Companies - What Are They?

Depending on where you are in the world you can always identify a company because it will normally have the words "limited" or "Inc" after its title.

But what is a company and why are they important? A company is an entity which has its own legal personality. What this means is that in the eyes of the law a company is its own legal person. This means a company can own a property, it can enter into contracts, it can employ people, it can sue, and it can be sued.

The company is made up of its shareholders and is run by its board of directors. A director does not have to be a shareholder although most normally are. Other than voting at general meetings of the company shareholders normally have very little say in how a company will be run (unless there is an agreement to the contrary).

A shareholder pays money for his shares when he joins the company. Upon the company receiving this money the company will issue the share certificates to the shareholder and at that point he then properly becomes a member of the company.

The reason why companies are referred to as limited is because of the concept of "limited liability". Once a shareholder pays his money for his shares he will not have to give the company any more money in the future. If the company owes debts of $2 million it is the company which owes the money and not the shareholder. The liability of each shareholder is limited to the amount of money he paid for his shares and he cannot be asked for any more money by any creditor.