Welcome to Sabre's glossary of LLC terms. We've included the definitions of many 1031 Exchange, Tenant-in-Common Industry, and Corporate Compliance-related keywords as well.
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- 6 Del. C., Chapter 18:
- A leading body of law governing Limited Liability Companies ("LLC's") Domestic to Delaware, found in Title 6, Chapter 18 of the Delaware Code (also known as the "Delaware Limited Liability Company Act", or "DLLCA").
[Click here to view the full text of 6 Del. C., Chapter 18)]
- 12 Del. C., Chapter 38:
- A ground-breaking body of law that provides for the creation of trusts outside the realm of English Common Law. In Delaware Statutory Trusts ("DST's"), a grantor can not only remain a beneficiary and still maintain limited liability protection, but can also act as trustee or advisor to the trust (also known as the "Delaware Statutory Trust Act", or "DSTA").
[Click here to view the full text of 12 Del. C., Chapter 38)]
- 26 U.S.C.:
- Title 26 of the United States Code, which contains the Internal Revenue Code (or IRC, which is formally called the "Internal Revenue Code of 1986, as amended"). The IRC is the main body of domestic statutory tax laws of the United States organized topically, including laws covering the income tax, payroll taxes, gift taxes, estate taxes and statutory excise taxes.
[Click here to view the full text of 26 U.S.C.]
[This definition is licensed under the GNU Free Documentation License. It uses material from the Wikipedia article "Internal Revenue Code".]
- 45 Days:
- A 1031 Exchanger is legally required to identify, in writing, replacement property options according to certain rules. Property identification must take place before midnight on the 45th day after the close of escrow on the relinquished property.
- 180 Days:
- A 1031 Exchanger has a grand total of 180 days from the sale of the relinquished property to close escrow on the replacement property. The exception to this occurs If the Exchanger's tax return is due before the 180th day, in which case the end of the Exchange must take place by the due date of the Exchanger's tax return.
- 1031 Exchange:
- Under Section 1031 of the Internal Revenue Code, the exchange of certain types of like-kind property may defer the recognition of capital gains or losses due upon sale, and hence defer any capital gains taxes otherwise due.
[Click here to view the full text of IRC § 1031]
- 2002-22:
- Cf. "Revenue Procedure 2002-22".
- 2004-86:
- Cf. "Revenue Ruling 2004-86".
- Amendment:
- Any filing with a Secratary of State that formally modifies a prior filing (e.g. the company's name).
- Annual Agent:
- Cf. "Registered Agent".
- Annual Report:
- An entity filing requirement of most states, which may require various pieces of information and/or accompanying fees and/or taxes. This is sometimes known as a "Report", or a "Statement of Information".
- Apostille:
- A separate document required by foreign countries that are parties to the 1961 Hague Convention (most US allies) that attests to the validity of a signature on a U.S. document. The apostille allows the foreign country to accept the validity of the U.S. document for use in its territory.
- Asset:
- An object possessed or owned by an individual or entity that has value.
- Authority to Do Business:
- Exactly what it sounds like.
- C Corporation:
- The classic, general corporation. Sometimes referred to as a C Corporation due to it being taxed pursuant to Subchapter C of the IRS Code.
- Capital Gain (or Loss):
- Gains (or losses) that result when a capital asset, such as stock, is sold for more (or less) than its original purchase price.
- Cancellation:
- The conclusion of an LLC or other entity after its use, marking the end both of its compliance and legal obligations. Conventionally one speaks of "Withdrawing" an LLC from its Foreign jurisdiction, and "Cancelling" it in its Domestic jurisdiction. In the event of a Delinquency, a state may "Administratively Dissolve" an LLC; an act also called "Revokation" or "Termination".
- Certified Formation Document:
- Document issued by a Domestic Secretary of State, such as Delaware, that officially confirms an LLC's Certificate of Formation is indeed a true and correct copy in the state where the Certificate was filed. Sometimes referred to as a "True and Correct", or as "Certified Formation Docs".
- Certificate of Formation:
- Document filed with a Domestic Secretary of State, such as Delaware, that officially Forms an LLC in the state where the Certificate was filed. Sometimes referred to as the "Formation Document" or the "Formation Docs".
- Certificate of Good Standing:
- Document issued by a Foreign or Domestic Secretary of State, that officially confirms an LLC is currently in Good Standing with the state where the Certificate was filed, i.e., Franchise Tax and/or other fees are current, Registered Agent is appointed, etc. Also known as "Certificate of Existence" in some states.
- Certificate of Qualification:
- Document filed with a Foreign Secretary of State that officially Qualifies an LLC Formed in another jurisdiction, such as Delaware, to Do Business in the state where the Certificate was filed. Sometimes referred to as the "Certificate of Authority", or "Qualification Documents" (also "Qualification Docs").
- Certified Qualification Document:
- Document issued by a Foreign Secretary of State, that officially confirms an LLC's Certificate of Qualification is indeed a true and correct copy in the state where the Certificate was filed. Sometimes referred to as the "Certified Qualification Docs", or the "Certified Copies of Qualification Docs" (sometimes even "Certified Copies"). Never referred to as a "True and Correct", which is a term reserved for Certified Formation Documents.
- Chancery Court:
- Specialized court in Delaware staffed by judges, who are experts in business and commercial transactions. This court only handles business cases, and has already established a long line of precedents protecting the rights of business owners.
- Consideration:
- What someone pays to someone else in exchange for receiving something in return.
- Contract:
- A private agreement entered into by two or more parties, and supported by valid consideration, wherein the parties agree to adhere to certain terms and conditions for an established period of time, or indefinitely.
- Contribution:
- Money, services rendered, or other consideration paid to an entity in exchange for ownership in that entity.
- Corporate Compliance:
- All the tasks necessary to keep an LLC or other legal entity compliant with relevant jurisdictional laws. This may include Annual Reporting, the timely rendering of various fees and/or taxes, the upkeep of Registered Agent services, and more. Failure to maintain an LLC or other SPE results in a Delinquency.
- Corporate Indicators:
- Endings to entity names that are required by the Delaware Secretary of State, which enable the public to know it is dealing with a corporation. For example, Delaware corporation names must end with “Incorporated” ( “Inc.”), “Corporation” ( “Corp.”), “Limited” ( “Ltd”), "Limited Liability Company" ("LLC" or "L.L.C."), etc.
- Corporate Veil:
- A shield of limited liability afforded to LLC's that maintain their Corporate Compliance, that mitigates Creditors proceeding against the LLC owners’ personal assets.
- Correction:
- A filing with the Secretary of State that corrects a clerical error in a previously filed document.
- Default:
- Failure to fulfill an obligation of the Loan Agreement, possibly resulting in various penalties, such as due repayment or the redrafting of the loan terms.
- Delinquency:
- An unacceptable state of an LLC, which may be considered to cause a Default on the Loan. Delinquent LLC's are not in Good Standing with their state, do not have Authority to Do Business, do not limit liability, may prohibit a Sponsor's or investor's ability to sue a property occupant, may incur various fees and penalties, and reflect poorly on the Sponsor.
- Delaware Limited Liability Company Act:
- Cf. "6 Del. C., Chapter 18".
- Delaware Statutory Trust Act:
- Cf. "12 Del. C., Chapter 38".
- DLLCA:
- Cf. "6 Del. C., Chapter 18".
- Dissolution:
- Cf. "Cancellation".
- Doing Business As:
- The act of conducting business under a trade name that is different than the official or true name (sometimes called a "Fictitious Business Name", or "FBN").
- Domestic:
- Of or related to the primary state of jurisdiction (or "home state") of an entity. LLC's and other entities are typically Domestic to the state in which they were Formed (e.g. LLC's formed in Delaware are considered "Delaware Domestic" LLC's). Domestic LLC's must be Qualified to Do Business in any Foreign states in which they intend to operate. The home state of an entity may be changed by a process called "Domestication".
- Domestication:
- The act of changing the "home state" of an entity from one jurisdiction to another, preserving the original date of Formation.
- Double Taxation:
- The taxation of corporate earnings at the corporate level and again at the shareholder level. A Corporation pays income tax on its annual profits. Then, if it issues a dividend to shareholders, these shareholders must pay taxes on this income again on their separate returns.
- DST:
- Cf. "12 Del. C., Chapter 38".
- Employer Identification Number:
- The tax identification number provided by the Federal Government to each entity that applies. Also known as “Federal Tax Identification Number”, or sometimes "EIN", "FIEN", or simply "Tax ID". The EIN identifies legal entities for tax purposes in a similar way that the Social Security Number (SSN) does for individuals.
- Entity:
- An individual capable of entering into legal contracts and considered responsible for its actions.
- Family Limited Partnership:
- A limited partnership created by a family to help protect the family’s personal assets. Normally, the parents act as the general partners and place all of the family assets, like the home and the cars, into the FLP. The children are designated as the limited partners and contribute no assets to the FLP. Typically, each parent owns ½ % of the FLP, and the children own the remaining 99%, usually in a trust. If the parents are sued, then only 1% of the family’s assets are at risk.
- Fictitious Business Name:
- Cf. "Doing Business As".
- Foreign:
- Of or related to the secondary state of jurisdiction of an entity. LLC's that are Domestic in one state must be Qualified to Do Business in any other states in which they intend to operate. For example, if an LLC is Domestic to Delaware, and it owns a fractional interest in a TIC property in California, then California is considered such LLC's "Foreign" state, and it must be Qualified to Do Business there.
- Formation:
- The initial setup of a basic entity with the state, not including any operating agreements, etc.
- Franchise Tax:
- A tax on an LLC for the privilege of doing business in a given state. Sometimes this fee is calculated based on variables such as the amount of business transacted. In other cases (like California's $800), there is a minimum. Finally, there are states whose fees are static.
- GP:
- Cf. "General Partnership".
- General Partner:
- The partner in a limited partnership or general partnership that manages the daily business operations and therefore is responsible for the business debts. A general partner can be an individual or an entity.
- General Partnership:
- Sections 761(a) and 7701(a)(2) of the IRC define the term “partnership” as including a “syndicate, group, pool, joint venture, or other unincorporated organization, through or by means of which any business, financial operation, or venture is carried on,” which is not a “trust, or estate or a corporation”.
- Good Standing:
- The status of being current with all Franchise Taxes, Filings, Registered Agent services, and any other state requirements.
- Holding Company:
- A company whose sole purpose is to hold stock in other companies and manage those companies’ passive income assets.
- Home State:
- The state to which an LLC is considered Domestic.
- Internal Revenue Title:
- Cf. "26 U.S.C.".
- Incorporator:
- An individual or entity that forms a legal entity, such as an LLC, on behalf of a client by filing the necessary Formation documents with the Secretary of State and returning them to the client.
- Indemnification:
- The act of holding another party harmless for any claims that are brought against that party.
- LLC:
- Cf. "Limited Liability Company".
- Limited Liability:
- The liability of an owner of a Corporation, LLC, or Delaware Statutory Trust for the business debts of the entity is limited to the owner’s investment in the entity. Owners’ personal assets are protected.
- Limited Liability Company:
- A legal entity that most Lenders require Sponsors to Form for the protection of each of their investors. LLC's provide owners with limited liability and pass-through taxation benefits, which may be forfeited in the event of a Delinquency. LLC's Domestic to Delaware are governed by 6 Del. C., Chapter 18.
- Limited Liability Limited Partnership:
- A new combination of LPs and LLPs. The general partners are afforded limited liability protection, in addition to the limited partners.
- Limited Partner:
- An investor in an LP or LLLP who is not involved in the management of the partnership. Liability is limited to the amount of the investment.
- Limited Partnership:
- An entity composed of general and limited partners. General partners own and manage the company, so their liability exposure is widespread. Limited partners are only investors, not managers, so their liability is limited to their investment. This legal entity was used in the creation of "Texas Sandwiches."
- LP:
- Cf. "Limited Partnership."
- Maintenance:
- See "Corporate Compliance".
- Qualification:
- The establishment of an entity's Authority to Do Business in a Foreign state. This is sometimes known as "Foreign Qualification".
- Registered Agent:
- A person with a physical street address within a state in which an LLC is Qualified to Do Business, who is designated in the articles of incorporation, open during normal business hours, and accountable for receiving and delivering legal documents such as services of process on behalf of the company.
- Report:
- Cf. "Annual Report".
- Rev. Proc. 2002-22:
- Cf. "Revenue Procedure 2002-22".
- Revenue Procedure 2002-22:
- "Rev. Proc. 2002-22" supercedes Revenue Procedure 2000-46 and, among other things, sets forth the conditions present in a TIC program that represent an undivided fractional interest in real property, such that would qualify the TIC property for use in an IRC Section 1031 tax deferred exchange.
[Click here to view the full text of Rev. Proc. 2002-22]
- Revenue Procedure:
- Cf. note under "Revenue Ruling".
- Rev. Rul. 2004-86:
- Cf. "Revenue Ruling 2004-86".
- Revenue Ruling 2004-86:
- "Rev. Rul. 2004-86" explains, among other things, how a Delaware Statutory Trust will be classified for federal tax purposes and whether a taxpayer may acquire an interest in a Delaware Statutory Trust without recognition of gain or loss under section 1031 of the IRC.
[Click here to view the full text of Rev. Rul. 2004-86]
- Revenue Ruling:
- Revenue Rulings are public administrative rulings by the Internal Revenue Service (IRS) that apply the law to particular factual situations. A Revenue Ruling can be relied upon by all taxpayers. Revenue rulings are published both in the Internal Revenue Bulletin and in the Federal Register. The numbering system for Revenue Rulings corresponds to the year in which they are issued. Thus, for example, Revenue Ruling 79-24 was the twenty-forth Revenue Ruling issued in 1979.
[NOTE: Revenue rulings are different than Revenue Procedures. While a Revenue Ruling is the conclusion of the IRS on how the law is applied to a specific set of facts, a Revenue Procedure is an official statement of a procedure that affects the rights or duties of taxpayers under the law. Generally, a Revenue Ruling states the IRS position, whereas a Revenue Procedure provides return filing or other instructions concerning the IRS position.]
[This definition is licensed under the GNU Free Documentation License. It uses material from the Wikipedia article "Revenue Ruling".]
- Sabre Compliance Services, Inc.:
- A corporate compliance specialist entirely focused on the LLC's used within the TIC industry and uniquely obsessed with efficiency. Their lean business model streamlines all the components of a healthy LLC life cycle, while preserving the flexibility necessary to integrate with the particulars of any Sponsor's methodology.
- SPE:
- Single Purpose Entity, usually an LLC.
- Sponsor:
- A Sponsor is defined in Section 4 of Rev Proc 2002-22 as "any person who divides a single interest in the
Property into multiple co-ownership interests for the purpose of offering those interests for sale". Sponsors are typically Real Estate companies that research and acquire properties, arrange financing, organize management, and package such properties as TIC's for sale to investors.
- Statement of Information:
- Cf. "Annual Report".
- Texas Sandwich:
- Part LLC, part LP, whose subsections come together to form a GP. This SPE has been a common part of TIC investments in Texas. Due to recent changes however, its use is declining. Sometimes referred to as "The Texas Two-Step".
[Click here to read the Texas Sandwich FAQ.]
- TIC:
- Tenant-in-Common, a way of holding title to Real Estate in which each owner is deeded an undivided, fractional interest. Rev. Proc. 2002-22 increased the popularity of TIC investments by recognizing them as valid replacement properties for 1031 tax-deferred real estate exchanges.
- Triple Net:
- A triple net lease (also "Net-Net-Net" or "NNN") is a lease agreement on a property where the tenant or lessee agrees to pay all real estate taxes, building insurance, and Maintenance (the three 'Nets') on the property in addition to any normal fees that are expected under the agreement (rent, etc.). In such a lease, the tenant or lessee is responsible for all costs associated with repairs or replacement of the structural building elements of the property.
[This definition is licensed under the GNU Free Documentation License. It uses material from the Wikipedia article "Net Lease".]
- Other LLC Glossaries:
- • Harvard Business Services' LLC Glossary
• LegalZoom.com's LLC Glossary
• Sun Document Filings' Glossary of Terms
• LLC.com's LLC Glossary
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