Company vs Firm
Understanding the distinction between a company and a firm is important because people often use these terms interchangeably, referring to an accounting firm as an accounting company or a consulting service company as a consulting firm. This article will clarify the characteristics of companies and firms to determine whether they are the same or have significant differences.
Key Takeaways
- A company is a registered business with shareholders, while a firm is often a small company, sometimes involving a partnership of two or more people.
- The term “firm” is usually reserved for businesses providing services, such as accounting firms and consulting firms, while “company” is used for businesses in general.
- Firms are typically sole proprietorship or partnership firms, whereas companies have a more formal structure with shareholders.
What is a Company?
In contemporary times, the use of the word “firm” has become outdated and is limited to legal, consultancy, and accountancy businesses. For all other businesses, the word “company” is preferred. Even in the professions mentioned, more and more people are choosing to use the word “company” rather than “firm.” The Oxford dictionary defines a company as “a commercial business.” This simple definition suggests that a firm may refer to a specific type of business, while a company is the name used for businesses in general.
What is a Firm?
The Longman dictionary defines a firm as a small company. According to this definition, a firm is a type of company and is, in effect, a subset of the generic term “company.” The Oxford English dictionary defines a firm as “a business concern, especially one involving a partnership of two or more people.” In practice, a company could be a firm. A firm, irrespective of its size or area of operation, is a business entity just like a company. The term “firm” is usually reserved for service-providing businesses, as seen in terms like accounting firms and consulting firms. However, there is no restriction on using the word “firm” for any company manufacturing products. The term “firm” carries a certain charm, connoting professionalism and secrecy that the word “company” does not. Firms are generally sole proprietorships or partnerships.
What is the difference between Company and Firm?
- A firm and a company are not separate entities.
- A firm is a type of company.
- The word “firm” was traditionally used for accounting and consulting companies and is still used today.
- Firms are either sole proprietorships or partnerships, whereas companies are registered and have shareholders.
- One can say that a firm is a subset of the term “company.”
- In practice, a company could be a firm.
Now that this article has explained the differences between companies and firms, distinguishing between the two terms should be easier in the future.
