Definition
A company is a corporate enterprise with a legal identity separate from its members, allowing it to operate as one single unit. This separation means the company itself is considered a legal person, able to own property, enter into contracts, and sue or be sued in its own name. Companies can have limited liability (limited company) where the members’ liability for the company’s debts is restricted to their investment, or they can be unlimited companies where members bear unlimited liability.
Incorporated Company
An incorporated company is a legal entity distinct from its shareholders. It has the capacity to own assets, incur liabilities, and is responsible for its obligations.
Registered Company
Most companies are registered under the Companies Act, classified as either public limited company (plc) or private company:
- Public Limited Company (PLC): Requires a minimum share capital of £50,000, with at least £12,500 paid up. PLs must end with ‘plc’.
- Private Company: Does not offer its shares to the public and is any registered company that is not a public company.
Unregistered Company
Includes joint-stock companies, chartered companies formed via Royal Charter, and statutory companies formed by a special Act of Parliament.
Examples
- Public Limited Company (PLC): ABC plc with a share capital of £100,000, trading publicly on the stock exchange.
- Private Company: XYZ Ltd, a family-owned manufacturing business not trading shares publicly.
- Chartered Company: The East India Company formed under Royal Charter.
- Statutory Company: British Rail, established by a specific legislative act.
Frequently Asked Questions
What is the difference between a public limited company and a private company?
Public limited companies (PLCs) can offer shares to the public and must disclose more financial information, while private companies cannot trade shares publicly and have simpler reporting obligations.
What does limited liability mean?
Limited liability restricts the shareholders’ responsibility for the company’s debts to the amount invested in the company.
What legal documents are companies required to make public?
Companies must publish financial documents such as their profit and loss account, balance sheet, and annual report as prescribed by corporate law.
What are the financial requirements for forming a public limited company?
A PLC must have a minimum share capital of £50,000, with at least £12,500 paid up.
Can a private company become a public company?
Yes, through a process called “conversion,” where it meets regulatory requirements and changes its registration.
Related Terms with Definitions
- Limited Liability: A form of legal protection for shareholders, limiting their losses to the amount invested.
- Unlimited Company: A company where members are liable for its debts without limit.
- Joint-Stock Company: A business entity in which shares of the company can be bought and sold by shareholders.
- Chartered Company: Formed under Royal Charter and often involves historical or special business purposes.
- Statutory Company: Created through specific legislation, often to fulfill a public or governmental function.
Online References
Suggested Books for Further Studies
- “Corporate Finance” by Stephen A. Ross, Randolph W. Westerfield, and Jeffrey Jaffe
- “The Principles of Corporate Finance” by Richard A. Brealey and Stewart C. Myers
- “Company Law: Theory, Structure, And Operation” by Brian R. Cheffins
Accounting Basics: “Company” Fundamentals Quiz
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