Difference between Company and Firm
Last Updated :
10 Apr, 2024
Company and Firm refer to business entities engaged in commercial activities. Company typically refers to a legally registered and incorporated business entity; whereas, firm is a broader term that can encompass various types of business organisations.
What is Company?
A company is a legal entity formed under the laws of a particular jurisdiction, typically to engage in commercial activities, conduct business operations, and generate profits. It is an organisation that has its own legal personality, separate and distinct from its owners (shareholders) and managers.
Features of a company include:
- Legal Entity: A company is a separate legal entity distinct from its owners (shareholders), meaning it can enter into contracts, own property, incur debts, and sue or be sued in its own name.
- Limited Liability: Shareholders of a company typically have limited liability, meaning their personal assets are protected from the company’s debts and liabilities. Their liability is generally limited to the amount of their investment in the company.
- Perpetual Existence: A company has a perpetual existence, meaning its existence is not dependent on the life of its shareholders or directors. It can continue to exist even if shareholders change or pass away.
What is Firm?
A firm is a business entity or enterprise engaged in commercial activities with the aim of generating profit. It can refer to various types of organisations, including sole proprietorships, partnerships, corporations, and other forms of business structures. Firms may operate in different industries and sectors, providing goods or services to customers, clients, or other businesses.
Features of a firm include:
- Commercial Activities: Firms are engaged in commercial activities aimed at generating profit. These activities may involve producing goods, providing services, or facilitating transactions in the marketplace.
- Legal Entity: A firm may have legal recognition as a separate entity from its owners, depending on its legal structure. This separation provides the firm with its own legal rights and obligations, including the ability to enter into contracts, own property, and sue or be sued in its own name.
- Ownership Structure: Firms may have different ownership structures, such as sole proprietorships, partnerships, corporations, or cooperatives. The ownership structure determines how ownership interests are held and managed within the firm.
Difference between Company and Firm
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Basis
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Company
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Firm
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Meaning
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A company is a legal entity formed under the laws of a particular jurisdiction, typically for the purpose of engaging in commercial activities and generating profits.
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A firm is a business entity or enterprise engaged in commercial activities with the aim of generating profit.
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Legal Structure
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In a legal context, a company typically refers to a business entity that is registered and incorporated under the laws of a particular jurisdiction.
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The term firm is more commonly used in a broader sense to refer to any business enterprise or commercial organisation, regardless of its legal structure.
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Type
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It can be a private limited company, public limited company, or other types of entities recognised by law.
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It can include companies, partnerships, sole proprietorships, and other forms of business entities.
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Ownership and Management
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A company is owned by its shareholders and managed by its board of directors and officers (such as the CEO, CFO, etc.), who are appointed or elected to oversee the company’s operations and decision-making.
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The ownership and management structure of a firm can vary depending on its legal form. For example, a firm could be owned and managed by a single individual (sole proprietorship), by multiple partners (partnership), or by shareholders and a board of directors (corporation).
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Scope of Operations
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A company may operate in various industries and sectors, providing goods or services to customers, clients, or other businesses. It can have a wide range of activities, products, and services.
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A firm can operate in different industries and sectors, encompassing various business activities and operations.
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Legal Recognition
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A company is a legally recognised entity with specific rights, obligations, and liabilities under the law. It has its own legal personality separate from its owners or shareholders.
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While a firm may also have legal recognition depending on its legal form (such as a partnership or corporation), the term firm is often used more informally to describe businesses in general, without necessarily implying a specific legal structure.
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Example
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Tata Group
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McKinsey & Company
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Company and Firm – FAQs
Can a firm operate internationally?
Yes, firms can operate internationally by expanding their business activities across borders. This may involve establishing subsidiaries, forming joint ventures, or entering into strategic partnerships with foreign entities.
What are the different types of firms?
Firms can take various forms, including partnerships (general partnerships, limited partnerships), sole proprietorships, corporations (private, public, non-profit), limited liability partnerships (LLPs), and cooperatives.
Can a firm have multiple owners with varying degrees of ownership?
Yes, a firm can have multiple owners with varying degrees of ownership, depending on its legal structure and the agreement among the owners.
Can a company have subsidiaries in multiple countries?
Yes. Companies can establish subsidiaries in multiple countries as part of their international expansion strategy to access new markets, reduce operational costs, or comply with local regulations.
Can a company be owned by a single shareholder?
Yes. In the case of a sole proprietorship or a one person company (OPC), the company can be owned and operated by a single individual who assumes full responsibility for the business’s operations and liabilities.
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