What’s The Difference Between A Business And A Company?

Difference Between A Business And A Company

Many people use the term “Business” and “Company” interchangeably when they are discussing commercial entities that make money. There is a misunderstanding that both business and company have the same meanings and they are the same things. But the reality is; businesses and companies have differences. These differences have to be understood carefully if you are engaged in activities that earn money. Sometimes, misconception can create a huge problem. So, keep reading the article if you are eager to know the differences between a business and a company.

What Is A Business?

A business is usually referred to as an organization that is engaged in commercial or professional activities and earns a profit by selling goods or providing service in exchange for payments. A business can be an individual or organization and profit or non-profit. One of the main aims of a business is to meet a specific demand in the market. According to Law.Com the definition of a business is – 

Any activity or enterprise entered into for profit. It does not mean it is a company, a corporation, partnership, or has any such formal organization, but it can range from a street peddler to General Motors. It is sometimes significant to determine if an accident, visit, travel, meal or other activity was part of “business” or for pleasure or no particular purpose.

A business can trade under a single name and then build a reputation based on that identity. You can use the word “Business” in many financial entitles including a large number of organizational structures. Nowadays, business has become an integral part of the modern economic system.             

Important Features Of A Business

1. A business must have economic activates like production of goods or providing various types of services

2. Businesses provide employment opportunities for professionals and skilled people

3. A business plays a very important role in the industrial and economic development of a country

4. One of the key features of a business is trading that includes buying raw material and selling finished products to meet the customer demands

5. Business is a continuous process of production and distribution of goods and services; a single production or transaction can’t be considered a business

6. “Making Profit” is the primary motive of a business; it’s the driving force behind all the activities of a business

7. “The element of risk” is another important feature of a business. A business can interact with two types of risks, Insurable, and Non-insurable risks

8. Creativity and dynamicity are two key features of a business. A business must bring fresh, new, and inventive products or service to stay in competition with other businesses

9. “Promotional activities” is very common for a business. A business uses various marketing methods to promote its products or services to the customers

Types Of Businesses

There are seven types of business available. They are:

Sole Proprietorship

1. Business is owned by a single person

2. No financial and legal difference between the business and the owner


1. The ownership, financial and legal responsibilities of the business is equally divided between two or more persons

2. Business must be registered for IRS purposes

Limited Partnership

1. Businesses raise capitals from investors who are not interested in day-to-day business activities

2. This type of business has both general partners and limited partners


1. This type of business is independent and has multiple shareholders

2. These are established businesses with employees


1. It has a blend of both partnership and corporation

2. Less regulation compared to other business types


1. This type of business can apply for “tax-exempt” status

2. Use the earnings to operate the business and pay all the expenses of the business


1. In this type of business, the profit is divided among the members

2. There are no external shareholders available in this type of business

What Is A Company?

A company is a type of legal entity or business entity that offers goods or services to customers and it is formed by an individual or a group of people. The main goal of a company is to earn profit and it can be a commercial or an industrial enterprise. According to the Duhaime’s Law Dictionary, the definition of a company is – 

“A legal entity, allowed by legislation, which permits a group of people, as shareholders, to apply to the government for an independent organization to be created, which can then focus on pursuing set objectives, and empowered with legal rights which are usually only reserved for individuals, such as to sue and be sued, own property, hire employees or loan and borrow money.”

There are many ways you can create a company. But you have to remember that each type of company has its own advantages and disadvantages depending on the business operations and tax purposes.

Important Features Of A Company

A company has some key features and characteristics. They are – 

1. According to the law, a company is a legal artificial person because it has its own name and bank account

2. A company can own property under its name, file a lawsuit against a person or another company, or perform other activates that a person can

3. A company is a separate legal entity and it’s not responsible for its workers. For example, if a member of a company doesn’t pay his debt then the company is not responsible for that incident

4. It is required to register a company by the law and under the ordinance of the companies act

5. A company must have a memorandum of association, board of directors, share prices, shareholders, company name, bank account, phone number, address, and other legal documentation

6. A company has limited liability therefore shareholders liability is limited to their share price only

Types Of Companies

Over the years, company forms of businesses have become very popular and it resulting in many new types of companies. You can easily classify the companies based on liabilities, members, control, and many more. Let’s check them out!

Types Of Companies On The Basis Of Liabilities

1. Companies Limited by Shares

2. Companies Limited by Guarantee

3. Unlimited Companies

Types Of Companies On The Basis Of Members

1. One Person Companies (OPC)

2. Private Companies

3. Public Companies

Types Of Companies On The Basis Of Control

1. Holding and Subsidiary Companies

2. Associate Companies

Types Of Companies On The Basis Of Access To Capital

1. Listed Companies

2. Unlisted Companies

Other Types Of Companies

1. Government Companies

2. Foreign Companies

3. Charitable Companies

4. Dormant Companies

5. Nidhi Companies

6. Public Financial Institutions

Key Differences Between A Business And A Company

A company is a type of business and the term “business” also refers to a company. So, it’s normal to get confused with the difference between a Business and a Company. Moreover, many people think there is no difference between these two words and use either term to define a commercial entity. But the fact is; these two are not interchangeable and there are clear differences between the two. The differences are:


The main difference between a business and a company is in the setup. Usually, a business is owned by a person or a group of person and they trade as a Business name. On the other hand, a company is a legal entity and it forms with an official name and company house. 

The structure of a business is simple and very easy to set up; you don’t need much money to set up a business. But, it’s not simple to set up a company. There are lots of legal aspects that you have to take care of like corporate tax rates, limited liability, etc.


The registration process is also simple for a business compared to a company. If the business is set up by individual people then you have to register it as a sole-trader. If the business is set up by a group of people then you have to register the business as a partnership with the HMRC.

The registration process is a bit complex for a company. You have to register the company as a “Limited Company” with the HMRC and have to register the company name with Companies House. Moreover, you also have to provide a Certificate of Incorporation as proof of the company status.


Usually, a business is owned by a person or a group of people who are self-employed and they trade as the business. The owner of the business is totally responsible for all debts and legal responsibilities of the business.

On the other hand, a company is a legal entity itself; therefore the company is responsible for itself as well as all the debts and legal responsibilities. In a company, shareholders owned a percentage of that company and they are also responsible for that much of the company.

Tax Return

In a business, it’s the responsibility of the self-employed individual to file a self-assessment tax return and pay the tax at the end of the year. If the business is registered as a partnership then every partner has to submit the tax return individually as well as they also have to submit an additional “Partnership Tax Return.”

The tax return process is quite simple for a company. Here, the company has to file a “corporate tax return” at the end of each year. It will cover all aspects of the company’s tax-related issues.

Last Updated on March 17, 2021 by Musa D

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