Difference between firm and company?
This question arises quite often. It even may cause an earnest confusion.
Usually, people encounter this question during pre-incorporation stage. And then they need to figure out the difference between firm and company. This is important to decide on further steps.
You have a great business idea. You are motivated. You just can’t wait to start bringing it to the life.
And then you encounter this kind of question.
It is hard to answer this question if you are not a lawyer. Or experienced business professional. This may even pull you back. Decrease your level of motivation.
Well, it’s easy to get an advice from a certified lawyer. But is it worth it?
You do not have to hire a lawyer so early, right? Not for every occasion.
Professional legal advice is expensive. And it’s probably not necessary here.
Yet, it is important to be always clear with your legal affairs. Everything related to law requires a responsible attitude. Poor legal decisions may cause financial loss. They even may harm your business. So, you anyways need to figure this out.
Well, that’s why we are here!
We’ll try to guide you through this question in a detailed manner.
So, what is the difference between firm and company?
While being not a big deal this question must be examined from two main perspectives:
- Legal perspective and;
- Linguistic perspective.
We agree that this is not a purely legal issue. However, the difference between firm and company first must be analyzed from legal perspective.
Linguistic part of it may actually shed more light. But it is unlikely to carry any monetary value for you. It also won’t result in any serious consequences.
It is the law that sets out the criteria and grounds for us to name certain things in certain ways. And it is again the law that stipulates how those things are dealt with in a real world.
So, what is the firm and what is the company from a legal perspective?
Difference Between Firm And Company From Legal Perspective
As you may know there are certain levels of law. There is a national law and international law. National law is often limited to certain country boundaries. International law has an international coverage.
National laws govern corporate structures. There is no universal international legislation governing this matter on a global scale.
To make a difference between firm and company, we must refer to the particular country (or state) legislation.
However, we have never encountered a firm being anything different than a company in any jurisdiction.
In most of the countries, including the United Kingdom, Continental European Countries and the United States, there are legal structures for running a business. That’s what we call a company, firm etc.
Most popular legal structures are limited companies, partnerships, public companies and corporations. Variety of business structures depends on country.
But there is no such business structure as firm.
So, from a legal perspective there is no such thing as a firm. At least as a separate business structure. But there is such thing as a company.
Both documents above refer to all business structures as companies.
Not even a mention of firms in legislation?
However, they do not consider firms as separate business structures.
Often, the terms “firm” and “company” are interchangeable in legislation. This happens when legislator refers to specific types of companies. These are firms in their traditional meaning (such as law firms, accounting firms etc.).
Thus, firms and companies are not different from a legal perspective. Legally, there is no such a term as “firm”. Only company.
But, we know that firms do exist. We also know that they differ from companies.
But what is this difference in the end?
Seems like the major difference between firm and company lies in the linguistics.
Let’s see what is the firm and what is the company from a linguistic perspective.
Difference Between Firms And Companies From Linguistic Perspective
To answer this question, we refer to the most authoritative online dictionaries.
Similarly, Merriem Webster Dictionary, TheFreedictionary.com, YourDictionary.com and Findlaw.com define firm as a business entity. They also highlight its main element – partnership nature. A company is called a firm when it is a partnership of two or more persons.
So from the linguistic perspective, there is a clear difference between firm and company.
Dictionaries make a difference when a company is a partnership. And then they call it a firm.
From a linguistic point of view company is a broader notion of business entity. The notion of “company” embraces the notion of “firm”.
In simple words, all business entities are usually referred as companies. Only those of companies that are partnerships are usually referred as firms.
In practice people often call certain types of business entities firms.
This takes its roots from traditions and customs. Traditionally, law firms and accounting practices often were established in the form of partnerships.
Today, people still call them firms. They do not pay too much attention to actual business structures. While they may be different.
Thus, there is a soft difference between two notions from the legal perspective. In contrary there is more explicit and straightforward distinction from the linguistics side.
It all depends on the perspective. If you approach this question from a legal perspective, there is only company. No firm as a business entity.
Unlike the legal point of view, if you approach this question from a linguistic perspective, there are both: firms and companies. But they are similar.
In practice though, there is no difference between firms and companies. It is okay to call some types of companies firms. That’s it.
Firms and companies are the same thing in nature.
Difference between them is basically in how you decide to make it. You won’t tangle anyone if you would say company instead of a firm or vice versa.
Likewise, you won’t be able to mess up with your company registration here. There is no available business structure called firm.
So, no worries. 🙂
Further Reading: Changing From Sole Trader to Limited Company