You can create a service company by creating a vendor marked as a service provider, or by entering the service company manually into the Service Company setup table. If creating a new Service Company through the Service Company setup table, you need to link that Service Company to a Vendor.
If you input an existing Vendor that is already a Service Provider, then you will receive the below error message when trying to save the Vendor edit. In this case you may wish to use the existing vendor instead, change the type on the vendor you are currently entering, or remove the existing vendor from being linked to a service company, so that you can enter it new.