Company existence: Overview, definition, and example
What is company existence?
Company existence refers to the legal recognition of a business entity as a distinct and separate entity from its owners or shareholders. It means that the company has been formally created, registered, and recognized by the relevant authorities to conduct business. This legal existence allows the company to own property, enter into contracts, hire employees, and engage in various business activities.
For a company to exist legally, it typically needs to go through a formal process of incorporation or registration with the appropriate governmental body, which varies by country. The company’s existence is established through legal documentation such as articles of incorporation or a certificate of formation, and it’s governed by specific laws and regulations that apply to corporate entities.
Why is company existence important?
Company existence is important because it provides a framework for the company to operate legally, separate from the personal affairs of its owners or shareholders. This separation offers several advantages, including limited liability protection, meaning that the owners are generally not personally responsible for the company’s debts or legal obligations.
A legally recognized company also has the right to enter into contracts, protect intellectual property, hire employees, and raise capital, among other activities. Without proper company existence, the business cannot function legally, and it may be subject to fines, penalties, or other legal consequences. It also ensures that the business can be held accountable for its actions and obligations.
Understanding company existence through an example
Let’s say you decide to start a business selling handmade furniture. If you choose to form a limited liability company (LLC), you will file the necessary paperwork with the local or national government, such as articles of incorporation. This formal process gives your business a legal identity separate from your personal identity. As a result, if your business incurs debt or faces legal challenges, your personal assets (like your home or savings) are generally protected, and the company itself is liable.
In another example, if you run a sole proprietorship, the business is not considered a separate legal entity from you. In this case, you are personally responsible for all debts and obligations of the business, and there’s no official "company existence" apart from your individual business activities.
Example of a company existence clause
Here’s how a company existence clause might appear in a corporate agreement or contract:
“The Company hereby confirms that it is duly incorporated and validly existing under the laws of [Jurisdiction], with full corporate power and authority to conduct its business and operations. The Company agrees to maintain its legal existence throughout the term of this Agreement.”
Conclusion
Company existence is fundamental for any business to operate legally and protect the interests of its owners. It provides the business with a separate legal identity, allowing it to enter into contracts, own property, and be held accountable for its actions. Establishing company existence through incorporation or registration with the proper authorities also offers important protections, such as limited liability.
Whether you’re starting a new business or operating an existing one, understanding the concept of company existence helps ensure that your business can function legally, protect your personal assets, and operate within the law. It’s a vital step in the process of setting up a business that will allow you to grow, raise capital, and engage in legal contracts with confidence.
This article contains general legal information and does not contain legal advice. Cobrief is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.