How to Tell the Difference Between a Small Business vs. a Corporation

There are different types of businesses that you come across while browsing the internet. One such type is the corporation, which is a company that has a legal personality separate from its owners and can also be publicly listed on stock exchanges. This means that when wealthy individuals or large companies want to expand their holdings, they often acquire corporations as investments. What are some other ways to tell the difference between a small business vs. a corporation? Find out in this article!

What are the characteristics of a corporation?

A corporation is an organization with a legal form of business entity. A corporation has its own officers and shareholders who are separate from the officers and shareholders of a small business. For example, a corporation may have one director and five shareholders, while a small business may have one owner and one shareholder. Additionally, a corporation can issue stock, which gives the owners of the stock voting rights and economic benefits associated with owning shares in the corporation. Finally, a corporation is subject to federal, state and local taxes, while a small business is not taxed as a separate entity.

Why is it important to differentiate between small businesses and corporations?

Small businesses are typically run by one or two people, while a corporation typically has hundreds, thousands, or even millions of employees. There are also key differences in how small businesses and corporations are taxed, protected from lawsuits, and regulated.

Here are six key ways to tell the difference between a small business and a corporation:

1. Size – A small business is typically run by one or two people, while a corporation typically has hundreds, thousands, or even millions of employees.

2. Taxation – Small businesses are taxed differently than corporations. Corporations are taxed on their income at the corporate level, while small businesses are taxed on their income at the individual level.

3. Protection from lawsuits – Corporations have protections from lawsuits that small businesses do not. This includes being able to shield themselves from personal liability and protecting their intellectual property.

4. Regulation – Small businesses are more often subject to regulation than corporations are. This includes things like having to comply with regulations related to health and safety, advertising guidelines, and financial reporting requirements.

5. Employee compensation - Employees in a small business typically receive less pay than employees in a corporation. This is because the profits of a small business are typically distributed

What are the differences in taxation for large businesses and small businesses?

A large business is typically taxed as a corporation, while a small business is taxed as a sole proprietorship. A large business pays a higher corporate tax rate than a small business, and may also pay additional taxes on its profits. A small business does not have to pay federal corporate taxes, but may have to pay state corporate taxes. In some cases, a small business may be able to take advantage of deductions and credits available only to corporations.

Conclusion

A small business is a company with fewer than 100 employees. A corporation, on the other hand, has more than 100 employees. Additionally, a corporation is more likely to have an official name (such as McDonald’s) and to have articles of incorporation filed with state authorities.

Although there are some important distinctions between small businesses and corporations, ultimately the most important factor when deciding which type of entity to form your business under is how many people you intend to employ. If you have fewer than 10 full-time employees, for example, then you can probably operate your business as a sole proprietorship or partnership. If you anticipate having 11 or more full-time employees, however, then forming your business as a corporation may be a better option.