Both company and partnership are associations of persons but the two differ in the following respects.
1. Formation and registration:
A company is created by law while partnership is the result of an agreement between the partners. In the formation of partnership no legal formalities are involved and registration of the firm is not compulsory. A company can be formed only after fulfilling legal formalities and its incorporation under the Act is essential.
2. Number of members:
The minimum number of partners in a partnership firm is two and the maximum is 10 in banking business and 20 in other businesses. In a private company, the minimum number of members is 2 and the maximum is 50. In a public company minimum number of members is 7 and there is no maximum limit prescribed by law.
3. Legal status:
A company has a separate legal entity independent of its members but a partnership firm has no separate legal entity different from its partners. Partners and the firm are one and the same in the eyes of law.
4. Liabilities of members:
In a joint stock company, the liability of every member is usually limited to the unpaid money on the shares held or the amount of guarantee given by him. But in partnership, partners are jointly and severally liable to an unlimited extent.
5. Transferability of interest:
Shares of a public company are freely transferable but in a private company there are restrictions on the transfer of shares. A partner cannot transfer his interest in the firm to an outsider without the unanimous consent of all the partners.
Any person can become a member of a company by purchasing its shares but a new partner can be admitted only with the mutual consent of all the partners.
6. Statutory control:
A company has to comply with several legal requirements and it must submit reports to the Government. On the other hand, there is no statutory regulation on day-do-day working of a partnership. A company cannot change its objects and powers without complying with the statutory requirements.
7. Change of objects:
The objects and powers of a company as laid down in its Memorandum of Association can be altered only by fulfilling legal formalities laid down in the Companies Act, 1956. On the contrary, the objects of a partnership can be altered with the unanimous consent of all the partners without any legal formality.
In a partnership, all the partners can take active part in the management of the firm. But in a company, every member does not participate actively in the day- do-day management.
The company is managed by a Board of Directors consisting of elected representatives/nominees of the members. There is divorce between ownership and management of a company but there is no such divorce in a partnership.
A company enjoys perpetual life or existence which is not affected by the retirement, death, insolvency, etc., of its members. The life of a partnership is uncertain and comes to an end with the retirement, insanity and death of a partner.
10. Majority rule:
In a company, all policy decisions are taken on the basis of majority opinion in a meeting of the Board of Directors or of the general body of shareholders. But in partnership all policy matters are decided through the unanimous consent of all the partners.
11. Accounts and audit:
A company must maintain its accounts in the prescribed form and must get them audited by a qualified auditor. Accounts and audit are not obligatory for a partnership unless the total sales turnover or gross receipts in a year exceed Rs. 10 lakhs in case of professionals and Rs. 40 lakh in other cases.
12. Implied agency:
In a partnership every partner is an implied agent of the other partners and of the firm as a whole. But no member of a company is an implied agent of other members or of the company.
13. Common seal:
In a partnership one or more partners are authorised to sign documents on behalf of the firm. In a company, on the other hand, the common seal is affixed on documents as official signatures. Two directors of the company sign the documents after the common seal is affixed.
14. Winding up:
A partnership can be dissolved at any time without any legal formalities. But several legal formalities have to be complied with for the winding up of a company.
15. Regulating statute:
A partnership is regulated under the Partnership Act 1932. The Companies Act 1956 governs the establishment and functioning of a joint stock company.