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Distinction between Partnership Firm and Company
A company is a corporate body and a legal person having status and personality distinct and separate from the members constituting it.
It is called a body corporate because the persons composing it are made into one body by incorporating it according to the law and clothing it with legal personality. The word ‘corporation’ is derived from the Latin term ‘corpus’ which means ‘body’. Accordingly, ‘corporation’ is a legal person created by a process other than natural birth. It is, for this reason, sometimes called artificial legal person. As a legal person, a corporate is capable of enjoying many rights and incurring many liabilities of a natural person.
An incorporated company owes its existence either to a Special Act of Parliament or to company law. Public corporations like Life Insurance Corporation of India, SBI etc., have been brought into existence through special Acts of Parliament, whereas companies like Tata Steel Ltd., Reliance Industries Limited have been formed under the Company law i.e. Companies Act, 1956 which is replaced by the Companies Act, 2013.
In the legal sense, a company is an association of both natural and artificial persons and is incorporated under the existing law of a country.
Though there are a number of similarities between a limited company and other forms of associations, there are a great number of dissimilarities as well.
“A company is a voluntary association for profit with capital divisible into transferable shares with limited liability, having a distinct corporate entity and a common seal with perpetual succession”.
Persons who have entered into partnership with one another to carry on a business are individually called “Partners“; collectively called as a “Partnership Firm”; and the name under which their business is carried on is called the “Firm Name” A partnership firm is not a separate legal entity distinct from its members.
Today we will see how a company is distinguished from a partnership firm
Distinction between Partnership Firm and Company
The principal points of distinction between a partnership firm and a company are as follows:
| Partnership Firm | Company | |
| A partnership firm is not distinct from the several persons who form the partnership | A company is a distinct legal person. | |
| In a partnership, the property of the firm is the property of the individuals comprising it. | In a company, it belongs to the company and not to the individuals who are its members | |
| Creditors of a partnership firm are creditors of individual partners and a decree against the firm can be executed against the partners jointly and severally. | The creditors of a company can proceed only against the company and not against its members. | |
| Partners are the agents of the firm. A partner can dispose of the property and incur liabilities as long as he acts in the course of the firm’s business | Members of a company are not its agents. A member of a company cannot dispose of the property and incur liabilities in the course of the company’s business | |
| A partner cannot contract with his firm | A member can contract with his company. | |
| A partner cannot transfer his share and make the transferee a member of the firm without the consent of the other partners | A company’s share can ordinarily be transferred | |
| A partner’s liability is always unlimited. | The liability of shareholder may be limited either by shares or a guarantee. | |
| The death or insolvency of a partner dissolves the firm, unless otherwise provided. | A company has perpetual succession, i.e. the death or insolvency of a shareholder or all of them does not affect the life of the company. | |
| The accounts of a firm are audited at the discretion of the partners. | A company is required to have its accounts audited annually by a chartered accountant. | |
| A partnership firm, on the other hand, is the result of an agreement and can be dissolved at any time by agreement among the partners. | A company, being a creation of law, can only be dissolved as laid down by law. |
