Company vs Firm
Getting to know the difference between company and firm is useful as the words firm and company are used interchangeably by people and they talk of these entities in the same breath. It is common for people to talk about an accounting company as an accounting firm or a consultancy service company as a consulting firm. However, are these terms equivalent or is there any difference between these two terms, firm and company? This article will explain the features of the entities called firm and company to see if they are same or have significant differences.
What is a Company?
In modern times, the use of the word firm has become outdated and is restricted to legal, consultancy, and accountancy businesses. For all other businesses, the word company is being preferred. Even in the professions mentioned, there are more and more people who today prefer the use of the word company against their names instead of firm. Unlike a firm, a company has been registered and has shareholders. Here is the definition given by the Oxford dictionary to explain the term company. A company is “a commercial business.” This simple definition makes us understand that firm may refer to a particular type of business while company is the name used for businesses in general.
What is a Firm?
As far as the dictionary is concerned, the Longman dictionary says that a firm is usually a small company. If one goes by this definition, a firm is a type of company and the term is in effect a subset of the generic term company.
The definition given by the Oxford English dictionary for firm is as follows. According to the Oxford English dictionary, a firm is “a business concern, especially one involving a partnership of two or more people.”
In practice, a company could be a firm. A firm, irrespective of its size or area of operation is a business entity just like a company. Usually, the word firm is reserved for businesses providing services as is clear with the use of terms like accounting firms and consulting firms. However, there is no restriction on the usage of the word firm to be used with any company manufacturing products. There is a certain charm about the word firm that makes people adopt it to signify the business they are carrying. Somehow, the word connotes professionalism and secrecy that is not reflected by the word company. Furthermore, firms are generally sole proprietorship or a partnership firm.
What is the difference between Company and Firm?
• A firm and a company are not separate entities.
• A firm is a type of a company.
• The word firm was traditionally used for accounting and consulting companies and they are even today referred to as firms.
• Firms are either sole proprietorship or partnership whereas company is registered and has shareholders.
• One can certainly say firm is a subset of the term company.
• In practice, a company could be a firm.
Now, that this article has explained the difference between company and firm, it will be easier for you to distinguish between firm and company in the future.
Why corporation tax levied on company and tax on personal income on firms?
The primary reason is that corporations are legal entities whilst firms are generally not in many tax jurisdictions. You cannot tax something that does not exist. The firm’s partners will still be taxed on the firm’s profits but via personal income tax.