Comparison of company and partnership

veenzar (Advocate) 15 May 2009

(a) A company can be created only by certain prescribed methods - most commonly by registration under the Companies Act 1985. A partnership is created by the express or implied agreement of the parties, and requires no formalities, though it is common to have a written agreement.

(b) A company incurs greater expenses at formation, throughout its life and on dissolution, though these need not be excessive.

(c) A company is an artificial legal person distinct from its members. Although in Scotland a partnership has a separate legal personality by virtue of s.4(2) of the Partnership Act 1890, this is much more limited than the personality conferred on companies.

(d) A company can have as little as one member and there is no upper limit on membership. A partnership must have at least two members and has an upper limit of 20 (with some exceptions).

(e) Shares in a company are normally transferable (must be so in a public company). A partner cannot transfer his share of the partnership without the consent of all the other partners.

(f) Members of a company are not entitled to take part in the management of the company unless they are also directors of it. Every partner is entitled to take part in the management of the partnership business unless the partnership agreement provides otherwise.

(g) A member of a company who is not also a director is not regarded as an agent of the company, and cannot bind the company by his actions. A partner in a firm is an agent of the firm, which will be bound by his acts.

(h) The liability of a member of a company for the debts and obligations of the company may be limited. A partner in an ordinary partnership can be made liable without limit for the debts and obligations of the firm.

(i) The powers and duties of a company, and those who run it, are closely regulated by the Companies Acts and by its own constitution as contained in the Memorandum and Articles of Association. Partners have more freedom to alter the nature of their business by agreement and without formality, and to make their own arrangements as to the manner in which the firm will be run.

(j) A company must comply with formalities regarding the keeping of registers and the auditing of accounts which do not apply to partnerships.

(k) The affairs of a company are subject to more publicity than those of a partnership - e.g. companies must file accounts which are available for public inspection.

(l) A company can create a security over its assets called a floating charge, which permits it to raise funds without impeding its ability to deal with its assets. A partnership cannot create a floating charge.

(m) If a company owes a debt to any of its shareholders they can claim payment from its assets rateably with its other creditors. A partner who is owed money by the partnership cannot claim payment in competition with other creditors.

(n) A partnership (unless entered into for a fixed period) can be dissolved by any partner, and is automatically dissolved by the death or bankruptcy of a partner, unless the agreement provides otherwise. A company cannot normally be wound up on the will of a single member,

and the death, bankruptcy or insanity of a member will not result in its being wound up.

Swami Sadashiva Brahmendra Sar (Nil) 15 May 2009

good analysis by mr veenzar. pls give the date from which the minimum membership of company has been reduced from 7 to 1.as per your point d :" (d) A company can have as little as one member and there is no upper limit on membership. A partnership must have at least two members and has an upper limit of 20 (with some exceptions)."

A V Vishal (Advocate) 15 May 2009

COMPANY Vs PARTNERSHIP:

Many proposed start-ups find it difficult to decide whether to incorporate a company or a partnership concern. Understanding the differences between the two would solve this problem.

The major difference between companies and partnerships may be considered under the following headings:

Formation:

- A company is incorporated by registration under the Companies Act, 1956.

- A partnership is established by agreement which may be expressed or implied from the conduct of the partners and is subject to the Indian Contract Act, 1872 or the Indian Partnership Act, 1932. No special forms are required, though partnerships articles are usually written.

Status at Law:

- A company is considered to be an artificial legal person with perpetual succession. Thus a company may properly, make contracts and sue and be sued. It is an entity distinct from its members.

- A partnership is not a legal though it may sue and be sued in the firm’s name. Thus the partners own the property of the firm and are liable for the contracts of the firm jointly as well as severally.

Transfer of Shares:

- Shares in a company are freely transferable unless the company’s constitution otherwise provides; restrictions may, of course, appear in the articles of a private company.

- A partner can transfer his shares in the firm, but the assignee does not thereby become a partner and is merely entitled to the assigning partner’s share of the profits.

Number of Members:

- A private company must have at least two members and a maximum of 50 members.

- A partnership firm cannot consist of more than 20 persons (10 persons in case of banking business).

Management:

- Members of a company are not entitled to take part in the management of the company unless they become directors.

- Partners are entitled to share in the management of the firm unless the articles provide otherwise.

Agency:

- A member of a company is not an agent of the company or that of other members, and he cannot bind a company by his acts.

- Each partner is an agent of the firm and his partners, and may bind the firm by his acts.

Liability of Members:

- The liability of a member of a company may be limited by shares or by guarantee.

- The liability of a partner is unlimited.

Powers:

- The affairs of accompany are closely controlled by the Companies Act, 1956 and the company can only operate within the objects laid down in the memorandum of association, though these can be altered to some extent by special resolution.

- Partners may carry on any business as they please so long as it is not illegal and make whatever arrangements they wish with regard to the running of the firm from time to time.

Termination:

- No member of a company can wind it up. Death, bankruptcy or insanity of a member does not mean that the company must be wound up.

- A partnership may be dissolved by any partner at any time unless the partnership is entered into for a fixed period of time. A partnership is also dissolved by the death or bankruptcy of a partner.