Visit to explore Latham's full Book of Jargon® series, including glossaries for Capital Markets and Global M&A.

Bad Actor

eligibility to conduct a Rule 506 Private Placement is dependent upon, among other conditions, the absence of any “Bad Actors.” Bad Actors may include the Issuer, the Issuer’s Directors and Officers, certain significant Stockholders of the Issuer, and any person who has received or will receive direct or indirect compensation for solicitation of Purchasers in connection with such offering, among others. The circumstances that render one a Bad Actor do not include being Keanu Reeves (at least in this context), but rather include certain criminal convictions, restraining orders and regulatory proceedings relating to false statements and certain types of mail fraud in connection with the purchase or sale of a security. See Latham & Watkins Client Alert Number 1569, “You Talkin’ to Me?” (July 25, 2013).

Bad Actor Questionnaire

A questionnaire which a company uses to solicit the information needed to determine if a party may qualify as a Bad Actor.

Bad Actor Representations

Representations made by both the company and Investors in a transaction agreement, typically a Stock Purchase Agreement in Startups, confirming the absence of any Bad Actors.

Balance Sheet

Financial Statement on which a company reports its assets, liabilities and Equity as of a given moment in time. The Balance Sheet is in contrast to an Income Statement, which depicts a company’s situation over a period of time. The term Balance Sheet derives from the accounting principle that a company’s assets must equal (or balance with) its liabilities plus Stockholders' Equity.


A US federal court process under the Bankruptcy Code whereby a company restructures or otherwise satisfies its Debt under the supervision of a bankruptcy court.

Bankruptcy Code

Title 11 of the United States Code.

Blue Sky Laws

State, as opposed to US federal, securities laws. While the exact origin of this term is not known, people often refer to a US Supreme Court decision given by Justice McKenna in Hall v. Geiger-Jones Co., 242 U.S. 539 (1917), which dealt with the constitutionality of state securities regulations where he described the fraudulent schemes at issue as “having no more basis than so many feet of ‘blue sky’.” Since 1996, most state securities regulation has been preempted (with certain exceptions) by the federal securities laws; however, antifraud litigation and notice filings for certain covered Securities still remain under state jurisdiction. For a Startup conducting a Financing, it is important to know each proposed Investor’s state of residency so that the Startup’s legal Advisors can determine if any filings under Blue Sky Laws will be required. If filings are required, this could result in certain information about the Financing Round becoming publicly available.


Shorthand for Board of Directors.

Board Meetings

Meetings of the Board of Directors. These can be regularly scheduled meetings, a calendar of which is usually set at the beginning of each year, or special meetings, which must be called in accordance with the corporation’s Bylaws. For most Startups, Board Meetings are often held over the phone or through in-person meetings (sometimes in a coffee shop, college dorm, basement or garage) between the Founders (who typically are the only Directors until a Financing takes place) and representatives of significant Investors who have rights to designate one or more Board members.

Board Minutes

A summary of attendees and matters addressed during Board Meetings. The minutes of a Board Meeting should include any specific resolutions presented to, and approved by, the Board during the meeting. Minutes also generally include high-level detail of other matters presented or discussed (typically just enough detail to trigger memories of what was discussed, but not so much detail that the minutes would stand as a record on their own).

Board Observer

A person who attends and “observes” meetings of the Board, usually pursuant to a contractual right that also includes rights to receive the same materials that are delivered to the Board, subject to certain exceptions (see Board Observer Rights).

Board Observer Rights

A contractual right to attend Board Meetings of the Issuer as a non-voting observer (as well as receive Board materials). Board Observer Rights are often limited to permit exclusion of the Board Observer in the event of a conflict of interest or to protect confidentiality or legal privilege. In Startups, Venture Capitalists may require this right (often documented in a Management Rights Letter at the time of a Financing) to help establish that they are VCOCs.

Board of Directors

The governing body of a corporation appointed by the Stockholders to oversee the general management of the corporation on their behalf (that way the Stockholders can let the Board (and their capital) work for them while Stockholders tend to other affairs). The Board, in turn, appoints and has oversight over the Officers of the corporation, who manage the day-to-day affairs of the business. The Board (and Officers) owe Fiduciary Duties to the corporation to help ensure that the hierarchy operates effectively without the need for the Stockholders to involve themselves in the management of the business beyond the most important decisions (like raising new capital or selling the business, and the like).

Book Entry

The internal ledger system a corporation uses to track its Capitalization records. A Book Entry would be the only official record of stock ownership for a corporation that has approved the issuance of Uncertified Shares for its equity issuances. Compare to Stock Certificates.

Book Value

The dollar amount stated for particular assets on a company’s Balance Sheet.


Starting a company using your own funds or the funds of immediate family members or other relatives or mentors. This method of Financing, which is very common for Startups, is used to get a company up and running quickly and cheaply before completing a Financing from other third parties.

Bridge Financing

Usually a Convertible Debt Financing completed just prior to a Preferred Stock Financing or in between Preferred Stock Financings. Bridge Financing provides the corporation with a bridge to such a Preferred Stock Financing. Often Bridge Financing occurs when the company has received a Term Sheet or it is expected imminently and the corporation needs funding to provide a sufficient runway to get to that Preferred Stock Financing without experiencing a cash crunch.


Entities or individuals that are registered with the SEC because they buy and sell Securities for themselves or on behalf of others, acting as a broker when they execute orders on behalf of others and as a dealer when they do so for their own account.

Burn Rate

The net cash (i.e., expenses in excess of cash generated) which a company uses over a specified period of time, usually expressed as a monthly amount. This metric helps a company and its Investors determine when they will need to raise funds again. For example, if a company has a monthly burn rate of US$1 million and US$6 million in the bank, then the company needs to raise money before six months, and since Financings can take several months to complete (including investor meetings and the like), then the company knows that it should be actively engaging in a financing process very soon to avoid running out of money.

Business Combination

A name for any type of transaction that results in the economic and legal combination of businesses and assets of two or more entities, whether accomplished pursuant to operation of law (as in a statutory combination or, Merger), or by an Acquisition of assets or Securities by one entity of another.

Business Judgment Rule

The default standard of judicial review of Board decisions under Delaware and almost all other US state corporation laws and, as applicable, under certain national corporate laws. The Business Judgment Rule, as typically formulated, means that, in reviewing a plaintiff’s claim that a Board of Directors breached its Fiduciary Duty to its Stockholders, a court will presume that the Board acted in Good Faith, with due care and with loyalty to the corporation and its Stockholders. The plaintiff ordinarily bears the burden of proof of rebutting the presumptions inherent in the Business Judgment Rule. The related substantive formulation of the Business Judgment Rule is that a court will not second-guess a Board’s judgment unless the actions of the Board lack any rational basis.

Business Plan

A plan that looks forward and models (to the best of a company’s ability) how the company’s business will look over a period of time, which for venture-backed companies could be anywhere from six months up to two or three years (of course longer-term models are harder to predict in fast-growing and fast-changing enterprises). The business plan can be simple or very detailed. For Early Stage companies whose financial metrics are difficult to predict, the Business Plan will likely be less detailed than for Late Stage companies with more predictability.


Another name for an Acquirer or Purchaser.


One of the primary governing documents (second to the Certificate of Incorporation) for a corporation, in which most of the rules for the day-to-day operations of a corporation are set forth. Bylaws typically include procedures for how Officers are selected, how Board members may be appointed, how Board Meetings and Stockholder meetings may be called/conducted, etc. Think of the Certificate of Incorporation as the Constitution and the Bylaws as the laws or rules.

Go Straight To The Source
Please let us know if you need further direction or if you are not finding the documents you need.
Meet the Team Get in Touch
Back to All Resources