Company

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Generally, a company is a group of individuals (natural or legal persons) that band together to achieve a common purpose. They may be bound informally or formally.


In business, in UK and most Commonwealth English, "company" is taken to be a type of corporation, an artificial legal person with a separate identity from its members and formed for business purposes. This sense is used in the rest of this entry. In US business English, this type of company is commonly called a "corporation".


Companies in this sense may be established as any other corporation may be. Among other important benefits of the formation of and undertaking of business activities through a company are easier identification, succession or transfer of its assets or of its ownership, and the separation of day to day management from overall ownership and control.


Law and regulation relating to companies varies in detail from jurisdiction to jurisdiction. Do not assume that the same words mean the same thing in another jurisdiction.


Limited or unlimited liability, with or without shares

Companies may in most countries have a choice of being of unlimited or limited liability - that is to say the creditors may or many not have access to the assets of the company's owners in case of default by the company. While today, most companies take advantage of the availability of the privilege of limited liability (i.e. are "limited companies"), unlimited liability companies are also established.


In some cases taxation authorities will "look through" the unlimited company and tax the owners, not the company. This offsets the disadvantage of the parent undertakings' being potentially liable for the company's debts. In US parlance, such companies are "flow-through" companies. Another advantage of unlimited status is seen in the European Union where such companies may not have to publish statutory accounts and this may be used to keep private the assets or profitability of multi-national groups' companies in individual EU member States.


The ownership of companies may be divided into and constituted by shares, each of which may be transferred separately. Though today such records are mostly maintained electronically, owners of the company may be given share certificates (US: "stock certificates") testifying to their fractional ownership. The accounting value of all the shares issued by a company is called its share capital (historically called "capital stock").


If a share-issuing company has limited liability ("limited by shares") the liability of shareholders (members) is limited to the consideration paid to the company for issue of the shares - though if shares were issued "partly paid" (where the company can call for the balance at some later time) current shareholders remain liable up to the amount of any unpaid sum relating to the shares they hold.


Companies do not necessarily issue shares. If the capital stock of a company is undivided, the benefit of ownership is for the benefit of members from time to time. A common way for such a company to achieve limited liability is to use a guarantee mechanism ("limited by guarantee"). (A share issuing company may be similarly limited, though this privilege was abolished in the UK in 1981.) Limitation by guarantee may be convenient for, among others, clubs and societies, professional bodies and public interest bodies generally. For example, in the UK the Financial Conduct Authority is constituted as a company limited by guarantee.


Private or Public

Companies may be classified as private companies or public companies according to whether they may offer shares or other securities to the public or only to variously restricted sections of the public.


See also

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