First time entrepreneurs who are entering into the corporate world are confused about how to go into the business whether as a company or as partnership. Understanding the differences between the company and partnership can be helpful to them in making the right decision –
1. A company is considered to be an artificial legal person, hence a company may make contracts and take legal action against others and others also can take legal action against the company. It is an entity which is distinct from its members, while partnership is not a legal person and in partnership it is the partners who own the property of the firm and are liable for the contracts of the partnership firm jointly as well as severally.
2. In a company liability of the members of the company is limited to the extent of shares held by him and hence insolvency of a company does not mean insolvency of the members of the company while in case of partnership liability of the partners is unlimited and hence their personal wealth can also be taken for paying the debts of the partnership firm and hence insolvency of partnership firm means insolvency of partners as well.
3. While dissolving a company strict rules and regulation are needed to be adhered to while in case of partnership it can be dissolved by partners at any time with mutual consent. In other words it is easier to close a partnership firm then a company.
4. A company is managed by board of directors which are elected by the members of the company while a partnership firm is managed by all partners or any one of them on behalf of all of them.
5. A company has perpetual succession implying that death or insolvency of member does not have any bearing on the existence of the company and it keeps functioning while a partnership firm does not have perpetual succession and is dissolved on death or insolvency of any partner subject to the contract to the contrary.
Hence from the above it can be seen that there are vast differences between the two and hence any one should study in detail the pros and cons of both company as well as partnership before taking any decision on whether to enter into partnership or incorporate a company.