Company
The concept of a 'company' is fundamental to modern global economies, serving as the backbone for everything from multinational corporations to local charities. Far more than just a group of people, a company is an ingenious legal construct that shapes how we innovate, trade, and even relate to each other. Understanding its unique characteristics reveals how such entities gain a life of their own, separate from their founders and members. A company is a legal 'person' distinct from its owners, allowing it to enter contracts, own property, and incur debt independently. The crucial concept of 'limited liability' protects individual investors, making business ventures less risky and encouraging capital investment. The word 'company' has a fascinating journey, evolving from ancient terms for sharing food and camaraderie to its modern meaning of a business association.
AI Summary
The concept of a 'company' is fundamental to modern global economies, serving as the backbone for everything from multinational corporations to local charities. Far more than just a group of people, a company is an ingenious legal construct that shapes how we innovate, trade, and even relate to each other. Understanding its unique characteristics reveals how such entities gain a life of their own, separate from their founders and members.
- A company is a legal 'person' distinct from its owners, allowing it to enter contracts, own property, and incur debt independently.
- The crucial concept of 'limited liability' protects individual investors, making business ventures less risky and encouraging capital investment.
- The word 'company' has a fascinating journey, evolving from ancient terms for sharing food and camaraderie to its modern meaning of a business association.
What Makes a Company a 'Company'?
At its core, a company is a formal legal entity representing an association of individuals—or even other entities—united by a specific objective. Whether their goal is to turn a profit, advance a cause, or simply manage assets, members share a common purpose and work together to achieve it.
Over centuries, companies evolved to possess remarkable features that distinguish them from simple partnerships. These include a separate legal personality, which means the company itself can sue or be sued, and limited liability, protecting its members from the company's debts. They also developed transferable shares and a managerial hierarchy.
More Than Just Profits
When we think of 'companies,' our minds often jump straight to profit-driven businesses. But the term encompasses a far broader spectrum. Companies can be voluntary associations, like many nonprofit organizations, or financial powerhouses, banks, and even educational institutions.
The legal creation of a company grants it this 'legal person' status. This means it can own property, enter contracts, and incur debt independently of its founders or members. This crucial separation also enables limited liability, where an individual's financial risk is generally capped at their investment in the company.
This 'artificial person' is invisible and intangible, yet it has a distinct legal capacity and a remarkable characteristic called 'perpetual succession.' This means the company's existence is unaffected by the death, insanity, or insolvency of any individual member. It can, in theory, live on forever.
A Word with Deep Roots
The English word 'company' has a charming origin story, tracing back to the Old French term 'compagnie' from the 12th century, meaning 'society' or 'friendship.' This, in turn, came from the Late Latin 'companio,' literally meaning 'one who eats bread with you'.
This 'with bread' concept highlights the original sense of shared sustenance and camaraderie. By 1303, the word was used to refer to trade guilds—groups of artisans or merchants. Its modern meaning of a 'business association' first appeared in 1553, and the familiar abbreviation 'co.' emerged in 1769.
The Many Forms of a Company
Companies come in various legal structures, each designed for different purposes and risk profiles. The most common form for business ventures is a 'company limited by shares,' where shareholder liability is limited to the amount they've invested. These can be public or privately held.
For non-commercial endeavors like clubs or charities, a 'company limited by guarantee' is often used. Here, members guarantee a nominal payment if the company faces liquidation, but otherwise hold no economic rights. This ensures the organization can function without individual members bearing undue risk.
Another popular structure, especially in the United States, is the 'Limited Liability Company' or LLC. This 'hybrid' entity blends the limited liability protection of a corporation with the 'flow-through taxation' benefits often found in partnerships or sole proprietorships, avoiding corporate-level taxes.
While rare today, some companies were historically formed by 'royal charter' or specific 'statutes.' These older forms, like the Bank of England, typically had unique privileges or functions, often predating modern corporate legislation.
When you see 'Ltd' after a company's name, it signals a 'limited company,' meaning its members have limited liability. 'PLC,' on the other hand, stands for 'Public Limited Company,' indicating its shares can be offered to the public, often on a stock exchange.
Companies Around the World
While the fundamental principles remain, the specific legal forms and names of companies vary significantly across countries. In Germany, you'll encounter the 'GmbH' (private limited liability company) and the 'Aktiengesellschaft' or 'AG' (public limited company), each with distinct rules.
Similarly, Japan has the 'Kabushiki Kaisha,' akin to a joint-stock company, and the 'Gōdō Kaisha,' resembling an LLC. Canada allows federal or provincial incorporation, while China distinguishes between limited liability companies and joint-stock limited companies under its Company Law.
In the United States, the term 'company' is often used more broadly than 'corporation.' It can refer to various organized groups, whether incorporated or not—including partnerships, trusts, or joint-stock companies—showcasing the flexibility and diverse nature of these economic engines.
Article
Company
An office building of Nokia Corporation in Hervanta, Tampere, Finland
A company is a legal entity representing an association of legal persons with a shared objective, such as generating profit or benefiting society. Depending on the jurisdiction, companies can take on various forms, including voluntary associations, nonprofit organizations, business entities, financial entities, banks, and educational institutions. Companies have evolved to share common legal features, such as a separate legal personality, limited liability, transferable shares, investor ownership, and a managerial hierarchy.
The term "company" may or may not be synonymous with corporation, partnership, firm, or society. Companies are governed by company law, also referred to as corporate law in many regions. Incorporated companies are created through state registration, whereas unincorporated companies are not.
When a company closes, it may undergo liquidation to settle its affairs and terminate its legal obligations. Additionally, companies may associate to form corporate groups, which are collections of parent and subsidiary corporations.
History
Company
English law recognised long ago that a corporation would have separate legal personality, also known as corporate personality or juridical personhood. In 1612, Sir Edward Coke remarked in the Case of Sutton's Hospital,
the Corporation itself is onely in abstracto, and resteth onely in intendment and consideration of the Law; for a Corporation aggregate of many is invisible, immortal, & resteth only in intendment and consideration of the Law; and therefore it cannot have predecessor nor successor. They may not commit treason, nor be outlawed, nor excommunicate, for they have no souls, neither can they appear in person, but by Attorney. A Corporation aggregate of many cannot do fealty, for an invisible body cannot be in person, nor can swear, it is not subject to imbecilities, or death of the natural, body, and divers other cases.
In 1776, Adam Smith wrote in the Wealth of Nations that mass corporate activity could not match private entrepreneurship, because people in charge of "other people's money" would not exercise as much care as they would with their own.
In 1843, William Gladstone took chairmanship of a Parliamentary Committee on Joint Stock Companies, which led to the Joint Stock Companies Act 1844.
United States
At the end of the 19th century in the United States, the law allowed for the concentration of wealth and power in the hands of a few people, or a single person. In response, the Sherman Antitrust Act of 1890 was created to break up big business conglomerates, and the Clayton Act of 1914 gave the government power to halt mergers and acquisitions that could damage the public interest. By the end of the First World War, it was increasingly perceived that ordinary people had little voice compared to the "financial oligarchy" of bankers and industrial magnates. In particular, employees lacked voice compared to shareholders, but plans for a post-war "industrial democracy" (giving employees votes for investing their labor) did not become widespread.
The Wall Street crash of 1929 saw the total collapse of stock market values, as shareholders realized that corporations had become overpriced. They sold shares en masse, meaning many companies found it hard to get finance. The result was that thousands of businesses were forced to close, and they laid off workers. Because workers had less money to spend, businesses received less income, leading to more closures and lay-offs. This downward spiral began the Great Depression. This led directly to the New Deal reforms of the Securities Act of 1933 and Securities and Exchange Act of 1934. A new Securities and Exchange Commission was empowered to require corporations disclose all material information about their business to the investing public.
After World War II, a general consensus emerged that directors were not bound purely to pursue "shareholder value" but could exercise their discretion for the good of all stakeholders, for instance by increasing wages instead of dividends, or providing services for the good of the community instead of only pursuing profits, if it was in the interests of the enterprise as a whole. However, different states had different corporate laws. To increase revenue from corporate tax, individual states had an incentive to lower their standards in a "race to the bottom" to attract corporations to set up their headquarters in the state, particularly where directors controlled the decision to incorporate. "Charter competition", by the 1960s, had led Delaware to become home to the majority of the largest US corporations. This meant that the case law of the Delaware Chancery and Supreme Court became increasingly influential.
During the 1980s, a huge takeover and merger boom decreased directors' accountability. To fend off a takeover, courts allowed boards to institute "poison pills" or "shareholder rights plans", which allowed directors to veto any bid – and probably get a payout for letting a takeover happen. More and more people's retirement savings were being invested into the stock market, through pension funds, life insurance and mutual funds. This resulted in a vast growth in the asset management industry, which tended to take control of voting rights. Both the financial sector's share of income, and executive pay for chief executive officers began to rise far beyond real wages for the rest of the workforce. The Enron scandal of 2001 led to some reforms in the Sarbanes-Oxley Act (on separating auditors from consultancy work). The 2008 financial crisis led to minor changes in the Dodd-Frank Act (on soft regulation of pay, alongside derivative markets). However, the basic shape of corporate law in the United States has remained the same since the 1980s.
Terminology and definition
Company
A company can be defined as an "artificial person", invisible, intangible, created by or under law, with a discrete legal capacity (or "personality"), perpetual succession, and a common seal. Except for some senior positions, companies remain unaffected by the death, insanity, or insolvency of an individual member.
Etymology
The English word, "company", has its origins in the Old French term compagnie (first recorded in 1150), meaning "society, friendship, intimacy; body of soldiers", which came from the Late Latin word companio ("one who eats bread with you"), first attested in the Salic law (c. AD 500) as a calque of the Germanic expression gahlaibo (literally, "with bread"), related to Old High German galeipo ("companion") and to Gothic gahlaiba ("messmate").
Semantics and usage
By 1303, the word company referred to trade guilds. The usage of the term company to mean "business association" was first recorded in 1553, and the abbreviation "co." dates from 1769.
In English law, a company is a body corporate or corporation company registered under the Companies Acts or under similar legislation.
Nomenclature
• Limited and unlimited companies • A limited company is a "company in which the liability of each shareholder is limited to the amount individually invested". An unlimited company is a company with no limit on the liability of its members. • Private and public companies • A public company is a company whose shares may be traded publicly.
Types
Company
• Nonprofit organizations • Company limited by guarantee • Charitable incorporated organisation • Society • Unions • Trade union • Credit union • Cooperative • Non-governmental organization • Religious organization • Educational institution • Businesses • Partnerships • Limited partnership • Limited liability partnership • Limited liability limited partnership • General partnership • Limited companies • Equity sharing • Company limited by shares • Joint-stock company • Private limited company • Public companies • Public limited company • Limited liability company • Unlimited company • Corporation • Conglomerates • Privately held company • Chaebol • Corporate group • Holding company • Subsidiary • By industry • Bank • Investment fund • Venture capital company • Professional company • Law firm • Accounting firm • Other entities • Special-purpose acquisition company • Special-purpose entity • Trusts • Shell corporation • Shelf corporation • Unincorporated associations • Reciprocal inter-insurance exchange • Sole proprietorship • Government • Statutory corporation • State-owned enterprise • Sovereign wealth fund • Public–private partnership