Difference Between Corporation and Company: Everything You Need to Know
There are a few key differences between a corporation and a company. For instance, companies are typically smaller than corporations4 min read
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.
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.
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.
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.
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