Company Definition - Investopedia

A company is a legal entity formed by a group of individuals to engage in and operate a business enterprise in a commercial or industrial capacity. · A company's ... Business BusinessEssentials BusinessEssentials GuidetoMergersandAcquisitions TableofContents Expand WhatIsaCompany? HowaCompanyWorks AdvantagesandDisadvantagesofaCompany TypesofCompanies Companyvs.Corporation Publicvs.PrivateCompanies WhatIsaHoldingCompany? WhatIsaFortune500Company? WhatWastheFirstCompanyTradedontheNewYorkStockExchange? HowDoYouStartaCompany? WhatIstheRichestCompanyintheWorld? TheBottomLine WhatIsaCompany? Acompanyisalegalentityformedbyagroupofindividualstoengageinandoperateabusiness—commercialorindustrial—enterprise.Acompanymaybeorganizedinvariouswaysfortaxandfinancialliabilitypurposesdependingonthecorporatelawofitsjurisdiction. Thelineofbusinessthecompanyisinwillgenerallydeterminewhichbusinessstructureitchoosessuchasapartnership,proprietorship,orcorporation.Thesestructuresalsodenotetheownershipstructureofthecompany. Theycanalsobedistinguishedbetweenprivateandpubliccompanies.Bothhavedifferentownershipstructures,regulations,andfinancialreportingrequirements. KeyTakeaways Acompanyisalegalentityformedbyagroupofindividualstoengageinandoperateabusinessenterpriseinacommercialorindustrialcapacity.Acompany'sbusinesslinedependsonitsstructure,whichcanrangefromapartnershiptoaproprietorship,orevenacorporation.Companiesmaybeeitherpublicorprivate;theformerissuesequitytoshareholdersonanexchange,whilethelatterisprivately-ownedandnotregulated.Acompanyisgenerallyorganizedtoearnaprofitfrombusinessactivities.Companiesareanimportantcontributortothehealthofaneconomyastheyemployindividualsandattractdisposableincometospurgrowth. HowaCompanyWorks Acompanyisessentiallyanartificialperson—alsoknownascorporatepersonhood—inthatitisanentityseparatefromtheindividualswhoown,manage,andsupportitsoperations.Companiesaregenerallyorganizedtoearnaprofitfrombusinessactivities,thoughsomemaybestructuredasnonprofitcharities.Eachcountryhasitsownhierarchyofcompanyandcorporatestructures,thoughwithmanysimilarities. ThefirstcompanyintheworldtoissuestockwastheDutchEastIndiaCompany.ItwascreatedintheDutchRepublicbythegovernmenttotradewithIndia. Acompanyhasmanyofthesamelegalrightsandresponsibilitiesasapersondoes,liketheabilitytoenterintocontracts,therighttosue(orbesued),borrowmoney,paytaxes,ownassets,andhireemployees. AdvantagesandDisadvantagesofaCompany Thebenefitsofstartingacompanyincludeincomediversification,astrongcorrelationbetweeneffortandreward,creativefreedom,andflexibility.Anotheradvantageofcompaniesisthattheycreatejobs.Ifanindividualstartsacompanyanditgrows,mostoftentheyhavetohireemployees.Thisincreasesthenumberofjobsavailableinanation,employspeople,reducesunemployment,andbringswealthintotheeconomy. Thereisoftenatremendousamountofpersonalsatisfactiongarneredfromstartingyourowncompany.Thisinvolvesfollowingyourdreamsandpassionsandleavingalegacy. Thedisadvantagesofstartingacompanyincludeincreasedfinancialresponsibility,increasedlegalliability,longhours,healthrisksduetostress,responsibilityforemployeesandadministrativestaff,regulations,andtaxissues. Thereisatremendousamountofriskinstartingacompany,fromthetimeinvestedand,therefore,opportunitycostfromnotworkingasalariedjob,tofinancialrisk.Failureisofcourseoneofthebiggestdisadvantages;however,manysuccessfulentrepreneursattestthattheirfirstbusinessesfailedandthattheexperiencewasanimportantlearningtool. Manyoftheworld'slargestpersonalfortuneshavebeenamassedbypeoplewhohavestartedtheirowncompanies. Pros Diversification CreativeFreedom Flexibility Followingyourdreams Leavingalegacy Jobcreation Cons Increasedfinancialrisk Increasedlegalliability Longhours Healthrisksduetostress Responsibilityforemployeesandadministrativestaff Taxissues TypesofCompanies IntheUnitedStates,taxlawasadministeredbytheInternalRevenueService(IRS)andindividualstatesdictateshowcompaniesareclassified.ExamplesofcompanytypesintheU.S.includethefollowing: Partnershipsareformalarrangementsinwhichtwoormorepartiescooperatetomanageandoperateabusiness.CorporationsarelegalentitiesthatareseparateanddistinctfromtheirownersandprovidethesamerightsandresponsibilitiesasapersonAssociationsarevagueandoftenmisunderstoodlegalentitiesbasedonanygroupofindividualswhojointogetherforbusiness,social,orotherpurposesasacontinuingentity.(Thismayormaynotbetaxabledependingonstructureandpurpose.)Fundsarebusinessesengagedintheinvestingofpooledcapitalofinvestors.Trustsarefiduciaryarrangementsinwhichathirdpartyholdsassetsonbehalfofbeneficiaries. Acompanymayalsobedescribedasanorganizedgroupofpersons—incorporatedorunincorporated—engagedinanenterprise. Companyvs.Corporation IntheU.S.,acompanyisnotnecessarilyacorporation,thoughallcorporationscanbeclassifiedascompaniesviaavarietyofstructures.Forexample,U.S.corporatestructuresincludesoleproprietorships,generalpartnerships,limitedpartnerships,limitedliabilitypartnerships,limitedliabilitycorporations,Scorporations,andCcorporations. Acorporationisatypeofbusinessthatisdistinctfromitsowner.Thismeanstheyrequireregulartaxfilingstobesubmittedseparatelyfromthepersonaltaxesoftheirowners.Corporateownershipisdeterminedbyhowmuchstockitsshareholdershold.Theseshareholdersmaymakedecisionsonhowthecompanyismanaged,ortheymaychooseateamofdirectorstodoso. Theword"company"issynonymouswiththeword"firm." SomeofthemostsuccessfulcorporationsintheUnitedStatesincludeAmazon,Apple,McDonald's,Microsoft,andWalmart. Publicvs.PrivateCompanies Companiescanbedividedintotwodistinctcategoriesforbothlegalandregulatorypurposes:Publicandprivatecompanies. Apublicorpubliclytradedcompanyallowsshareholderstobeequityownerswhentheypurchasesharesthroughastockexchange.Someonewhoownsalargenumberofshareshasalargerstakeinthecompanycomparedtosomeonewhohasasmallnumberofshares. Sharesarefirstissuedthroughaninitialpublicoffering(IPO)beforetradingbeginsonasecondaryexchange.Apple,Walmart,Coca-Cola,andNetflixareallexamplesofpubliccompanies. PubliccompaniesareheldtostrictreportingandregulatoryrequirementsbytheU.S.SecuritiesandExchangeCommission(SEC).Undertheseguidelines,companiesmustfilefinancialstatementsandreportsannuallyoutliningthefinancialhealthofthecompany.Thispreventsfraudulentreportsandactivities. Privatecompanies,ontheotherhand,areheldunderprivateownership.Althoughtheymayissuestockandhaveshareholders,equityinprivatecompaniesisnottradedonanexchange.Theyvaryinshapeandsizeandarenotalwaysboundbythestrictregulationsandreportingrequirementstowhichpubliccompaniesmustadhere. Thesecompaniesdonothavetodisclosefinancialinformationoroutlooktothepublic,givingthemmoreopportunitytofocusonlong-termgrowthratherthanquarterlyearnings.ExamplesofprivatecompaniesincludeKochIndustries,candymakerMars,carrentalcompanyEnterpriseHoldings,andaccountingfirmPriceWaterhouseCoopers. WhatIsaHoldingCompany? Aholdingcompanyisacompanythatdoesnotperformanyactualbusinessoperations,suchascreatingaproductorserviceandconductinganyoperationalaspectsrelatedtothat.Holdingcompaniescontrolothercompaniesbyowningthemajorityofsharesoutstanding.Theydonotnecessarilyrunthosecompaniesbuttheydohaveoversightovermajordecisionsastheyaretheprimaryownersofthosecompanies.Holdingcompaniesarecommonlyknownasumbrellacompaniesorparentcompanies. WhatIsaFortune500Company? AFortune500companyisacompanythatmakesitontotheFortune500list,whichiscreatedbyFortunemagazine.Thelistconsistsofthe500largestcompaniesintheUnitedStatesbyrevenue.Thelistconsistsofbothprivateandpubliccompanies. WhatWastheFirstCompanyTradedontheNewYorkStockExchange? ThefirstcompanytradedontheNewYorkStockExchangewastheBankofNewYork,todayknownasBNYMellon. HowDoYouStartaCompany? Tostartacompanyyouneedanidea.Fromthere,youshouldconductmarketresearchtodetermineifthereisdemandfortheproductorserviceandifthereareanycompetitiveadvantagesthatyoucanprovide.Fromthere,youshouldcreateabusinessplan,outliningthestructure,foundation,mission,goals,andallaspectsofyourbusiness.Thenextstepistofundyourbusiness,whetherfromyourownpersonalsavingsormoneyraisedfromfriendsandfamily.Fromthere,itisbesttodecidewhatkindofbusinessstructureyouwouldliketocreate(e.g.,asoleproprietorshiporalimitedliabilitycompany[LLC]).Dependingonthebusinessstructure,youwillhavetoregisterthebusinesswithyourlocalandstateauthoritiesandobtainanemployeeidentificationnumber(EIN)fromtheIRS. WhatIstheRichestCompanyintheWorld? Appleistherichestcompanyintheworldwithamarketcapitalizationof$2.48trillion. TheBottomLine Acompanyisalegalentitycreatedbyanindividualorgroupofindividualstoconductabusinessenterprise,whichisusuallythesaleofabusinessorproductthatisneededordesiredbysociety.Companieshavebeenaroundforhundredsofyearsandtherearemanydifferenttypes,dependingonthesize,scope,andgoalsofeach. Startingacompanyisariskyendeavorasthechanceoffailureishigh.Eventhemostsuccessfulcompaniesdonotlastforeveriftheycannotevolvewiththetimes.Companiesaretheprimarysourceofemploymentinmostnationsand,therefore,animportantcontributortotheeconomichealthofmostcountries. ArticleSources Investopediarequireswriterstouseprimarysourcestosupporttheirwork.Theseincludewhitepapers,governmentdata,originalreporting,andinterviewswithindustryexperts.Wealsoreferenceoriginalresearchfromotherreputablepublisherswhereappropriate.Youcanlearnmoreaboutthestandardswefollowinproducingaccurate,unbiasedcontentinour editorialpolicy. InternalRevenueService."BusinessStructures."AccessedSept.10,2021. InternalRevenueService."DefinitionofanAssociation."AccessedSept.10,2021. SmallBusinessAdministration."ChooseaBusinessStructure."AccessedSept.10,2021. U.S.SecuritiesandExchangeCommission."PublicCompanies."AccessedSept.10,2021. U.S.SecuritiesandExchangeCommission."InvestorBulletin:PrivatePlacementsUnderRegulationD."AccessedSept.10,2021. CompaniesMarketCap."MarketCapitalizationofApple(AAPL)."AccessedSept.10,2021. CompareAccounts AdvertiserDisclosure × TheoffersthatappearinthistablearefrompartnershipsfromwhichInvestopediareceivescompensation.Thiscompensationmayimpacthowandwherelistingsappear.Investopediadoesnotincludealloffersavailableinthemarketplace. Provider Name Description RelatedTerms WhatIsaBusiness? Abusinessisanindividualorgroupengagedinfinancialtransactions.Readabouttypesofbusinesses,howtostartabusiness,andhowtogetabusinessloan. more WhatEveryoneShouldKnowAboutCorporations Acorporationisalegalentitythatisseparateanddistinctfromitsownersandhasmanyofthesamerightsandresponsibilitiesasindividuals. more WhattheEntityTheoryTellsUs Theentitytheoryisthetheorythattheeconomicactivities,accounts,andliabilitiesofabusinessshouldbekeptdistinctfromthoseofitsowners. more RealEstateInvestmentGroup(REIG) Arealestateinvestmentgroup(REIG)investsinrealestatebybuying,selling,andfinancingproperties.ReadhowtogetstartedinvestinginREIGs. more WhatIsaPrincipalShareholder? Aprincipalshareholderisapersonorentitythatowns10%ormoreofacompany'soutstandingsharesofstockorsecurities. more WhatYouShouldKnowAboutEntrepreneurs Entrepreneursandentrepreneurshiphavekeyeffectsontheeconomy.Learnhowtobecomeoneandthequestionsyoushouldaskbeforestartingyourentrepreneurialjourney. more PartnerLinks RelatedArticles HowToStartABusiness LLCvs.Incorporation:WhichShouldIChoose? CorporateFinance&Accounting UnderstandingSCorporations PrivateEquity&VentureCap TheDifferencesBetweenPrivateandPublicEquity BusinessEssentials LLCvs.SCorporation:What'stheDifference? Sectors&IndustriesAnalysis Whatarethemajortypesofbusinessintheprivate-sectorandhowdotheydifferfromoneanother? InvestingEssentials ABreakdownonHowtheStockMarketWorks