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.