What is a company


Table of Contents

  1. Demarcation
  2. The business term
  3. The economic term
  4. Commercial law
  5. Employment Law
  6. Tax law
  7. Criminal law
  8. further reading


Often used for Companies synonym Company or companyused, in colloquial language as well as in legal texts and sometimes in specialist literature. The main differences are

1. The legal entity: a company is always assigned to a legal entity, see also the regulations made in § 14 BGB on Entrepreneur. The legal entities of a company can be one or more companies, whereas a company can consist of several companies or none of them (in the technical sense) (e.g. holding company). The company is characterized by the commercial name of the merchant (company, cf. § 17 I HGB) and the legal form.

Correspondingly, commercial law differentiates between companies according to the owner of the property:
a) Private company,
b) mixed economic enterprise (enterprise operated by the state or a public corporation with the participation of private capital) and
c) public enterprise.

Furthermore, a differentiation can be made according to the legal form:
a) sole trader,
b) Partnership, namely general partnership (OHG), limited partnership (KG), partnership (PartG), European economic interest group (EWIV),
c) corporation, namely stock corporation (AG), partnership limited by shares (KGaA), company with limited liability (GmbH),
d) Cooperative with limited liability and unlimited liability,
e) Foundation and
f) Mutual Insurance Association (VVaG).

2. The company is not a geographically bound unit: the location and spatial expansion of the company will in many cases coincide with those of the company (e.g. in the case of one-company companies): the company can, however, also consist of several companies that are mutually exclusive are in different, distant locations. In any case, the company is a locally bound unit.

3. The company is treated financially separately from the operation: The financial unit is produced by a commercial company accounting, which, in contrast to the operating accounting (cost and performance accounting), is an expense and income account. In contrast to operations, the company can also have added value from non-operating assets (e.g. participations, securities), non-operating activities (e.g. speculation) and market changes (e.g. price increases as a result of political events).

4. Company is used as a model-theoretical concept of Companies differentiated: The term Company Its current use in business literature essentially comes from the language used in the founding phase of the discipline, which in turn took legal and legal texts from it. It is used less and less in current business literature. On the other hand, in the theory of the company (company theory) it continues to be used as a model-theoretical construct as a generic term for a specific type of organization. The model-theoretical term is thus the same Company the Companies of macro and microeconomics, which sometimes also uses both terms synonymously.

The business term

1. Company as a place of dispositive decision-making processes in the stakeholder network: In general, business administration differentiates the company as a sub-term of the generic term company. Only in isolated cases is no distinction made between business and company in business administration. On the other hand, at the beginning of German-speaking business administration, the company was distinguished from the company. According to this, the company is the specific local, technical and organizational unit as the implementing body for realizing the company's goals (Gutenberg).

The company is the place of dispositive decision-making processes for the realization of the financial goals (Hax). When pursuing their financial goals, companies are in a network of interaction relationships (stakeholder network): their own decisions depend on those of others. The decisions and actions of others also have an impact on the decisions and actions of the company. In this respect, a company is not only constituted by its ownership structure, objectives and purpose, but also by the interests of other internal and external stakeholders.

2. Difference between company and company: The difference of business and Companies becomes particularly clear when differentiating between economic efficiency and profitability. Economic efficiency is expressed in the least possible use of resources (factor input quantity) in order to provide a certain operational performance: Efficiency is defined as the maximum of operational and organizational rationality. Contrary to this input-output relationship of the operational process, profitability is the ratio of success to the capital employed by the company, i.e. the company's success as the sum of external and operating income in relation to the equity capital employed (Gutenberg). In measuring success, a distinction is made between operational and capital success based on the justification of business administration and ultimately also follows the financial treatment of the company (see above I. Delimitation).

In the financial analysis of the company, a distinction is made between the success of the company and the success of the service area (real economic success measurement: the changes in the relationship between income and expenses in the context of the provision of services and utilization of services (balance of services)). Profit is the measure of the company's success. In contrast, the company's success is determined by capital-theoretical success measurement. Here the performance is measured on the basis of the earnings value, i.e. the value development of the company's equity. In the company valuation, the operational past valuation is supplemented by the point of view of the financiers and the strategic development of the company, through the forecast of the future success value. In this respect, the formula des, which is often used to this day, characterizes Company as a profit-maximizing unit not the company, but the company.

This distinction between operational and corporate success is also reflected in the relatively new theory of value-based management. According to this, the company is a resource pool that bundles resources with the aim of creating added value (potters), i.e. generating payments from customers that are based on the company's payments to its stakeholders (suppliers, employees, etc.) as well as depreciation, replacement investments, Tax payments etc. lie.

The residual income in the form of the operating cash flow gives the company the option of making a payment to the equity investors as interest on the capital employed at least at the level of investment alternatives (minimum interest rate expectations of the owners or shareholders who could otherwise seek other investments and withdraw their capital) or to invest in the further development of the company. It is also in the company's interest to use this residual profit for self-financing, as this is the cheapest and most risk-free form (risk buffer) of financing.

From a financial perspective and the theory of value-based management, the company's goal is not to maximize profits, but to increase value. If, on the other hand, the value is only retained or even reduced, one speaks of value destruction. The company lives to the detriment of the capital of the shareholders or owners and of its own substance and it threatens takeover or bankruptcy if the value continues to be destroyed. The question also arises as to whether the company itself will not find more attractive forms of investment and operation instead of value-destroying operations (portfolio management).

Thus, it is not profit maximization but the return of the capital employed that is the difference between operational management and corporate management. The distinction would thus also correspond to the usual meaning of profit as a key figure for management in management theory: profit is not a goal, but only a means of corporate management (Drucker, Malik).

3. Extended business definition: As a conclusion from the previous consideration of companies and operations, the definition of the company can be made as follows: The company is the owner's unit of action for the pursuit of private-sector goals. In this respect, a company is an independently planning and decisive, economically and computationally independent unit that takes on market and capital risks (for its own account and risk) and uses one or more companies to pursue the company's purpose and goals.

This definition extends the widespread definition of the company as an economically and legally organized entity, in which the aim is to achieve sustainable, profitable performance, depending on the type of company according to the principle of profit maximization or the principle of appropriateness of making profit. As a rule, in this definition, pursuit of profit is only defined as at least an appropriate return on the capital required for business operations.

See also illustration "company" and international company, theory of the company.

The economic term

In the classification scheme of economic units in economics, the company is a subgroup of “companies” alongside “public companies and administrations”. In this sense, the company is a specific form of business that differs in its private-sector success orientation.

The general task of the company from a macroeconomic perspective is the provision of material goods and services as well as the provision of jobs. Companies combine production factors (input) and transform them into end products (output). In the economic cycle of goods, companies pay private households for the transfer of production factors wages, salaries, interest, etc. These payments in turn flow back to households through demand from private households. At the same time, companies take on the optimal allocation of production factors (Hayek: market as a discovery process) by reacting to price signals (providing contributions against incentives) and providing benefits for other economic entities (covering external requirements).

Companies also change their individual capacities in accordance with the market signals and optimize the use of factors through competition so that the price is also optimized for the business units in question. Furthermore, they take on an important function for macroeconomic development through technical innovation, which increases overall welfare through productivity advances and new benefits.

The microeconomic theory has developed a company theory beyond the explanation of the macroeconomic importance of companies. Its aim is to legally record the interaction between companies and the market and to explain typical manifestations of company characteristics from the interaction of market players and their interdependent decisions, as well as to analyze self-control mechanisms and incentive systems.

Commercial law

There is no single concept of company for the entire legal system. The enterprise (also synonymous: enterprise) is legally differentiated from the enterprise by the purpose: The enterprise pursues a technical purpose, the enterprise (enterprise) an economic purpose. The company is constituted by a uniform legal entity (GmbH, AG, etc.). Accordingly, a company can also own several companies or several companies jointly manage one company.

The following additional facts constitute the company:

1. To theAssets A company (company) not only includes movable property and land, but also the rights, e.g. company rights, industrial property rights, claims rights, etc., but also the intangible rights, e.g. customer base, the good reputation of the business (collectively asGoodwill designated; Goodwill).

2. TheLegal nature of the company is in dispute: The entrepreneur has, regardless of the possibly existing rights to the individual objects, a special right to the company. According to general opinion, this right can be protected against third-party interference and by competition law with the defense claim from § 1004 BGB. The company as such is not regarded as “any other right” in the sense of § 823 I BGB, but within certain limits a right to the “established and exercised commercial enterprise” is recognized and protected against direct interference in accordance with § 823 I BGB.

3. The existence of a company only allows thecompany arise; when the company ceases to exist, the company ceases to exist.

4. The companygoes out,if the continuously profitable activity should or cannot be continued. The decisive factor is the continuation of the "relationships". A temporary unwillingness to continue does not lead to extinction, on the other hand, the existence of the facility for a long time alone may not be sufficient. Death ends the company if a legal successor does not resume operations within a reasonable period of time.

5. The company as a whole can be the object of a basic transaction under the law of obligations, e.g. purchase, exchange, lease, etc., but can only be throughtransmission of the individual items are sold.

See also disposal.

Employment Law

The labor law (e.g. BetrVG or KSchG) does not have a separate company term, but presupposes it. It is largely determined by the legal and organizational forms provided for in the laws for the company (company), which are consistently mandatory. The company can be characterized by the organizational unit of the underlying economic or ideal purpose.

Different: Business.

A company (company) can consist of several companies if the purpose pursued by the company is pursued by several organizationally independent purpose units. In this case, the concept of the company has, in addition to that of the company, an independent works constitutional meaning, since it is the point of contact for the formation of the general works council. On the other hand, it is possible that several companies form a (joint) company under labor law.

Tax law

Also in tax law Operation, company and Company partly used synonymously. In terms of tax law, the operational performance process is the starting point for taxation: procurement of operational funds, creation of operational performance, results of operational performance and transfer of business assets. The tax debtor, however, is the company as a legal entity for whose purpose ("corporate object") the company provides services. In tax law, the company is sometimes understood as a company (company), as is reflected in formulas such as "legally independent company" or "business of a commercial nature".

Criminal law

Companies themselves cannot be punished due to their legal nature (mostly legal persons). According to current law (as of January 2019), it only applies to natural persons (people) who, as organs or employees, can be prosecuted for misconduct and criminal offenses committed in connection with their entrepreneurial activity. According to current law, companies can be fined on the basis of OWiG. Cf. on this and on efforts to extend criminal law to include companies themselves, the explanations under corporate criminal law in more detail.

further reading

1. Particularly on the problem of differentiating between business and company: Federmann, R. (1993): Betriebswirtschaftslehre, Unternehmenspolitik und Unternehmenssteuererung Berlin; Kolbeck, R. (1982): Company I: Company and Operation. In: Ablers, W. (Ed.): Concise Dictionary of Economics pp. 65-71.

2. General introductions: Wöhe, G./Döring, U. (26th edition, 2016): Introduction to general business administration. Munich.