What is a 'Company'

A company is a legal entity formed by a group of individuals to engage in and operate a business enterprise. A company may be organized in various ways for tax and financial liability purposes depending on the corporate law of its jurisdiction. The line of business the company is in will generally determine which business structure it chooses, for example a partnership, a proprietorship, or a corporation. As such, a company may be regarded as a business type.

Breaking Down 'Company'

A company is essentially an artificial person (also known as corporate personhood), in that it is an entity separate from the individuals who own, manage and support its operations. A company has many of the same legal rights and responsibilities as a person, such as entering into contracts, the right to sue (or be sued), borrow money, pay taxes, own assets, and hire employees. Companies are generally organized to earn a profit from business activities, though some might be structured as a nonprofit charity. Each country has its own hierarchy of company and corporate structures, though with many similarities.

The benefits of starting a company include income diversification, a strong correlation between effort and reward, creative freedom and flexibility. The disadvantages of starting a company include increased financial responsibility, increased legal liability, long hours, responsibility for employees and responsibility for administrative, regulatory and tax issues. Many of the world's largest personal fortunes have been amassed by people who have started their own company.

Company Types

In the United States, tax law as administered by the Internal Revenue Service (IRS) dictates how companies are classified. Examples of company types in the U.S. include the following:

  • Partnerships: A formal arrangement in which two or more parties cooperate to manage and operate a business.
  • Corporation: A legal entity that is separate and distinct from its owners and provides the same rights and responsibilities as a person.
  • Association: A vague and often misunderstood legal entity based on any group of individuals who join together for business, social or other purposes as a continuing entity. May or may not be taxable depending on structure and purpose.
  • Fund: A business engaged in the investing of pooled capital of investors.
  • Trust: A fiduciary arrangement in which a third party holds assets on behalf of beneficiaries.

A company may also be described as any organized group of persons (incorporated or unincorporated) engaged in an enterprise.

Company vs. Corporation

In the U.S., a company is not necessarily a corporation, though all corporations can be classified as a company via a variety of structures. For example, U.S. corporate structures include sole proprietorships, general partnerships, limited partnerships, limited liability partnerships, limited liability corporations, S corporations and C corporations.

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