Company
| Company type | Legal entity |
|---|---|
| Industry | Various (business, nonprofit, educational, financial, etc.) |
Area served | Worldwide |
| Products | Various types of companies and organizational structures |
A company is a legal entity formed by a group of legal persons united by a common purpose, such as generating profit or advancing social goals. The nature and classification of companies differ across jurisdictions and encompass voluntary associations, nonprofit organizations, various business structures, financial institutions, banks, and educational institutions. Despite jurisdictional differences, typical legal characteristics include distinct legal identity, limited liability, shares that can be transferred, ownership by investors, and a hierarchical management structure.
Whether the term "company" aligns with designations like corporation, partnership, firm, or society depends on the legal context. Companies fall under the governance of company law (also referred to as corporate law). Incorporated entities are formally established and registered with the government, whereas unincorporated companies lack such formal registration.
When ceasing operations, companies may proceed through liquidation to fulfill outstanding liabilities. Additionally, companies can be organized into corporate groups, which consist of parent companies and their subsidiaries.
History
The concept of a corporation possessing its own legal identity—known as Corporate personhood—has long been recognized under English law. In 1612, Sir Edward Coke articulated in Case of Sutton's Hospital that a corporation exists solely in an abstract sense, lacking physical form, enduring perpetually in law, and acting through representatives rather than natural persons.
In 1776, Adam Smith contended in Wealth of Nations that corporate managers entrusted with "other people's money" often exhibit less diligence than entrepreneurs managing their personal capital.
The Parliamentary Committee on Joint Stock Companies, led by William Ewart Gladstone in 1843, paved the way for the enactment of the Joint Stock Companies Act 1844.
United States
By the late 1800s, U.S. legislation permitted substantial wealth consolidation within corporations, leading to regulatory measures such as the 1890 Sherman Antitrust Act, aimed at breaking up monopolies, and the 1914 Clayton Act, which enhanced governmental authority to counteract anti-competitive mergers and acquisitions. Following the First World War, apprehension grew regarding the overwhelming influence of bankers and industrial leaders, while employees remained largely disenfranchised relative to shareholders.[1] Attempts to introduce "industrial democracy" through employee voting rights were minimal.[2]
The stock market collapse during the Wall Street crash of 1929, triggered by mass sell-offs from shareholders, resulted in extensive business failures and unemployment. This economic crisis ushered in the Great Depression and prompted reforms under the New Deal, including the introduction of the Securities Act of 1933 and the Securities and Exchange Act of 1934. The newly created Securities and Exchange Commission enforced corporate disclosure requirements for investors.[3]
Following World War II, corporate boards gained increased latitude to consider not only shareholder profits but also broader stakeholder interests such as wage improvements and community engagement, reflecting shifts in corporate governance.[4] However, competition among states to attract corporate headquarters led to a "race to the bottom" regarding regulatory standards, with Delaware becoming the preeminent jurisdiction for incorporation by the 1960s. Consequently, Delaware's judiciary has played a pivotal role in shaping American corporate law.
During the takeover surge of the 1980s, directors' accountability diminished as courts upheld "poison pills," defensive tactics enabling boards to thwart hostile bids or negotiate exit terms. Concurrently, growth in investment via pension funds, life insurance companies, and mutual funds expanded asset managers' influence over voting rights. This era witnessed a marked rise in executive compensation alongside financial sector earnings outstripping general wage increases. The fallout from the Enron scandal led to legislative reforms under the Sarbanes-Oxley Act, while responses to the 2008 financial crisis included amendments through the Dodd-Frank Act. Despite these changes, the core structure of U.S. corporate law has remained largely stable since the 1980s.
Terminology and definition
A company is defined as an "artificial person," an intangible and invisible entity established by or pursuant to law, possessing a unique legal capacity (also referred to as "personality"), perpetual succession, and a common seal. Apart from certain key positions, the company’s existence is not impacted by the death, mental incapacity, or insolvency of its individual members.
Etymology
The term "company" in English traces back to the Old French word (first documented in 1150), which meant "society, friendship, intimacy; body of soldiers." This originated from the Late Latin ("one who eats bread with you"), recorded in the Salic law (circa AD 500) as a translation of the Germanic phrase ("with bread"). It is related to Old High German ("companion") and Gothic ("messmate").
Semantics and usage
By the year 1303, company was used to describe trade guilds. Its commercial meaning as a "business association" appeared by 1553, with the abbreviation "co." first used in 1769.
Under English law, a company constitutes a corporate body or corporation registered under the Companies Acts or equivalent statutes.
Nomenclature
- Limited and unlimited companies
- A limited company confines each shareholder’s financial responsibility to their invested capital. An unlimited company imposes no such liability restrictions on its members.
- Private and public companies
- Shares of a public company are available for trading on public markets.
Types
Typical categories of companies include:
- Nonprofits
- Businesses
- Various forms of Partnerships including Limited partnership, Limited liability partnership, and General partnership
- Limited companies
- Models involving equity sharing like Private company limited by shares, Joint-stock company, and Public limited company
- The Limited liability company (LLC) structure
- Unlimited company
- Entities such as Corporation and large-scale Conglomerates
- Privately held entities including structures like Chaebol, Corporate group, Holding company, and subsidiaries (Subsidiary)
- Sector-specific organizations including banks, investment funds, venture capital firms, as well as professional services firms like legal and accounting practices
- Other types such as Special-purpose acquisition company, Special-purpose entity, trusts, shell companies, and shelf corporations
- Unincorporated entities like sole proprietorships and reciprocal inter-insurance exchanges (Unincorporated associations)
- Government-affiliated bodies including statutory corporations, state-owned enterprises, sovereign wealth funds, and public–private partnerships
See also
Further reading
- Alan Dignam and John Lowry. Company Law. Oxford: Oxford University Press, 2020. .
- John Micklethwait and Adrian Wooldridge, The Company: A Short History of a Revolutionary Idea. New York: Modern Library, 2003.
External links
- ↑ See L Brandeis, Other People's Money And How the Bankers Use It (1914)
- ↑ The Massachusetts governor Calvin Coolidge enacted legislation allowing manufacturing corporations to include employee representation on boards (April 3, 1919) Chap. 0070.
- ↑ AA Berle, 'Corporate Powers As Powers in Trust' (1931) 44 Harvard Law Review 1049
- ↑ e.g. AP Smith Manufacturing Co v Barlow, 13 N.J. 145 (1953)