Difference Between Company and Partnership

Definition of Company

A company is a distinct legal entity formed by an association of people to carry on a business. The Indian Companies Act of 2013, Section 2(20), defines "company" as "a company incorporated under the Companies Act 2013 or any previous company law." Companies can be public or private, with private limited companies having 2-200 members and public companies having at least 7 members with no upper limit.

Types of Company

Here are the types of companies:

1. Private limited company: A privately held company with 2-200 members, where the transfer of shares is restricted.
   

2. Public limited company: A company that can invite the public to subscribe to its shares, with a minimum of 7 members and no upper limit.
   

3. One Person Company: A company with only one member.
   

Characteristics of a Company

• Separate legal entity
  

• Limited liability for members
  

• Perpetual succession
  

• Transferable shares
  

• Managed by Board of Directors
  

• Stringent compliance requirements
  

Company registration involves a formal process, including filing Memorandum and Articles of Association, obtaining DIN for directors, and submitting requisite documents to the Registrar of Companies.

Definition of Partnership Firm

A partnership firm is a business structure formed by an association of two or more people who agree to share business profits. The Indian Partnership Act of 1932, Section 4, defines Partnership as "The relation between persons who have agreed to share profits of business carried on by all or any of them acting for all."

Partnerships can be general partnerships where all partners have unlimited liability, or limited liability partnerships (LLPs) with both general and limited partners. The key differences between a company and partnership relate to legal structure, liability, management, ownership transfer, regulatory compliance, and taxation.

Characteristics of a Partnership Firm

• Formed by an agreement between partners
  

• No separate legal entity from partners
  

• Unlimited liability for partners
  

• Profit sharing as per partnership deed
  

• Jointly managed by partners
  

• Fewer compliance requirements compared to companies
  

• Ideal for small and medium-sized businesses
  

• Formed for carrying on a business
  

• Require registration with relevant authorities
  

• Aim to earn profits
  

• Governed by specific laws and regulations
  

• Require maintenance of books of accounts
  

• Can sue and be sued in their own name
  

1. Business Size & Growth Potential

If your documents are in a language other than Hindi or English, you must attach a translated copy. This translation must be certified and attested to meet compliance requirements. It ensures that authorities can verify the details correctly and process the application without delays.

• Choose a Company: If you plan to scale your business, attract investors, or raise capital, a company structure is ideal.
  

  • Example: Raj and Meera start an AI-based edtech startup. They plan to raise funds from investors and expand globally. To do this, they register as a private limited company and issue shares to investors.
    

• Choose a Partnership: If you prefer a small-scale business with direct decision-making, a partnership is a better choice.
  

  • Example: Aarav and Kunal start a custom furniture workshop in their city. Since they don’t need external funding and want to split profits equally, they form a partnership firm.
    

 2. Liability Protection

• Company: Offers limited liability, meaning the owners’ personal assets are protected in case of losses.

  • Example: Neha runs an organic skincare brand. A customer files a lawsuit over an allergic reaction. Since Neha's business is a registered company, her personal assets remain safe, and only the company’s assets are at risk.
    

• Partnership: In a general partnership, partners have unlimited liability, meaning personal assets can be used to settle business debts.
  

  • Example: Vikram and Ramesh own a small event management business. They take a loan for an event but incur heavy losses. As a partnership, both partners are personally responsible for repaying the loan, even if it means selling personal assets.
    

Note: In a Limited Liability Partnership (LLP), personal liability is restricted.

3. Taxation Structure

• Company: Pays corporate tax, and profits distributed as dividends may be taxed separately.

  • Example: An IT consulting firm is structured as a private limited company. While it pays corporate tax, its owners benefit from lower tax rates on dividends compared to individual income tax.
    

• Partnership: Profits are taxed at the individual level, often leading to lower overall tax liability.
  

  • Example: A local bakery run by two partners is taxed based on individual earnings, avoiding corporate tax obligations and reducing overall tax liability.
    

4. Compliance & Legal Requirements

• Company: Requires mandatory registration, regular filings, audits, and compliance with corporate laws.

  • Example: A group of engineers launches a renewable energy startup. Since they have multiple stakeholders and need regulatory approvals, they register as a company, ensuring compliance with industry standards.
    

• Partnership: Has minimal legal requirements, making it easier and cost-effective to manage.
  

  • Example: A duo running a content writing agency operates as a partnership to avoid the hassle of extensive compliance, annual filings, and statutory audits.
    

5. Business Continuity & Stability

• Company: Has a separate legal identity, meaning the business continues even if owners change.

  • Example: A software firm registered as a company continues operations after one founder exits by transferring shares to a new investor.
    

• Partnership: Typically dissolves if a partner exits unless an agreement states otherwise.
  

  • Example: A law firm operating as a partnership dissolves after one partner retires, requiring a new agreement to continue operations.