Legal glossary

We’ve put together a list of key words and phrases that will help you acknowledge legal terms in an easy-to-understand manner.

A

Acquisition:

Purchase of one company by another, but both retaining their identities.

Agency agreement:

Legal relationship between one person, called the agent, and another person, called the principal, which authorizes the agent to act on the principal’s behalf.

Agent:

Someone who acts on behalf of someone else; usually conducting another’s business affairs.

Agreement:

Where two parties reach consensus on a set of facts or course of action.

Allegation:

A claim that someone has done something wrong or illegal, often without proof.

Allocation:

The process of distribution to give an amount or share of a business to someone or some entity.

Alternative dispute resolution:

Alternative ways in which a dispute can be resolved without going to court. For example, arbitration and mediation.

Amend:

To correct or modify defects in a document.

Anti-Dilution:

This provision is a clause in an option, security, or merger agreement that gives the investor the right to maintain his or her percentage of ownership in a company by buying a proportionate number of shares of any future share issue or by not having to sell his or her portion of equity to future investors.

Applicable law:

Statute, ordinance, judicial decision, executive order, or a regulation having the force and effect of law, that determines the legal standing of a case or issue.

Arbitration:

Type of dispute resolution without going to court. A third party looks at both sides of the dispute and makes a decision as to how it should be resolved. Those involved may agree to be bound by the decision of the arbitrator.

Articles:

The various provisions of a law, an ordinance, or a contractual agreement.

Articles of association:

Set of written “rules” about how the company will be run; agreed by the shareholders, directors and the company secretary.

Assets:

Property that has value owned by a company.

Assignment of IP:

It sets out the transfer of ownership between the seller and the buyer of a company’s intellectual property.

 

B

B Corporation:

Businesses that meet the highest standards of verified social and environmental performance, public transparency, and legal accountability to balance profit and purpose.

Bad faith:

Intent to commit deceit or fraud.

Bad Leaver:

Those employees who depart from the company on bad terms or circumstances, such as a breach of their contract of employment, gross misconduct or leave within a certain defined period. They will then get simply the nominal value of the shares.

Bankruptcy:

This situation occurs when a company cannot pay its debts. A company has the possibility to stay in business while it negotiates its debts with its creditors.

Barrister:

A lawyer regulated by the Bar Standards Board, often specialising in court room representation, drafting pleadings and expert legal opinions.

Beneficiary:

An individual who receives benefits granted to him by another.

Bind:

To cause a legal obligation.

Blind pool:

A type of limited partnership which doesn’t specify its investment goals. Investors are ‘blind’ in a blind pool and don’t benefit from many safeguards.

Board minutes:

Board meeting notes and usually accompany a resolution (requirement under Company Law).

Board of directors:

A group of people who represent a corporation and run its business.

Bootstrapping:

Starting a business with no money or very little money.

Breach:

Failure to perform the terms of an agreement.

Broker:

A person employed as an agent for the purpose of buying or selling something at the request of another individual, in compensation for which he receives a commission.

Business structure:

Organization of a company in regard to its legal status. The four different business structures are

Buy-out provision:

A provision in a lease which allows the tenant to purchase the property being leased.

C

Capital:

Money invested into a company or project by its owners.

Capitalisation table:

Usually an excel sheet that describes the owners of a company and their percentage of shares.

Cash flow:

The movement of cash into and out of a business.

Change of Control:

Occurs if a person who controls any corporate body ceases to do so or if another person acquires control of it.

Chief Executive Officer (CEO):

The highest-ranking executive in a company. A CEO has a lot of responsibilities and makes all the important decisions for the companies.

Claim:

A demand for property or money, or its equivalent; an assertion that one is entitled to something or that one owns something.

Claimant:

Person making a claim.

Class A Shares:

Type of shares of the company having full voting, dividend and return of capital rights and which are generally allotted to the top-level management to provide the proper control of the company.

Class B Shares:

Type of shares of the company having dividend and return of capital rights but no voting rights.

Cliff:

In a startup you usually acquire your shares on a vesting schedule. A cliff is the period during which you cannot acquire your shares. You have to wait until the end of the cliff period.

Co-founder:

A person who, in conjunction with one, or other individuals, is involved in the creation of a business.

Co-founder agreement:

Legal document to help you maximise the relationship between co-founders to enhance your business’ performance. This mitigates the risk of disputes and business failure in the long term.

Collateral:

Something lenders can offer as a way to secure a loan.

Commercial lease:

Contract between a landlord and a business for the rental of property.

Company formation:

Process of registering a business as a limited company at Companies House. As a result, the business becomes a distinct legal entity. The process is also referred to as ‘company incorporation’ and ‘company registration’.

Compensation:

recompense for loss, injury, or suffering.

Compliance:

Business compliance or being legally compliant refers to a company meeting its legal obligations, often to protect the health, safety and welfare of others, all while making sure the company acts appropriately.

Compulsory Transfer of Shares:

When shareholders have the obligation to force a sale of their shares if a specific event is triggered such as death of the shareholder, bankruptcy or insolvency, cessation of employment, change of control of the company, retirement or mental or physical incapacity.

Conciliation:

When the different parties of a dispute use a conciliator, who meets with the parties both separately and together in an attempt to resolve their differences.

Conditions:

Requirements, restriction or permission added onto a document.

Confidential information:

Information that should not and cannot be revealed, unless the giver of the information approves such revelation.

Document that contains a number of conditions that are required to be complied with on an ongoing basis.

Consultancy agreement:

A contract outlining the rights and obligations for services between an independent contractor and a client.  

Consultant:

Business or individual that provides professional services or advice to a client or company in exchange for compensation.

Contract:

An agreement signed by two or more parties setting out the terms of an arrangement.

Contractor:

Person contracted to perform work for another entity as a non-employee. Maintains control over how the job or act is to be carried out.

Control:

Means, in relation to a person, the power of a person (or persons acting together) to secure, whether by contract, voting rights or otherwise, and whether directly or indirectly (including, without limitation, via one or more intermediate undertakings) that the affairs of such person are conducted in accordance with the wishes of that person (or persons).

Convertible Note:

A debt instrument that can be converted into equity under certain conditions. For instance, the convertible note can be converted into preferred stock or common shares.

Document informing users about the use of cookies. It explains which types of cookies are used, the kind of information they gather, their purpose, and finally the procedure of deleting the cookies.

Cooling-off period:

A period of time after a sale contract is agreed during which the buyer can cancel the contract without incurring a penalty.

Legal right, owned by the individual or group who created a work, or by an individual or group assigned by the originator, to use certain material and to allow others the right to use the material.

Corporation tax:

Tax paid by limited companies only and is calculated as a percentage of a business’ profits – the money you make after deducting all allowances, tax relief and expenses such as salaries.

Crowdfunding:

A way of raising money that involves a large number of people, usually by utilising online platforms.

Cryptoassets:

A digital asset which utilises cryptography, peer-to-peer networking, and a public ledger to regulate the creation of new units, verify transactions, and secure the transactions without the intervention of any middleman.

D

Damages:

Compensation, typically money, paid to someone who has been injured or suffers a loss because of the action of another.

Data protection:

Process of safeguarding important information from corruption, compromise or loss.

Data Subject Access Request:

Under the GDPR, the right of individuals to ask an organisation whether or not they are using or storing their personal information.

Debt financing:

Way of financing by selling bonds or loans to investors. In return, the investors receive the assurance that their loan will be repaid.

Debtor:

A person or organisation that owes money to you or your business.

Deed:

Legal document that transfers the title of an asset to a new holder, granting them the privilege of ownership.

Default:

Failure to fulfil an obligation:

(a)      a breach, default or violation;

(b)     the occurrence of an event that with or without the passage of time or the giving of notice, or both, would constitute a breach, default or violation or cause an encumbrance to arise; or

(c)      with respect to any contract, agreement or understanding, the occurrence of an event that with or without the passage of time or the giving of notice, or both, would give rise to a right of termination, cancellation, amendment, renegotiation or acceleration or a right to receive damages or a payment of damages.

Design rights:

A registered design protects the visual appearance of a product or item and gives you exclusive rights for that appearance.

Director:

Is a single member of the board of directors for a company. He or she is elected by the shareholders. The director usually represents the shareholders, has many duties, exercises control and manages the company with the other members of the board.

Director service agreement:

Employment agreement which deals with the Directors’ core duties towards the company, its rights and obligations.

Dispute:

When one party presents an argument and such argument is denied or contrary by another party.

Dispute resolution:

Process of resolving disputes between parties.

Dissolution:

The cancellation of a contract or partnership; the act of revoking or cancelling a legal proceeding; the dissolving of a corporation.

Distribution agreement:

Contract between a supplying company with products to sell and another company that markets and sells the products.

Dividend:

A fund set aside by a corporation composed of profits that will be apportioned to its various stockholders.

Due diligence:

An investigation of a potential business or contractor before entering into a contract.

E

EIS:

The Enterprise Investment Scheme (EIS) is designed to support higher risk companies in attracting investment by offering tax incentives to potential investors who purchase shares.

EMI Schemes:

Enterprise Management Incentive Schemes help motivate your workforce by allowing your team an option to purchase shares in your business at significant discount.

Employee Shareholder:

Shareholder who is or was a director, an employee of or a consultant to the company, or whose ultimate beneficial owner, director or affiliate is or was a director, an employee of or a consultant to the company.

Employment agreement:

Legal form of the relationship between employee and employer. An employment agreement will specify the employee’s role but most importantly, it will limit the employer’s liability.

End-user license agreement:

This is an agreement between a software provider and a user. This is a very important document for SaaS startups in particular.

Endorsement:

Signing a check or note, or other negotiable document, so that the rights granted by the check or note are transferred to another person.

Enforceable:

Capable of being performed; when a contract is valid and effective.

Entity:

Something that exists as its own separate unit.

Equity:

Refers to the ownership of a company such as shares or other securities. The name of the type of equity depends on the structure of the entity.

Equity split:

The way founders allocate the ownership amongst themselves, financial supporters and sometimes employees, when starting a company.

Exit strategy:

A contingency plan that is typically executed by an investor, trader, venture capitalist or business owner to liquidate or dispose of business assets. Usually an exit strategy is executed for the purpose of exiting a non-performing investment or closing a business that is not generating profits or experiencing a dispute.

F

Fair Value:

A reference to the estimated worth of a company’s assets and liabilities that are listed on a company’s financial statement.

Family Trust:

In relation to an individual shareholder, a trust whose beneficiaries do not include anyone who is not that shareholder or a privileged relation of that shareholder.

Financial statement:

Written records that convey the business activities and the financial performance of a company.

Forfeit:

To lose the property or right to do something because of wrongdoing.

Founder:

The person who sets up the company. Usually he or she has a majority of the shares in the company. However, the ownership percentage of the founder usually decreases as new investors get involved in the company.

Fraud:

An intentional misrepresentation or concealment of an important fact upon which the victim is meant to rely, and in fact does rely, to the harm of the victim.

Freelancer:

Self-employed people providing short-term services or working on smaller projects, often for many clients at once.

Full disclosure:

The telling of all that one knows, not hiding or concealing anything that might be pertinent to the case.

Funding:

The money that a startup needs in order to develop its business.

G

GDPR:

The General Data Protection Regulation is a regulation in EU law on data protection and privacy in the European Union and the European Economic Area. It also addresses the transfer of personal data outside the EU and EEA areas.

General Meeting:

A meeting of the members of a company.

Give notice:

To inform someone that a legal suit is about to take place.

Good Leaver:

employee who departs from the company by reason of:

(a)             death;

(b)            retirement;

(c)             permanent disability or permanent incapacity through ill-health;

(d)            redundancy (as defined in the Employment Rights Act 1996);

(e)            dismissal by the Company which is determined, by an employment tribunal or at a court of competent jurisdiction from which there is no right to appeal, to be wrongful or constructive; or

(f)              any reason after 3 (three) years from the date of becoming an employee Shareholder.

Governmental Authority:

Any supranational, national, state, municipal or local government in any jurisdiction.

Grant:

Funds or products often given by a government agency or other organisations such as a foundation. These funds or products don’t need to be repaid.

H

Hedge funds:

These investments are only open to professional investors, pension funds and insurance companies. They are considered risky bets although their aim is to beat falling markets.

Holding period:

The period of time an investment is held by the investor. It is the time between the purchase and the sale of the investor ownership.

I

Implicit:

When something can be assumed based upon the surrounding circumstances of an event or agreement.

Income tax:

Tax imposed on individuals or entities that varies with respective income or profits.

Indemnity:

Compensation for (or protection against) loss or damages that might be given by one person to another within a contract or otherwise.

Initial Public Offering (IPO):

A private company offers stocks to the public for the first time.

Insolvency:

When a company becomes unable to pay debts when they are due, or its liabilities exceed its assets.

Intellectual property (IP):

Refers to ideas you create and legally own as a result of owning its copyright, trademark or patent. Examples of IP can include inventions, literary and artistic works, designs, symbols, names and images.

Intellectual Property Rights:

Patents, rights to inventions or works, copyright and related rights, trademarks, trade and business names, domain names, rights in get-up, goodwill or the right to sue for passing off, unfair competition rights, rights in designs, rights in computer software, database rights, topography rights, rights to use and protect the confidentiality of information (including know-how and trade secrets) and all other intellectual property rights, in each case whether registered or unregistered and including all applications (and rights to apply for and be granted) and renewals or extensions of, and rights to claim priority from such rights and all similar or equivalent rights or forms of protection which subsist now or will subsist in the future in any part of the world.

Internship agreement:

Document that defines the nature of an internship and serves to prove that the work experience would be a part of the studies and related the education of the trainee.

Invention:

Any and all inventions, ideas, discoveries, developments, innovations, improvements, technical information, methods and suggestions, whether or not patentable or capable of registration, and whether or not recorded in any medium directly or indirectly relating to the business and/or the company.

Investment agreement:

Agreement between a company and individuals wishing to purchase an ownership in the company.

Investment letter:

A letter signed by an investor in which he commits not to resell his securities for a specific period of time. Usually for one year.

Investor:

Person that allocates capital with the expectation of a future financial return or to gain an advantage.

IP Assignment agreement:

This document transfers rights and ownership of relevant IP from one person to another and can be applied to any IP.

J

Joint venture:

Business arrangement in which two or more parties agree to pool their resources for the purpose of accomplishing a specific task. This task can be a new project or any other business activity.

Jurisdiction:

The power and right to administer justice; the geographic area in which a judge or a court has the right to try and decide a case.

L

Landlord:

An owner of a house, apartment, or land, to whom a tenant pays rent.

Government funding that can help people meet the costs of legal services they require, if they are eligible to receive it.

In a legal audit, the company’s management team discusses strategic plans and objectives, reviews key documents and records, and analyzes and identifies current and projected legal needs of the company.

Any privilege or right which, if challenged, would be supported in court.

Legislation:

Law which has been promulgated by a governing body or the process of making it.

Lender:

An individual or entity from whom money or an item is borrowed.

Letter of intent:

Non-binding document that is the first written stage of an investor’s intention to invest in your business. Letters of intent are usually used from Series A investment rounds, as smaller rounds do not require as many stages of documentation.

Liability:

Legal responsibility.

License:

A right granted by one person (or company) to another giving permission to the other person to do something that he could not legally do without such permission.

Licensing agreement:

Legal contract between two parties, known as the licensor and the licensee. In a typical licensing agreement, the licensor grants the licensee the right to produce and sell goods, apply a brand name or trademark, or use patented technology owned by the licensor.

Limited liability company (LLC):

Form of business which combines the limited liability protection of the corporation with the flow-through tax advantages of the partnership.

Limited liability partnership (LLP):

Business partnership in which some or all of the partners have limited liability in terms of their legal and financial obligations.

Liquidity:

The ease with which a company’s assets can be converted into cash.

Litigation:

Lawsuit; legal action.

M

Prior consent of the shareholders of the company (acting in their capacity as shareholders) holding more than 50% (fifty percent), or such higher percentage as may be required by law, of the issued Class A Shares given either in writing or at a general meeting.

Matter:

The subject or issue that needs to be considered by the relevant authority.

Mediation:

One of the alternative ways in which a dispute can be resolved, without going to court.

Memorandum of Understanding:

Formal legal statement that has to be signed by all the initial shareholders signifying they agree to form a company and become its members.

Merger:

When two or more companies are combined into one.

Mitigate:

To reduce the punishment of a convicted person or decreasing the amount of damages a complainant may have been awarded.

Money laundering:

The process of concealing the source of illegally obtained money.

Mutual:

Agreeable to both parties.

N

National insurance:

Form of tax which everyone currently employed must pay in order to qualify for benefits, including the state pension.

Net worth:

The value of a company, or the amount of money an individual is worth, after subtracting all liabilities and obligations.

Non-Disclosure Agreement (NDA):

Legal agreement used to prevent someone from disclosing information about another person or company.

Non-executive director:

Director who supports the company by providing an independent view on strategies and performance, but who is not actively involved in the day-to-day running.

O

Object:

To disagree; to pose an objection. Attorneys in trials frequently object to testimony or procedures.

Obligation:

Something a person is bound to do or bound not to do, sometimes may have a legal basis through a contract.

Option:

Financial derivative which gives the buyer the right, but not the obligation, to buy or sell an underlying asset or instrument at a specified price and date.

Option pool:

Refers to common stocks reserved for employees. Employees can receive common stock in the company instead of a cash bonus in reward for their great work. This process allows a company to attract a talented workforce.

Order:

Any judgement, decree, injunction, order, ruling, writ, citation or award of any nature whatsoever of any governmental authority that is binding on any person or its property under applicable law.

P

Paralegal:

Someone who supports lawyers in their work. Often paralegals have a law degree but do not have a practicing qualification.

Partner:

Members of a firm who equally share ownership and liability.

Partnership:

Two or more people working in business together.

Patent:

An official legal document confirming that an individual or company has the sole right to make, use or sell a particular invention.

Payable:

A legally enforceable debt.

PAYE:

Pay as you earn. A method of collecting income tax on behalf of the government by taking it directly from the employees’ weekly or monthly pay.

Personal liability:

The obligation to pay business-related debts from an owner’s personal, non-business assets.

Plaintiff:

The party who is bringing a lawsuit against a defendant; the person or persons who are suing.

Privacy policy:

Legal document that is needed specifically if you are collecting any personal information from your customers. Personal information is any information that could be used to identify an individual (such as name, email, phone number, address, credit card number, etc.) Every website should specify the information it collects in order to comply with the GDPR.

Private limited company:

A type of legal company structure that, among other features, limits the personal liability of the company owners so that they can’t be made bankrupt by company debts.

Privileged Relation:

In relation to an individual shareholder, his spouse, civil partner, widow, widower, sibling, child and grandchild (including step and adopted children and their issue).

R

Referral agreement:

Agreement between companies or individuals who refer potential clients or leads to the other party, in exchange for some form of compensation for the referral.

Representative:

In relation to any person, such person’s directors, officers, employees, lawyers, accountants, bankers or other advisers, agents, sub-contractors or brokers.

Resolution:

Written documentation of the formal approval of certain action by a corporation; a proposal made during a meeting of the company’s shareholders or directors.

Return On Investment (ROI):

The profit from an investment during a certain period of time.

Reverse Vesting:

In a startup, co-founders usually receive shares according to a vesting schedule. When a founder, fully vested, asks for VC funding, the investor can ask him to repurchase his shares. If the founder leaves the company before the end of the reverse-vesting period, other shareholders can buy back the founder shares not yet vested.

Risk:

The possibility that a particular choice might cause loss or harm.

S

Scaleup:

The evolved and established form of a startup. Its main challenge is growth, especially in market access, partnerships, investors’ money number of employees, etc.

Seed capital:

Initial capital you may need to start a company. Usually, it may come from your friends and family or investors such as angel investors.

Seed stage:

First stage of fundraising.

SEIS:

This scheme is designed to encourage private investors to invest in small businesses by providing tax incentives to the investor in doing so.

Service level agreement:

Type of Terms and Conditions/Terms of Business. They are most used by technology companies when a service provider renders a service to a client.

Share:

Single unit of ownership in a company or financial asset.

Share vesting:

Process by which an employee, investor, or co-founder is rewarded with shares or stock options but receives the full rights to them over a set period of time or, in some cases, after a specific milestone is hit.

Shareholder:

Person or company owning shares in a company.

Shareholder agreement:

Legally binding contract that complements the company’s Articles of Association to provide clarity on key matters that affect all the shareholders.

Silent partner:

An investor who provides only capital to startups. This investor is not involved in the management of the startup. Their liability is limited to the amount of their investment.

Software development agreement:

Legal document between a developer and the client to whom transfers the software, which sets the scope of the project, the payment for the work and will address any confidentiality concerns.

Sole trader:

Business owned and runned entirely by one person, who is also solely responsible for all of its debts.

Solicitor:

a lawyer who has been admitted as a solicitor by the SRA and whose name appears on the roll of solicitors.

Staff handbook:

Agreement which documents the internal policies for your employees.

Statutory written statement:

Document that English law requires employers to submit to their employees from day one of their engagement. It contains essential information about the employer and employee as well as indications about the employment relationship.

The prior consent of the shareholders of the company (acting in their capacity as shareholders) holding more than 60% (sixty percent), or such higher percentage as may be required by law, of the issued Class A Shares given either in writing or at a general meeting.

T

Tag Along/Drag Along:

This is a right designed to make the sale of a business easier. Minority shareholders are not able to block the deal, if the majority shareholder wishes to sell.

Tenancy:

A contract between a tenant and their landlord. This contract can be written or verbal.

Term sheet:

Usually a non-binding document that outlines the terms and conditions of a business agreement. In this template, you will develop all the details of this agreement such as the amount of the transaction or the price of share.

Termination Date:

The date on which the employment, consultancy or holding of office is terminated.

Terms & Conditions:

Legal agreements between a service provider and a person who wants to use that service.

Terms of business:

Legal basis on which you are willing to do business with your potential customers.

Third party:

Term used to describe someone other than the two sides in a particular situation.

Trademark:

A logo, brand name, sign or phrase legally registered by one company to identify the company and selling its products or services.

Transfer of shares:

Process of transferring existing shares from one person to another; either by sale or gift.

Trial:

A proceeding in a court to decide a controversy.

U

Unfair dismissal:

Employment termination made without good reason, in an unjust or unreasonable manner.

Unicorn:

A unicorn is a privately held startup company valued at over $1 billion.

V

Valuation:

A business valuation is a general process of determining the economic value of a whole business.

Value-added tax (VAT):

Consumption tax placed on a product at every stage of the supply chain in which value is added, from production to the point of sale.

VC Firm:

Firm investing its money in risky startups. In exchange for that money, the firm receives equity in the company and they’re looking for high returns.

Venture:

New business. It implies the possibility of losing money, as well as making money.

Venture capital:

Capital invested in high potential but high-risk projects, usually startups.

Verbal agreement:

An agreement reached orally.

Vesting Schedule:

Incentive program set up by an employer to determine when an employee will be fully vested, or acquire full ownership, of certain assets.

W

Will:

A legal document that declares a person’s wishes about the way their estate should be handled when they die.

Witness:

An individual who testifies at a trial, a hearing, or before a legislative body. To be present, and often to sign, a legal document, such as a will or deed. Having a witness sign lends authenticity to a document.

Consent given in writing instead of a meeting to approve certain actions.

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