Difference Between Partnership and Company
Partnership
A partnership firm is a type of business entity that is formed by the association of two or more members who have agreed to share the profits of the business, which is carried on by all partners or one partner acting for all
Indian Partnership Act 1932. defines partnership has ” partnership is a relationship between two or more persons who have agreed to share the profits of a business carried on by all partners or any one partner acting for all”. the members of the partnership firm are called as partners.
COMPANY
A company is said to be a legal entity that is an association of a group of persons engaged in operating a business. It is voluntary and autonomous in nature.
Indian Companies Act, 2013 define ” Company formed and registered under this Companies Act or under any previous company law”. A Company is defined easily as an association of two or more persons which is formed for doing business collectively and registered with registrar of companies according to companies Act.
| 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 are 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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