The terms “business” and “company” are often used interchangeably when discussing commercial entities that make money by selling products or services to customers. In reality, though, businesses and companies are different. While they both seek to generate profits through sales, they use a different structure. As a result, their nuances between the way in which they operate as well as how they are taxed. To learn more about the differences between businesses and companies, keep reading.
What Is a Business?
A business is a commercial entity or organization that makes money by selling products or services to customers. Businesses come in all shapes and sizes. Some of them are operated by a single person, whereas others are operated by hundreds of people. Some businesses produce the goods they sell, whereas others simply act as the middleman by purchasing and reselling goods from a vendor. Regardless, all businesses are commercial entities that make money by selling products or services.
What Is a Company?
A company, on the other hand, is a commercial entity or organization that’s legally separated from its owner or owners. Like businesses, companies make money by selling products or services. They can also vary in size, with some of them being operated by a single person and others being operated by multiple people. The difference is that companies are considered a separate legal entity from their respective owners.
Breaking Down the Differences Between Businesses and Companies
A company is essentially a type of business. There are several specific types of companies recognized by the Internal Revenue Service (IRS), some of which include a limited liability company (LLC), an S corporation and a C corporation. All companies are considered separate legal entities from their respective owners, meaning they don’t share liabilities or debts.
The term “business” can refer to a company as well. It’s a broad term that encompasses all types of commercial entities. With that said, businesses cover basic entities that, unlike companies, aren’t considered separate legal entities. A sole proprietorship, for example, isn’t a separate legal entity. If a sole proprietorship incurs debt, the owner or owners will be personally responsible for paying it. This in stark contrast to companies, which offer protection to their owners from company-related liabilities and debts.
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