Business Law Terms and Definitions

Factoring A method of raising working capital by selling your business's accounts receivables to a bank at a discounted rate. The bank then manages and collects the money due. Sole proprietorship Sole proprietorship legal structure that has one person as the owner. Debt Capital Business financing that normally requires periodic interest payments and repayment of the principal within a specified time. Escrow Accounts Funds placed in trust with a third party, by a borrower for a specific purpose and to be delivered to the borrower only upon the fulfillment of certain conditions. Accountant Accountant one whose work is keeping or examining accounts or business records. Working capital Current assets minus current liabilities. Balance sheet Statement, which gives a picture of the business position at a given point in time. It shows what a business owns (assets) and what the business owes (liabilities). Accounts Payable A liability arising when a vendor provides goods or services that are not immediately paid for and where the liability is not formalized in writing but backed by the reputation and credit worthiness of the debtor. Cash flow Measure of how well a business manages its inflows and outflows of cash for a given period of time. It shows the borrower's ability to repay the loan. Contingent Liability A potential obligation that may be incurred dependent upon the occurrence of a future event. Two examples are: (1) the liability of an endorser or guarantor of a note if the primary borrower fails to pay as agreed and (2) the liability that would be incurred if a pending lawsuit is resolved in the other party's favor.

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	Did You Know?
	Annual Budgets are a component in small business For an existing business, this is a realistic budget for the current fiscal year based on past income and expenditures. It includes anticipated changes in income and spending that may occur during the year. For a start-up business, this is a realistic projection of the income and costs of doing business for a year.