Difference Between Partnership and Company
π Difference Between Partnership and Company
1. Governing Law
Partnership β Governed by the Indian Partnership Act, 1932.
Company β Governed by the Companies Act, 2013.
Case Law:
π Chandrakant Manilal Shah v. CIT (1992) 193 ITR 1 (SC) β The Supreme Court held that partnership is a relationship governed by the Indian Partnership Act and is not a separate legal entity from its partners.
2. Separate Legal Entity
Partnership β Firm and partners are not separate entities; partners are personally liable.
Company β Has a distinct legal personality; company is separate from shareholders.
Case Law:
π Salomon v. Salomon & Co. Ltd. (1897 AC 22, HL) β Established the principle that a company has a separate legal entity from its members.
3. Liability
Partnership β Unlimited liability of partners; personal assets can be used to pay firm debts.
Company β Liability of members is limited to their shareholding or guarantee.
Case Law:
π Bacha F. Guzdar v. CIT, AIR 1955 SC 74 β Shareholders have limited rights and liabilities, distinct from the company.
4. Number of Members
Partnership β Minimum 2, maximum 50 (as per Companies Act, 2013, Sec. 464).
Company:
Private Company β 2 to 200 members
Public Company β 7 members minimum, no maximum limit.
5. Transfer of Interest
Partnership β A partner cannot transfer his share without the consent of all partners.
Company β Shares of a company (especially public) are freely transferable.
Case Law:
π V.B. Rangaraj v. V.B. Gopalakrishnan (1992) 1 SCC 160 β Share transfer restrictions must be in the Articles of Association to be binding.
6. Perpetual Succession
Partnership β Dissolves on death, insolvency, or retirement of a partner (unless agreed otherwise).
Company β Enjoys perpetual succession; unaffected by death or insolvency of members.
Case Law:
π Kondoli Tea Co. Ltd., (1886) ILR 13 Cal 43 β Death of a shareholder does not affect the existence of the company.
7. Management
Partnership β Managed by partners directly.
Company β Managed by a Board of Directors, appointed by shareholders.
8. Regulatory Compliance
Partnership β Fewer legal formalities; registration is optional.
Company β Strict compliance under Companies Act; registration is mandatory.
9. Raising of Capital
Partnership β Limited to partnersβ contributions.
Company β Can raise capital through issue of shares, debentures, etc.
Case Law:
π Union of India v. Reliance Industries Ltd. (2018) 10 SCC 1 β Recognized companiesβ wide powers to raise capital and enter into commercial contracts.
π Tabular Summary
| Basis | Partnership | Company |
|---|---|---|
| Governing Law | Partnership Act, 1932 | Companies Act, 2013 |
| Legal Entity | No separate entity | Separate legal entity |
| Liability | Unlimited | Limited |
| Members | 2β50 | Pvt: 2β200; Public: 7+ |
| Transfer of Interest | Restricted | Freely transferable (Public) |
| Succession | Dissolves on partnerβs death/retirement | Perpetual succession |
| Management | By partners | By Board of Directors |
| Registration | Optional | Compulsory |
| Capital Raising | Limited | Wider options (shares, debentures) |
β In short: Partnership is more personal, flexible, and risky (unlimited liability), while a Company is more structured, regulated, and secure (limited liability + perpetual succession).
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