Everything you need to know about the key differences between a partnership firm and a company.
A company is a voluntary association of persons, recognised by law, having a distinctive name, a common seal, formed to carry on business for profit, with capital divisible into transferable shares, limited liability, a corporate body and perpetual succession.
“A company is an association of many persons who contribute money or money’s worth to a common stock and employs it in some trade or business, and who share the profit and loss arising therefrom.” – James Stephenson.
A partnership is an association of two or more persons, who agree to combine their financial resources and managerial abilities to run a business and share profits in an agreed ratio.
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“Partnership is a form of business organization in which two or more persons up to a maximum of twenty join together to undertake some form of business activity.” – J. L. HANSON.
Difference between Partnership Firm and Company
Difference # Partnership Firm:
1. Formation and registration – Simple agreement between partners is enough to float a firm; no elaborate formalities to be followed; registration of a firm is not compulsory. Partnership is governed by the Partnership Act, 1932.
2. Number of members – A firm can be floated with 2 people; the maximum number is 10 in banking business and 20 for other businesses.
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3. Legal status – A firm has no legal identity of its own. In the eyes of law, partners and the firm are one and the same.
4. Liability of members – Partners are jointly and severally liable for all the debts incurred by the firm.
5. Separation of ownership from management – All partners can participate actively in the day-to-day affairs of a firm.
6. Regulation of working – Day to day affairs not subjected to any rules set by Law. Partners can change the objects of partnership easily—once all agree to such a change without observing any legal formalities.
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7. Transferability of interest – A partner cannot transfer his interest in the firm to an outsider without unanimous approval from all other partners.
8. Stability – The life of a firm is quite uncertain. It comes to an end with the retirement, insanity or death of a partner.
9. Audit of accounts – Accounts and audit are not required unless the total turnover exceeds Rs.10 lakhs in case of professionals and Rs. 40 lakhs in other cases.
10. Status of members – Every partner enjoys an implied authority to represent the firm. One or more partners can sign documents on behalf of others.
11. Winding up – A partnership can be dissolved without observing any legal formalities.
Difference # Company:
1. Formation and registration – A company is a creature of law. Its incorporation is essential. It has to follow lot of rules and regulations in this regard. A company is governed by the Companies Act, 1956.
2. Number of members – In a private company the minimum number is 2 and the maximum is 50. In a public company the minimum number is 7 and there is no maximum limit set by Law.
3. Legal status – A company is an artificial person in the eyes of law. It has a personality of its own, independent of its members.
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4. Liability of members – The liability of members in a joint stock company is limited (to the amounts contributed.)
5. Separation of ownership from management – There is divorce between ownership and management. Members elect their representatives— called as directors—to run the show.
6. Regulation of working – A company has to comply with several legal formalities right from incorporation till it is wound up. At every stage it has to meet the requirements of Law. It cannot change its objects without legal sanction.
7. Transferability of interest – Shares of a public limited company are freely transferable. However, in a private company, certain restrictions come in the way of transfer of shares.
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8. Stability – A company enjoys perpetual and uninterrupted existence. It is unaffected by the retirement, death, insolvency of its members.
9. Audit of accounts – Accounts and audit of company accounts is compulsory and should be earned out in accordance with procedures set by law.
10. Status of members – No members has a right to represent others. Only elected representatives can run the show on behalf of all members. Only the elected representatives can use the company seal and sign documents on behalf of company.
11. Winding up – A company must adhere to the winding up procedures established by the Companies Act, 1956.
Difference between Partnership Firm and Company
ADVERTISEMENTS:
Difference # Partnership Firm:
i. Formation- By agreement among partners.
ii. Registration- Voluntary.
iii. Legal status- No separate legal status. It cannot become a partner in another firm.
iv. Liability of members- Unlimited.
v. Number of members- Minimum two and maximum 20 for general business and 10 for a banking business.
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vi. Survival- It is uncertain and depends upon death, lunacy or insolvency of any partner.
vii. Transfer of ownership share- Restricted transferability.
viii. Mobilisation of resources- Resources are limited.
ix. Management- Through partners.
x. Audit of accounts- Voluntary.
xi. Control by states- Very limited control and regulation.
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Difference # Company:
i. Formation- By registration under the relevant legislation.
ii. Registration- Compulsory.
iii. Legal status- Separate legal entity. It can even become a partner in a partnership firm.
iv. Liability of members- Limited.
v. Number of members- For public limited company, minimum number is 7 with no upper limit.
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vi. Survival- Continuous existence.
vii. Transfer of ownership share- Freely transferable.
viii. Mobilisation of resources- Huge amount can be raised through issue of shares.
ix. Management- Through a board of directors.
x. Audit of accounts- Compulsory.
xi. Control by states- Number of restrictions. All companies are governed by the Companies Act.
Difference between Partnership Firm and Company: 12 Differences
ADVERTISEMENTS:
1. Registration – A company is formed by registration under the Companies Act. A partnership need not be registered.
2. Legal Person – A company, being a legal entity, is a person distinct from its members. It acts in its own name. A partnership has no legal existence apart from the partners. The firm and the partners are one and the same.
3. Limited liability – The liability of shareholders is invariably limited, while that of partners unlimited.
4. Number of Members – A private company can have a maximum number of 50 members and a public company has no limit. A partnership firm cannot have more than 20 partners.
5. Transferability of shares – The shares in a company is transferable, with the result that shareholders can go on changing. A partner cannot transfer his share and interest in the partnership business without the consent of all the other partners.
6. Continuity of existence – A company has perpetual succession. The death or insolvency of any or all the shareholders does not affect the life of the company, as it is distinct and separate from their lives. The partnership comes to an end by the death or insolvency of a partner.
7. Capital requirements – A company raises its financial resources from the savings of a large number of people, usually in small amounts. A partnership has to depend upon the resources of the partners. It may borrow from banks or individuals, but it cannot issue debentures to the general public, as can a company.
8. Management – The shareholders, who supply the capital, cannot as shareholders, manage the affairs of the company. They entrust it to the Board of Directors. In a partnership, every partner is entitled to take part in the management of the firm’s business.
9. Compulsory audit – A company is required by law to have its accounts audited once a year by a Chartered Accountant in practice. No such obligation is placed upon a partnership firm.
10. Change of objects – A company can change its objects and powers only with the permission of the Court. The partners can, by mutual agreement, change them as and when they like.
11. Government control – The Government that creates a company reserves the right to regulate its actions more closely than those of partnerships.
12. Majority rule – In a company, the right of the majority to decide is the cardinal rule. In partnership the majority rule does not apply in all important matters. Unity in partnership being the rule, all partners must concur in matters of policy.
Difference between Partnership Firm and Company: 7 Differences
Difference # Partnership Firm:
1. Formation – It is formed by signing an agreement by all the partners. Registration isn’t compulsory
2. Number of members – Minimum -2; maximum -50.
3. Liability – Partners have unlimited liability.
4. Management – Managed and controlled by all the partners.
5. Transfer of interest – Partners cannot transfer their interest.
6. Legal status – No separate legal entity different from its partners.
7. Stability – Partnership is dissolved with the death or insolvency of partners.
Difference # Company:
1. Formation – It is formed by registration under the Company Act, 2013 or any previous Company law.
2. Number of members – In a public company, minimum number is 7 and there is no limit to maximum number. In a private company, minimum number of members is 2 and maximum (excluding present or past employees) is 200.
3. Liability – Liability of shareholders is limited to the extent of unpaid amount of capital contributed.
4. Management – Managed and controlled by Board of Directors.
5. Transfer of interest – It is possible by transfer of shares in case of public company.
6. Legal status – It has a separate legal entity.
7. Stability – The continuity of company is not affected by death or insolvency of any members.
Difference between a Partnership Firm and a Company
Difference # Partnership Firm:
1. Mode of formation – It is established by an agreement between the partners. Registration is not compulsory under the Indian Partnership Act, 1932.
2. Regulation Act – The Indian Partnership Act, 1932 applies.
3. Management – Normally every partner takes part in the management of the affairs of the firm.
4. Number of Members- The minimum number is 2 and maximum is 20 but in the case of a banking business, it is 10.
5. Liability – The liability of partners is unlimited.
6. Distribution of Profits – Profits are distributed according to the terms of the Partnership Deed or equally if there is no agreement.
7. Transfer of Shares – A partner has no right to transfer his shares to any other person without the consent of other partners.
8. Audit of Accounts – Audit is compulsory if stated in the Partnership Deed or if Income Tax Act so requires.
9. Business – A partnership can carry on any lawful business, if all the partners agree.
10. Stability – It is affected by death, retirement or insolvency of partner/partners.
11. Winding up – A partnership may be wound up by an agreement or by an order of the court.
12. Legal status – No separate legal entity different from its members.
Difference # Company:
1. Mode of formation – It is established by registration under the Companies Act, 1956.
2. Regulation Act – The Companies Act, 1956 applies.
3. Management – Management is entrusted to the Directors who must be at least 3 in number in case of a public company and 2 in case of a private company.
4. Number of Members – In the case of a public company, the minimum number is 7 without any maximum limit. A private company must have at least 2 members but not more than 50 members.
5. Liability – The liability of members is usually limited to the amount due on the shares held by them.
6. Distribution of Profits – It depends on the Articles of Association or the Directors as to what share of profits, i.e., dividend (also approved by the shareholders) will be given to the shareholders.
7. Transfer of Shares – Except in case of a private company, normally there are no restrictions on the transfer of shares.
8. Audit of Accounts – Under the Companies Act, 1956, audit of the accounts of a company is compulsory.
9. Business – A company can carry on only that business which is permitted by the objects clause of the Memorandum of Association.
10. Stability – Shareholders’ death, insolvency or transfer of shares do not affect the continuity of the company.
11. Winding up – A company can be wound up only by carrying out the process laid down in the Companies Act.
12. Legal status – Considered as a separate legal entity from its members.
Difference between a Partnership Firm and a Company (with Comparison)
The nature of company organisation can be understood more clearly by comparison with partnership which is also owned by a group of persons, but is fundamentally different from it.
The two forms of organisation may be distinguished on the following bases:
1. Formation:
A company is formed through registration under the Companies Act or incorporation in pursuance of an Act of Legislature. A partnership is, on the other hand, an association of persons based on mutual agreement among them, and is not compulsorily required to be registered under the relevant Act.
2. Legal Status:
A company is a distinct legal entity separate from that of the investors contributing to its capital. It may act in its own right without making shareholders liable for it. A partnership has no legal existence apart from its members. That is why the acts of the firm bind the partners, and the acts of individual partners ordinarily bind the firm.
3. Members’ Liability:
The liability of the shareholders of a company is limited either to the nominal value of its shares or to the amount of guarantee given by them in case of companies limited by guarantee. The liability of the partners in a partnership concern is however unlimited and the partners are jointly and severally liable for the debts of the firm.
4. Duration:
A company enjoys perpetual succession or continuous existence. A company being an entity different from that of the members, its existence is not affected or interrupted by the change of membership or the death or insolvency of members. The partnership comes to an end by the death, insolvency or insanity of any partner.
5. Transferability of Shares:
The shareholders of a company enjoy perfect freedom to transfer their shares to others without consulting anybody. A partnership being based on a contract requiring utmost good faith, no partner can transfer his interest in the firm to another person without the unanimous consent of all the remaining partners.
6. Number of Members:
There is no maximum limit to the number of members in a public limited company. A partnership can, however, have a maximum of 20 members for ordinary business, and 10 members for banking business.
7. Financial Resources:
A company raises its financial resources by the issue of a large number of shares of small value which is within the reach of an ordinary investor. Debentures may be issued likewise to a large number of investors to raise loan capital for the company. A partnership depends upon the capital contributed by a small number of partners.
It may raise loans from banks or individuals, but cannot approach the investing public at large with debentures which are freely transferable by the subscribers. The resources at the command of a company are generally much larger than those at the disposal of a partnership firm.
8. Management:
The shareholders who own the capital of a company cannot take part in the management of its affairs. They have to entrust the management to an elected Board of Directors. Every partner in a partnership firm, on the other hand, carries an implied authority to act for the firm and thus enjoys the right to participate in its management.
9. Audit of Accounts:
Under the Companies Act, every company must get its account audited annually by a qualified Chartered Accountant. This is not obligatory for a partnership firm.
10. Objects and Powers:
The powers and objects of a company are set out in the Memorandum of Association which can be altered only in accordance with the relevant provisions of the Companies Act. The authorised capital of a company is similarly fixed by the Memorandum of Association and can be increased or decreased only in the manner laid down in the statute.
The objects of a partnership firm and rights and duties of individual partners can be changed with the unanimous approval of all partners; so can its capital be altered by mutual consent. There are no statutory requirements in this regard for a partnership firm.
11. Statutory Regulation:
Right from its inception, a company has to comply with numerous and varied statutory requirements. It has to submit a number of returns and reports to the Government from time to time during its life. A partnership, though governed by a statute in its broad and essential aspects, is relatively free from State control and statutory regulation.
Difference between a Partnership Firm and a Company
Difference – Partnership Firm:
(i) Mode of Creation – A partnership is formed through an agreement which may be writing, oral, express or implied. Moreover, registration is not compulsory.
(ii) Number of Members – Minimum 2 persons constitutes a partnership. Maximum membership in case of partnership doing banking business is 10 persons and for other business are 20 persons.
(iii) Separate Entity – A partnership has no separate legal existence from its members.
(iv) Property of Business – The property of the firm is the property of the partners.
(v) Contracts – In case of partnership, a partner cannot contract with his own firm.
Difference – Company:
(i) Mode of Creation – A company is created by registration under the Companies Act.
(ii) Number of Members – The minimum no. of members in a private company is 2 and the maximum is 50. In case of a public limited company, the minimum number is 7 and maximum limit is set by number of shares into which the authorized capital of the company is divided.
(iii) Separate Entity – It is a separate legal person. It possesses separate entity distinct from the members who form it and contribute capital to it.
(iv) Property of Business – Property of the company does not belong to its members; they cannot use it for personal purposes.
(v) Contracts – A shareholder can have contract with the company in which he is holding shares.
Difference between Partnership Firm and Company: 16 Key Differences
Difference # Partnership Firm:
1. Number of persons – Minimum 2 partners and maximum is limited to 20 partners but in case of banking company it is limited to 10 partners.
2. Law – Indian Partnership Act, 1932 applies.
3. Registration – Registration under Indian Partnership Act is only voluntary.
4. Legal status – Partnership does not get a separate legal status.
5. Transferability – A partner cannot transfer his partnership share to another person. But a partner can transfer his share with the consent of all the other partners.
6. Liability – A partner’s liability is unlimited and also joint and several.
7. Existence – A partnership life comes to an end when a partner either becomes insolvent or insane or dies. So life of a partnership is short.
8. Legal restrictions – Legal restrictions are few.
9. Management – All partners have right to participate in the management of partnership business.
10. Audit – Audit of partnership accounts are only voluntary.
11. Common seal – There is no common seal.
12. Distribution of profit – All the profits are distributed among partners in the agreed profit sharing ratio.
13. Capital – There is the limit to the maximum capital a partnership can raise. Capital is not divided into shares.
14. Insolvency – Insolvency or death of a partner result in insolvency of partnership.
15. Solve of account – Maintaining books of accounts is optional.
16. Commencement of business – There is no need to get any certificate to commence any business.
Difference # Company:
1. Number of persons – In case of private company minimum members is 2 and maximum limited to 50 members. In case of a public company minimum is 7 members and maximum is unlimited.
2. Law – Indian Companies Act, 1956 applies.
3. Registration – Registration under Indian Companies Act is compulsory.
4. Legal status – A company gets a separate legal status apart from its members.
5. Transferability – A member of a company can transfer his share freely to any person except in the case of a private company.
6. Liability – A member’s liability is limited to the face value of shares held by the member.
7. Existence – The death of a member will not affect the life of a company. A company has a long existence.
8. Legal restrictions – Legal restrictions are many.
9. Management – Only board of directors have to manage the company. Members of a company cannot interfere in the management of a company.
10. Audit – Accounts of a company is to be compulsorily audited.
11. Common seal – Every company should have a common seal of its own.
12. Distribution of profit – Only a part of the profit is distributed to members as dividend, another part is transferred to various reserves and the balance profit left is kept in the P&L A/c.
13. Capital – Maximum amount of capital is limited to authorised capital. Capital of a company is divided into shares of uniform value.
14. Insolvency – Insolvency or death of a partner does no result in winding up of a company.
15. Solve of account – Maintaining of books of accounts is compulsory.
16. Commencement of business – A public company can commence benefit only after obtaining certificate to commence business.
What are the Differences between Partnership Firm and Company
Difference # Partnership Firm:
1. Governing Legislation – Governed by Partnership Act, 1932
2. Mode of formation – Agreement between partners
3. Legal Status – No independent identity.
4. Registration – Optional
5. Minimum Number of persons – 2
6. Maximum Number of persons – 10 in case of banking and 20 in case of any other business
7. Perpetual Existence – Limited life of the firm. There are frequent changes in constitution of the firm
8. Liability of owners – Liability of partners is Unlimited
9. Transferability of Ownership – Difficult process for partner to transfer his interest in firm to another person
10. Management and Ownership – Partners are owners as well as managers
11. Principle of Agency – Every partner is an agent of the firm. All partners are bound by the acts of one partner
12. Ease of formation – Easy and Simple to form
13. Flexibility – Can easily change the nature of its business and adapt itself to the changing business environment
14. Transparency – The operations are not subject to public scrutiny
15. Accounts and Audit – No statutory formats are prescribed for preparation and presentation of Annual Accounts
16. Capital – Limited ability to raise capital
17. Borrowing Capacity – Ability to borrow is restricted to personal capacity of partners
18. Management Talent – Ability to attract professionals is limited on account of its restricted scale of operations.
19. Majority Rule – Decisions are normally taken by consensus, and
20. Dissolution – Can be done by mutual consent.
Difference # Company:
1. Governing Legislation – Governed by Companies Act, 2013
2. Mode of formation – Through Incorporation
3. Legal Status – It is an independent identity. It is an artificial legal person in the eyes of law.
4. Registration – Mandatory
5. Minimum Number of persons – 2 in case of private and 7 in case of public limited company
6. Maximum Number of persons – 200 in case of private limited company. No limit in case of public limited company
7. Perpetual Existence – It enjoys continued, perpetual existence. Unaffected by any event except winding up.
8. Liability of owners – Liability of shareholders is limited
9. Transferability of Ownership – Shares of public limited company are freely transferable. There are a few restrictions on transfer of shares of private limited company.
10. Management and Ownership – Shareholders are owners but management is by professionals
11. Principle of Agency – A shareholder is not an agent of the company. He cannot bind either the firm or other shareholders by his deeds.
12. Ease of formation – Time consuming and difficult
13. Flexibility – Relatively difficult, as a special resolution is required to be-passed and procedure for altering the memorandum has to be followed.
14. Transparency – Lot of disclosures are required to be made to public through filing with ROC and sharing of information with Shareholders
15. Accounts and Audit – Provisions of Companies Act need to be followed in preparation and presentation of Annual Accounts
16. Capital – Large amounts of capital can be raised
17. Borrowing Capacity – Can borrow large amounts on the basis
18. of the large capital contributed by shareholders
18. Management Talent – Can attract professionals as it has greater ability to pay high salaries
19. Majority Rule – Decisions are taken on the basis of Vote and principles of majority, and
20. Dissolution – Winding up is a complex process to be followed as per provisions of Companies Act.