Company
Encyclopedia
A company is a form of business organization. It is an association
or collection of individual real persons and/or other companies, who each provide some form of capital
. This group has a common purpose or focus and an aim of gaining profits. This collection, group or association of persons can be made to exist in law
and then a company is itself considered a "legal person". The name company arose because, at least originally, it represented or was owned by more than one real or legal person.
In the United States
, a company is a corporation
—or, less commonly, an association
, partnership
, or union
—to carry out an enterprise. Generally, a company may be a "corporation
, partnership
, association, joint-stock company, trust
, fund
, or organized group of person
s, whether incorporated or not, and (in an official capacity) any receiver, trustee in bankruptcy, or similar official, or liquidating agent, for any of the foregoing."
In English law
and in the Commonwealth realm
s a company is a body corporate or corporation company registered under the Companies Acts
or similar legislation. It does not include a partnership
or any other unincorporated group of persons, although such an entity may be loosely described as a company.
, perpetual succession
and a common seal
. It is not affected by the death, insanity or insolvency
of an individual member.
The English word has its origins in the Old French
military term
compaignie (first recorded in 1150), meaning a "body of soldiers", originally taken from the Late Latin
word companio "companion, one who eats bread with you", first attested in the Lex Salica as a calque of the Germanic
expression *gahlaibo (literally, "with bread"), related to Old High German
galeipo "companion" and Gothic
gahlaiba "messmate". By 1303, the word referred to trade guilds. Usage of company to mean "business association" was first recorded in 1553 and the abbreviation "co." dates from 1769.
, by Royal Charter, or by registration under company law (referred to as a limited liability or joint-stock company)." In the United Kingdom
, the main regulating laws are the Companies Act 1985
and the Companies Act 2006
. Reportedly, "a company registered under this Act has limited liability: its owners (the shareholders) have no financial liability in the event of winding up the affairs of the company, but they might lose the money already invested in it". In the USA, companies are registered in a particular state—Delaware
being especially favoured—and become Incorporated (Inc).
In North America
, two of the earliest companies were The London Company
(also called the Charter of the Virginia Company of London)—an English
joint stock company
established by royal charter by James I of England
on April 10, 1606 with the purpose of establishing colonial settlements in North America
—and Plymouth Company
that was granted an identical charter as part of the Virginia Company
. The London Company was responsible for establishing the Jamestown Settlement
, the first permanent English settlement in the present United States in 1607, and in the process of sending additional supplies, inadvertently settled the Somers Isles, alias Bermuda
, the oldest-remaining English colony, in 1609.
There are various types of company that can be formed in different jurisdictions, but the most common forms of company (generally formed by registration under applicable companies legislation) are:
Less commonly seen types of companies are:
Note that "Ltd after the company's name signifies limited company, and PLC (public limited company
) indicates that its shares are widely held."
In legal parlance, the owners of a company are normally referred to as the "members". In a company limited or unlimited by shares (formed or incorporated with a share capital), this will be the shareholder
s. In a company limited by guarantee, this will be the guarantors. Some offshore jurisdictions
have created special forms of offshore company
in a bid to attract business for their jurisdictions. Examples include "segregated portfolio companies
" and restricted purpose companies.
There are however, many, many sub-categories of types of company that can be formed in various jurisdictions in the world.
Companies are also sometimes distinguished for legal and regulatory purposes between public companies
and private companies. Public companies are companies whose shares can be publicly traded, often (although not always) on a regulated stock exchange
. Private companies do not have publicly traded shares, and often contain restrictions on transfers of shares. In some jurisdictions, private companies have maximum numbers of shareholders.
Voluntary association
A voluntary association or union is a group of individuals who enter into an agreement as volunteers to form a body to accomplish a purpose.Strictly speaking, in many jurisdictions no formalities are necessary to start an association...
or collection of individual real persons and/or other companies, who each provide some form of capital
Capital
A capital city is the area of a country, province, region, or state considered to enjoy primary status; although there are exceptions, a capital is typically a city that physically encompasses the offices and meeting places of the seat of government and is usually fixed by law or by the constitution...
. This group has a common purpose or focus and an aim of gaining profits. This collection, group or association of persons can be made to exist in law
Law
Law is a system of rules and guidelines which are enforced through social institutions to govern behavior, wherever possible. It shapes politics, economics and society in numerous ways and serves as a social mediator of relations between people. Contract law regulates everything from buying a bus...
and then a company is itself considered a "legal person". The name company arose because, at least originally, it represented or was owned by more than one real or legal person.
In the United States
United States
The United States of America is a federal constitutional republic comprising fifty states and a federal district...
, a company is a corporation
Corporation
A corporation is created under the laws of a state as a separate legal entity that has privileges and liabilities that are distinct from those of its members. There are many different forms of corporations, most of which are used to conduct business. Early corporations were established by charter...
—or, less commonly, an association
Voluntary association
A voluntary association or union is a group of individuals who enter into an agreement as volunteers to form a body to accomplish a purpose.Strictly speaking, in many jurisdictions no formalities are necessary to start an association...
, partnership
Partnership
A partnership is an arrangement where parties agree to cooperate to advance their mutual interests.Since humans are social beings, partnerships between individuals, businesses, interest-based organizations, schools, governments, and varied combinations thereof, have always been and remain commonplace...
, or union
Trade union
A trade union, trades union or labor union is an organization of workers that have banded together to achieve common goals such as better working conditions. The trade union, through its leadership, bargains with the employer on behalf of union members and negotiates labour contracts with...
—to carry out an enterprise. Generally, a company may be a "corporation
Corporation
A corporation is created under the laws of a state as a separate legal entity that has privileges and liabilities that are distinct from those of its members. There are many different forms of corporations, most of which are used to conduct business. Early corporations were established by charter...
, partnership
Partnership
A partnership is an arrangement where parties agree to cooperate to advance their mutual interests.Since humans are social beings, partnerships between individuals, businesses, interest-based organizations, schools, governments, and varied combinations thereof, have always been and remain commonplace...
, association, joint-stock company, trust
Investment trust
An Investment trust is a form of collective investment found mostly in the United Kingdom. Investment trusts are closed-end funds and are constituted as public limited companies....
, fund
Mutual fund
A mutual fund is a professionally managed type of collective investment scheme that pools money from many investors to buy stocks, bonds, short-term money market instruments, and/or other securities.- Overview :...
, or organized group of person
Person
A person is a human being, or an entity that has certain capacities or attributes strongly associated with being human , for example in a particular moral or legal context...
s, whether incorporated or not, and (in an official capacity) any receiver, trustee in bankruptcy, or similar official, or liquidating agent, for any of the foregoing."
In English law
English law
English law is the legal system of England and Wales, and is the basis of common law legal systems used in most Commonwealth countries and the United States except Louisiana...
and in the Commonwealth realm
Commonwealth Realm
A Commonwealth realm is a sovereign state within the Commonwealth of Nations that has Elizabeth II as its monarch and head of state. The sixteen current realms have a combined land area of 18.8 million km² , and a population of 134 million, of which all, except about two million, live in the six...
s a company is a body corporate or corporation company registered under the Companies Acts
United Kingdom company law
United Kingdom company law is the body of rules that concern corporations formed under the Companies Act 2006. Also regulated by the Insolvency Act 1986, the UK Corporate Governance Code, European Union Directives and court cases, the company is the primary legal vehicle to organise and run business...
or similar legislation. It does not include a partnership
Partnership
A partnership is an arrangement where parties agree to cooperate to advance their mutual interests.Since humans are social beings, partnerships between individuals, businesses, interest-based organizations, schools, governments, and varied combinations thereof, have always been and remain commonplace...
or any other unincorporated group of persons, although such an entity may be loosely described as a company.
Meaning and definition
A company can be defined as an "artificial person", invisible, intangible, created by Law, with a discrete legal entityLegal personality
Legal personality is the characteristic of a non-human entity regarded by law to have the status of a person....
, perpetual succession
Perpetual succession
In company law, perpetual succession is the continuation of a corporation's or other organization's existence despite the death, bankruptcy, insanity, change in membership or an exit from the business of any owner or member, or any transfer of stock,etc....
and a common seal
Company seal
A company seal is an official seal used by a company. Company seals were predominantly used by companies in common law jurisdictions, although in modern times, most countries have abrogated the use of seals.Traditionally, the seal was of some legal significance because the affixing of the seal...
. It is not affected by the death, insanity or insolvency
Insolvency
Insolvency means the inability to pay one's debts as they fall due. Usually used to refer to a business, insolvency refers to the inability of a company to pay off its debts.Business insolvency is defined in two different ways:...
of an individual member.
The English word has its origins in the Old French
Old French
Old French was the Romance dialect continuum spoken in territories that span roughly the northern half of modern France and parts of modern Belgium and Switzerland from the 9th century to the 14th century...
military term
Term
Term may refer to:*Term or terminology, a noun or compound word used in a specific context meaning*Term or terminal emulator, a program that emulates a video terminal...
compaignie (first recorded in 1150), meaning a "body of soldiers", originally taken from the Late Latin
Late Latin
Late Latin is the scholarly name for the written Latin of Late Antiquity. The English dictionary definition of Late Latin dates this period from the 3rd to the 6th centuries AD extending in Spain to the 7th. This somewhat ambiguously defined period fits between Classical Latin and Medieval Latin...
word companio "companion, one who eats bread with you", first attested in the Lex Salica as a calque of the Germanic
Germanic languages
The Germanic languages constitute a sub-branch of the Indo-European language family. The common ancestor of all of the languages in this branch is called Proto-Germanic , which was spoken in approximately the mid-1st millennium BC in Iron Age northern Europe...
expression *gahlaibo (literally, "with bread"), related to Old High German
Old High German
The term Old High German refers to the earliest stage of the German language and it conventionally covers the period from around 500 to 1050. Coherent written texts do not appear until the second half of the 8th century, and some treat the period before 750 as 'prehistoric' and date the start of...
galeipo "companion" and Gothic
Gothic language
Gothic is an extinct Germanic language that was spoken by the Goths. It is known primarily from the Codex Argenteus, a 6th-century copy of a 4th-century Bible translation, and is the only East Germanic language with a sizable Text corpus...
gahlaiba "messmate". By 1303, the word referred to trade guilds. Usage of company to mean "business association" was first recorded in 1553 and the abbreviation "co." dates from 1769.
History
According to one source, "it may be formed by Act of ParliamentParliament
A parliament is a legislature, especially in those countries whose system of government is based on the Westminster system modeled after that of the United Kingdom. The name is derived from the French , the action of parler : a parlement is a discussion. The term came to mean a meeting at which...
, by Royal Charter, or by registration under company law (referred to as a limited liability or joint-stock company)." In the United Kingdom
United Kingdom
The United Kingdom of Great Britain and Northern IrelandIn the United Kingdom and Dependencies, other languages have been officially recognised as legitimate autochthonous languages under the European Charter for Regional or Minority Languages...
, the main regulating laws are the Companies Act 1985
Companies Act 1985
The Companies Act 1985 is an Act of the Parliament of the United Kingdom of Great Britain and Northern Ireland, enacted in 1985, which enabled companies to be formed by registration, and set out the responsibilities of companies, their directors and secretaries.The Act was a consolidation of...
and the Companies Act 2006
Companies Act 2006
The Companies Act 2006 is an Act of the Parliament of the United Kingdom which forms the primary source of UK company law. It had the distinction of being the longest in British Parliamentary history: with 1,300 sections and covering nearly 700 pages, and containing 16 schedules but it has since...
. Reportedly, "a company registered under this Act has limited liability: its owners (the shareholders) have no financial liability in the event of winding up the affairs of the company, but they might lose the money already invested in it". In the USA, companies are registered in a particular state—Delaware
Delaware
Delaware is a U.S. state located on the Atlantic Coast in the Mid-Atlantic region of the United States. It is bordered to the south and west by Maryland, and to the north by Pennsylvania...
being especially favoured—and become Incorporated (Inc).
In North America
North America
North America is a continent wholly within the Northern Hemisphere and almost wholly within the Western Hemisphere. It is also considered a northern subcontinent of the Americas...
, two of the earliest companies were The London Company
London Company
The London Company was an English joint stock company established by royal charter by James I of England on April 10, 1606 with the purpose of establishing colonial settlements in North America.The territory granted to the London Company included the coast of North America from the 34th parallel ...
(also called the Charter of the Virginia Company of London)—an English
England
England is a country that is part of the United Kingdom. It shares land borders with Scotland to the north and Wales to the west; the Irish Sea is to the north west, the Celtic Sea to the south west, with the North Sea to the east and the English Channel to the south separating it from continental...
joint stock company
Joint stock company
A joint-stock company is a type of corporation or partnership involving two or more individuals that own shares of stock in the company...
established by royal charter by James I of England
James I of England
James VI and I was King of Scots as James VI from 24 July 1567 and King of England and Ireland as James I from the union of the English and Scottish crowns on 24 March 1603...
on April 10, 1606 with the purpose of establishing colonial settlements in North America
North America
North America is a continent wholly within the Northern Hemisphere and almost wholly within the Western Hemisphere. It is also considered a northern subcontinent of the Americas...
—and Plymouth Company
Plymouth Company
The Plymouth Company was an English joint stock company founded in 1606 by James I of England with the purpose of establishing settlements on the coast of North America.The Plymouth Company was one of two companies, along with the London Company, chartered with such...
that was granted an identical charter as part of the Virginia Company
Virginia Company
The Virginia Company refers collectively to a pair of English joint stock companies chartered by James I on 10 April1606 with the purposes of establishing settlements on the coast of North America...
. The London Company was responsible for establishing the Jamestown Settlement
Jamestown, Virginia
Jamestown was a settlement in the Colony of Virginia. Established by the Virginia Company of London as "James Fort" on May 14, 1607 , it was the first permanent English settlement in what is now the United States, following several earlier failed attempts, including the Lost Colony of Roanoke...
, the first permanent English settlement in the present United States in 1607, and in the process of sending additional supplies, inadvertently settled the Somers Isles, alias Bermuda
Bermuda
Bermuda is a British overseas territory in the North Atlantic Ocean. Located off the east coast of the United States, its nearest landmass is Cape Hatteras, North Carolina, about to the west-northwest. It is about south of Halifax, Nova Scotia, Canada, and northeast of Miami, Florida...
, the oldest-remaining English colony, in 1609.
Types
- For a country-by-country listing, see Types of business entity.
There are various types of company that can be formed in different jurisdictions, but the most common forms of company (generally formed by registration under applicable companies legislation) are:
- A company limited by guaranteeCompany limited by guaranteeIn British and Irish company law, a private company limited by guarantee is an alternative type of corporation used primarily for non-profit organisations that require legal personality. A guarantee company does not usually have a share capital or shareholders, but instead has members who act as...
. Commonly used where companies are formed for non-commercial purposes, such as clubs or charities. The members guarantee the payment of certain (usually nominal) amounts if the company goes into insolvent liquidationLiquidationIn law, liquidation is the process by which a company is brought to an end, and the assets and property of the company redistributed. Liquidation is also sometimes referred to as winding-up or dissolution, although dissolution technically refers to the last stage of liquidation...
, but otherwise they have no economic rights in relation to the company. This type of company is common in EnglandEnglandEngland is a country that is part of the United Kingdom. It shares land borders with Scotland to the north and Wales to the west; the Irish Sea is to the north west, the Celtic Sea to the south west, with the North Sea to the east and the English Channel to the south separating it from continental...
. - A company limited by shares. The most common form of company used for business ventures. Specifically, a limited company is a "company in which the liability of each shareholder is limited to the amount individually invested" with corporations being "the most common example of a limited company." This type of company is common in EnglandEnglandEngland is a country that is part of the United Kingdom. It shares land borders with Scotland to the north and Wales to the west; the Irish Sea is to the north west, the Celtic Sea to the south west, with the North Sea to the east and the English Channel to the south separating it from continental...
. - A company limited by guarantee with a share capital. A hybrid entity, usually used where the company is formed for non-commercial purposes, but the activities of the company are partly funded by investors who expect a return. This type of company may no longer be formed in the UK, although provisions still exist in law for them to exist.
- A limited-liability company. "A company—statutorily authorized in certain states—that is characterized by limited liability, management by members or managers, and limitations on ownership transfer", i.e., L.L.C.
- An unlimited companyUnlimited CompanyAn unlimited company or private unlimited company is a hybrid company incorporated either with or without a share capital but where the liability of the members or shareholders is not limited - that is, its members or shareholders have a joint, several and unlimited obligation to meet any...
with or without a share capital. A hybrid entity, a company where the liability of members or shareholders for the debts (if any) of the company are not limited.
Less commonly seen types of companies are:
- Companies formed by letters patent. Most corporations by letters patent are corporations soleCorporation soleA corporation sole is a legal entity consisting of a single incorporated office, occupied by a single man or woman. This allows a corporation to pass vertically in time from one office holder to the next successor-in-office, giving the position legal continuity with each subsequent office...
and not companies as the term is commonly understood today. - charter corporationsRoyal CharterA royal charter is a formal document issued by a monarch as letters patent, granting a right or power to an individual or a body corporate. They were, and are still, used to establish significant organizations such as cities or universities. Charters should be distinguished from warrants and...
. Before the passing of modern companies legislation, these were the only types of companies. Now they are relatively rare, except for very old companies that still survive (of which there are still many, particularly many British banks), or modern societies that fulfil a quasi regulatory function (for example, the Bank of EnglandBank of EnglandThe Bank of England is the central bank of the United Kingdom and the model on which most modern central banks have been based. Established in 1694, it is the second oldest central bank in the world...
is a corporation formed by a modern charter). - Statutory Companies. Relatively rare today, certain companies have been formed by a private statute passed in the relevant jurisdiction.
Note that "Ltd after the company's name signifies limited company, and PLC (public limited company
Public limited company
A public limited company is a limited liability company that sells shares to the public in United Kingdom company law, in the Republic of Ireland and Commonwealth jurisdictions....
) indicates that its shares are widely held."
In legal parlance, the owners of a company are normally referred to as the "members". In a company limited or unlimited by shares (formed or incorporated with a share capital), this will be the shareholder
Shareholder
A shareholder or stockholder is an individual or institution that legally owns one or more shares of stock in a public or private corporation. Shareholders own the stock, but not the corporation itself ....
s. In a company limited by guarantee, this will be the guarantors. Some offshore jurisdictions
Offshore financial centre
An offshore financial centre , though not precisely defined, is usually a small, low-tax jurisdiction specializing in providing corporate and commercial services to non-resident offshore companies, and for the investment of offshore funds....
have created special forms of offshore company
Offshore company
The term offshore company is ambiguous. It may refer to either:# A company which is incorporated outside the jurisdiction of its primary operations regardless of whether that jurisdiction is an offshore financial centre i.e...
in a bid to attract business for their jurisdictions. Examples include "segregated portfolio companies
Segregated portfolio company
A segregated portfolio company , sometimes referred to as a protected cell company, is a company which segregates the assets and liabilities of different classes of shares from each other and from the general assets of the SPC.Segregated portfolio assets comprise assets representing share capital,...
" and restricted purpose companies.
There are however, many, many sub-categories of types of company that can be formed in various jurisdictions in the world.
Companies are also sometimes distinguished for legal and regulatory purposes between public companies
Public limited company
A public limited company is a limited liability company that sells shares to the public in United Kingdom company law, in the Republic of Ireland and Commonwealth jurisdictions....
and private companies. Public companies are companies whose shares can be publicly traded, often (although not always) on a regulated stock exchange
Stock exchange
A stock exchange is an entity that provides services for stock brokers and traders to trade stocks, bonds, and other securities. Stock exchanges also provide facilities for issue and redemption of securities and other financial instruments, and capital events including the payment of income and...
. Private companies do not have publicly traded shares, and often contain restrictions on transfers of shares. In some jurisdictions, private companies have maximum numbers of shareholders.
Further reading
- Dignam, A and Lowry, J (2006) Company Law, Oxford University PressOxford University PressOxford University Press is the largest university press in the world. It is a department of the University of Oxford and is governed by a group of 15 academics appointed by the Vice-Chancellor known as the Delegates of the Press. They are headed by the Secretary to the Delegates, who serves as...
ISBN 978-0-19-928936-3. - John MicklethwaitJohn MicklethwaitJohn Micklethwait is the editor-in-chief of The Economist.-Biography:Micklethwait was born in 1962 and educated at the independent school Ampleforth College and Magdalen College, Oxford, where he studied history. He worked for Chase Manhattan Bank for two years and joined The Economist in 1987...
and Adrian WooldridgeAdrian WooldridgeAdrian Wooldridge is the Management Editor and 'Schumpeter' columnist for The Economist magazine. Until July 2009 he was The Economist's Washington Bureau Chief and 'Lexington' columnist....
, The Company: a Short History of a Revolutionary Idea (New York: Modern Library, 2003)