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.

RELATED TERMS
  1. Corporation

    A corporation is a legal entity that is separate and distinct ...
  2. Partnership

    A partnership is a formal arrangement in which two or more parties ...
  3. Incorporation

    Incorporation is the legal process used to form a corporate entity ...
  4. Entity Trading Account

    An entity trading account is a dedicated account type belonging ...
  5. General Partnership

    A general partnership is an arrangement by which two or more ...
  6. Limited Company (LC)

    A limited company (LC) is a form of incorporation that limits ...
Related Articles
  1. Financial Advisor

    Understanding S Corporations

    This corporate structure is favored by many entrepreneurs, including financial advisors. Here's an overview of its advantages and disadvantages.
  2. Financial Advisor

    Benefits Abound for Active Traders Who Incorporate

    Trading through a separate business structure allows active traders access to all of the tax mitigation and asset protection strategies available.
  3. Insights

    Limited Liability Partnership (LLP): The Basics

    Limited liability partnerships (LLPs) are a flexible, legal and tax entity that allows partners to benefit from economies of scale while also reducing their liability.
  4. Investing

    The Basics of Forming A Limited Liability Company (LLC)

    An LLC is a good combination of protection with flexibility and tax benefits. It provides an array of taxation alternatives while shielding individual members from personal liability.
  5. Taxes

    Taxes in New York for Small Business: The Basics

    Learn how small businesses are taxed in New York, and understand how tax rates vary based on whether the business is an S corporation, LLC or partnership.
  6. Small Business

    What is Unlimited Liability?

    Unlimited liability means that the owners of a business are liable for the entire amount of debt and obligations of that business.
  7. Small Business

    Don't get sued: 5 tips to protect your small business

    Find out what you can do when your company is sued and learn how to avoid a lawsuit and the actions to take to protect your company.
  8. Investing

    Understanding Corporate Structure

    All publicly traded companies share the same basic corporate structure. Find out how the management hierarchy works, what responsibilities belong to whom, and who’s looking out for shareholders. ...
  9. Taxes

    What's a Holding Company?

    A holding company is a corporation that owns enough voting stock in another company to control its management and policies.
  10. Taxes

    Taxes in Oregon for Small Business: The Basics

    Learn the tax laws for small businesses in Oregon, and understand the different types of taxes small business owners face based on business type.
RELATED FAQS
  1. Do I pay capital gains taxes on a house that my company sells back to myself?

    The answer depends on the type of legal entity your business is organized as and operated through. Read Answer >>
  2. Limited, General vs Joint Venture Partnership

    Learn the differences between general partnerships, limited liability partnerships, limited partnerships and joint venture ... Read Answer >>
  3. Can a Limited Liability Company (LLC) issue stock?

    Learn about a limited liability company, or LLC, and if it is able to issue stock. Understand the benefits of an LLC, both ... Read Answer >>
  4. What is the difference between a silent partner and a general partner?

    Understand the difference between a person designated as a silent partner and a general partner under the partnership business ... Read Answer >>
Trading Center