Accounting Dictionary

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Firm

Definition: A firm is a generic term representing any type of business. Examples of firms are:

• Sole proprietorship
• Partnership
• Limited liability corporation
• Corporation

The term is slightly more commonly associated with a partnership.

Given the broad reach of this term, it cannot be used to specify the legal protections afforded by a certain type of legal organization. Thus, a firm that is a sole proprietorship requires the personal liability of the owner, whereas a firm that is a corporation protects its shareholders from any liability greater than the amount they paid for their shares in the enterprise.

A firm can engage in any type of business activity, as well as with any type of customer or supplier.

A government entity is not considered to be a firm, since it does not (usually) operate to generate a profit.

Similar Terms

A firm is also known as a business.