Are you considering starting a business? One of the most crucial decisions to make is choosing the right legal structure. The two most popular options are corporations and companies.
A corporation is a legal entity that is separate and distinct from its owners. A company, on the other hand, is not a separate legal entity from its owners. The main difference between a corporation and a company is that a corporation has shareholders who own the company, while the owners of a company are the directors themselves.
We’ll explore the differences between these structures and help you determine which one is best suited for your business needs. So, let’s dive in and get started! If you’re not sure which legal structure is right for your business, it’s important to talk to an attorney or accountant who can help you weigh the pros and cons of each option.
Corporation vs. Company
| Corporation | Company |
|---|---|
| A corporation is a legal entity that is separate from its owners, offering limited liability protection. | A company is a business entity that can have different legal structures, such as a sole proprietorship, partnership, or limited liability company (LLC). |
| It is owned by shareholders, who hold shares of stock and have voting rights. | Ownership in a company can vary depending on its legal structure, such as individual ownership in a sole proprietorship, partnership ownership in a partnership, or members’ ownership in an LLC. |
| A corporation is managed by a board of directors elected by shareholders, who appoint officers to run the day-to-day operations. | The management structure of a company depends on its legal structure, with the owner(s) or partners typically responsible for the management in a sole proprietorship or partnership, and managers or members in an LLC. |
| They are often larger in size and may have complex organizational structures. | They can vary in size, ranging from small businesses to large enterprises, depending on the industry, operations, and legal structure. |
| Corporations are subject to more extensive regulations, including financial reporting, shareholder rights, and corporate governance requirements. | Companies may have fewer regulatory requirements compared to corporations, depending on their legal structure and size. |
| They are subject to corporate income tax, and shareholders may also be subject to taxes on dividends and capital gains. | They may have different tax treatments depending on their legal structure, with sole proprietorships and partnerships often subject to pass-through taxation, while corporations and LLCs may have different tax options. |
| Corporations can be publicly traded, with shares listed on stock exchanges and available to the general public. | Companies can be privately owned, with ownership restricted to a few individuals or entities, or publicly owned, with shares available to the general public, depending on their legal structure and ownership arrangements. |
What is a corporation?
A corporation is a legal entity that is separate and distinct from its owners. Corporations are created by state law, and they have many of the same rights and responsibilities as individuals. Ownership in a corporation is represented by shares of stock, which are issued to shareholders. Shareholders elect a board of directors to oversee the corporation’s affairs. The board appoints officers to manage the day-to-day operations of the corporation.
Corporations are subject to corporate income tax, and shareholders are also subject to personal income tax on any dividends they receive from the corporation. Corporations can raise capital by selling shares of stock, borrowing money, or reinvesting profits.
What is a company?
A company is a type of business entity. It is an organization that consists of one or more individuals, who each own a portion of the company. The owners of a company are called shareholders. Companies can be either for-profit or non-profit.
There are many different types of companies, including sole proprietorships, partnerships, limited liability companies (LLCs), and corporations. Each type of company has its own advantages and disadvantages.
Key differences between corporations and companies
Here is a look at the key differences between corporations and companies:
1. Ownership: One of the biggest differences between corporations and companies is in terms of ownership. Corporations are owned by shareholders, while companies are owned by one or more individuals. This difference in ownership can have a big impact on how the two types of businesses operate.
2. Structure: Another key difference between corporations and companies is their structure. Corporations are typically much larger than companies and have a more complex structure. Companies, on the other hand, tend to be smaller and have a simpler structure.
3. Management: Another major difference between corporations and companies is in terms of management. Corporations are typically managed by a board of directors, while companies are usually managed by one or more individuals. This difference can impact the way decisions are made within the two types of businesses.
4. Taxes: Finally, they are different in terms of taxes. Corporations are typically subject to higher taxes than companies, due to their complex structure and ownership rules.
5. Liability: One final difference between corporations and companies to note is in terms of liability. Corporations have limited liability for their shareholders.
- Difference between sales and revenue
- Difference between gross and net income
- Difference between net sales and net income
Advantages and disadvantages of each structure
There are several key advantages and disadvantages of each business structure that you should be aware of before making a decision for your business.
Corporation:
–Advantages: Corporations offer limited liability protection to their shareholders, which means that the shareholders are not held personally liable for the debts and liabilities of the corporation. This is a major advantage if the corporation ever faces financial difficulties or is sued.
In addition, corporations tend to have an easier time raising capital than other business structures because they can issue stock.
Finally, corporations have a perpetual life, meaning they exist indefinitely even if shareholders come and go.
–Disadvantages: One of the biggest disadvantages of forming a corporation is the increased paperwork and compliance requirements.
Corporations also have higher taxes than other business structures; in fact, they are often taxed twice—once at the corporate level and again when dividends are distributed to shareholders.
Finally, because shareholders have limited liability, they may have less incentive to carefully monitor the corporation’s activities and financial health, which can lead to problems down the road.
Company:
–Advantages: Companies offer many of the same advantages as corporations, including limited liability protection for shareholders and the ability to raise capital by issuing stock.
In addition, companies tend to be simpler and less expensive to set up than corporations. For example, there is no need to hold shareholder meetings or keep minutes of meetings like there is with a corporation.
–Disadvantages: Unlimited personal liability is a potential disadvantage of some types of companies, such as sole proprietorships and partnerships, putting the owners’ personal assets at risk to cover the company’s debts or liabilities.
Legal requirements for starting a corporation or company
There are a few legal requirements you’ll need to meet before you can officially start your corporation or company.
First, you’ll need to choose a name for your business and make sure it’s available as a corporate name. You’ll also need to file articles of incorporation or organization with your state and pay the required filing fees.
Once that’s done, you’ll need to appoint directors and officers for your company and hold an initial board of directors meeting.
Lastly, you’ll need to obtain any licenses or permits required to operate your type of business in your state.
