Glossary

A few states require corporations to have a specified amount of paid-in capital prior to starting business. These states include CT, DC, SD and TX and require that the company have $1,000 in paid-in capital before starting business.

Additional life insurance coverage. These are typically purchased with policy dividends.

The face value of a stock or bond when issued, which may bear little relationship to the security's current market value.

The stated minimum value of a share stock. Stock must be sold for at least this value or the owner of the stock can face liability. With low par value stock or no par value stock this liability is minimized.

A corporation that directly or indirectly owns a controlling interest in another corporation. See Subsidiary.

A contractual association between individuals who share in the management and profitability of a business venture.

Income to the entity is not taxed. Instead the income is "passed through" to the individual shareholders or interest holders. S corporations, Partnerships and LLCs are pass-through taxation entities.

A payment that has not been received by the end of the lender's grace period. Creditors may assess late fees for past due payments or report the account holder to a credit reporting agency.

An official license granted by the Patent Office that gives an individual or business the rights to the production or sale of a specific invention, process, or design for a specified period of time.

An obligation to pay a sum at a future date.

A record of wages or salaries paid or payable. The actual wages and salaries paid during a given period.

There are two main forms of payroll taxes. One is in the form of withholding and the other is paid directly by the employer. In the first case employers deduct a certain amount from employee paychecks to pay for taxes. In the second, employers pay a tax based on the number of employees and how much they are paid. This tax money funds many finance specific programs, including social security, health care and worker's disability.

Arrangement whereby an employer agrees to provide benefits to retired employees. A pension is paid out in a series of regular payments or a lump sum of money to retired employees or their beneficiaries.

A life insurance policy that does not expire and combines a death benefit with a savings portion that the insured can borrow against or withdraw for cash needs. The two main types of permanent life policies are whole life and universal life.

Everyone pays a tax on his or her yearly total amount of taxable income. The personal income tax is not a tax on the taxpayer's total income as the taxpayer can take deductions. Deductions are subtracted first from the taxpayer's income and then he or she pays the tax on the remaining amount.

The four components of a mortgage payment: principal, interest, property taxes and insurance.

An individual who administers government regulations and procedures for an employee benefit program and confirms that all participating employees receive annual reports.

An employer who establishes and perpetuates a qualified employee benefit pension plan.

A measure that quantifies the initial fee charged by a mortgage lender, with each point being equal to 1% of the total loan principal. For example, on a $100,000 mortgage, four points would cost a borrower $4,000.

A legal document that states the terms of an insurance contract, or the contract itself.

A refund that reflects the difference between the life insurance premium charged and the insurer's actual cost of providing coverage.

An item specifically not covered by an insurance policy.

A loan from an insurance company against the cash surrender value of a life insurance policy.

The funds that insurers are required to hold in order to cover all policy obligations.

A provision that can be added to an insurance policy at an additional cost to increase or limit the benefits of the policy.

The person or entity that owns an insurance policy.

An employee's ability to retain his or her benefits after employment ceases.

The combined security holdings of an investor or mutual fund.

Process whereby transactions are transferred from a journal to a general ledger or subsidiary ledger.

A legal document that gives one person the power to perform specified acts or make decisions on behalf of another person, should that person become incapacitated.

Rights delineated in the articles of incorporation granting shareholders the first opportunity to buy a new issue of stock in proportion to their current equity. The shareholder has the right to buy the new issue of stock, but is not required to make the purchase. If the shareholder elects not to exercise this right, the shares can be sold on the open market.

A security representing partial ownership or equity in a corporation. Preferred stock does not give the stockholder voting rights, but takes precedence in claims against the company's profits and assets.

Withdrawals from qualified retirement plans before the age of 59½.

A periodic payment for an insurance policy.

A loan made from an insurance policy to cover premiums.

An asset created by payment for economic benefits that do not expire until a later time. As the benefit expires, the asset becomes an expense. Such assets include prepaid rent and prepaid insurance.

Repaying installment credit before it is due or paying off a loan before its maturity date.

On a loan without a prepayment clause, the fee a borrower pays for repaying the loan before it is due.

The amount that a future sum of money is worth today, given a specified rate of return.

A stock's price divided by its earnings per share; this ratio tells investors how much they are paying for a company's current earnings.

The named beneficiary who receives the proceeds of an insurance policy or annuity contract upon the death of the insured or annuitant.

A standardized short-term borrowing rate established by the Federal Reserve Board.

The original amount of money invested in a security, the face value of a bond, or the remaining amount owed on a loan, separate from interest. "Principal" can also refer to the owner of a private company or the main party in a financial transaction.

The Internal Revenue Service's interpretation of a tax situation in light of a particular individual's circumstances. Private letter rulings are nonbinding and do not set precedent for other cases.

Insurance that protects the lender in case of default on a mortgage.

A corporation that is organized for the purpose of engaging in a learned profession such as law, medicine or architecture. Professional corporations must file articles of incorporation with the state which meet the state's requirements for professional corporations.

The excess of total revenue over total expenses for a period of time.

A statement that summarizes a company's revenues, costs and expenses incurred during a specific time period.

A defined contribution plan to which employers contribute a percentage of the company's profits, usually based on the employee's earnings.

A tax that takes a larger percentage of income from higher income groups than from lower income groups.

A transaction involving an IRA that is forbidden by the Internal Revenue Code, such as borrowing against an IRA, using an IRA as collateral or investing IRA funds in collectibles.

Anything that has a value and is owned whether it is tangible, intangible, personal, public or common.

A tax imposed upon the owner of real property. This type of tax is also known as a millage tax.

Proportional taxes take the same percentage of income from all groups. This type of tax is not currently in use.

An official document that must be provided by the issuer to potential purchasers of a new security. A prospectus will contain reports on the financial status of the issuer and the specifics of the issue itself.

If a shareholder can not attend a meeting, the shareholder is allowed to vote by proxy. A proxy grants another individual the power to vote on their behalf.