Everywhere you look around in our world you see a company. On your tv at home, out on your drive around town, and even in your ears as companies pour ads in over the radio. Our world is flooded with companies everywhere, all different and unique. But despite this diverse and unique set of companies is there some sort of way that all companies are the same? In looking at all the different companies, and trying to evaluate their similarity the question arises, what are the characteristics of a company?
Common characteristics of a company include a company name, logo and a specific organizational structure. There is also generally a common set of business operations undertaken by a company that includes hiring, the ability to enter into contracts, etc. Protection of legal liability and separate legal existence are important facets of a company as well. These are just some of the many common characteristics of a company.
Before we delve into these specific common company characteristics in greater depth, let’s first look at what exactly a company is.
What Is a Company?
A company is a legal entity that is formed by a group of individuals with the intent to operate and conduct business.
A great way to think about a company is to imagine it as a singular entity that operates as an artificial person. Companies are separate entities in the eyes of the law from the people who work and manage within them.
Just as a person has the abilities and privileges to sue others, be sued, enter into contracts, and more, a company does as well. This idea is referred to as corporate personhood.
Companies are formed with the intent to make money and earn profit from business ventures while also providing limited liability to owners and employees within.
Many Forms of A Company Exist
There are countless forms of companies that both share certain characteristics and aspects as well as differ in others. For this article we will cover basic characteristics from a legal and operational standpoint that the majority of companies will have and be characterized by.
Company Basics
Every company no matter the structure or size will contain some key features. Some of these key features include:
- Name: In order to be incorporated every company will have a name. Company names can be essentially anything but are normally designed to inform and be related to the goods/product sold. For example the sports goods company Nike, is named after the goddess of victory from Greek mythology. Makes sense for an athletic apparel company who sells performance products.
On the other end of the spectrum you have examples like Apple, a technology company whose name is completely unrelated to its goods and services.
- Logo: Similar to a name, every company will have a logo, or a visual representation for the company. More often than not the company logo will be made to go along with the company name or the products/services the company provides.
- Follow a Structure: All companies will be structured in some way. A company’s organizational structure will be based on the company’s management and shareholders.
Business Operations
Some basic characteristics of a company contain business operations that companies can perform. Remember, a company is recognized as a separate entity/person. So many of the business operations that a company does are the same operations that an individual can do. These operations that a company may enact includes the power to:
- Create and enter into contracts
- Own and sell property
- Take on debts and borrow money
- Open and manage a bank account
- Hire and employ people
Limited Liability and Separate Legal Existence
A key characteristic and aspect of a company is the protection of limited liability.
Limited liability refers to legal protection where shareholders of a company are protected from being responsible themselves for a company’s debts, losses, and legal proceedings.
Limited liability is protection for shareholders ensuring that their personal finances and possessions are separate for the companies. This ensures that if a company fails through means such as bankruptcy the shareholders personal assets can not be claimed or repossessed.
Very similar to the characteristic above in legal liability, companies are classified as separate legal entities. So a company can and should act as a separate and independent party outside of its owners. This means that a company has the ability to create separate bank accounts, credit cards and more in its own name rather than the name of it’s shareholders and owners.
A company having separate legal existence is an aspect of limited liability. This is a characteristic that is exclusive to companies only. A sole trader or business person does not have separate legal existence.
Must Operate Within Two Categories
A company will operate in one of two areas or categories, that will affect its regulations, and legal obligations. These two spheres of operation are the public and private sector.
Public Sector
A public company is a company that is open to the public where anyone (with the right amount of funds) can purchase a piece of the company and become a shareholder. Shares of a publicly traded company are purchased through a stock exchange and can be traded freely. The more shares a person possesses of a company the larger shareholder they become.
Public companies are regulated by the Securities and Exchange Committee (SEC). The SEC requires all public companies to follow certain rules and enable amounts of transparency in order to prevent unethical and fraudulent activities.
Private Sector
Private companies are owned privately by groups or individuals. Private companies can issue stock but they do not exchange equity through a stock exchange. Private companies are not under the same guidelines and regulations as public companies and they are not required to be as transparent with the public either.
Made of Many Not One
One of the defining characteristics of a company is that it is a group of more than one individual. A company is composed of at least two or more individuals who share a common interest, goal, or concern. In creating a company a group of individuals are creating a separate entity and person who will act on their behalf.
Wide Ownership
This composition of more than a single person extends far and wide. For companies that continue to grow and issue shares, the sky’s the limit for potential owners.
While there is a limit on the amount of owners for private companies, public companies have no maximum limit on members. A public company can have as many owners through shares as it wants and is able to.
While a company may have many shareholders who own part of the company, a company can be run and controlled by an individual. An individual who controls more than fifty percent of the shares of a company is referred to as the “majority shareholder.” The majority shareholder because of their large ownership often has much power and great influence within a company.
Common Seal
Since a company by law is recognized as a person it has the power to create and sign contracts. However since a company is an artificial person, it cannot sign for itself and must be done by an executive or someone within the company.
A common seal is a seal that represents and verifies the authenticity of a company’s signature. So when a deal is being done or a contract signed, an executive signs the document with their own personal signature along with the company’s common seal and because the seal is present, the signature is valid and binds the company.
Any signature on a form or document that does not have a company’s seal is not binding to the company at all.
Legally Incorporated
The only way a company can come into existence is through being legally incorporated and registered. A company must go through the proper legal process and be approved and accepted by law to be registered as an official company and conduct business.
Failure by a business to be legally incorporated can result in fines and or imprisonment based on federal and state law.
Perpetual Succession
There are many accidents and unforeseen events that can pop up from time to time. To combat this, companies have legal protection through the concept of perpetual succession.
Perpetual succession is a clause that establishes the continuation of a company’s existence through unexpected and unplanned events such as bankruptcy, deaths, exit by owner or other changes in membership.
With a sole proprietorship or a single person running a business, if the person were to meet an early demise then the business would be done as well. Perpetual succession seeks to eliminate this risk by making sure that unexpected events including death of shareholders and management do not derail a company.
Director Led Leadership Structure
Companies will have a corporate structure that will lead and guide employees to the company’s desired outcome. The structure for each company is different although there are key aspects that mostly remain the same for each company.
One of the key aspects that remains the same is leadership. A company is led by its board of directors. A board of directors is a group of individuals who make up an executive committee to oversee the operations and goals of a company. Members of the board of directors are not employees of the business and their only role is their board member role. Directors receive their position by being voted on by shareholders.
Board of directors pass their thoughts and instructions to the company executives like the CEO, CFO, COO. The executive then leads over the managers and the managers over employees.
Many Different Feathers on the Wings of a Company
Companies are vast and unique. In our world you will find many examples of companies that are different yet similar through their structure and characteristics. These aspects such as limited liability, perpetual succession, as well as a logo, and more make up the characteristics that many companies have.
