This article is written by Rohit Raj, a Student currently pursuing B.A.LLB.( Hons.) from Lloyd Law College. This is an exhaustive article which deals with the concept of Company and also what are different types and how these emerge. It also deals with how Partnership is different from the Company and in which aspects.
“Coming together is a beginning, staying together is progress, and working together is success.”
– Henry Ford
Company and Partnership both are the forms of doing business and relevant for the person who wants to excel in these fields. Many people get confused between these two and consider these two separate entities as a single entity. But, if we look and analyze the difference between Company and Partnership then we come to know a lot about it and how these both entities are different from one another.
Companies and Partnership both are regulated by different provisions of law or we can say that they are regulated by different Acts. The article also deals with how working together and following the basic guidelines of the act helps in getting proficiency in both aspects of doing business.
Introduction to Partnership
‘Partnership’ is a form of business in which there is a relationship between two or more persons who come forward to carry out business by sharing the profit. The main highlighting point of Partnership is that “Business carried on by all partners on behalf of any one partner or any one partner acting for all or carrying business for all” and it is defined in Section 4 of Indian Partnership Act, 1932. Partnership firms are created and regulated according to the Indian Partnership Act, 1932.
As already said that Partnership firm is created by the relationship between two or more persons rather than two by registering their firm under the Indian Partnership Act, 1932 with the help of the Registrar of firms.
If we look at the registration of Partnership firms, then we get to know that it is registered by the Registrar of Firms under Indian Partnership Act, 1932 rules and regulations and the certain essential documents required by the registrar of firms for the successful registration of Partnership firm:
- Name of the Partnership firm.
- Name and address of each partner.
- Business location.
- Tenure of Partnership firm.
- Main Office of Partnership firm where all essential decisions were taken up.
In a Partnership firm, many partners exist and there are several types of partners which were named in the Indian Partnership Act, 1932. These include Active Partner, Sleeping Partner or Dormant Partner, Nominal Partner, Minor Partner and Partners in Profit. These all different members of Partnership firms have specified roles and they all act according to their specific roles.
- Active Partner is the Partner who is engaged in day to day operation of the law firm and involves in enhancing the productivity, effectiveness, and efficiency of the law firm with their full effort.
- Dormant Partner is the most inactive partner and does not take part in day to day operational activities of the Law firm. The Dormant Partner only contributes in shares of the Partnership firm in establishing but not in enhancing the productivity of the firm.
- Partners to Profit only is the Partner which comes together with others in Partnership firm for sharing only profit of the firm not the losses of the Partnership firm and these partners do not think of other things except profit sharing.
- Nominal Partner is the partner for name only. These Partners do not take part in the day to day operation, neither in any profit or loss sharing of the Partnership firm. These partners only allow the Partnership firm to use their name for carrying out business without any capital contribution and these types of partners do not have any share in a Partnership firm.
Introduction to Company
Company is simply an association or coming together of two or more people and getting themselves registered under the Companies Act, 2013 with the help of the registrar of the companies. If we look for the definition of the Company according to the Companies Act, 2013 then it defines it as “A Company formed and registered under the Companies Act or under any law which governs and regulates the Companies.”
The essential and foremost thing which is required for the registration of companies under the Companies Act, 2013 is the submission of Articles of Association and Memorandum of Association and these both documents contain information regarding the regulation of company and establishment of the company.
Article of Association is a form of document that specifies how the day to day operation of a company takes place and helps in regulation of companies’ operations. The document lays down how these operations will take place and helps in taking decisions related to the appointment of Directors, Editorial Board and others.
Memorandum of Association is considered as a legal document that guides and helps in the formation and registration of companies and how to deal with the shareholders. This legal document helps companies in their legal set up.
Companies are divided into many types on different basis i.e. Classification on the Basis of Incorporation, Classification on the Basis of Liability, Classification on the Basis of Number of Members and Classification on the Basis of Ownership.
Classification on the Basis of Incorporation:
- Statutory Companies are the companies that are specially created by the Special Act of Legislature. E.g. Reserve Bank of India, the State Bank of India, etc.
- Registered Companies are the companies that are formed and registered earlier under the Companies Act, 1956 and now under the Companies Act, 2013.
Classification on the Basis of Liability:
- Companies with Limited Liability are the companies in which the partners have limited liability to the extent of part of their share invested in the companies. Partners don’t have to pay to meet liability from their own property.
- Companies with Unlimited Liability are the Companies in which the partners are not liable only to the extent of their shares in the company, they have to meet the debt at any cost even from their own property.
Classification on the basis of Number of Members:
- Private Company means a company which has a minimum paid-up capital of Rs. 1,00,000 or higher than paid-up capital as prescribed and a Private company restricts the right to transfer their right to transfer its shares.
- Public Company means any company which has a minimum paid-up capital of Rs. 5 Lakh or such higher paid-up capital as may be prescribed and a Public company does not restrict the right to transfer their right to transfer its shares.
Classification on the basis of Ownership:
- Government Company means any company in which not less than 51 percent of the paid-up share capital is held by the Central or the State Government.
- Foreign Company is any Company which is incorporated outside India in which a minimum of 50 percent of the Paid-up share capital is held by one or more citizens of India.
Company and Partnership both are two separate entities that are regulated by different provisions of law and their establishment and registration are also different from one another. Now, we look at what are the major differences that demark between Company and Partnership.
In the Partnership firm, Partnership Deed is formed in which the duty and responsibility of each member have been assigned and mentioned. The details which are required in Partnership deed i.e. General Details (Name and Address of firm and all Partners and many other details), Specific Details ( Interest on Capital Invested, salaries, duties and obligations of all Partners) and all these details are required in any condition and in absence of these details Partnership Deed can’t be made.
Registration of Partnership firms is totally optional and it is at the discretion of the Partners of the Partnership firm.
In the context of the company, for the incorporation of a company the approval of the name of the company by the Registrar of Companies of State or Union Territories where the company will settle down. After the approval of the name, Memorandum of Association and Article of Association which is considered as most important is submitted to the Registrar of Companies for the incorporation of Companies and some documents are submitted and then get registered earlier under Companies Act, 1956 and now Companies Act, 2013.
No of partners
A Partnership firm is governed by the Indian Partnership Act, 1932 and the Partnership Act does not lay down any minimum and maximum number of required partners. But, According to Section 464, Rule 10 of Companies miscellaneous rules, 2014 the maximum number of partners required is 100 but in this section the minimum number of Partners required is not mentioned.
Companies Act, 2013 states the total number of members that should be available in Private and Public companies. The maximum limit of members is 200 and the minimum number required is 2 in Private Companies and In the case of Public Companies, there is no maximum limit of members but the minimum number of required numbers is 7.
Management in Partnership is done or carried by all the Partners of the Partnership firm as they are partners and all have equal rights in carrying out business. A partnership firm can be dissolved under some circumstances i.e. Death of a Partner, Bankruptcy of Partner, Decree of dissolution from the court and inability to conduct business.
In a Company, regulation and management takes place with the help of a document i.e. Article of Association which controls and regulates the day to day operation of the company. All the activities and decisions of the company were regulated by the help of the Articles of Association.
Advantages of Partnership
Some of the Advantages of Partnership are mentioned below with its little explanation. They are as follows:
- Partnership firms do not have to pay any tax which is a great relief for any Partnership firms. Partners use to file tax returns on their own and their filing tax return is not attached to the Firm.
- Partnership Firms are easy to incorporate as registration is not compulsory.
- Partnership firms include different partners due to which there is a pool of knowledge and better discussion on any matter which enhances and lowers the risk of bearing the loss.
- Partnership firms have different partners which paves the way to the better management of the Partnership firms.
There are many more advantages of Partnership which helps in effective and efficient administration of the Partnership firms.
Advantages of Company
The company also has a lot of advantages which help in better administration of the Company. They are as follows:
- Limited liability is considered the most relevant advantage of the Company. In this, the members of the Company in case of repayment of the debt, are only liable to repay the debt to the extent of their share in the company.
- Perpetual succession means that the company goes continuous without being affected by the death or insolvency of individual members. The Company will continue to exist indefinitely until the company is shut down.
- Separate Property of the company means the company has its own property and assets which belong only to the name of the company, not with any of the members of the company.
- Capacity to sue means that the company is an artificial person who has a separate legal entity that is incorporated under the Companies Act, 2013 have power to sue anyone or to be sued by anyone. In this process, directors and other members of the company are not liable.
Company and Partnership both are the different types of doing business and how to deal with the day to day operational activities of the business is being analyzed. Company and Partnership both have better prospects of development and better functioning. As the companies and Partnership both regulated by Companies Act, 2013 and Indian Partnership Act, 1932 simultaneously but according to my point of view, both have been outdated and need some changes in both the act so that regulation of company and Partnership firm be more effective and it can perform in a better way. Companies and Partnership firms are the most important one in the business sector and their administration is considered as the most advanced and controlled administration. These both concept of business i.e. Company and Partnership is the most crucial one in enhancing the growth rate of a Nation with the overall profit earned by the effective management and company as an artificial person brings the innovative way of doing business and paves the way for the other type of business development. At last, I will also say that the amendment in both the act which regulates both Company and Partnership is so much necessary.
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