Difference Between Partnership Firm and Company

The company form of business organization enjoys a number of benefits over the partnership. This is due to the fact that, in a partnership firm, there must be at least two persons, mutually agree to run the business and share the profits or losses in a manner prescribed in the agreement. The maximum number of partners a partnership firm could have is only 20. This gave rise to the evolution of Company, in which there can be any number of members.

The company is an association of persons who came together for a common objective and share its profit and losses. Despite the fact that, there are some similarities between the company and partnership firm, there are a number of dissimilarities as well. In the given article, we are going to talk about the difference between partnership firm and company.

Content: Partnership Firm Vs Company

1. Comparison Chart
2. Definition
3. Key Differences
4. Video
5. Conclusion

Comparison Chart

Basis for Comparison	Partnership Firm	Company
Meaning	When two or more persons agree to carry on a business and share the profits & losses mutually, it is known as a Partnership firm.	A company is an association of persons who invests money towards a common stock, for carrying on a business and shares the profits & losses of the business.
Governing Act	Indian Partnership Act, 1932	Indian Companies Act, 2013
How it is created?	Partnership firm is created by mutual agreement between the partners.	The company is created by incorporation under the Companies Act.
Registration	Voluntary	Obligatory
Minimum number of persons	Two	Two in case of private company and Seven in case of public company.
Maximum number of persons	100 partners	200 in case of a private company and a public company can have unlimited number of members.
Audit	Not Mandatory	Mandatory
Management of the concern	Partners itself.	Directors
Liability	Unlimited	Limited
Contractual capacity	A partnership firm cannot enter into contracts in its own name	A company can sue and be sued in its own name.
Minimum capital	No such requirement	1 lakh in case of private company and 5 lakhs in case of public company.
Use of word limited	No such requirement.	Must use the word 'limited' or 'private limited' as the case may be.
Legal formalities in dissolution / winding up	No	Yes
Separate legal entity	No	Yes
Mutual agency	Yes	No

Definition of Partnership Firm

The kind of business organization in which, two or more persons agree to carry on the business, on behalf of the firm or partners and to share profits & losses mutually. There are three major points in this definition, they are:

• Agreement – There must be an agreement between partners, irrespective of oral or written.
• Profit – The profit & loss of the business must be distributed among the partners, in the specified ratio.
• Mutual Agency – Each partner is an agent of the firm as well as of the other partners who carry on the business.

The persons are known as partners in their individual capacity, while they are jointly referred to as the firm. The agreement in which the terms and conditions of the partnership are written is known as “Partnership Deed.” However, in the absence of any partnership deed, Indian Partnership Act, 1932 is referred. The primary objective of the creation of the partnership is to carry on business.

It must be noted that the partners are responsible for the acts of the firm, as there is no separate identity of the firm itself and therefore the partners are held liable for the same. Moreover, the partners cannot transfer their shares without the consent of the other partners.

Definition of Company

A company is an association of persons, formed and registered under the Indian Companies Act, 2013 or any other previous act. The following are the major features of a company:

• It is an artificial person.
• It has a separate legal entity.
• It has limited liability.
• It has perpetual succession.
• It has a common seal.
• It can possess property in its own name.

There are two types of company: Public Company and Private Company

The company can file a suit in its own name and vice versa. The company is run by its representatives known as directors, which are appointed by the members of the company at the “Annual General Meeting”. In addition to this, there is no restriction on the transferability of shares in case of a  public company, but if we talk about a public company, there are certain restrictions.

Video: Partnership Firm Vs Company

Conclusion

Due to various drawbacks in the partnership firm, the concept of the company came into being. This is the reason, now a very little number of partnership firms can be seen, these days. It has also evolved a new concept of Limited Liability Partnership (LLP).