When most people hear the word “company,” they may think of a large, multi-national corporation. However, the term “company” can actually refer to any type of business entity.
There are some differences between the two to be aware of. Here we will go over what the difference is between a company and a corporation.
What is a Company?
A company basically refers to any business ownership business structure and can be either for-profit or not-for-profit.
According to the Merriam-Webster dictionary, a company is defined as:
There are several different types of companies. The main types include sole proprietorships, partnerships, Limited Liability Companies (LLCs), and corporations.
What Is a Corporation?
In contrast, a “corporation” is a specific type of business entity that is created with a state department, typically named the Secretary of State.
According to the Cambridge Dictionary, a corporation is defined as:
Corporations are a separate legal entity that is owned by shareholders, who are overseen by a board of directors. It’s important to note that a corporation can be owned by one person and that one person can make up the board of directors.
What’s the difference between a company and a corporation?
While all corporations are companies, not all companies are corporations. For example, sole proprietorships and partnerships are both types of companies, but they are not considered to be corporations. As a result, the main difference between a corporation and a company is the legal structure of the business.
What is the Main Difference between S and C Corporations?
There are two different types of corporations. While the corporation business structure provides the same liability protection for its owners, the main difference between an S corporation and a C corporation is how the corporation is treated for tax purposes.
An S Corporation, also referred to as Subchapter S Corporation, or S Corp, is a corporation that elects special tax treatment from the Internal Revenue Service (IRS). S corporations were created to provide small businesses with the benefits of a corporate structure without the double taxation that typically applies to corporations. S corporations are taxed as pass-through entities, meaning that the business itself is not taxed on its profits. Instead, the owners of a corporation (referred to as shareholders) are taxed on their share of the profits or losses on their personal income tax return. This structure allows small businesses to retain more of their profits and reinvest them into the business, which can help them to grow and create more jobs.
In order to elect S Corp status, you need to file IRS Form 2553 and qualify by meeting requirements including being a domestic corporation, having 100 or fewer shareholders that are individuals or some types of trusts and estates, and only have one class of stock.
In comparison, a C corporation is not a pass-through entity, so it is taxed completely separately from its business owners. The entity pays taxes on its profits, and then any profits can be sent to shareholders as dividends, which must be taxed personally. This results in what is referred to as double taxation.
By default, a new corporation will be taxed by the Internal Revenue Service (IRS) like a C-Corporation.
It’s important to talk with a CPA before making this election as corporate tax rates and the owner’s tax situation can influence the best way to tax the business.
What’s the difference between inc and corp?
The main difference between Inc and Corp is that Inc. is short for incorporation while Corp. is an abbreviation for a corporation.
Corporations are required to use an entity designator by the state they are formed in, though each state has different requirements. Some of the designators include Incorporation, Incorporated, or Inc., and Corporation, or Corp.
Is a corporation the same as an LLC?
No, a corporation is not the same as an LLC.
The corporation and LLC share many of the same characteristics, there are many similarities between the corporation and Limited Liability Company (LLC) but there are distinctly different.
Separate entities – Both the corporation and LLC are formed and regulated by a state agency
Personal liability protection – Both types of entities provide limited liability protection for the owners, which means if the business is sued or is unable to pay business debts or obligations, then the owners are not personally liable and the creditors can’t come after their personal assets (unless the owners sign a personal guarantee for a business loan, which is very common).
A few differences include:
- Complexity – The corporation is more complex to manage that an LLC as there must be an annual board of directors meeting, shareholder meeting, taking minutes at the meeting, issuing shares of stock, etc. An offers the ease of operation of a sole proprietorship or general partnership while having the liability protection of a corporation.
- Tax flexibility – A corporation can either be taxed as a C corporation or S corporation, while an LLC can be taxed as a sole proprietorship, partnership, C corporation, or S corporation.
- Raising capital – The corporate business entity is more often used by companies that need to raise significant amounts of investment as a corporation can have multiple classes of stock and no limits on the number of owners. The LLC on the other hand has some more restrictions depending on the tax election.