Difference Between Company and Partnership

Tennis and football are two different sports not only because of different rules and way of playing but also because of the number of players and that is where they are similar to company and partnership. Hence doubles tennis game is like a partnership because in tennis double two players are looking to win against their opponents and a football team is similar to a company as there are 11 players on the field and extra players are in the dugout to help their team whenever the need arises. 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 a partnership. If you are one of those entrepreneurs who is confused than understanding the differences between the company and partnership can be helpful to you in making the right decision –

Differences between Company and Partnership

Legal Person

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 the partnership is not a legal person and in a 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.

Liability in case of Insolvency

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 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.

Flexibility

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 partnership is like a live-in relationship just like in case of live-in relationship it is easier to walk away from relationship in the same way in case of partnership it is easier to dissolve a partnership firm while company is like a marriage just in case of marriage many legal formalities are involved before one can walk away from marriage in the same way many formalities are required to be fulfilled to close a company.

Management

A company is managed by board of directors who 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. In simple words in case of a company it is possible that owner may or may not play part in the management of the company but as far as the partnership is concerned partners play a major role in the management of the partnership firm.

Perpetual Succession

A company has perpetual succession implying that death or insolvency of the 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.

Profit-Sharing

In case of a partnership, the profits of a partnership firm are shared by partners in agreed ratio while in case of the company profits of the company are shared between the shareholders of the company in the form of dividends declared by the board of directors of the company.

Auditing and Publication of Results

In case of partnership firm auditing of financial results of the partnership, the firm is not compulsory besides there is no legal requirement to publish the financial results of the partnership firm whereas in case of the company both auditing as well as the publication of financial results is mandatory.

Hence from the above, it can be seen that there are vast differences between the two and hence anyone thinking about doing partnership or forming a company should first look at the pros and cons of both companies as well as partnership and then take the decision accordingly.