Difference Between Partnership And Company
The article covers the difference between partnership and company on different criteria.
Partnership and company are very commonly used terms in the business management field. The article covers the difference between partnership and company to help commerce students understand partnership and company.
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What is a Partnership?
A partnership is a commercial collaboration between two or more people with the shared intention to make a profit. A partnership deed doesn’t need to get registered as per The Indian Partnership Act 1932. In such a type of collaboration, two or more people come together, invest some amount, and sign an agreement called a Partnership deed, agreeing to share both profits and losses. The legal document to create a Partnership business is called a Partnership deed.
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What is a Company?
A company or a Private Limited company is a type of privately held small business entity. Here, two shareholders join together to start a private limited company, and the requirements are –
- Two shareholders.
- Two directors.
- A minimum of 1 lakh shareholders.
- Registered office space in India.
Formalities must be complied with to form a private limited company before the Registrar of Companies.
Also read: What is Business Law?
Difference Between Partnership And Company
| Criteria | Partnership | Company |
| Prevailing Law | The Indian Partnership Act, 1932 | Companies Act, 2013 |
| Registration | Optional | Registration with the Registrar of ROC is required. |
| Creation | Created by Contract | Created by Law |
| Distinct entity | Not a separate legal entity. | A separate legal entity under the Companies Act 1956. |
| Number of Members | 2 – 20 | – 2 – 50 members for Private Companies – Minimum 7 members for Public Company. |
| Ownership of Assets | Partners have joint ownership of all the assets belonging to the partnership firm. | The company has ownership of assets. |
| Rights/Duties/Obligations of Partners/Directors | Partnership Deed governs the Rights/Duties/Obligations of the partners. | AOA and resolutions passed by shareholders or directors govern the directors’ Rights/Duties/Obligations. |
| Name of Entity | As per choice. | The company name should contain ‘Limited’ in case of a Public Company or ‘Private Limited’ if it is a Private Company as the suffix. |
| Succession | No perpetual succession as this depends upon the will of partners. | Perpetual succession exists, and members can freely come and leave the company. |
| Charter Document | A Partnership Deed is a firm charter that denotes – Scope of operation – The partners’ rights and duties. |
The Memorandum and Article of Association are the company’s charter defining its operation scope. |
| Tax Liability | Partnership income is taxed at a Flat rate of 30% + education cess as applicable. | The company’s income is taxed at a Flat rate of 30% + surcharge as applicable. |
| Transfer /Inheritance rights | Untransferable. If the owner dies, his/her legal heir receives the financial value of the share. | Easily transferable. |
| Digital Signature | No legal obligation to obtain any Digital Signature. | One Director must have Digital Signatures to sign the e-forms electronically. |
| Requirement of Managerial Personnel | It is not required to hire any managerial personnel. Partners manage the business themselves. | Directors are appointed to handle the corporation. A hierarchical setup. |
| Voting Rights | Depends upon the Partnership Agreement. | Voting rights are decided according to the number of shares the associates hold. |
| Maintenance of Statutory Records | Should maintain books of accounts as Tax laws | Should maintain books of accounts, statutory registers, minutes, etc. |
| Annual Filing | No return needs to be filed with the Registrar of Firms. | The Annual Financial Statement and Annual Return must be filed with the Registrar of Companies annually. |
| Applicability ofAccountingStandards | No Accounting Standards are applicable. | Mandatorily comply with accounting standards |
| Credit Worthiness of the organization | A partnership firm’s creditworthiness depends upon its partners’ goodwill and creditworthiness. | Due to strict compliances &disclosures under different laws, companies enjoy high creditworthiness. |
| Dissolution | Can dissolve by — Agreement- Mutual consent- Insolvency- Contingencies- Court order | Can dissolve — Voluntary – By order of National Company Law Tribunal |
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