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Any supposed business that wants to register itself as a legal entity has two options: a Partnership Firm Registration or a Company Registration. The Authorities regulate a registered partnership firm under the Partnership Act of 1932. Likewise, a registered company is regulated under the Companies Act of 2013. Both of these business models have their dedicated features. It is for the applicant to see which business model suits his business idea. In this article, we have mentioned some of the key differences between a registered Partnership firm and an incorporated company. The points of difference are as follows:
Legal Status
A partnership firm is not a legal entity, which means a partnership firm is liable to its member partners. Its existence depends upon the presence of its member partners. The Firm and partners are the same things. If any member partner leaves the Firm, the partnership firm will be dissolved. This is not the case with the company. Any registered company is considered to be a separate legal entity. A company is distinct from its members, directors, and/or shareholders. The absence of a director(s) in the company doesn’t render the company’s dissolution. In short, a registered company is a living legal business entity.
Agency
In a partnership firm, each of the member partners is an agent to each other and the Firm. Any action of a member partner reflects the Firm’s activities and is in unity with other member partners. In the case of a registered company, any director’s action is not binding on the other members and the company itself. The company doesn’t bear the responsibility for the actions of any of its directors. Related Service: Logo Registration
Profit-sharing arrangement
The profit-sharing arrangement between the member partners of a partnership firm is defined in the partnership agreement. And if the Firm is registered under the Partnership Act of 1932, any member partner can sue the Firm for violation of the partnership agreement. But in the case of a company, no such compulsions are there to distribute profits among the members. The company distributes profit shares with the shareholders when its dividends are declared.
Liability
The liabilities of the member partners in a partnership firm are unlimited. This means that the member partners are liable for the losses incurred by the Firm during its operation. Some of these losses might turn into the Firm’s debt. The member partner’s private property will then recover these debts if the joint estate of the partnership is not enough to settle the debt.
In a registered company, the liabilities of its members are limited to their shares. The members or shareholders are not responsible for the losses incurred by the company. This makes a company a safer option for a business entity model. Also, there are a few companies where the liability of a member is unlimited by a specific arrangement. Related Service: LLP Registration
Owned Assets
A partnership firm’s owned assets are termed a Joint Estate. A Joint estate is mutually owned by all the member partners of the Firm. The estate is not particularly owned by the Firm or any specific member partner. This is not the case with the company. The company’s owned assets are separate, and members have no rights to ownership of these assets. The company members can have the assets back only in the form of a dividend or a refund of the company’s capital.
Any member partner who wishes to transfer his or her shares to someone can make the transfer only after obtaining the consent of all the member partners. Any shareholder of the partnership firm can transfer his or her shares as per the provisions contained in the Partnership deed. In the case of a Company, share transferability is allowed depending upon the company’s nature. Like in a private limited company, shares can be transferred among its shareholders but can’t go public, but in the case of a public limited company whose shares are quoted on the stock exchange, the transfer of shares among the general public is allowed. Related Service: Sole Proprietorship Registration
Organization and Management
The organizational arrangement of a partnership is mentioned in the partnership deed. If there are no such arrangements, then all the Firm partners are entitled to participate in the management and control of the Firm. Members of a company can participate in management only if they are appointed as a director or top executives. Members can attend general meetings and vote for the election of directors, appointment of auditors, etc. Related Service: Bee Certification
Membership Limit
For a partnership firm running a business, the maximum number of member partners can be 20. For operating a bank in a partnership arrangement, the member partners can be at most 10. In the case of a company, say a private company, the members can be up to 50 but shouldn’t be less than two. There is no limit on the maximum number of partners for a public company, but the member should not be less than seven.
Life of the Firm
The duration of a partnership firm is mentioned in the partnership agreement. But a partnership firm can be dissolved in case of a member partner’s death, retirement, or insolvency. A company, being a separate legal entity, has the advantage of having perpetual succession, even after the member(s) of the company leaves.
Inspection regulations
The audit of a partnership firm is unnecessary, so it enjoys this relaxation. For a company, the audit of its accounts is obligatory, and non-compliance with the stipulated regulations will be taken seriously by authorities, even to the point of taking disciplinary actions against the company.
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