{"id":4817,"date":"2021-08-12T15:28:09","date_gmt":"2021-08-12T20:28:09","guid":{"rendered":"https:\/\/content.findlaw-admin.com\/ability-law\/smallbusiness\/incorporation-and-legal-structures\/corporation-vs-company.html"},"modified":"2025-10-13T22:33:00","modified_gmt":"2025-10-14T03:33:00","slug":"corporation-vs-company","status":"publish","type":"page","link":"https:\/\/www.findlaw.com\/smallbusiness\/incorporation-and-legal-structures\/corporation-vs-company.html","title":{"rendered":"Corporation vs Company: Critical Legal Differences"},"content":{"rendered":"\n
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Corporation vs Company: Critical Legal Differences <\/h1>\n\n
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\n By Linda Long, J.D.<\/a> | Legally reviewed by Catherine Hodder, Esq.<\/a>\n | Last reviewed\n
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Editorial Note: We earn a commission from affiliate partner links on FindLaw. Commissions do not affect the editorial integrity of our legal content.<\/p>\n\n <\/div>\n \n

\n \n <\/i>\n Legally Reviewed\n <\/summary>\n\n
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This article has been written and reviewed for legal accuracy, clarity, and style by FindLaw\u2019s team of legal writers and attorneys<\/a> and in accordance with our editorial standards<\/a>.<\/em><\/p>\n\n <\/div>\n <\/details>\n\n

\n \n <\/i>\n Fact-Checked\n <\/summary>\n\n
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The last updated date refers to the last time this article was reviewed by FindLaw or one of our contributing authors<\/a>. We make every effort to keep our articles updated. For information regarding a specific legal issue affecting you, please contact an attorney in your area<\/a>.<\/em><\/p>\n\n <\/div>\n <\/details>\n<\/section>\n\n\n

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A corporation is a corporate structure<\/span> that legally separates its owners (called shareholders) from the business. The term \u201ccompany\u201d is a generic term for any type of <\/span>business<\/span> entity<\/span>. The main differences are that a corporation provides legal protections<\/span> for the owners, has different taxation options, and must follow more formal filing requirements.<\/p>\n\n <\/div>\n\n\n\n

What Is a Company?<\/h2>\n

A company is a term for any organization engaged in a commercial enterprise. A company may be a legal entity<\/span>, such as a corporation, limited liability company<\/span> (LLC<\/span>), or limited partnership (LP) if it registers with the Secretary of State<\/span> in the state where it conducts day-to-day<\/span> operations.<\/p>\n

What Is a Corporation?<\/h2>\n

A corporation<\/a> is an advantageous business structure<\/span> because the corporation has its own legal status<\/span>. A corporation can sign its own contracts and is responsible for its own business obligations. This protects individual stockholders\u2019 personal assets<\/span> from the debts, tax liabilities, and lawsuits of the corporation.<\/p>\n

An entrepreneur<\/span> may want to change their sole proprietorship<\/span> into a corporation, especially if their business activity<\/span> might subject them to lawsuits.<\/p>\n

How Are Corporations Taxed?<\/h3>\n

The corporate tax depends on the corporation\u2019s legal status<\/span> as a C\u00a0corporation<\/span>, which is a corporation\u2019s default status or an S\u00a0corporation<\/span>, which is a special election made with the IRS<\/span>.<\/p>\n

An S corporation<\/span> (or S\u00a0corp<\/span>) is\u00a0treated as a pass-through<\/span> entity by the IRS<\/span>. With\u00a0an S corp<\/span>, the corporation is not taxed; the shareholders\u00a0report any profits or losses on their individual returns.<\/p>\n

One of the biggest problems\u00a0with structuring a business as a C\u00a0corporation<\/span>\u00a0is that a C\u00a0corp<\/span> is subject to double taxation<\/span>. This means the corporation pays a corporate tax, and then the corporation pays the stockholders. The stockholders then pay personal <\/span>income<\/span> taxes<\/span> on the same source of income.<\/p>\n

Company v. Corporation: Chart of Key Legal Differences<\/h3>\n\n\n\n\n\n\n\n\n\n\n
Feature<\/strong><\/td>\nCompany<\/strong><\/td>\nCorporation<\/strong><\/td>\n<\/tr>\n
Definition<\/strong><\/td>\nA general term for any business entity<\/span> engaged in commercial, industrial, or professional activities.<\/td>\nA specific legal entity<\/span> formed under state law that is separate from its owners.<\/td>\n<\/tr>\n
Legal Status<\/span> <\/strong><\/td>\nNone for sole proprietorships<\/span>. Corporations, LLCs<\/span>, and LPs are separate entities.<\/td>\nAlways a distinct legal person with its own rights and responsibilities.<\/td>\n<\/tr>\n
Ownership <\/strong><\/td>\nOwned by individuals unless formed as a corporation, LLC<\/span>, or LP.<\/td>\nOwned by shareholders who hold stock in the company.<\/td>\n<\/tr>\n
Liability Protection<\/span><\/strong><\/td>\nNo limited liability protection<\/span>, unless corporation, LLC<\/span>, or LP.<\/td>\nProvides limited liability protection<\/span> to shareholders.<\/td>\n<\/tr>\n
Management<\/strong><\/td>\nDepends on type of <\/span>business<\/span> structure<\/span><\/td>\nManaged by a board of directors<\/span> and corporate officers.<\/td>\n<\/tr>\n
Formation Requirement<\/strong><\/td>\nMay not require formal registration unless corporation, LLC<\/span>, or LP.<\/td>\nRequires filing Articles of <\/span>Incorporation<\/span> and adhering to corporate formalities.<\/td>\n<\/tr>\n
Tax Treatment<\/strong><\/td>\nDepends on the business structure<\/span>; may use pass-through<\/span> taxation.<\/td>\nCan be taxed as a C corporation<\/span> or elect S corporation<\/span> status for pass-through<\/span> taxation.<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n

What Is the Process for Incorporation<\/span>?<\/h2>\n

To form a corporation, business owners must do the following:<\/p>\n

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  1. \n

    The business owners must name the corporation<\/p>\n<\/li>\n

  2. \n

    The business owners must choose the state of incorporation<\/span><\/p>\n<\/li>\n

  3. \n

    The incorporators<\/span> must create the corporation\u2019s articles of <\/span>incorporation<\/span><\/p>\n<\/li>\n

  4. \n

    The articles of <\/span>incorporation<\/span> must be filed\u00a0with the secretary of state<\/span><\/p>\n<\/li>\n

  5. \n

    A board of directors<\/span> must be appointed<\/p>\n<\/li>\n

  6. \n

    The corporation must choose its tax structure (i.e., an S corporation<\/span> or C corporation<\/span>)<\/p>\n<\/li>\n<\/ol>\n

    What Are Other Types of Corporations<\/span>?<\/h2>\n

    For-profit<\/span><\/h3>\n

    For-profit<\/span> corporations can issue stock to raise capital. Often you may hear corporations that \u201cgo public<\/span>\u201d offering shares of stock<\/span> to generate money for their type of company<\/span>.<\/p>\n

    Nonprofit<\/span><\/h3>\n

    Nonprofit<\/span> corporations carry on a purpose that is noncommercial (like for religious or educational purposes). Nonprofit<\/span> corporations differ from S\u00a0corps<\/span>, C\u00a0corps<\/span>, or LLCs<\/span> because\u00a0nonprofit<\/span> corporations are not taxed<\/a>\u00a0at the state or federal level if they qualify for tax-exempt status.<\/p>\n

    What Are Other Business Entities<\/span> That May Be Called \u201cCompanies\u201d?<\/h2>\n

    There are other business structures<\/span> that may be called companies, however each one differs in terms of personal <\/span>liability<\/span> protection<\/span>, taxation, and legal requirements.<\/p>\n

    Sole Proprietor<\/span><\/h3>\n

    A sole proprietor<\/span><\/a> is an individual business that has not registered legal documents<\/span> in the state. Many startups or freelancers begin as a sole proprietorship<\/span> and then move their business to a more formal legal structure. The advantage of a sole proprietor<\/span> is that it is easy to set up and avoids double taxation<\/span>. The business owner includes the profits or losses on their personal <\/span>income<\/span> tax<\/span> return. The disadvantage is that there is no personal <\/span>liability<\/span> protection<\/span> from the business debts or lawsuits.<\/p>\n

    Limited Liability Company<\/span> (LLC<\/span>)<\/h3>\n

    An\u00a0LLC<\/span><\/a>\u00a0is a great business structure<\/span> for small businesses<\/span>. Small business<\/span> owners who decide to structure their business as a separate <\/span>legal entity<\/span>\u00a0usually choose to form an LLC<\/span> by filing articles of organization with the Secretary of State<\/span>.<\/p>\n

    An LLC<\/span> is similar to a corporation in that each is considered a legal “person” in the eyes of the law. Business owners and the LLC<\/span> are treated as separate business entities<\/span>. This is helpful because it gives the owners some liability protection<\/span> from the debts accumulated and actions taken by the LLC<\/span>.<\/p>\n

    Additionally, LLCs<\/span> offer pass through<\/span> taxation similar to an S corp<\/span>. The IRS<\/span> treats a limited liability company<\/span> as a “pass-through<\/span>” entity. In a pass-through<\/span> entity\u00a0the tax obligations\u00a0of the LLC<\/span> filter through the company and land with the individual members.<\/p>\n

    Because the profits of the business\u00a0pass-through<\/span>\u00a0to the members, the LLC<\/span> itself does not pay taxes. The LLC<\/span> members report the business\u2019s\u00a0income or losses\u00a0on their personal tax returns<\/span>.<\/p>\n

    LLCs<\/span> also require fewer formal requirements such as bylaws<\/span> for their business operations<\/span>.<\/p>\n

    Limited Partnerships<\/h3>\n

    A limited partnership<\/a> has at least one general partner<\/span> and at least one limited partner<\/span>. The general partner<\/span> manages the company and has unlimited liability for business debts and lawsuits. The limited partners<\/span> are not as active in the management structure<\/span> and are only liable for debts equal to the amount of their investment. To form a limited partnership, you file a certificate of limited partnership with the Secretary of State<\/span>.<\/p>\n

    Comparison of Sole Proprietors, LLCs, and LPs<\/h3>\n\n\n\n\n\n\n
    Feature<\/strong><\/td>\nSole Proprietor<\/strong><\/td>\nLLC<\/strong><\/td>\nLP<\/strong><\/td>\n<\/tr>\n
    Liability Protection<\/strong><\/td>\nOwner has no personal <\/span>liability<\/span> protection<\/span> for debts or lawsuits.<\/td>\nMembers have limited liability for business debts and actions.<\/td>\nGeneral partners<\/span> have unlimited liability while limited partners<\/span> are liable only up to their investment.<\/td>\n<\/tr>\n
    Tax Treatment<\/strong><\/td>\nProfits and losses are reported on the owner\u2019s personal tax return<\/span>.<\/td>\nPass-through<\/span> taxation with profits and losses reported on members\u2019 personal returns.<\/td>\nPass-through<\/span> taxation with income and losses reported by partners on personal returns.<\/td>\n<\/tr>\n
    Filing Requirements<\/strong><\/td>\nNo state filing required, operates under owner\u2019s name unless registering a trade name.<\/td>\nFile Articles of Organization with the Secretary of State<\/span>.<\/td>\nFile a Certificate of Limited Partnership with the Secretary of State<\/span>.<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n

    Each business structure offers advantages and disadvantages. It may be best to consult with a business attorney near you<\/a> to determine which ownership structure is best for your form of business.<\/p>\n

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