Difference between a Partnership Firm and a Company

The following are the main distinctions between a partnership firm and a company.

(1) Registration

A company comes into existence only after its registration under the Companies Act, 1956. In case of partnership, the registration is not compulsory.

(2) Legal Status

A company is a legal person and regarded by law as a single person. A partnership is a collection of individual.

(3) Minimum number of persons

The minimum number of persons required to form a company is two in case of private companies and seven in the case of public companies. The minimum number of persons required to form a partnership is two.

(4) Maximum number of persons

A public company may have any number of members. In case of a private company the maximum number cannot be more than fifty. In trading partnership the maximum number of partners is twenty, in a banking business, the maximum number if ten.

(5) Transferability

A shareholder can transfer his share without the consent of other shareholders. In case of partnership, a partner cannot transfer his share without the consent of other partners.

(6) Liability of members

The liability of the members of a company is limited whereas liability of partners for debts of a firm is unlimited.

7) Contractual capacity

The shareholders of a company can enter into contract with the company and can be employees of the company. Partners can contract with other partners but not with firm as a whole.

(8) Length of existence

The death or retirement of a partner dissolves the partnership. But company having legal existence can continue inspite of death and insolvency of the members. It has a perpetual existence.

9) Statutory obligations

A company is required to comply with various statutory obligations regarding management e.g.; filing balance sheet, maintaining prescribed registers. In case of partnership, there are no statutory obligations.

10) Authority of members

Management of a company vests in the hands of a few directors elected from amongst and by the shareholders. A shareholder has no say in the management. Whereas in the case of partnership all partners are entitled to share in the management of a firm. A partner is an agent of the firm and can bind it by his acts.

(11) Distribution of Profits

Profits of a firm are distributed in agreed proportion or equally in absence of agreement among the partners but profits in case of a company can be distributed according to the provision of the articles by the directors.

(12) Audit

Audit in case of company is compulsory but in case of partnership firm it is not compulsory.