The legal concept behind a company is that the company, which conducts all its business operations by means of the company itself, is a legal entity separate and different from its founders and owners. The founders are usually owners of the company by means of holding shares, and are called shareholders.

A share of company stock is actually a bundle of rights and obligations which makes its holder liable to the company and the company liable to the shareholder, including for example, the right to participate in company profits. There is an almost complete separation between the legal entity of the company and the shareholders. If for example there is a claim or cause of action against the company, the claimant cannot sue the shareholders. The avenue for addressing any issue or problem is the company itself. Only in special cases of pronounced dishonesty or fraud will the court approve the lifting the corporate veil and enabling direct action against the shareholders or directors.

Most companies are formed (associated) such that their owners enjoy limited liability. This is noted in the company name. In Israel this is accomplished by the suffix “Ltd.” (limited liability).