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Company & Partnership Firm - A Comparative Study



The principal points of distinction between a company and a partnership firm are as follows:

(1) A company is a distinct legal person. A partnership firm is not distinct from the several persons who form the partnership.

(2) 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.

(3) 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.

(4) Partners are the agents of the firm, but members of a company are not its agents. A partner can dispose of the property and incur liabilities as long as he acts in the course of the firm’s business. A member of a company has no such power.

(5) A partner cannot contract with his firm, whereas a member of a company can.

(6) A partner cannot transfer his share and make the transferee a member of the firm without the consent of the other partners, whereas a company’s share can ordinarily be transferred.

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(7) Restrictions on a partner’s authority contained in the partnership contract do not bind outsiders whereas such restrictions incorporated in the Articles are effective, because the public are bound to acquaint themselves with them.

(8) A partner’s liability is always unlimited whereas that of shareholder may be limited either by shares or a guarantee.

(9) 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, whereas the death or insolvency of a partner dissolves the firm, unless otherwise provided.

(10) A company may have any number of members except in the case of a private company which cannot have more than 200 members (excluding past and present employee members). In a public company there must not be less than seven persons in a private company not less than two. Further, a new concept of one person company has been introduced which may be incorporated with only one person.

(11) A company is required to have its accounts audited annually by a chartered accountant, whereas the accounts of a firm are audited at the discretion of the partners.

(12) A company, being a creation of law, can only be dissolved as laid down by law. 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.

Company Law Study Group

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