Business Basics: Businesses, Corporations, Companies
In business English, we use words like company, corporation, firm, and business all the time, without really thinking about the differences between them. In many cases, all four words are possible, so it doesn’t matter which one we choose. But there are a few important differences. Let’s have a look at what these four words mean.
What is a business?
This is the most general name. A business is an organization which buys and sells goods or services (or both). The owner could be a single person, a group of people, other businesses, or a government.
We can also use the name “business” to describe a part of an organization which can be bought or sold. For example, in 2013, Microsoft bought Nokia’s mobile phone business, leaving Nokia to focus on its other businesses.
A third use of the word “business” is for a whole sector of the economy. For example, “the music business” refers to all the people and businesses that are involved in writing, recording, and selling music.
What is a corporation?
A corporation is a business which has been incorporated. In other words, the law treats it as a legal person, which exists separately from the natural persons (i.e. real people) who own it.
The owners of a corporation have limited liability. In other words, they aren’t fully liable (responsible) for the corporation’s debts. They risk losing the money they have invested, but usually no more than that.
Like real people, corporations are born (during the process of incorporation), and they can die (when they are officially closed down in a process called dissolution). Corporations can be bought and sold, and when their owners die or stop working, the company lives on.
In everyday English, the word “corporation” is used mainly for large businesses, especially those whose shares are traded publicly. Smaller businesses are often described as “firms” or “companies.” The adjective “corporate” also generally refers to things connected with large businesses. For example, a corporate executive almost certainly works for a big corporation.
What is a company?
A company is a business that is owned by more than one person. So a sole proprietorship, which is owned and run by a single person, isn’t a company. When the sole proprietor dies or stops working, the business dies too.
Most companies are corporations — they have rights and responsibilities which are separate from the rights and responsibilities of their owners. One special case is partnerships, which are like sole proprietorships but with more than one owner. Partnerships aren’t corporations, because they always have some general partners with unlimited liability — in other words, those partners are fully responsible for their business’s debts. In the U.S., partnerships are seen as types of companies. In other places (e.g. the U.K.), partnerships don’t count as companies.
What is a firm?
There’s no official difference between a firm and company: both terms refer to businesses owned by more than one person. Firms can be corporations or partnerships.
However, in everyday English, the word “firm” is often used for businesses that offer professional services, such as law firms and accounting firms. Firms like these are often partnerships, but the term can be used with a more general meaning too, especially for smaller businesses.
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Originally published at www.GetNewsmart.com