What is the purpose of a company?

Corporate Governance

Austria Small Flag Austria

A company may pursue any purpose except for illegal purposes (forbidden by law, e.g. drug of human trafficking etc). Companies are usually profit oriented, but charity purposes are also allowed. However, other forms of association than a corporation might be more convenient for non-profit organizations.

Brazil Small Flag Brazil

In Brazil, as elsewhere, companies are typically deemed as profit-seeking entities with legal personality and segregated assets. In short, companies engaged in economic activities in an organized and ongoing fashion for the production or circulation of goods and services are called “business corporations” (sociedades empresárias), whereas companies lacking a complex organizational level, or those engaging in intellectual activities of a scientific, literary or artistic nature (unless these activities have a corporate business element to them) are referred to as “non-business companies” (sociedades simples).

Please note that Brazilian law also foresees the so-called “principle of the social function of the company”, according to which management must always direct its conduct so as to harmonize the performance of the corporate purposes and the obtaining of profits with the interests of the community and of society (such as generating jobs or paying taxes) in which the company is inserted. For that reason, dissolution or liquidation of companies must be avoided.

France Small Flag France

The fundamental purpose of a company is to produce economic gain (C. civ. article 1832), but other purposes are recognised. For example, the AFEP-MEDEF Code (article 1) refers to “long-term value creation” while “considering the social and environmental aspects of its activities”. And legislation under consideration at this writing (17 January 2019), known as the “Loi PACTE”, would if enacted, among many other changes, require that “social and environmental stakes” be taken into account (pursuant to EU Directive 17/828) and provide that bylaws could set out a corporate raison d’être, consisting of “principles” to be followed in carrying out its business.

Germany Small Flag Germany

The object of a stock corporation (Unternehmensgegenstand), such as the production and sale of certain goods or services, is set out in its articles of association and any changes require a shareholder resolution with qualified majority. It must be distinguished from the purpose (Gesellschaftszweck) of the stock corporation that can be any permitted activity, including non-profit and idealistic purposes. The purpose of a stock corporation is typically not explicitly stipulated and its change will likely require a unanimous shareholder resolution.

Greece Small Flag Greece

The purpose of a company is to perform an activity, usually a commercial activity. It is at the discretion of the founders and shareholders to determine the object of the activity, assuming that such activity is lawful. In case the activity is unlawful, the company can be declared void, pursuant to a court judgment.

Hong Kong Small Flag Hong Kong

The predecessor Companies Ordinance required the memorandum of association adopted by a company to contain an object clause. Such requirement was abolished when the existing Companies Ordinance came into effect on March 3, 2014.

Japan Small Flag Japan

The primary purpose of a company is to obtain profits through external economic activities and to distribute the profits obtained to its shareholders. Shareholders cannot be deprived of at least one of the right to receive dividends from surplus or the right to receive distribution of residual assets. As to corporate social responsibility, see question 28.

Portugal Small Flag Portugal

The by-laws establish the corporate purpose of each company and the Companies Code provides for the limitation of liability regime.

South Korea Small Flag South Korea

According to the KCC, a Company means a corporation established for the purpose of engaging in commercial activities and any other profit-making activities. The purpose of a for-profit Company is not merely for engaging in external profit-making activities, but also for distributing the gained profits to its shareholders. The business objective of a Company is materialized in the AOI, and certain business objectives may require prior government approval.

Switzerland Small Flag Switzerland

Swiss companies are by default profit-oriented. In following its corporate purpose as defined a company's articles of association, a company's board of directors should pursue the long-term interest of shareholders. At the same time, it is, pursuant to existing case law, allowed to appropriately take the interests of other constituencies, including employees, customers and creditors, into account.

United States Small Flag United States

Companies are typically formed for five main purposes. First, if properly established and operated, corporations and LLCs protect the equity holders (or owners) from liability for actions of or omissions by the company. Second, a well drafted set of governing documents and existing state and federal laws provide structure for operating the company and clearly define the rights of the owners and operators. Third, establishing a company can lead to tax savings on the business’ income. Fourth, forming an entity is the preferred method of aggregating capital to make investments. And finally, a properly formed entity can provide legitimacy to a business and encourage customer and shareholder confidence.

More broadly, there has been discussion and debate about whether the purpose of companies should be to maximize shareholder value or if instead companies should have a more general purpose to consider and balance the interests of all of the company’s stakeholders. While frequently presented as an either or choice, many believe that maximizing long-term shareholder value necessarily requires companies to consider the effect a company’s actions will have on other stakeholders, with the view that it is not possible to have sustainable long-term value creation without considering the interests of the company’s other stakeholders. In addition, most states have adopted so-called “constituency statutes,” which generally permit (but do not require) boards of directors to consider the interests of stakeholders other than shareholders when making business decisions.

Many states also explicitly provide companies with the ability to be registered as benefit corporations, which are entities that have a stated purpose of creating public benefit in addition to maximizing shareholder value. There have been recent efforts to try an establish similar requirements at the federal level.

United Kingdom Small Flag United Kingdom

In general terms, companies are typically formed for a number of purposes. They typically provide shareholders with limited liability in respect of the acts and omissions of the company and can provide a tax efficient structure for operating businesses. Incorporating a company is often viewed as an attractive means of aggregating capital to make investments. Companies provide a flexible framework within which the rights and obligations of various stakeholders can be defined to suit the particular circumstances. Finally, establishing a company (especially a public company) can provide legitimacy to a business and encourage stakeholder.

Canada Small Flag Canada

A Canadian corporation is a legal person established under either the Canada Business Corporations Act (the “CBCA”) or the corresponding provincial or territorial corporate statutes for the purpose of carrying on business or otherwise shielding the shareholders from potential liability. A corporation is capable of, among other things, accumulating debt, issuing share capital and entering into contracts. Shareholders of traditional limited corporations have limited liability. Certain corporate statutes in Canada also provide for unlimited liabilities corporations which render their shareholders subject to the liabilities of the corporation.

Italy Small Flag Italy

Pursuant to Art. 2247 ICC, companies are entities carrying out an economic activity with the purpose of distributing profits to the benefit of their shareholders. However, it is undisputed that companies can have non-profit or social purposes.

In any case, the by-laws shall set forth in detail the specific purpose of the company and the directors (or sole director) shall be entitled to carry out any action aimed at achieving the relevant purpose, in compliance with the applicable laws and the by-laws (Art. 2380-bis ICC).

Turkey Small Flag Turkey

JSCs and LLCs may be established for all economic purposes and issues that are not prohibited by law.

Luxembourg Small Flag Luxembourg

The purpose of a company is the one set out in the object clause of its articles of association. The purpose must be lawful and in case it is with respect to a regulated activity, the company needs to obtain the required licence or authorization and additional corporate governance requirements may apply to it resulting from the specific legislation which governs the regulated activity.

Ukraine Small Flag Ukraine

In Ukraine, as elsewhere, the main purpose of a private business entity is profit and increasing shareholder value. Social or endowment goals may be pursued by means of establishing a non-profit organization such as an NGO or charity fund.

Municipal and state-owned enterprises may pursue goals other than profit, e.g. satisfaction of certain public needs. Such specific goals should be fixed in the company`s ownership policy.

Australia Small Flag Australia

The purposes of specific companies vary depending on the industry they operate in and, where applicable, the objects identified in their constitutions.

The key advantages of a company over a partnership, unincorporated entity, sole trader or trust arrangement include the limited liability of the shareholders, the operation of the company as a separate legal person and the relatively simpler nature of the corporate structure.

Egypt Small Flag Egypt

Pursuant to the rules of the Egyptian Law, the purpose of a company is the activity carried out by the company. The purpose/activity can be decided upon the discretion of the shareholders of the company, without restrictions, provided that, they do not conflict with public order or moral code in Egypt. Any amendment to such, shall be made through the convocation of an EGM to approve amending the articles of association.

Furthermore, there are some exceptions as follows:

- Certain activities (e.g. in the fields of satellite technology, remote sensing systems, construction and issuing newspapers) require additional approval from other governmental entities.

- Only JSC can carry out the activities related to capital markets, insurance and banking deposit taking, investment of funds, securities brokerage.

- One Shareholder Company is not entitled to carry out the following: incorporation of a one Shareholder Company, IPO, insurance and banking deposits, investment of funds, securities brokerage and investment on behalf of third parties.

Updated: September 18, 2019