In spite of these two terms appearing similar and sometimes interchangeable, there are many differences between business and company. Let’s get into it.
What is a Business?
Business usually means an enterprising entity or organization engaged in professional or commercial activities to earn reasonable profit by selling goods or providing services. However, they can be nonprofit organizations made to support some charity or social cause. Business types range from limited liability companies, corporations to partnerships. A business can cover small industry operations or spread to more significant industries.
A business usually puts its efforts or trade under a single name, through which it builds the reputation it gains in the market. Apple and Walmart are two examples of successful business entities providing services and products to their customers on a massive scale. Later in the article, we will discuss the difference between a company and a business to clarify two things.
Types of Business
There are two main types of businesses to choose when forming a company.
A sole trader is a single natural individual that owns and operates a business. There can or cannot be more employees, but the owner alone is responsible for all the profit or loss of the business. There is no legal or financial difference between a sole trader and a business. If the business is earning a profit, it will solely belong to the owner. Likewise, if there’s any loss, all the debts fall on the owner.
When two or more individuals join their efforts and strengths to conduct business mutually, this is called partnership. The financial liabilities, shares, and profit earned are divided between all the members. An agreement should be established that defines the terms of each individual and relationship in the contractual form before selling goods or services.
What is a Company?
Before getting into what’s the difference between a business and a company, let’s have a look at what a company is.
A legal entity is formed by combining the efforts of a group of individuals to regulate and operate the business. The company can have different alignments for financial liabilities and taxation. It will have the same legal rights and responsibilities as an individual. That means A company can hire employees according to their set of rules, and it can sue or be sued by any other company if there is any legal violation.
The business company is running decides the functionality model, i.e., partnership, cooperation, or proprietorship. You must have heard of the public and private companies. They have different ownership structures, rules or regulations, and financial reports. Let’s further explore the types of companies to understand the difference between company and business.
Type of Companies
Companies can be classified into different types based on their mode of incorporation, liability of the members.
Public Limited Company (PLC)
A public limited company allows stock shares to the general public. It will enable its members to freely transfer their shares which means anyone can purchase shares in the company. People who invest have little liability, and they cannot be held responsible for any losses that are more than their invested amount.
Private Limited Company (LTD)
In contrast to public limited companies, private companies restrict the free transferability of shares. The shares can be owned by a group of stakeholders or nonpublic organizations. In a private limited company, like PLC, the stakeholder has limited liability and is not responsible for more than what they invested.
Limited Liability Partnership (LLP)
The term limited liability partnership is similar to a national partnership between two or more people to operate and run a company. They have a similar management structure and equal profit distribution.
Royal Charter (RC)
Every company was required to seek the queen’s approval or royal charter earlier in England. However, seeking royal approval in modern days is not necessary to start a company. Charters are occasionally approved by companies working in the public interest. BBC and Bank of England are existing examples of royal charter originations.
Community Interest Company (CIC)
Community interest company or CIC benefits the company rather than stakeholders. Profit earned is reinvested in the company’s growth to enhance the benefit to the community.
At a first glance, and to the untrained eye, the two might seem interchangeable terms, considering the similarities a business and a company has in many facets of actually running both of them. For instance, one could argue that there’s really no difference, because both are structured the same way and the end goal is the same: sales, revenue and business. But, ask a graduate from any business school, and you’ll quickly understand that this is not the case, and that there is a considerable difference between business and company. Well, we’re here today just to do that, and we’ll show you and get to know the difference between a business and a company.
First things first: let’s discuss why there are people who frequently mistake the term for something that is interchangeable. Yes, a company is essentially a business, since it is conducting or engaged in what is defined as business. And yes, a business could choose to call itself a company, and use words like incorporated and ‘Private Limited’ after its name, but again, they’re not allowed to do so, and this is the basic differentiation between the two.
To capitalize on this ‘Pvt. Ltd’ and incorporated point, understand that a company will always be registered with the government and will most likely be in some form of ownership, with shares or stocks being in the possession of an individual or a company.
Take for example, the behemoth Microsoft or Amazon, who are engaged in business but are classified as a company, because they are registered with the government as an incorporation, paying their corporate taxes, have an employee payroll that they submit to the government, and have shares or common stocks that are owned by private investment groups and Bill and Melinda Gates Foundation or Jeff Bezos respectively.
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A business, on the other hand, could be exemplified as a mom-and-pop store in your neighborhood, or a souvenir shop in a tourist destination that is obviously not incorporated, and not as a company anyways. Plus, it will have employees and kind of a payroll, but it will certainly not be large enough for it to be sent to the government. And, the most important point of all: it will not be listed in NASDAQ or any other stock exchange list, considering the size of its business operations.
With the basics now out of the way, let’s get into the differences between a company and a business,
Difference Between a Business and a Company
There are basically two major points where these two entities deviate, and a sprinkling of other points that can help you differentiate a business from a company. Let’s first discuss the two major points,
The first point is incorporation and it is the big one, the major point that separates a business from a company. As stated beforehand, a business is not incorporated, since it rarely has a need to do so, unless the business being generated is volumetric enough to warrant the need for such. Whereas companies on the other hand, only qualify as such due to the fact that they are incorporated. If not, even a company with millions in revenue and hundreds and thousands of employees will be classified as a business in front of the trade and commerce department.
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So, to further elaborate on the difference and understand what separates the two, incorporation is the major point. A business is not incorporated, whereas a company is. If a business decides to incorporate, it has to satisfy a couple of requirements before it is legally and officially considered a company. Similarly, without incorporation, a company will be called a business and not a company. If it’s too difficult to get your head around, just think of incorporation as sort of a coronation that upgrades businesses to companies and downgrades companies to businesses.
- Valuation of revenue, assets
Another major factor of differentiation between the two is that businesses are typically operating on a small revenue, whereas companies boast an operating capital that goes into the millions. This evaluation of capital, assets and revenue is what prompts a business to register itself as a company. As a matter of fact, legislation itself states and caps the revenue generation of a business to a certain limit; after which, the business must register itself as a corporation and get itself registered with the SEC, and the trade corporation.
Many countries have different definitions of how and where the line is drawn between a company and a business, but they all seem to border on the fact that the ones with less revenue are classified and considered as businesses, whereas the ones with a considerable revenue size and essentially an upscaled business is considered a company, complete with incorporation and an IPO or two behind them. So, this is the second difference between business and company.
In a nutshell,
The difference between a company and a business is a thin line to decipher, and it would be fair to say that a good majority of the people who come across these two terms are likely to mistake it for something that is interchangeable and similar terms. Whereas the reality is, that it isn’t the case, as a business and a company are two entirely separate entities and are treated by the government as such, and it all depends on the incorporation and the valuation of the assets both the entities have.