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Difference between Company and Partnership
A company has no strict technical or legal meaning. In common parlance, it means a group of persons associated with each-other for attaining a common end, social or economic. Section 3 of Companies Act defines Company whereas a partnership is a relation between persons who have agreed to share the profits of a business carried on by all or any of them. Persons who have entered into partnership with one another are called individually ‘partners’ and collectively ‘a firm’. As both company and partnership operate in the same environment, there arises a lot of confusion between them. Few points of differentiation are mentioned below in order to demarcate the distinction between both.
A Company is governed by the Companies Act, 1956 while a Partnership is governed by the Partnership Act 1932. Company must necessarily be registered under the Companies act in order to come into existence. However, registration is not compulsory for a partnership firm. A company is an artificial legal person, its identity is separate from its members, this means it can enter into contracts, sue and be sued in its own name. On the other hand, a partnership is not recognised as a separate entity in the eyes of law. It is a collection of individuals. The minimum number of persons required to form a company is 2 in case of private companies and 7 in the public company. Even there is a concept of one-person company. The minimum number of persons required to form a partnership is 2.
Maximum number of people in a partnership firm is 10 in case of banking business and 20 in case of all other type of business. On the other hand, a public company can have as many members, but a private company can have up to 50 members. In a company, the liability of the members is limited while in partnership firm the liability of partners is unlimited. This means, if a company becomes insolvent, the liability its members is limited to the extent of their share in the company. However, if a partnership firm becomes insolvent, the personal wealth of the partners may be utilised for paying of debt of the firm.
A company has perpetual succession. Its existence is independent of the death or retirement of its members. On the other hand, a partnership firm’s existence depends on the individuals comprising it. The day to day affairs of a company are managed by board of directors who are elected by the members of the company, while the partnership firm functions through all or some of the partners.
In a partnership, there are restrictions on transferability of shares: a partner cannot transfer his share without the consent of all other partners whereas in a company a member may transfer his share to any other member freely.
A company is subject to a lot of regulations in its functioning, maintenance of registers and accounts, while a partnership has no such statutory obligations. In a company, a member is not an agent of the other members or company itself, but a parternship firm operates as a mutual agency,
