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Common Home Based Business Terms

Useful Information for Businessmen and Entrepreneurs


Taking ownership of another business. Frequently used in conjunction with the word merger, as in mergers and acquisitions or M&As.


The activity of attracting public attention to a product or business, as by paid announcements in the print, broadcast, or electronic media. Not to be confused with marketing or public relations. See for an extensive glossary of advertising terms or About Advertising for more information.


A person or entity which controls another, is controlled by another, or is under common control with another. In a corporation, affiliate status is presumed if one is an officer or director or control shareholder (generally holding at least 20 percent of the outstanding capital stock).


Trading activity of a stock immediately following the event by which an operating business's stock becomes publicly tradable. More commonly referred to in connection with an IPO, but also applies following a reverse merger.

Aftermarket Support

The extent to which brokerage firms and market makers and their customers participate in the aftermarket following a reverse merger or self-filing.

Alternative Investment Market (AIM)

A stock exchange based in London, England which lists stocks of companies that may not qualify for the London Stock Exchange or similar broader exchanges.

Alternative Public Offering (APO)

Somewhat misleading term used to refer to the variety of methods of going public other than an IPO. The term generally describes reverse mergers, self-filings, Rule 504 offerings, and Regulation A offerings; however, a number of these methods do not include public offerings, which is why the term is somewhat misleading.

American Stock Exchange

A major U.S. exchange where a public company's shares can trade. Listing and maintenance requirements are more stringent than on the Over-the-Counter Bulletin Board, but it is generally considered easier to list on the American Stock Exchange than on the Nasdaq or the New York Stock Exchange.

Asset acquisition

One method used to complete the combination of two entities. Rather than a direct merger or share exchange, one entity, in the case of a reverse merger typically the public shell, acquires the assets of an operating business.


Detailed review of a company's financial statements and performance, where thorough checks of inventory, expenses, revenues, and the like are performed by an independent certified public accounting firm. SEC rules under the Sarbanes-Oxley Act of 2002 require an audit of a public company to be performed by an accounting firm that is registered with the Public Company Accounting Oversight Board.

Angel Investors

Individuals who back emerging entrepreneurial ventures, usually as a bridge to get from the self-funded stage to the level of business that would both need and attract venture capital. Funding level ranges anywhere from $50,000 to $2 million. See Angel Investor News.


A formal estimate of the value of something on the open market. It also describes how the estimation and conclusion of value was made.


Direct exchange of merchandise and/or services between businesses. See the International Reciprocal Trade Association.

Blind pool

Term used by some in the industry to refer to a blank check which is raising or which has raised money.

Blue sky laws

Securities laws and regulations in each of the fifty states, regulating the offering of securities in that state. According to, the term is said to have originated in the early 1900s when a Supreme Court justice declared his desire to protect investors from speculative ventures that had "as much value as a patch of blue sky."


See board of directors.

Board of directors

Governing body of a U.S. corporation. Shareholders generally elect members of the board of directors, which is granted broad powers to elect officers such as the president and secretary and oversee a corporation's business. Also referred to simply as a board.


A firm engaged in the business of effecting securities and other transactions for the accounts of others. They are required to be registered with the SEC and the NASD.

Bulletin board shell

A blank check or shell company whose securities trade on the Over-the-Counter Bulletin Board.


Set of rules governing many aspects of a corporation's business, including the process of electing officers and directors, calling and conducting meetings, and defining protocols related to shareholders and stock certificates.

Business Incubator

Provides workspace, coaching, and support services to entrepreneurs and early-stage businesses. See the National Business Incubation Association.

Business Valuation

An estimate of the worth of a business entity and its assets.

Certificate of Incorporation.

The filing with a U.S. state's government (typically the Department of State) to create a corporation. Some states use the term articles of incorporation, and often the term charter refers to this document. Typically includes the number and type of shares of stock which are authorized, the corporation's name, and limitation of liability of corporate directors. Also referred to as a corporate charter.

Change of Control

A transaction pursuant to which a company's shareholdings, board of directors, and/or officers undergo a majority change. This can occur as a result of the sale of a company, the accumulation of stock by an unfriendly acquirer, or a shake-up resulting from a shareholder vote expressing dissatisfaction with a board or management's performance.

Clean Shell

A shell company which has no liabilities or other negative attributes as perceived by an operating business seeking to merge with it.

Contemporaneous Financing

A common technique in reverse mergers where an operating business combining with a shell company raises money at the same time as the completion of the merger, typically through a PIPE or other private placement.

Controlling Shareholders

Those who have the ability, through their ownership of shares of stock of a corporation, to approve matters required to be approved by shareholders, or to elect the board of directors.

Convertible Debt

Indebtedness of a corporation, the holder of which has the right to exchange or convert monies owed into stock at a negotiated price.

Consumer Direct Marketing

A form of Network Marketing in which the distributors are all also consumers, i.e., they must also buy the product for their personal use.


Copyright is a form of protection for published and unpublished literary, scientific and artistic works that have been fixed in a tangible or material form. See


A body that is granted a charter recognizing it as a separate legal entity having its own rights, privileges, and liabilities distinct from those of its members. The primary advantage of a corporation is that shield its investors from personal liability for any losses the corporation may experience. See more info at

Corporate officer

An individual elected by the board of directors to be an officer of a corporation. Most states require every corporation to have a president and secretary, but additional officers may be appointed and may include treasurer, vice president, chief executive officer, and chief financial officer. Individuals with titles resembling those of corporate officers are not corporate officers unless elected by the board of directors. Officers have certain fiduciary duties to the board and the corporation's shareholders.


In a Multi-Level Marketing business, the collection of all people signed up underneath an individual on which the individual receives payment on their sales.

Due Diligence

The inquiry process of obtaining sufficient and accurate disclosure of all material documents and other information which may influence the outcome of the transaction.


A person who organizes, operates, and assumes the risk for a business venture.

Freight Broker

A "Freight Broker" is any person who sells transportation without actually providing it. The term usually refers to an agent for TL shipments, matching small shippers with carriers. Freight brokers often do not accept any responsibility for their shipments. (Also see Freight Forwarder and Shipper"s Agent). Any person who sells transportation without actually providing it. Usually refers to agent for TL shipments, matching small shippers with carriers. Freight brokers often do not accept any responsibility for their shipments.

General Partnership

An organizational structure in which each general partner shares in the administration, profits and losses of the operation. See more info at

Home Based Business

A business, of any size or type, whose primary office is in the owner's home. Also a home based business is a business whose primary office is in the owner's home. The business can be any size or any type as long as the office itself is located in a home or personal residence.

Independent Contractor

One who practices an independent trade, business, or profession in which they offer their services to the public. The person contracting for their services must have the right to control or direct only the result of the work and not the means and methods of accomplishing the result. See IRS Publication 1796.


A intrapreneur is one who takes on entrepreneur-like ventures within a large corporate environment.

Joint Venture

A legal entity created by two or more businesses joining together to conduct a specific business enterprise with both parties sharing profits and losses. It differs from a strategic alliance in that there is a specific legal entity created.

Limited Liability Company (LLC)

A legal entity that is not taxable itself and distributes the profits to its owners, but shields personal assets from business debt like a corporation. See more info at

Limited Partnership

A business arrangement in which the day-to-day operations are controlled by one or more general partners and funded by limited or silent partners who are legally responsible for losses based on the amount of their investment. See more info at

Line of Credit

Similar to a business loan, except that the borrower only pays interest on the amount actually used. Much like a credit card, the business makes periodic payments against the outstanding balance.


The process of researching, promoting, selling and distributing a product or service. Marketing covers a broad range of practices, including advertising, publicity, promotion, pricing, and overall packaging of the goods or services. See


A joining together of two previously separate corporations. A true merger in the legal sense occurs when both businesses dissolve and move their assets and liabilities into a newly created entity.

Multi-level Marketing (MLM)

Any business in which a person receives proceeds not only from their own sales, but from the sales made by people they have signed up, and potentially people those people have signed up, and so on.

Network Marketing

A business in which a distributor network is needed to build the business. Usually such businesses are also MLM (see above).


Developing business contacts to form business relationships, increase your knowledge, expand your business base, or serve the community. Also used to describe linking computers systems together. See networking resources on this site.


Purchasing standard operational services from another business. Outsourced services typically including accounting, payroll, IT, advertising, and more. See Top 10 Tips for Outsourcing Success.


A business form in which two or more individuals who carry on a continuing business for profit. A partnership is legally regarded as a group of individuals rather than as a single entity, and each of the partners file their share of the profits on their individual tax returns. See more info at


A property right granted to an inventor to exclude others from making, using, offering for sale, or selling the invention for a limited time in exchange for public disclosure of the invention when the patent is granted. See more information on patents from your Guide to Inventors.

Post-effective amendment

An SEC filing effecting changes or updates in a registration statement after it becomes effective. Rule 419 requires a post-effective amendment to disclose information about the company proposed to be merged into a shell.

Post-money valuation

he value of a company immediately after it completes a financing. Generally calculated by adding the amount of financing to the pre-money valuation.

Preferred stock

A class of securities in a corporation generally higher in the capitalization structure than common stock, often with special rights or privileges.

Pre-money valuation

The value of a company immediately before it completes a financing.

Primary registration

A registration statement filed on behalf of a company seeking for it to register its shares for a public offering.

Private company.

A company that has not conducted a public offering nor become a reporting company.

Private equity

A somewhat amorphous term referring generally to a source of financing that involves a private placement.

Private investment in public equity (PIPE)

A private placement of equity or equity-linked securities effected for a public company, typically with immediate required registration of the equity sold to the investor.

Private offering

Offering of securities by a company or a holder of securities that does not involve a public offering.


A detailed method, formulated beforehand, for managing a business.

Public Offering

The process by which a company seeks to offer and sell its securities to the public, as opposed to a limited distribution of securities as in a private placement. Also refers to the process by which a shareholder may seek to offer shares of a company other than in a private placement. Public offerings typically require registration with the SEC.

Public Relations (PR)

The deliberate promotion of a specific image for a business. Often confused with publicity which is simply the materials used in a specific part of a public relations effort. See more information on Public Relations from your Advertising Guide.

Public venture capital

Often used to refer to a private placement accompanying a reverse merger. Relates to the fact that the investment risk is often similar to a venture capital investment, except that the investment is into a public company.


The exchange of a product or service for money. Also refers to the profession of that activity or a department within a company that performs that activity.


Service Corps of Retired Executives; they provide counseling advice for small businesses. See Small Business Just what exactly constitutes "small"? There actually is an official definition, but it varies widely from industry to industry. See the SBA's official sizing standards.

Small Business Administration (SBA)

The United States Government Agency charged with "providing customer-oriented, full-service programs and accurate, timely information to the entrepreneurial community". See

Sole Proprietorship

A business owned and operated by one person. See more info at

Strategic Alliance

An ongoing relationship between two businesses in which they combine efforts for a specific purpose.


A form of equity ownership in a corporation.

Stock option.

The right to purchase stock for a specified period of time and typically for a specified price.

Stock split.

A pro rata increase or decrease in the number of shares outstanding, typically requiring shareholder approval.


A form of legal protection for words, names, symbols, sounds, or colors that distinguish goods and services. Trademarks, unlike patents, can be renewed forever as long as they are being used in business. See more information on trademarks from your Guide on Inventors.


Broker-dealer that serves to complete an IPO of a company by purchasing shares from the company at a discount and then reselling them to the broker-dealer's customers.

Venture Capital (VC)

A form of financing for a company in which the business gives up partial ownership and control of the business in exchange for capital over a limited time frame, usually 3-5 years. Investments typically range from $500,000 to $5 million., although there are occasionally VC investments for as low as $50,000 or as high as $20 million.


A promise that something is in a certain state or condition. For example, "All our inventory is in saleable condition," or, "We have complied with all applicable laws concerning our pension plan." They are typically provided along with representations in reverse merger agreements.

Wholly foreign-owned enterprise (WFOE)

Entity permitted by Chinese regulations to be owned by foreign entities or nationals

Wholly owned subsidiary

A subsidiary all of whose equity ownership is held by one entity.