Including the right terminology in a contract or business document can often be confusing. One common word used to describe a business, organization, or association is “company.” But what does company really mean? To find out, let’s look at the legal definition of a company.
What Is a Company?
In legal terms, a company is a type of business entity. It is a legal entity that is separate from its owners and has its own set of powers and liabilities. Therefore, a company can enter into its own contracts, hold assets in its own name, and be legally liable for its own debts and obligations. This is very different from a sole proprietorship or partnership, where the owners are personally liable for their business debts.
Types of Companies
There are several different types of companies. Three common types of companies are corporations, limited partnerships, and limited liability companies. Let’s take a look at some of the key characteristics of each type of company.
Corporations
Corporations are the most common type of company. A corporation is a separate legal entity with the ability to issue shares and operate like any other company. Corporations generally have more complex operations and are subject to different reporting and taxation requirements than other types of companies.
Limited Partnerships
A limited partnership is a type of company created by two or more partners. The partners are typically referred to as “general” and “limited” partners. The limited partners typically do not have the same rights as the general partners when it comes to making business decisions, but they are usually liable only to the extent of their investments.
Limited Liability Companies (LLC)
A limited liability company (also known as an LLC) is similar to a corporation, but it offers more flexibility and, in some cases, tax benefits. The members of an LLC are not personally liable for the company’s debt and obligations—with the exception of the members involved in gross negligence or fraud.
Conclusion
The term company refers to a type of legal business entity. There are several different types of companies, including corporations, limited partnerships, and limited liability companies. Companies are distinct from their owners, meaning they can enter into their own contracts, hold assets, and be liable for their own debts and obligations. Understanding the legal definition of company is important for business owners looking to form a new business entity.