What is a Company?
A company is a legal entity created by a group of people or organizations, called shareholders, who invest their money to start and run a business. Unlike partnerships, a company exists independently from its owners. This means the company can make contracts, own property, and be responsible for its own debts and obligations. Shareholders in a company have limited liability, which means their personal assets are usually protected if the company faces financial trouble. Companies are usually managed by a board of directors chosen by the shareholders. They must follow certain rules and regulations set by the government to ensure they operate fairly, transparently, and legally.
Key Features of Company:
- Legal Entity: A company is legally separate from its owners, the shareholders. This means it can engage in contracts, own assets, and be held responsible for debts and obligations under its own name. Shareholders are shielded from personal liability for the company’s debts.
- Limited Liability: Shareholders’ liability is limited to the amount invested in the company. Their personal assets are generally safeguarded from the company’s financial obligations.
- Ownership Structure: Ownership of a company is represented by shares held by shareholders. These shares may confer voting rights and entitlement to dividends.
Difference between Partnership Firm and Company
In business, there are two main ways to organize: partnership firms and companies. Each has its own characteristics and pros and cons. Partnership firms involve multiple people running a business together, sharing profits and responsibilities. Companies, meanwhile, are separate legal entities owned by shareholders, with the company’s debts separate from their personal ones. Knowing these differences helps one decide how to set up their business.
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