Top 10 Difference Between Partnership Firm and Company
Students pursuing Business education or Commerce will be familiar with the terms partnership firm and company. Often, however, students find it difficult to distinguish between the two terms.
This article is intended to help students understand the differences between a company and a partnership.
Definition of Partnership Firm
A partnership is a business entity formed by two or more partners who have agreed to split the profits from the business. The business can be run by all the partners or by one partner.
Section 4 of the Indian Partnership Act of 1932 defines partnership as “An agreement among persons who have agreed that they will share profits from business conducted by them all, or any of them, acting on behalf of all.”
Partners are the members of a partnership individually. They are collectively known as a company. The agreement in which the terms and conditions for a partnership are written, is called partnership deed.
Meaning of company
It is a legal entity, which is an association between a group or individuals who are engaged in the operation of a business. It is voluntary in nature and autonomous.
The Indian Companies Act 2013, Section 2(20), defines “company” as “a company that is incorporated under The Indian Companies Act 2013 or any prior company law.”
If it’s a private limited company, there can be as few as 2 members and up to 200 members. For a public limited company, the minimum is 7 members, but the maximum is unlimited.
The following table outlines the main differences between a partnership and a corporation to give students a better understanding of the two business entities.
Top 10 Differences Between Partnership Firm and Company
| Aspect | Partnership Firm | Company |
|---|---|---|
| Definition | An agreement between two or more people to manage a business together and share profits and losses. | A legal entity formed by a group of individuals to conduct business activities. |
| Applicable Act | Indian Partnership Act of 1932 | Indian Companies Act of 2013 |
| Minimum Number of Members | Two members are required. | Public Limited: Minimum 7; Private Limited: Minimum 2 |
| Maximum Number of Members | Maximum of 100 members. | Public Limited: No maximum; Private Limited: Maximum 200 |
| Required Documents | A Partnership Deed is necessary. | Memorandum and Articles of Association are required. |
| Capital Requirement | No minimum capital requirement. | Minimum ₹1 lakh for Private Limited; Minimum ₹5 lakhs for Public Limited |
| Audit | No mandatory audit required. | Mandatory annual audit required. |
| Transferability | Transfer of interest requires the consent of all partners. | Shares are freely transferable. |
| Legal Entity Status | Not considered a separate legal entity. | Considered a separate legal entity. |
| Liability | Partners have unlimited liability. | Members have limited liability based on their shareholding. |
This comparison provides a clear and comprehensive understanding of the key differences between a Partnership Firm and a Company, which is crucial for students studying Commerce and Business Management.