Key Takeaways

  • A corporation is a distinct legal entity separate from its owners, offering limited liability and specific tax treatment.
  • A company is a general term that includes various business structures such as sole proprietorships, partnerships, LLCs, and corporations.
  • Corporations typically face double taxation unless organized as an S corp, while many other company types (like LLCs or partnerships) offer pass-through taxation.
  • The terms “Inc.,” “Corp.,” “Ltd.,” and “LLC” carry different legal meanings and governance implications.
  • Corporations are governed by a board and follow stricter compliance, while LLCs and other companies tend to have more operational flexibility.
  • Ownership in corporations is typically represented by shares and is easier to transfer than in most companies.

What Are the Differences Between Corporation and Company?

There are a few key differences between a corporation and a company. For instance, companies are typically smaller than corporations. There is also a difference in capital requirements to form a company and to form a corporation. Corporations, private and public, have required minimum requirements for capital, needed to form.

While both corporations and companies pay taxes, corporations are typically taxed twice on their profits while many companies can pass-through their earnings or losses onto their individual tax return. Furthermore, corporations are usually owned by multiple people and the ability to exchange ownership is easy, while companies can be owned by one individual and ease of transferring ownership depends on the business structure.

Key Legal and Structural Distinctions

The distinction between a corporation and a company lies primarily in their legal structure, tax treatment, and governance requirements.

  • Legal Identity: A corporation is a separate legal entity formed through state filing. Companies can refer to any business, including sole proprietorships or partnerships, which may or may not be separate legal entities.
  • Ownership Structure: Corporations issue shares to shareholders. Other company types may have owners or members (e.g., in LLCs), without share issuance.
  • Formation Requirements: Incorporating a corporation typically involves more complex documentation, including Articles of Incorporation, bylaws, and board resolutions.
  • Liability Protection: While both corporations and limited liability companies (LLCs) offer personal liability protection, sole proprietorships and general partnerships do not.
  • Perpetual Existence: Corporations can exist in perpetuity, independent of shareholder changes. Some company types, like partnerships, may dissolve upon changes in ownership.
  • Transferability of Ownership: Corporations allow easy transfer of shares. In contrast, companies like LLCs or partnerships may require consent of other members or partners.

These legal and functional nuances make it essential for entrepreneurs to understand the structure that aligns with their business needs and risk tolerance.

What is a Company?

Simply put, a company is any business entity that conducts a value exchange of goods or services with customers. The end goal of a company should be to earn a profit. Interestingly, all corporations are considered companies, even though not every company is considered a corporation.

There are a few different ways to structure a company and each have their own advantages and disadvantages to business operations and tax purposes. When deciding on a business structure, it's important to take your time and find the option that is best for your specific needs. Because selecting a business structure as a company can be so difficult, it may be a good idea for you to conduct additional research online or to hire legal counsel to assist with your entity designation.  

Some of the different types of companies include:

  • Sole Proprietorship: A sole proprietorship is one of the most common structures for a company. This entity has no legal separation from the owner, but does allow the owner to recognize business expenses on their tax return.  
  • General Partnership: A general partnership is similar to a sole proprietorship in that the owners can recognize business expenses and profit on their personal taxes. This business structure consists of two or more people that go into business together.  
  • Limited Liability Company (LLC): An LLC is a type of company that provides business owners with the tax benefits of a sole proprietorship or partnership while also giving the liability protection found in a corporation.

All companies must have a registered office under its name and the business entity can face legal action.

Common Types of Companies and Their Uses

The term “company” can include a range of business types, each suited for different goals:

  • Sole Proprietorship: Simplest and least regulated, ideal for freelancers and low-risk ventures.
  • Partnership: Useful for collaborative businesses, especially where each party contributes resources or expertise.
  • Limited Liability Company (LLC): Offers liability protection with pass-through taxation. Common among small-to-midsize businesses.
  • Corporation: Though technically a company, it’s a more formal structure often reserved for businesses seeking external investors or going public.
  • Limited Partnership (LP) and Limited Liability Partnership (LLP): Used in professional services and real estate industries where liability and management roles are split.

Understanding the strengths of each company type helps business owners align structure with long-term strategy.

What Is a Corporation?

A corporation is a separate legal entity from its owners. One common action of a corporation is the selling of its ownership in the form of stocks. Selling stock in a corporation is a great way to raise capital and the transferability of ownership is one of the main differences between corporations and companies.

Individuals that own shares or stocks of a corporation are considered owners. The number of stocks an individual owns in a company determines their percentage of ownership. For instance, if a corporation had 1,000 shares and you owned 500, you would own 50% of that company.

Because ownership doesn't necessarily dictate management, most corporations elect a board of directors to act in the best interest of the shareholders. The board of directors select managers to run the daily operations and conduct meetings to make critical business decisions.

Owners of a corporation must file separate tax returns. Because corporations are an independent legal entity, owners are not personally liable for debts and liabilities incurred by the corporation. Thus, the applications and legal documentation to incorporation your company are much more difficult than other business structures.

The IRS gives corporations their own tax number and require corporations to pay taxes on their revenue. Taxes are paid on the money earned by the corporation and also the earnings paid to owners in the form of dividends and salary. In other words, corporations are taxed twice on their earnings, once at the corporate level and once at the individual level.  

Corporation Naming Conventions and Designations

Corporations often carry specific suffixes that denote their status:

  • Inc. (Incorporated): Denotes a formally registered corporation.
  • Corp. (Corporation): Functionally the same as “Inc.,” though some states have preferences.
  • Ltd. (Limited): More commonly used internationally; in the U.S., it may suggest a private company with limited liability.
  • S-Corp vs C-Corp: The S-Corp is a tax designation that allows pass-through taxation but is limited to 100 shareholders. The C-Corp is taxed as a separate entity and allows unlimited shareholders, including foreign investors.

These suffixes not only help signal legal protections and tax statuses, but also indicate to customers and investors how the business is governed.

What is the Main Difference between S and C Corporations?

There are two different types of corporations: S corporation and C corporation. The big difference between the S-corp and C-corp designation is with how they are taxed. The federal and state taxes of these two types of corporations are not the same.

As mentioned above, corporations are double taxed; once on their corporate earnings and once on an owner's individual earnings. This double taxation is part of C corporations, but it's not part of S corporations. S corps are able to recognize corporate earnings and losses on their personal tax returns and are only required to pay taxes once.

Choosing Between a Corporation and a Company

When deciding between forming a corporation or another type of company (such as an LLC), business owners should weigh:

  • Tax Implications: LLCs offer simplicity with pass-through taxation. C-corps are taxed at the entity and shareholder levels, while S-corps allow pass-through taxation but with more restrictions.
  • Administrative Burden: Corporations require more formalities (e.g., board meetings, minutes, annual filings). LLCs and sole proprietorships have fewer compliance obligations.
  • Investor Attraction: Corporations are preferred by venture capitalists due to their share structure. LLCs are less appealing to institutional investors.
  • Long-Term Goals: If the goal is to go public, a corporation (especially a C-corp) is usually necessary.

Business owners should evaluate legal requirements, operational preferences, and financial objectives when selecting the best entity type. For personalized guidance, it’s wise to consult an experienced attorney on UpCounsel.

Frequently Asked Questions

  1. Is a corporation a type of company?
    Yes, all corporations are companies, but not all companies are corporations. “Company” is a broad term that includes various business structures.
  2. What’s better: corporation or LLC?
    It depends on your business goals. LLCs offer flexibility and simple taxes, while corporations offer better fundraising and stock issuance capabilities.
  3. Can a company be a single person?
    Yes. Sole proprietorships and single-member LLCs are both companies that can be owned and run by one person.
  4. What does “Inc.” mean in a business name?
    “Inc.” indicates that the business is an incorporated entity, meaning it’s a legally recognized corporation with limited liability.
  5. Why choose a corporation over another company structure?
    Corporations offer strong liability protection, perpetual existence, and are ideal for raising capital through shares.

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