Difference between Partnership and Company
In today’s article we are going to know the difference between Partnership and Company. Before examining the differences between a Partnership and Company, let us first understand what a partnership and a company are.
Partnership
In India, all the aspects and functions of the partnership are administered under ‘The Indian Partnership Act 1932. The Indian Partnership Act 1932 came into force on 01-10-1932. Before the enactment of the Indian Partnership Act, 1932 the arena of partnership law was covered under the ambit of the Indian Contract Act, 1872.
What is Partnership?
A partnership firm is a business structure where two or more individuals come together to manage and operate a business as per the terms of a Partnership Agreement. It is governed by the Partnership Act of the respective country. Unlike a company, a partnership firm does not have a separate legal entity, meaning partners are personally liable for business debts.
Company
The Companies Act, 2013, replaced the Companies Act of 1956. Companies Act, 2013 regulates formation, governance, and operations of companies within the country, outlining the rights and responsibilities of companies, directors, and shareholders, essentially acting as the primary legal framework for corporate entities in India.
What is a Company?
A company is a legal entity formed by individuals, shareholders, or stakeholders with the purpose of conducting business. It is registered under the Companies Act of the respective country and has a separate legal identity from its owners. This means the company can own assets, incur liabilities, and enter into contracts independently.
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Difference between Partnership and Company
| Basis of Difference | Partnership | Company |
| Meaning | A partnership is a business arrangement where two or more individuals agree to share the profits and losses of a business venture | A company is said to be a legal entity that is an association of a group of persons engaged in operating a business. |
| Regulating Act | Indian Partnership Act,1932 | Companies are regulated by the Companies Act, 2013 which replaced the Companies Act of 1956 |
| Maximum members | 100 members | Maximum 200 members for a Private Limited, unlimited members for a Public Limited, 1member for one person company |
| Mutual Agency | Yes | No |
| Registration | Not mandatory | Registration is compulsory |
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| Members are called | Partners in case of partnership | Members of a company are called shareholders |
| Entity | It is not separate legal entity | It is a separate legal entity |
| Documents required | Partnership Deed | Memorandum of Association(MOA) and article of association(AOA) is crucial for incorporating a company |
| Audit | No audit is required | Audit is mandatory every year |
| Transfer of Shares | Partner cannot transfer their profit share without the consent of other partners | Can be transferred |
| Common Seal | No common seal is required | Requires a common seal |
| Consequence of death of partner | Firm is dissolved | Perpetual succession |
| Capital requirement | No capital required | For private company minimum capital of 1 lakh is required, for public company requires 5 lakhs |
| Managed By | Partners themselves any of them acting on behalf of all | Managed by a board of directors elected by shareholders. |
| Change in Name | Name can be changed easily with consent of all partners | Needs prior approval from the Central Government |
| Winding Up | By agreement or court order under Insolvency Act | As prescribed in Companies Act, 2013 |
| Example | A small local restaurant run by two friends | Paytm, Reliance, Infosys etc. |
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