Glossary of Business Law

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Anticipatory Breach (or Repudiation)

• Occurs when one party, before the time for performance arrives, clearly communicates they will not fulfill their contractual obligations.The aggrieved party can sue immediately for breach without waiting for the performance date.

Articles of Incorporation (or Certificate of Incorporation)

• The document filed with a government body (e.g., a Secretary of State) to legally form a corporation. It includes basic information like the company's name, purpose, and share structure.

Bylaws

• The internal governing rules for a corporation, detailing procedures for meetings, elections,the role of directors and officers, and other operational matters. They are adopted by the shareholders or incorporators.

Caveat Emptor

Caveat Venditor

• A modern counter-principle meaning “let the seller beware.” It places more responsibility on theseller to disclose defects and ensure product safety, reinforced by consumer protection laws and implied warranties.

Corporate Veil

• The legal separation between a corporation and its shareholders. Courts can pierce the corporate veil to hold shareholders personally liable if the corporation is used for fraud, evasion of legal duties, or is a mere alter ego of the shareholders.

Derivative Action

• A lawsuit brought by shareholders on behalf of the corporation against a third party (often directors or officers) for harm done to the corporation. Any damages recovered go to the corporation, not the suing shareholders.

Due Diligence

• The comprehensive investigation of a business or asset prior to signing a contract, especially beforea merger, acquisition, or investment. Its purpose is to confirm material facts, assess risks, and verify legal compliance.

Duress

• Improper pressure that coerces a person into entering a contract, depriving them of meaningfulfree will. Similar to coercion, but often focused on threats of physical or economic harm. A contract induced by duress is voidable.

Duty of Care (for Directors & Officers)

• The legal obligation of corporatedirectors and officers to make informed and prudent business decisions. They must act with the care an ordinarily prudent person would exercise in a similar position.

Duty of Loyalty

• The fiduciary duty requiring corporate directors and officers to act in the best interests of the corporationand its shareholders, avoiding conflicts of interest and not profiting at the corporation's expense.

Escrow

• A financial arrangement where a thirdparty holds funds or assets on behalf of transacting parties until specified conditions are met, often used in mergers, real estate, and large contracts.

Fiduciary Duty

• A legal obligation of utmost trust, loyalty, and good faith. It applies to relationships like agent-principal, director-corporation, trustee-beneficiary, and partners in a partnership.

Force Majeure

• A contract clause that frees both partiesfrom liability or obligation when an extraordinary, unforeseeable event beyond their control (e.g., war, natural disaster, pandemic) prevents fulfillment.

Holder in Due Course (HDC)

• A person who acquires a negotiable instrument (like a check) in good faith, for value, and withoutnotice of any defects. An HDC is generally immune from certain defenses that could be raised against the original payee.

Implied Warranty

• A guarantee imposed by law, not expressly stated in a contract. Key examples include the implied warranty of merchantability (goods are fit for ordinaryuse) and the implied warranty of fitness for a particular purpose.

Intellectual Property (IP)

• A category of intangible rights protecting creations of the mind, including Patents (inventions),Copyrights (original works of authorship), Trademarks (brand identifiers), and Trade Secrets (confidential business information).

Leveraged Buyout (LBO)

• The acquisition of a company using a significant amount of borrowed money (bonds or loans) tomeet the cost. The assets of the acquired company are often used as collateral for the loans.

Material Fact

• A fact that is significant or essentialto a matter at hand. In contract law, a misrepresentation of a material fact can make a contract voidable. In securities law, public companies must disclose all material facts to investors.

Merger & Acquisition (M&A)

• The consolidation of companies. A merger combines two entities into one. An acquisition is whenone company purchases and absorbs another. Governed by complex corporate, securities, and antitrust laws.

Novation

• The act of substituting an existing contract with a new one, either by replacing one party with a third party or by replacing the obligations with newones. It requires the consent of all parties and discharges the old contract.

Promissory Estoppel

• A legal doctrine that enforces a promise, even without consideration, if the promisor should reasonably expect it to induce action or forbearance by the promisee, and injustice can only be avoided by enforcing the promise.

Prospectus

• A formal legal document required bysecurities regulators that provides details about an investment offering (e.g., an initial public offering, or IPO) for sale to the public. It discloses material risks, financials, and management.

Restrictive Covenant

• A clause in a contract that restricts one party's actions. In employment contracts, it includes non-compete and non-solicitation clauses. In property law, it restricts land use. Must be reasonable in scope, geography, and duration to be enforceable.

Securities

• Broadly, tradable financial instruments representing ownership (stocks), a creditor relationship(bonds), or rights to ownership (options, derivatives). Heavily regulated to protect investors.

Statute of Frauds

• A legal doctrine requiring certain typesof contracts (e.g., real estate sales, contracts that cannot be performed within one year, guarantees) to be in writing to be enforceable.

Strict Liability

• A legal doctrine holding a party responsiblefor damages or injuries caused by their actions or products, regardless of fault or intent. Commonly applied in product liability cases for defective products.

Ultra Vires

• A Latin term meaning "beyond the powers." An act performed by a corporation that exceedsthe powers granted to it by its Memorandum of Association or bylaws, or by law. Historically could void an act, but modern statutes have limited this effect.

Undue Influence

• The improper use of power or trust to persuade someone to enter a contract against their own will, often arising in relationships of dominance and dependence (e.g., doctor-patient, guardian-ward). Renders the contract voidable.

Unilateral Contract

• A contract formed by an offer that canonly be accepted by performance (e.g., a reward offer). The contract comes into existence only upon the complete performance of the requested act.

Vicarious Liability

• The legal responsibility of one party for the acts of another, based on their relationship. The mostcommon example is an employer's liability for the torts of an employee committed within the scope of employment.

Warranty

• A promise or guarantee in a contractregarding the nature, quality, or performance of goods or services. Breach of warranty typically allows a claim for damages but not for termination of the contract, unlike a condition.

Whistleblower

• An employee or insider who reports illegal, unethical, or unsafe activities occurring within anorganization. Protected by various statutes (like the Sarbanes-Oxley Act) from retaliation.

⬅ back to main page  See also: ➡ Introduction to Financial Statement Analysis

Glossary of Business Law  /E-cyclopedia Resources by Kateule Sydney is licensed under CC BY-SA 4.0