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Differences between Partnership Firm and Company

Meaning of Partnership Firm:

A partnership firm is created when two or more persons unite together and pool resources to establish a business.

According to Indian Partnership Act, 1932, Section 4 defines Partnership as – “An agreement between persons who have agreed to share profits of the business carried on by all or any one of them acting for all.”

The members involved in the partnership are known as partners individually, while they are jointly known as a firm. The agreement on which terms and conditions of a partnership are written is known as Partnership Deed.

Meaning of Company:

A company is said to be a legal entity that is an association of a group of persons engaged in operating a business. It is voluntary and autonomous in nature.

According to The Indian Companies Act, 2013 Section 2(20) defines the term “company” to mean “a company incorporated under the Companies Act 2013 or any previous company law.”

A company can be formed by minimum of 2 to a maximum of 200 members if it is a private limited, while in case of public limited, the minimum number of members is 7 and there is no restriction on the maximum number of members.

Differences between a Partnership Firm and a Company:

Some of the difference between partnership firm and company are:-

Partnership FirmCompany
 DefinitionPartnership Firm is a mutual agreement between two or more persons to run the business and share profit and loss mutually.Company is an association of persons with a common objective of providing goods and services to customers.
Applicable ActIndian Partnership Act, 1932Indian Companies Act, 2013
Legal StatusFirms are not legal entities. Therefore, it lacks a legal personality distinct from that of its constituent members.A company is regarded as a separate legal entity from its members.
Minimum Number of Members Required2 members for a partnership firm7 for public limited, 2 for  Private Limited
Maximum Number of Persons allowedIf the partnership firm is intended for financial transactions maximum of 10 and for other purposes maximum of 20 persons can form a firmMaximum 200 members for a Private Limited, unlimited members for a Public Limited
The extent of LiabilityIn a partnership, the partners’ liability is unlimited. This means that each partner is responsible for the firm’s debts incurred during company operations. If the joint estate is insufficient to meet all of the obligations, these debts may be recouped from a partner’s private property.In a company limited by shares, a shareholder’s liability is limited to the amount, if any, still owed on his shares. In the case of a guarantee company, the shareholder’s liability is restricted to the sum agreed upon. However, there may be businesses in which a member’s liability is unlimited.
Requirement of AuditNo audit requiredMandatory audit is required every year
Transferability of SharesConsent required from all partners before transferringCan be transferred
Duration of existenceIf there is no agreement to the contrary, the death, retirement, or insolvency of a partner will result in the dissolution of the business.Having eternal succession is advantageous for a company.

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Note: This Post was last updated on November 6, 2022

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Sunita

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