What is a Company?

What is a Company?


Perhaps owing to the historical and evolutionary exegesis of the word “company” various attempts at confining it to a given definition have become nebulous. According to Buckley J “the word “company” has no strictly technical or legal meaning.[1] Some words defy definition due to the fact that they are not definitive but descriptive in nature. The word company may be said to fall into the latter category of descriptive word; for instance how can you embark on the definitive definition of the word “man” except you describe/ analyse it?

Howbeit, efforts to adequately address the concept “company” would naturally take us through the history/evolution of the word, common law, legislations as well as the practice of company law amongst other related issues.


The word “company” is generally synonymous with “Corporation”. According to Black’s Law Dictionary, in the U.S. a company means “a corporation- or, less commonly, an association, partnership or union- that carries on industrial enterprise.[2] At common law a company is a “legal person” or “legal entity” separate from, and capable of surviving beyond the lives of, its members. Like any juristic person, a company is legally an entity apart from its members, capable of rights and duties of its own, and endowed with the potential of perpetual succession. It is not just a legal institutions, it is rather a legal device for the attainment of any social or economic end and to a large extent publicly and socially responsible.[3]

The term has been variously described as a means of cooperation in the conduct of an enterprise[4] it is a cooperate device, an intricate, centralised, economic administrative structure run by professional managers who hire capital from investors.

The defining feature of a company is its legal independence from its members. If a Corporation fails, its shareholders will lose money their money, and employees will lose their jobs… Shareholders, however owing a part piece of the company, are not liable for debts that remain owing to the corporation’s creditors. This rule is called limited liability and it is why corporation ends with “ltd”, “Inc” and “plc.”

Referring to the figurative rhetoric question by Lord Haldane traced to Lord Chancellor Thurlow (1731-1806) “did you ever expect a corporation to have a conscience, when it has no soul to be damned and body to be kicked?”, Walton J said “a company is…only a juristic figment of the imagination, lacking both a body to be kicked and a soul to be damned.”[5] ,

As earlier highlighted the history of company is traceable to Ancient Rome and Greece era. The first recognizable commercial association were the medieval guilds who agreed to abide by guild rules without necessarily participating in ventures for common profit. Subsequently, forms joint commercial enterprise evolved to give rise to partnerships. With increasing international trade, Royal charters were granted to merchants and later resulted in the Joint Stock Company Act 1884 which may be likened to the first equivalent of modern companies formed by registration. Thereafter the Limited Liability Act 1855 was enacted to regulate the operation of companies. The codification of the two Acts into Companies Act 1856 gave way to the railway boom and from there formation of companies soared.

The last significant historical development of company was the decision of the House of Lords in the case of Salmon V. Salmon & Co[6] where the House of Lords confirmed the separate legal personality of the company, and that the liabilities of company were separate and distinct from those of its owners.

In that case Mr. Salmon conducted a leather and shoe manufacturing business that he sold to a company he established. The company’s share capital was 40,000 £1 shares. Not all shares were issued upon formation of the company. Mrs Salomon and her 5 children held 1 share each while Mr. Salomon received 20,000 fully paid up share and debentures to the value of £10,000 for the shares he transferred to the Company. Further debentures were issued to an unrelated third party Mr. Broderip as evidence of loan to the company. The company fell into financial difficulties and was subsequently wound up leaving a debt of £77,000. The realisation of the company debt enabled the payment of debts owed to Mr. Broderip but not enough to pay the unsecured creditors. The liquidators acting on behalf of the unsecured creditors brought an action against Mr. Salomon claiming he was liable to indemnify the liquidators for the unsecured debts of the company.

Held the company was not an alter ego, agent or trustee of Mr. Salomon. It was a legal entity separate from its owners, even though one person must have owned most of the shares and controlled the company.

Also in Lee’s Farming Limited [1962] AC 12, the fact that Mr. Lee had 2999 0f the 30,000 shares and also acted as the governing director of the company. Upon his death in crash, Held flowing from the case of Salomon V Salomon Mr. Lee could act in different capacities. Thus the fact the Mr. Lee acted in different capacities did not undermine the contract between him and the employee. Mrs Lee was therefore entitled to claim compensation under the Act.

However in P.A .I. S. C. Ltd Vs J. Impex Co ltd, the court adopted the Black’s Law Dictionary definition of a company and further held “Although a limited liability is a legal entity that can sue and be sued, its activities are carried out by its directors. Where a director or chairman of a company takes action on behalf of the company without the knowledge and consent of other directors, he cannot absolve himself from liability which arises from that action. The law does not allow a defendant to avoid liability by fronting an imaginary third party whose director he clearly is and was shown to have acted on behalf of the third party…”

The position of the legislature on the meaning of the word “company” as spelt out in the various Acts depend on the legal clime in question.

  • Nigeria: In Nigeria, Section 567 of the Companies and Allied Matters Act 2004 defined a company as follows:

Company or existing company means a company formed and registered under this Act or, as the case may be, formed and registered in Nigeria before and in existence on commencement of this Act[7].

Furthermore Section 54 of the Companies and Allied Matters Act 2004 spelt the procedure for foreign companies to operate business in Nigeria[8].

In the Watmal V Liz Olofin, the court defined a foreign company as…

United Kingdom: Similarly, the United Kingdom 2006 Company Act[9] provides:

In the Companies Act unless the context otherwise requires-

Company means accompany formed and registered under this Act that is-

  • A company formed and registered after the commencement of this Part
  • A company that immediately before the commencement of this was formed and registered under the companies Act 1985 e.t.c;
  • Was an existing company under this Act or Order

Section 1(3) this Act further recognized foreign companies as companies under the UK Act.

India:  the expression ‘Company’ has been defined in section 3 of the Companies Act, 1956 as follows[10]:

In this Act, unless the context otherwise requires, the expressions “company”, “existing company”, “private company”, and “public company” shall, subject to the provisions of subsection(2) have the meanings specified below:

  • “company” means a company formed and registered under this Act or an existing company defined in clause(ii); (2)“existing company” means a company formed and registered under any of the previous law….

Similarly Section 2(1) (t-v) of the Companies Bill 2009, proposed amendment to the Indian Companies Act 1956 provides follows:

(t) “Company” means a company incorporated under this Act or under any previous company law; (s) “Company limited by guarantee” means a company having the liability of its members limited by memorandum to such amount as the members may respectively undertake to contribute to the assets of the company in the event of its being wound up; (v) “Company limited by shares” means a company having the liability of its members limited by the memorandum to the amount, if any unpaid on the shares respectively held by them;


In the 2001 Australian Companies Act, company means a company registered under this Act[11] and; C in Part 5.7 and 5.8 (except sections 596 and 597), includes 5.7 (d) In Part 5B.1includes an unincorporated registrable body.


Company limited by guarantee means a company formed on the principle of having the liability of its members limited to the respective amounts that the members undertake to contribute to the property of the company if it is wound up.

Company limited by shares means a company formed on the principle of having the liability of its members limited to the amount (if any) unpaid on the shares respectively held by them.

Compliance period for an infringement notice has the meaning given by section 1317D

Meaning of corporation

(1) Subject to this section, in this Act, corporation includes:  (a) a company; and

(b) anybody corporate (whether incorporated in this jurisdiction or elsewhere); and (c) an unincorporated body that under the law of its place of origin, may sue or be sued, or may hold property in the name of its secretary or of an office holder of the body duly appointed for that purpose. (2) Neither of the following is a corporation: (a) an exempt public authority; (b) a corporation sole. (3) To avoid doubt, an Aboriginal and Torres Strait Islander corporation is taken to be a corporation for the purposes of this Act.

Note: Various provisions of this Act that generally apply to corporations do not apply to Aboriginal and Torres Strait Islander corporations because of express provisions to that effect: see section 190B, subsection 197(5), section 206HB and subsections 1309(6), 1318(5), 1321(2) and

Except in Chapter 2E, a reference to an entity:

(a) is a reference to a natural person, a body corporate (other than an exempt public authority), a partnership or a trust; and (b) includes, in the case of a trust, a reference to the trustee of the trust.


The entities connected with a corporation include the following:

Body corporate

(1) A body corporate is connected with a corporation if, and only if, the corporation: (a) can control, or influence materially, the body’s activities or internal affairs; or (b) is a member of the body; or (c) is in a position to cast, or to control the casting of, a vote at a general meeting of the body; or (d) has power to dispose of, or to exercise control over the disposal of, a share in the body; or (e) is financially interested in the body’s success or failure or apparent success or failure; or (f) is owed a debt by the body; or (g) is engaged by the body under a contract for services; or (h) acts as agent for the body in any transaction or dealing.


Also the introductory Chapter 1 Interpretation Part 1.2 Interpretation of other expressions Division 7 Section 64B Corporations Act 2001 117 provides:

Natural person

(2) A natural person is connected with a corporation if, and only if, the corporation: (a) is a trustee of a trust under which the person is capable of benefiting; or (b) is engaged by the person under a contract for services; or (c) acts as agent for the person in any transaction or dealing; or (d) is an attorney of the person under a power of attorney; or (e) has appointed the person as the corporation’s attorney under a power of attorney; or (f) is given financial, business or legal advice by the person in the performance of the functions attaching to the person’s professional capacity.


(3) A partnership is connected with a corporation if, and only if, the corporation: (a) is a partner in the partnership; or (b) can control, or influence materially, the partnership’s activities or internal affairs; or (c) is financially interested in the partnership’s success or failure or apparent success or failure; or (d) is a creditor of the partnership; or (e) is engaged by the partnership under a contract for services; or (f) acts as agent for the partnership in any transaction or dealing.


(4) A trust is connected with a corporation if, and only if, the corporation:

(a) is the settlor, or one of the settlors, of the trust; or (b) has power under the terms of the trust to appoint or remove a trustee of the trust or to vary, or cause to be varied, any of the terms of the trust; or (c) is a trustee of the trust; or (d) can control, or influence materially, the activities of the trust; or (e) is capable of benefiting under the trust.


For practical purposes, a company means a company of certain persons registered under the Companies Act to transact business. Partnership is also a body of persons registered to conduct business but where the enterprise requires greater mobilisation of capital which resources of a few person cannot take then the formation of capital becomes appropriate. According to Ripsban[12]”one of the best assessments in reference to companies in the context of modern economies is enshrined in the following words-Companies abound in the national economy. Ranging from the family or partnership concern to the faceless multinational corporation, they provide the structure framework of the modern industrial society.”

The analysis in the case of Salomon V Salomon, often referred as SOLOMAN although delineated by both the legislature and the courts still remains instructive and critical in the development of what is today regarded as modern company law.

For instance, the fact that High Court stated that the Company had a right of indemnity against Mr. Salomon opened the debated at the Court of Appeal on whether the intention of the Mr. Salomon was fraudulent in setting up the company in the first instance. According to Lindley J “…the company must, therefore, be regarded as a corporation, but a corporation created for an illegitimate purpose”.

Very instructive was his Lordship’s position on that the incorporation of the company cannot be disputed… as the validity of the certificate cannot be impeached.

The word company was variously described by His Lordships-Lopes LJ and Kay LJ as a myth and fiction and that the incorporation by Mr. Salomon had been a mere scheme to enable him, carry on as before but with limited liability.

The House of Lords in unanimously overturned the decision rejected the argument from agency and fraud and held that there was nothing in the Ac t about whether the shareholders should be independent of the majority shareholder.  In the words of Lord Halsbury “I have no right to add to the requirement of the statute nor to take from the requirements thus enacted. The sole guide must be the statute itself….” Either the limited company was a legal entity or it was not. If it was the business belongs to it and not Mr. Salomon, who is often referred to as Soloman.


From the foregoing discussions, a company can be said to be what the law or Act of the parliament says it is. Depending on the legal clime, it may be formed by a person (Ghana) or at least one Director (section 7 of the UK Act), may include other forms of associations as in India and Australia, the definition of which might be inchoate without elaborately explaining the types of companies-Limited- Private, Public, Guaranteed, Unlimited etc.

It may further require understanding such concepts as corporate personality/legal personality and unveiling the veil of incorporation as well as the benefits and demerits thereto to adequately answer the question-What is a company.

In the final analysis, the word “company” within the ambit of Company Law does not mean the literal term of association, companionship or relationship in the literal sense but such relationship aimed at furthering the interest of its members for economic or related purposes.




[1]Buckley J in Re Stanley, (1906) 1 Ch 131, 134.
[2] Black’s Law Dictionary, 8th edition (2004), ISBN 0-314-15199-0

[3] Ripsban: Incorporation of Company: Advantages and Disadvantages, http//legalservicesindia.com/article/profile, Oct. 25. 2010.

[4] ibid

[5] Northern countries securities Ltd V Jackson & Steep Ltd (1974) 1 WLR 1133.

[6] [1897] AC 22.

[7] Companies and Allied Matters Act 2004 Cap C20 LFN 2004

[8] ibid

[9] UK Companies Act 2006-implementation from 2009.

[10] Indian Companies Act 1956; the 2009 amended version passed by the Parliament

[11] Australian Companies Act 2001

[12] Ripsban: Incorporation of Company: Advantages and Disadvantages, Opcit

About author

Barrister Oscar Chukwumah Okoro

Deputy Director, Chamber Department. Chamber Clerk and Clerk, Committee on Air Force. House of Representatives, National Assembly, Abuja.

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HRH Engr. Ogbonna Cletus Iromantu

Telecommunication expert and traditional ruler, clocked 73 on the 6th of March.  His education was at St. Joseph’s Catholic School, Uzuakoli; St Patrick’s College, Calabar; ...