> ## Documentation Index > Fetch the complete documentation index at: https://docs.talcottforge.com/llms.txt > Use this file to discover all available pages before exploring further. # Glossary > Key terms and definitions for ROBS, 401(k) plans, and corporate formation. ## ROBS & Plan Terms | Term | Definition | | ------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | | **ROBS** | Rollover for Business Startups - a legal mechanism for using eligible retirement savings to capitalize a C-Corporation through a company-sponsored 401(k) plan without triggering an immediate taxable distribution | | **401(k) Plan** | An employer-sponsored retirement savings plan that allows employees to contribute pre-tax income. In ROBS, the plan also permits investment in employer stock | | **Qualifying Employer Securities** | Stock issued by the employer that sponsors the plan. In ROBS, this is the C-Corporation stock purchased by the 401(k) plan | | **Trustee-to-Trustee Transfer** | A direct rollover of retirement funds between plan trustees without the funds passing through the individual. No taxes are triggered | | **Plan Trust** | The trust entity that holds 401(k) plan assets. It is the legal owner of the C-Corp stock purchased through the ROBS transaction. The founder's plan account reflects the economic interest in those shares, and the Plan Administrator directs plan investment decisions subject to fiduciary duties. | | **Adoption Agreement** | The document by which the C-Corporation formally adopts the 401(k) plan, specifying its terms and provisions | | **Trust Agreement** | Establishes the trust that holds plan assets and defines the trustee's fiduciary responsibilities | | **Funding Policy** | The plan's investment policy statement, including authorization to invest in employer securities | | **Summary Plan Description (SPD)** | Participant-facing summary of plan terms and rights | | **Summary Annual Report (SAR)** | Annual participant disclosure prepared from Form 5500 information | | **Plan Sponsor** | The C-Corporation that sponsors the 401(k) plan | | **Form 5500** | Annual return filed with the DOL for employee benefit plans. Required for all 401(k) plans with assets | | **Plan Trust EIN** | The Employer Identification Number assigned to the 401(k) plan trust, separate from the C-Corporation's EIN. Required for annual Form 5500 filings. Nexus obtains it as part of plan setup. | | **Adoption Agreement (Execution Page / Addenda)** | The Adoption Agreement is delivered in two parts: the *execution page* (pages 1-12) is the signable portion and is sent for electronic signature, while the *addenda* (pages 13+) contain detailed plan provisions as reference material. Both are stored in your document library. | ## Tax & Compliance Terms | Term | Definition | | ----------------------------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | | **IRC 4975** | Internal Revenue Code section governing prohibited transactions for retirement plans. Violations trigger a 15% excise tax (100% if uncorrected) | | **ERISA** | Employee Retirement Income Security Act - federal law governing employee benefit plans including 401(k)s | | **ERISA 408(e)** | ERISA exemption allowing plans to acquire qualifying employer securities for adequate consideration | | **IRC 4975(d)(13)** | IRC exemption for transactions exempt under ERISA 408(e) - the legal basis for ROBS | | **Prohibited Transaction** | A transaction between a plan and a disqualified person that violates IRC 4975(c). Includes self-dealing, loans, property transfers, and kickbacks | | **Disqualified Person** | A fiduciary, service provider, employer, or 50%+ owner with respect to the plan. As a ROBS founder, you are a disqualified person | | **Fiduciary** | A person who exercises discretionary authority over plan management, assets, or administration | | **Excise Tax** | A tax imposed on prohibited transactions - 15% of the amount involved per year, plus 100% if not corrected | | **Adequate Consideration** | The fair market value standard for transactions involving plan assets. For publicly traded securities, it's the market price; for private stock, it's determined by good-faith fiduciary assessment | | **409A Valuation** | An independent appraisal of a private company's fair market value under IRC 409A. Required for ROBS plan valuations after Year 1 | | **IRS Memo 2008-01-021** | IRS examination guidance for auditing ROBS transactions. Acknowledges ROBS as a recognized planning strategy while outlining audit procedures | | **QSBS (Qualified Small Business Stock)** | Stock in a qualified small business that may be eligible for a federal capital gains exclusion under IRC 1202 (up to 100% exclusion after 5 years). **Important:** Shares held by a 401(k) plan trust do not qualify for QSBS treatment - QSBS requires direct individual ownership. Shares issued directly to founders (for example, via a fee reimbursement election in shares) may qualify if all other IRC 1202 requirements are met. | ## Corporate Terms | Term | Definition | | ----------------------------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | | **C-Corporation** | A standard corporation taxed separately from its shareholders. Required for ROBS because only C-Corps issue qualifying employer securities | | **S-Corporation** | A corporation that elects pass-through taxation under Subchapter S. Cannot be used for ROBS because S-Corp stock does not work as qualifying employer securities for this structure | | **LLC** | Limited Liability Company - a flexible business structure with pass-through taxation. Cannot be used for ROBS because membership interests are not the qualifying employer securities required for this structure | | **Par Value** | The minimum nominal value assigned to each share of stock. The actual share purchase price is set based on the capitalization structure | | **Cap Table** | Capitalization table - a record of all equity ownership, share classes, and transactions for the corporation | | **Share Class** | A category of stock with specific rights (voting, dividends, liquidation preference). ROBS companies typically start with a single class of common stock | | **Board Resolution** | A formal decision by the board of directors, documented in writing. Required for authorizing compensation, stock issuance, and other major corporate actions | | **Bylaws** | Internal governance rules for the corporation - meeting procedures, officer duties, shareholder rights | | **Articles/Certificate of Incorporation** | The founding document filed with the state to legally create the corporation | | **EIN** | Employer Identification Number - the corporation's tax ID, obtained from the IRS | | **Registered Agent** | A person or entity designated to receive legal documents on behalf of the corporation in its state of incorporation | ## Platform Terms | Term | Definition | | -------------------------- | --------------------------------------------------------------------------------------------------------------------------------- | | **Nexus by Talcott Forge** | Talcott Forge's retirement-capital product line, currently focused on Nexus 401(k) and the ROBS setup and administration workflow | | **Client Setup Agreement** | The service agreement between you and Talcott Forge for ROBS setup, reviewed and accepted before payment | | **Document Library** | Your dashboard's document section where all generated and signed documents are stored and downloadable | | **Electronic Signature** | Documents requiring your signature are sent through our integrated e-signature platform and signed directly from your dashboard | ## Case Law | Case | What It Decided | | ---------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------- | | **Ellis v. Commissioner (2015)** | Self-directed compensation without governance controls is a prohibited transaction. Salary itself is not prohibited - unchecked self-dealing is | | **Peek v. Commissioner (2013)** | Personal guarantees on business debt are an indirect extension of credit to the plan - a prohibited transaction that disqualifies the entire plan | | **Swanson v. Commissioner (1996)** | A corporation without shares or shareholders doesn't fit the definition of a disqualified person - relevant to the timing of stock purchases | Return to the ROBS overview.