The words business and companies vs business seem like synonyms, but the reality is far from this. Both terms are used with the same intent, however, both of them have very distinct meanings.
Business is something that earns you money, it can be a shop, your freelancing gig, etc. on the other hand a company is something more formal, it is the registered place where you do your business.
This is the basic difference between them, but there is much more to it. If you are interested in knowing the difference between companies vs business then this blog is for you.
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What is a company?
A company is like an individual having its own legal rights and responsibilities. A company is defined as a legal entity having its own rights and not a legal responsibility of an individual or a group. A company is set up by the law of that country and is governed by the country’s company laws.
When compared to a business, a companies vs business holds larger-scale functioning, also a company has limited liability because of which when a company suffers loss and is unable to repay the loans and debts, the creditor can not touch the private possession like a car, house, etc of the owner. Also, if an individual wishes to expand his business to a large scale then it is best suitable for him to register it as a company.
Types of company
There are 5 types of companies.
i) Public Limited Company (PLC)
PLCs or public limited companies are companies that invite investors in form of shareholders to buy the shares of the company, this is a method by which a PLC generates wealth i.e by selling its shares to the public.
The shareholders of the company have limited liabilities which means that they can’t be held liable for losses that are more than their investment.
ii) Private Limited Company (LTD)
LTD or private limited companies are like PLCs except for the shares of a private limited company that is not available to the public but are privately owned by an NGO or a small group of shareholders.
iii) Limited Liability Partnership
In LLP or limited liability partnership, two or more individuals are responsible for the company. This type of company structure benefits from limited liability.
iv) Royal Charter
Royal charter companies are the companies that have the power granted by the monarch, these types of companies vs business should get approval from the royal charter. As of now, approval from royals is no longer needed to set up a company.
v) Community Interest Company (CIC)
CIC companies vs business model works with the motive to benefit the community rather than its shareholders. The profits earned by the company are reinvested into the CIC so that it can benefit the community and achieve its objectives.
What Is a Business?
Any activity that generates wealth is called a business, it can be any good you sell or any service you provide, as long as it is giving some fiscal returns then it will be termed as a business.
You don’t have to be a registered firm to carry on a business, even if you are a freelancer then too you are doing business. Business usually starts under a single name which aims to build a reputation by providing goods or services.
Types Of Business
There are two broad categories of business.
i) Sole Trader
As the name suggests a sole trader is an individual who individually executes a business. There can be some staff hired under him but they are not an entity in profit sharing, they merely are employees working on a salary basis. In this type of business model, the sole trader is responsible for business debts
In a partnership business model, two or more partners are running a single business. In this type of business model, the liabilities are distributed among the panthers according to a pre-agreed basis or according to profit sharing.
Difference Between Company and Business
Here are some key differences between a company and a business.
i) Setting Up
Setting up a company is much more complex than starting a business.
To start a business you just need to put together a plan and register your business under HMRC and the max you will need is a license relating to the goods you are dealing with.
On the other hand, if you want to start a company you will have to go through a complex legal process and then you will have to appoint board members, directors, and other vital positions.
The ownership of a business is with the sole trader or partners, which means that they will be responsible for all the functions and debts of the business.
On the other hand, a company is a separate legal entity responsible for itself. While shares are by the public or selected shareholders, still the profits are retained by the company.
The liability of a business lies among the partners or the sole traders, which means that they will be responsible for all the debts or legal responsibilities of the business.
On the other hand, a company having its own legal identity is liable for itself. Investors and shareholders hold shares with limited liability and all other liability lies on the company.
As a company, you pay taxes much higher than a business. However, in a business, the owner has to pay the tax but in a company, the liability of tax lies on the company and not on the owner. These were some differences between a company and a business.
Companies vs Business: Which Is a Better Choice?
Both words are often used interchangeably but there is a stark difference between the two.
But which one is a better choice?
The better choice between the both lies in personal opinion. Both of them have different liabilities, profit-sharing policies, and trading. Now it depends on an individual as to how much he expects from all these things.
It is best advisable to consult an accountant before taking a decision.
What Makes a Business a Company?
When registered by the legal norms of the country, a business gets its own legal entity, it is an entity separate from its owners, and this is when a business is turned into a company.
Being aware that the words company and business are different is very crucial if you are willing to set up your own business or company.
Both of them are often used interchangeably but contain vast differences between them. A company has a much greater horizon than a business and can function more freely.