Company and corporation are frequently utilized interchangeably in any conversation about business. There are primary differences between a corporation and a company from a legal, structural, and functional aspect that are important to note. Differences are important for entrepreneurs, investors, and individuals working in different facets of business law or corporate governance. Though corporations and companies exist as discrete legal entities from their owners, the scope of individual states’ recognition of companies and corporations and their regulatory frameworks can be completely different.
This blog will define what a corporation and a company are, discuss important aspects of both and describe how and where they differ (particularly in India, but in other parts of the world as well).
What is a Company?
A company is a type of business organization that operates under the Companies Act 2013 in India or similar laws under each jurisdiction. A company is formed when a group of individuals provides their entrepreneurial skills to carry out business for profit.
Characteristics of a Company:
- Separate Legal Entity – A company has a separate identity from its shareholders.
- Limited Liability – Shareholders are only liable up to the unpaid value of their shares.
- Incorporation under the Companies Act – Companies must be registered with the Registrar of Companies.
- Company Types – Private company, public company, one person company, Section 8 company (not-for-profit), etc.
- Separation of Ownership and Management – Shareholders are the owners of the company and directors manage the company.
What is a Corporation?
A corporation is a broader term that refers to a large business recognised by law as a separate legal entity; for instance, a corporation is the most popular form of large business organisation in the United States.
In India, a corporation is not defined under the Companies Act as it is in the United States; however, to some extent, corporations are referred to as “government corporations” (for instance, the LIC & FCI) or “multi-national corporations” (MNCs).
Key Features of Corporations:
- Separate Legal Personality – Corporations exist independently of their owners, just as companies do.
- Recognition in Global Context – Under U.S. Law, corporations receive their charters or permits to operate from states, and are governed by corporate law.
- Scale of Operations – Corporations tend to operate on a larger scale, are more likely to seek customers internationally, and tend to have increased regulatory burdens.
- Perpetual Succession – A corporation continues to exist even when the ownership or management is completely changed or reconfigured.
- Shareholders and Board of Directors – Ownership is factored in share ownership, and oversight is executed by a board of directors.
Corporation Vs Company – The Key Differences
| Point of Difference | Company | Corporation |
| Definition | A business entity registered under the Companies Act in India (or equivalent laws in other jurisdictions). | A broader legal entity recognized under law, particularly in U.S. corporate law; also includes public corporations in India. |
| Jurisdiction | A common term in India, the UK, and Commonwealth countries. | Widely used in the U.S. and international contexts. |
| Scale of Business | Can be small, medium, or large. Includes private and public companies. | Usually refers to larger entities with significant global operations. |
| Registration Law | Governed by the Companies Act, 2013, in India. | Governed by state corporate laws in the U.S. or specific statutes in India (like the LIC Act for Life Insurance Corporation). |
| Examples | Infosys Limited, Reliance Industries Ltd. | Microsoft Corporation, Apple Inc., Life Insurance Corporation of India. |
| Usage in India | “Company” is the legal term under Indian law. | “Corporation” is often used for government entities or MNCs, not for private businesses. |
| Legal Identity | Separate legal entity from owners. | Also a separate legal entity, but recognized as a larger, more structured business form globally. |
Applicability in India vs Abroad
- In India, “company” is used far more frequently, pursuant to the Companies Act of 2013. “Corporation” is usually used with respect to statutory corporations of Parliament, like LIC, SBI, ONGC, etc.
- In the United States, virtually all large business organizations are corporations (Inc., Corp.). Even private limited-like entities exist under the name LLCs (Limited Liability Companies).
Practical Example for Clarity
Let’s say you start a small business in Chennai with two partners, as described above, and register it under the Companies Act, 2013, as a private limited company. Conversely, let’s say that a company like Apple Inc. is established under U.S. corporation law; it is created as a corporation. Now, let us say that Apple then establishes a subsidiary in India. The subsidiary will be established and registered as a company in India (likely private limited), but it is still, for purposes of the global brand, regarded as a corporation.
This is an example of how relevant the distinction is based on jurisdiction and size.
Why It’s Important to Understand the Difference
- Compliance with the Law: Entrepreneurs in India are required to use the correct term (company) when registering under the Companies Act.
- Global Business Relations: When dealing with overseas clients, investors, or partners, understanding “corporation” can help the parties avoid confusion.
- Investment and Foreign Expansion: On occasion, companies in India that are investing or expanding overseas will be required to register as corporations depending on the requirements of the host country’s laws.
- Contracts: When drafting contracts, parties drafting contracts will want to be careful with the use of the terms “company” and “corporation” in order to avoid a misinterpretation of the contract.
Conclusion
In conclusion, corporation(s) and company(ies) represent business entities that are separate legal persons, but they are not the same. In an Indian context, a company is understood to be of any size, ranging from micro to large, and is governed by the Companies Act of 2013. A corporation is a more general term, commonly used in the United States, to represent larger structured entities. In India, in a commercial sense, “corporation” is often reserved for statutory corporations or multinational types of corporations, while “company” is what’s used that has legal standing under the Companies Act.
Understanding the differences between corporations and companies is important for building businesses and careers as an entrepreneur or professional, in order to communicate clearly, avoid compliance issues, and have a clearer grasp on business terminology universally.
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