Difference between Partnership and Company

Difference between Partnership and Company

The basic Difference Between Partnership and Company is its regulatory acts. The partnership is regulated by the Partnership Act, 1932 whereas the company is regulated by the Companies Act, 2013.

To know the difference between these two, we must clear the meaning of these terms and explained as follows: –

Meaning of Partnership:

The Partnership is one of the types of business in which two or more persons/businesses make a formal agreement between them of sharing business ownership, profits/Losses, responsibilities, and duties of the business. They also help each other in all operational activities of the business i.e. Decision making, Forecasting and increasing the number of partners, etc. 

In the Partnerships, the share of ownership will be distributed to the new partner as per the current market valuation of the business. The Market valuation includes a number of factors i.e. the market share of the product, customer loyalty, and many more. 

For Examples: –

  • Idea and Vodafone 
  • Reliance Jio and Facebook. 
  • Red bull and Go Pro
  • Maruti Suzuki

Meaning of Company:

A company is a voluntary association incorporated under the law by two or more persons for any common purpose (usually a business). It is an artificial person created by law that separates it from its members.

In this, Company members share a common undertaking and have limited liability. The company is not managed by all its members but they choose their representatives called Directors to manage the business. Likewise, Partnership, the continuity of the company is not affected by death, insanity, or insolvency of its members. 

Some examples of Company are:

    • Reliance Industries Limited
    • Coal India
    • Infosys
    • Hindustan Unilever

Chart of Difference Between Partnership and Company: –

Basis of Difference

Partnership

Company

Meaning It is a contract in which two or more persons are agreed to share profits/losses, ownership, responsibilities, and duties. It is a legal entity in which a group of persons agreed to share ownership but not management for a specific purpose.
Governed By It is regulated by the Partnership Act,1932. It is regulated by the Companies Act, 2013.
Registration The registration of a Partnership firm is not compulsory. The registration of a Company with the registrar of companies is compulsory.
Members The members of a Partnership firm are known as Partners. The members of a company are known as Shareholders.
Number of Members To form a partnership firm, the minimum number of partners is two with a maximum limit of 50 members. In the case of a public company, a minimum of 7 members are required with no maximum limit. Whereas for a private company, at least two members are required with a maximum limit of 200 members.
Liability The liabilities of the partners is unlimited. The liabilities of shareholders is limited to the value of shares held by them. But in the case of companies with unlimited liability, the shareholders possess unlimited liability.
Distribution of Profits The profits are distributed as per the partnership deed. However, in the absence of a partnership deed, the profits are distributed equally among the partners. It depends upon the Articles of Association or the decisions of directors.
Regulatory Authority It is regulated by the registrar of firms under the State Government. It is regulated by the registrar of companies under the Central Government. 

Documents

A partnership deed is the main document needed to create a partnership firm. The Memorandum of Association and Articles of Association are the main documents needed to create a company.
Separate Entity It is not a separate entity as the partners of the firm collectively are known as a Partnership firm. The company is a separate legal entity from its members and directors.
Audit  The audit of books of accounts for a partnership firm is not mandatory. In a company, it is mandatory to audit the books of accounts.
Management  The whole operations are managed by all the partners themselves or any of them acting for all. Here, the directors, elected by shareholders manage the business operations.
Transfer of Shares  A partner cannot transfer his profit share to anyone without the consent of partners. The transfer of shares is not restricted except the private companies.

Type of business

In partnership, any type of business can be carried out with the consent of all partners. A company is bounded to carry that business only which is permitted by the Objects Clause of the Memorandum of Association.
Winding Up The partnership firm can be wounded by the agreement of all partners. However, in case if the firm is unable to pay its debts, then it has to be wound up by the order of the court under the Insolvency Act. The company can be wound up by the process prescribed in the Companies Act, 2013 only.
Continuity   It is affected by the death, retirement, or insolvency of any partner. The death, insolvency of shareholders, and transfer of shares don’t affect the continuity of the company.
Common Seal The partnership firm doesn’t require any seal. A company requires a common seal or stamp for legal or functional purposes.
Change in Name The partnership firm can easily change its name with the consent of all partners. It is not easy for a company to change its name as it requires prior approval from the Central Government.
Minimum Capital required There is no such requirement. In the case of a private company, a minimum of 1 lakh of capital is required. While in a public company, a minimum of 5 lacs of capital is required.


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Conclusion:

Thus, both entities carry business as a group of persons. But, due to some drawbacks in partnership, the concept of the company was introduced. The separate entity of the company in the eyes of law, separation of ownership and management, and limiting the liability of owners make it easy for the members to continue the business smoothly.

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