Difference Between Firm and Company

Difference Between Firm and Company

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:

 

  1. Legal perspective and;
  2. 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.

None of major English-speaking jurisdictions consider firm as a business structure (e.g. Companies Act 2006 in UK and California Corporations Code do not define a firm as a separate legal structure).

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.

The same is about Irish Companies Act 2014 and Australian Corporations Act 2001.

 

Not even a mention of firms in legislation?

 

Some of the documents may mention “firms” in their provisions. UK Companies Act 2006 and Australian Corporations Act 2001 mention “firms” in their texts.

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.

Most prominent online dictionaries such as Cambridge Dictionary and the Dictionary by Farlex define firm just like as a company or business.

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.

 

Summary

 

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

We’ll be glad to hear your thoughts!
Please share them in the comments section below for us and our audience to read and benefit!

What Names Are Acceptable for UK Limited Companies?

What Names Are Acceptable for UK Limited Companies?

Most names are acceptable to Companies House, but there are number of exceptions which fall into the following categories:

1. The proposed company name must be unique, meaning that there must be no other company incorporated under the same name.

2. Some words as “British”, “Group” or “International” must be substantiated by the means of providing evidence of other related companies or companies operating in at least two different countries. You will need to apply separately for the use of reserved words.

There are also sensitive words which could imply a connection with the UK government, an administration or specified public authority.

Words such as King or Queen are sensitive words, and you need request approval to use a sensitive word from the corresponding bodies/persons.

3. Names containing words likely to cause offence are not allowed.

For the company name search you can use our up to the minute system to check whether your chosen name is available for registration. Our company name search system is fully harmonized with Companies House, so you always get the most relevant result.

In case your chosen name is similar to an existing company name, that company could object within 12 months and you may be forced to change your company’s name.

Related: Changing From Sole Trader to Limited Company

Important Notice – Similar Names

Since October 2009 Companies House has started exercising stricter regulations in regards to similar names. Unfortunately, our current company name search engine can only specify if a name has or hasn’t been taken.

For example, ABC Ltd will be unavailable on our search as the name is already taken. ABC GB Ltd would appear to be available. However, this is not the case, GB falls into a category of words and expressions that Companies House feel do not separate the latter from the former. Therefore the company would be rejected. Other such words/expressions that fall into the same category are:

  • Company

  • Com

  • co.uk

  • International

  • Net

  • Org

  • Services

  • UK

  • United Kingdom

For the extensive list of words/expressions take a look here.

Please note that if you already owned ABC Ltd and wanted to form ABC GB Ltd this would be possible. You would just need to create a supporting document detailing your ownership or directorship of the original company.

Companies House will also reject names split up with punctuation marks. Once again, using ABC Ltd as our example company, all the below would also be rejected.

  • AB-C Ltd

  • AB and C Ltd (or &)

  • ABC! Ltd

  • @ABC Ltd

Companies House accepts the following punctuation, signs and symbols marks

  • 0, 1, 2, 3, 4, 5, 6, 7, 8 or 9

  • full stop (.), comma (,), colon (:), semi-colon (;) or hyphen (-)

Further reading:

UK Company Formation FAQ

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