for taking over a firm when another entity (the Black Knight) has already made a bid deemed unwelcome by the target firm’s management.
Winding UpBusiness LawMethod of dissolving a business by selling off its assets and satisfying the creditors from the proceeds of the sale. Three common types of windings up are (1) Members voluntary winding up, (2) Creditors voluntary winding up, and (3) Compulsory winding up. Called liquidation in the US, it is not the same as bankruptcy or business failure.
With(out) PrejudiceLitigationLaw phrase signifying that (1) a court case so dismissed bars the possibility of bringing a new case on the same basis as the dismissed case, (2) a court order so issued is the final order on the subject matter. See also without prejudice.