The term “company” refers to a form of organised business that necessitates the presence of capital and has an official legal character to protect its shareholders’ rights. If you do not know, companies differ in terms of their characteristics, types, and the purpose of their establishment, and companies should not be based on a specific number of people. Instead, the foundation of a company can be based on one or more individuals. In addition, some companies are established for profit, and others are not for profit. In this article, you will learn about companies’ importance, elements, and types. We will also discuss some of the reasons for the company’s dissolution and demise.
What is a company?
The definition of a company indicates that it is an artificial legal entity that cannot be seen or touched and is formed by one person or a group of people who agree to organise, manage, and implement a project, whether commercial, industrial, or service. They contribute money and effort to reach profitable goals while creating formal organisational plans for the work, documents showing the ownership shares of each individual, and methods for dividing profits and losses among them.
A corporation is a separate legal person from the individual shareholders, so it can be a party to any lawsuit in its name. Each country has a hierarchy of corporations with guaranteed rights such as concluding contracts, owning assets, filing lawsuits, and obtaining money by borrowing. In addition to deciding who to hire and who not to allow to work within its team, this comes with legal responsibilities imposed on it as a legal person, such as its appearance before the court when a lawsuit is filed against it, the imposition of taxes, or otherwise.
Company elements
No company of any kind can be established without the availability of essential elements that help it have an identity and work plans, as well as help it achieve the goal of its establishment and maintain its effectiveness in the market. The company’s elements are as follows:
capital
The company must have capital that helps its workers achieve its goals. Even if it is a non-profit organisation, it still needs to spend on the tools and aspects that help it provide services to its beneficiaries. Its capital is considered a separate financial asset, belongs to it as a legal person, and may not be merged with the funds of its shareholders.
company management
What is meant by management is that the board has the right to make decisions in the company to direct the business and also bears responsibility for the success or failure of those decisions. The management undertakes several responsibilities, including setting strategic and operational plans, organising the business, and supervising their implementation as required. With all these responsibilities, any person on the company’s administrative board has powers superior to those of all other employees.
Employees in the company
Everyone who has a job in the company is a worker who contributes his effort and expertise to it with the aim of achieving its goals. The employee can work in the company’s administrative department, technical department, executive department, or otherwise, and what he needs to work on is experience in the required field and the ability to present it in the appropriate way.
relations
Companies adopt special departments for public relations management, which is one of its main elements because it ensures constructive communication between the company and the community it serves, which gives it the information necessary to develop the business, measure the extent of achieving goals, evaluate products, obtain investment opportunities, and more.
Reasons for establishing companies
Why should companies be established? Because society is no longer as simple as before, we live in an era of great economic transformation, and massive projects in various fields will advance nations and achieve stability in countries. Therefore, there was an increasing need to establish companies of all kinds, especially with each of them based on achieving a specific goal, whether profit or non-profit, with interest in directing the results of the companies’ success to revitalise countries economically, educationally, or service-wise, according to the organisation’s goal. Each of these goals positively impacts society, the state, and the region as a whole.
The importance of establishing a company
When a company is established, its community is positively affected because it is part of it and exchanges benefits. However, establishing companies is essential in many aspects, not only in terms of achieving profits and increasing income. We explain the reasons for its importance as follows:
- Diversifying sources of income for the individual and society.
- Creating job opportunities for individuals and demonstrating their capabilities.
- Promote technological progress and use machines to expand production scale.
- Increase national income and business development.
- Demonstrating creativity and allowing individuals to innovate, research, and develop.
- Developing individuals’ skills and abilities.
- Encouraging investment and achieving significant financial revenues.
- Achieving social integration between the company and society.
pillars holding the company
Holding the company means establishing it, specifying its basic principles, scope of work, objectives, providing capital, etc., and its contract cannot be completed except with the availability of four basic pillars, which come as follows:
General pillars
This pillar is based on principles that must be present among the founders to ensure the company’s success. These principles are:
- Satisfaction with the establishment of the company and the terms of its contract in terms of title, funds, partners’ shares, distribution of responsibilities, and striving to achieve its goals.
- The eligibility of the founders. If someone is not over 18 years old or quarantined due to mental incompetence, their partnership will be invalidated.
- The work activity must be carried out to make a profit, not be illegal, and be related to something that can be done.
- The reason the company was created was to achieve. The profit is often from a specific project and must be legal.
Special thematic pillars
This section is based on the following:
- The founders intend to participate in the founding, with trust among them.
- Those responsible for establishing the company must cooperate and make the effort required for its success while accepting the losses that the company may suffer at the beginning.
- No shareholder should be placed in a position of legal subordination to the rest, but equality between individuals is legally maintained to achieve the goal of the legal person established by them.
Formal pillars
These are the aspects related to the form of the contract and its legal registration, which are:
- Writing the contract in an official, legal form, clarifying all the company’s details, data, and agreed-upon terms.
- Publicising or registering the contract in the commercial registry and daily newspapers and publishing a bulletin related to the company in legal advertisements.
Types of companies
Limiting the types of companies to specific classifications is difficult due to their many forms and objectives. Still, we can mention the types that are most present in the business community, including:
Partnerships
In which two or more partners establish the company and finance it, the founders bear the losses and share the profits and responsibilities, each according to their experience. Individual companies are divided into the following examples:
General Partnership
It is a company with a separate financial liability, and its shareholders are unlimitedly responsible for it. This means that they are committed to paying its debts and preserving and managing its money. Each partner acquires the status of a merchant, and this type ends with the death or bankruptcy of one of the partners.
Joint venture company
It is a deal between two people and does not require official documentation. The contract terms are agreed upon between the founders and are only written down, which makes it different from other companies as it does not have separate financial disclosures. It may operate without an official board of directors, and its legal dealings are not in its name because it is established for a specific purpose that it is dissolved to achieve, which makes it not worthy of being considered a company with a system or name.
Special Limited Partnership
It is known by this name because it combines the characteristics of limited partnerships and joint liability companies. Their founders are joint partners and trustees, provided that the limited partner does not acquire the status of a trader and does not manage the company. The limited partner can manage the company and acquire the status of a merchant, and he is financially responsible for the company.
Money companies
It depends entirely on capital and has more than one founder. It is a vital entity that does not dissolve in the event of a partner’s bankruptcy or death because it does not depend on people, and the partners are not committed to paying their debts. Examples include:
Joint-Stock Company
It works to generate revenues; its capital is divided into shares of equal value that are offered in a public subscription and traded commercially; the company’s board of directors is elected; and its contract is official and legal.
Sole Proprietorship Company
It is one of the new forms of company, as the founder is not required to pay its debts from his own financial liability and holds the status of an owner instead of a merchant. These companies often work on small projects, and one of their advantages is the possibility of transforming into another type if another person joins the company. However, if it remains as it is, it dissolves upon the death of its owner.
Mixed companies
It is the one that combines what distinguishes individual companies and financial companies, so it enjoys security and flexibility in terms of its most important forms:
Stock-limited companies
A capital company is broader in its options and organisation than a limited partnership, as its partners are joint and general shareholders and responsibility for the company is distributed among them such that the shareholders pay debts within the limits of the value of the shares they own only. The rest of the responsibilities fall on the joint partners. The capital of this type of company is not less than one million Saudi riyals, and each share is subscribed to the stock market at a value of 50 riyals or higher.
Limited Liability Company
It has two to five partners only. Each is financially responsible for the company, and the contract is not binding in terms of the value of the capital or the equality of shares between the partners. A management partner is also elected and agreed upon in the contract, and the distribution of responsibilities is also agreed upon.
Companies with variable capital
It is any company mentioned above that stipulates in its contract that its capital is subject to change. When used, this clause turns into a company with variable capital.
The cooperative company
A company that also has variable capital but is established by a group of people cooperating to serve a specific interest using their resources. Its goals are often service-based, such as reducing the costs of certain products or services or raising the level of those services and the quality of the products.
Companies Properties
Companies are not similar to other economic institutions thanks to their unique characteristics, including:
- Transparency is achieved by the composition of its Board of Directors and the implementation of official reports and documents.
- It can self-finance and leverage resources while attracting investments to expand the business.
- Partnership between individuals in responsibility, profits, tasks, etc., with flexibility in distributing those roles among them.
- Independence is the existence of a legal personality for the company and clarifying its goals and responsibilities to society.
Reasons for the termination of companies
Companies are dissolved for many reasons, which are divided into two main axes:
General reasons
- Loss of the company’s capital, from which it spends on its activities.
- Issuance of a judicial ruling to dissolve for any reason.
- The company goes bankrupt.
- Dissolving the company after the unanimous opinions of the founders.
- The end of the goal that the company set out to achieve.
Private reasons
The reason for dissolving the company is the irreparable loss of a partner, such as when he withdraws or loses the ability to contribute to the company financially or functionally. His confinement or death also causes the same result.
Conclusion
Qoyod provides the best accounting system with integrated plans and valuable courses to establish and manage your company skillfully and professionally. All you have to do is request a free trial from Qoyod to enjoy the resources and efficiency that the system puts in your hands. You can communicate with Qoyod customer service easily to inquire about anything you wish and determine the purpose of the company, methods of establishing it, and how to achieve its goals.
Join our inspiring community! Subscribe to our LinkedIn page and Twitter to be the first to know about the latest articles and updates. An opportunity for learning and development in the world of accounting and finance. Don’t miss out, join us today!
