A company is a legal entity that people form which allows them, usually as shareholders, to buy and sell goods and services, and in most cases in the pursuit of profit. Some companies are non-profit organizations. Just like a human being, companies can hire and fire workers, buy shares in other companies, sue and be sued, borrow and lend money, and own property.
As legal entities, companies have similar rights and responsibilities that you and I have. They may be responsible for human rights violations and exercise human rights issues against individuals or the state.
The term is synonymous with ‘a firm’. Most entities may be called either companies or firms, however, law or accountancy partnerships are only referred to as firms.
In most cases, the terms ‘company’, ‘firm’ and ‘corporation’ mean pretty much the same. However, professional partnerships such as lawyers, accountants or consultants are usually called firms (not companies).
The word ‘corporation’ is also synonymous with company, but not always. If you own a small business that repairs lawn mowers – called Lawn Mower Fixers Ltd. – which has twelve employees, you can say you have a company, but not a corporation. We generally view corporations as large entities that typically have subsidiary companies. Corporations are companies in the sense that they are in business.
In the United States, a corporation is a company in which the liability of its shareholders are limited to the value of the shares they own.
In the UK, some companies owned by the state are known as corporations, such as the BBC (British Broadcasting Corporation).
The owners or management of a company will usually develop a set of organizational objectives, as well as a strategy for achieving those goals to help employees understand where the commercial enterprise is headed and how it plans to get there.
The Financial Times Lexicon defines a company as follows:
“An organization that makes or sells goods or services in order to make a profit.”
The Criminal Intelligence Agency – CIA – the civilian foreign intelligence service of the United States federal government, i.e. America’s spy agency, is often referred to as ‘The Company’.
Incorporating a company
When somebody or a group of humans incorporate a company, they are creating a separate legal entity to carry on business. According to Companies Office, which belongs to New Zealand’s government, every company has certain basic elements:
– there is at least one director, one shareholder and one share
– it has a name, which has been reserved by the Registrar of Companies (authorities vary according to country)
– a registered office address where the company records are kept
– an address for correspondence, specifically where legal documents can be served.
What is a limited company?
Limited companies are organizations that people can set up to run their business. They are responsible in their own right for everything they do, and their finances are separate from the owners’ personal finances.
All profits that companies make belong to them, after they pay corporate tax (UK: corporation tax). They can then share its profits.
According to the British Government, every limited company has members – these are organizations or people who own its shares. Directors, who in most cases own shares, are responsible for running the companies.
The vast majority of companies are ‘limited by shares’. This means that the stockholders’ – shareholders’ – responsibilities for the company’s debts are limited to the values of their shares.
Directors of companies are not personally liable for the business’ debts if things go wrong, as long as they have acted legally.
There are literally thousands of types of companies around the world, depending on whether shares are traded privately or on the stock exchange, who is liable for what and for how much, the kind of business activity or sector, sometimes its size, and some other factors.
For example: a company limited by shares issues 1000 shares valued at $1 each when it is set up. There are two shareholders who own 500 shares each. They have both paid in full for 250 of these.
If the company gets into financial difficulties – goes bust – the maximum the shareholders are liable for is the $250 (each) – the value of the shares they own but have not paid for.
In some cases, the shareholders or directors back the commercial enterprise up to a specific amount if things go wrong – this is known as a ‘private company limited by guarantee’.
At the moment, six of the ten largest companies in the world by revenue are oil & gas giants. Do you think that in 2026 the industry mix will have changed? (Data Source: Wikipedia)
According to the Online Etymology Dictionary, the word ‘company’ first appeared in the English language in Britain in the middle of the 12th century. It came from Old French Compagnie meaning ‘society, friendship, body of soldiers, intimacy’, which originated from Late Latin Companio. It began to include the meaning ‘business association’ in the 1550s. However, the term had been used in reference to trade guilds in the 13th century. The abbreviation ‘co.’ emerged in the 1670s.
‘Company’ in other languages: compañía (Spanish), entreprise (French), empresa (Portuguese), un’azienda (Italian), Firma (German), компания (Russian), 会社 (Japanese), 一家公司 (Chinese), شركة (Arabic), perusahaan (Indonesian), kampuni (Swahili), and एक कंपनी (Hindi).
Video – What is a company?
In this UdaCity video about startups, the speaker begins by explaining what a company is: “A business organization which sells a product or service in exchange for revenue and profit.” He adds that some companies are non-profit, but asks the listener to ignore those types for the purpose of his presentation.