Partnership and company are two forms of business that have many similarities and differences. Partnership requires a minimum of two and a maximum of 20 persons who mutually agree to do business and share the profit and loss according to a prescribed agreement. In contrast, unlimited members in a company can do business with a common objective and share the profit and loss according to the prescribed agreement.
This article will discuss the key points and differences between partnership and company.
A partnership is created under a simple mutual agreement between all parties. However, a company is created after the Incorporation of the Company after fulfilling all the legal formalities.
A minimum of two members are required for a partnership agreement, and the maximum limit to create a partnership firm is twenty partners. If the number of members exceeds, the partnership firm must be converted into a company and cannot enjoy the rights of a partnership firm. In contrast, at least two members are required to incorporate a private company and seven members in the case of a public company. There is no limit to the number of maximum shareholders in a company.
A partnership firm has no legal entity, but a company has a legal entity.
Any property of a partnership firm belongs to the partners, but any property of a company belongs to the company, not its shareholders. Read also, the Transfer of Property Act, 1882.
Registering a partnership firm is optional and depends on the partners’ will. However, the registration of a company is mandatory under the law.
A partnership company is regulated under the Partnership Act 1932. In contrast, a company is regulated under the Companies Act of 2017.
A large amount of capital is contributed by the partners of a partnership firm. That’s why people with limited capital cannot enter a partnership business. In contrast, no big money is required to purchase the shares of a company. This factor makes many low-earning people eligible to invest in companies.
Transfer of Share
A partner is not eligible to transfer his share to any other person without the consent of all other partners. In contrast, the shares of a company are easily transferable and do not require the permission of other members.
Right of Issuance
The shares of a partnership business cannot be issued, but the shares of a company can be issued and sold.
All the partners in a partnership firm have unlimited liability, but the liability of a shareholder in a company is limited to the value of the share.
The profit of a partnership business is divided among the partners according to a defined ratio in the partnership deed. In contrast, the profit of a shareholder in a company depends on the number or percentage of shares in a company.
All the partners in a partnership business can actively participate in managing a partnership business except the sleeping partners. In contrast, shareholders in a company elect the board of directors who manage the company.
The decision-making power of a partnership firm is with the partners that make decisions in a short time. In contrast, directors are a company’s decision-makers, and the process takes a long time.
Change in Business
A partnership business can change its business nature upon the partners’ will without any legal obligations. However, a company must fulfill legal obligations before changing the nature of its business.
The partnership firm is not liable to call meetings and submit reports to the registrar. In contrast, the companies are liable to call meetings and submit reports to the registrar.
A partnership business cannot enter into a contract in its own name; the contract is made in the name of the partners. However, a company can enter into contracts under its own name as a separate legal entity.
A partner is an agent of the partnership firm and the other partners, but a company shareholder is not an agent of the company or any other shareholder.
The audit report is not necessary under the law for a partnership business. However, the audit report is compulsory for a company.
There is no rule of succession or inheritance in a partnership firm; the partnership is dissolved if a partner dies. In contrast, company shares are transferable to the other members or heirs of a deceased member.
There is no legal formality when dissolving a partnership, but the dissolution of a company is done after fulfilling all legal formalities.
The life of a partnership firm is limited; if a partner dies, becomes insolvent, or is insane, the partnership firm is considered dissolved. However, a company enjoys a long life as it is not affected by the death of any member.