Distinguish between partnership and company forms of organizations.

Partnership vs. Company: A Comprehensive Comparison

1. Legal Structure:

• Partnership: A partnership is a business structure in which two or more individuals manage and operate a business in accordance with the terms and objectives set out in a Partnership Deed. Partnerships are governed by the Indian Partnership Act, 1932.

• Company: A company is a legal entity formed by a group of individuals to engage in and conduct business. Companies are regulated by the Companies Act, 2013, in India, and can be of various types, including private limited, public limited, and one person company.

2. Formation and Registration:

• Partnership: A partnership can be formed simply by an agreement between the partners. While registration of the partnership is not mandatory, it is advisable to register to avail certain benefits and legal protections.

• Company: A company is formed by filing the necessary documents with the Registrar of Companies (RoC) and obtaining a Certificate of Incorporation. Registration is mandatory for companies under the Companies Act, 2013.

3. Liability of Partners/Members:

• Partnership: In a partnership, partners have unlimited liability, which means they are personally liable for the debts and obligations of the business. This means that personal assets of partners can be used to settle business debts.

• Company: In a company, the liability of members or shareholders is limited to the amount unpaid on their shares. This means that personal assets of shareholders are generally protected from the company's liabilities.

4. Management and Control:

• Partnership: In a partnership, all partners have a say in the management and control of the business, unless otherwise specified in the Partnership Deed. Decisions are typically made jointly by the partners.

• Company: In a company, the management and control of the business are vested in the Board of Directors, who are elected by the shareholders. Shareholders' role is limited to voting on major decisions.

5. Continuity and Succession:

• Partnership: A partnership is dissolved upon the death, retirement, or insolvency of a partner unless otherwise provided in the Partnership Deed. The continuity of the partnership depends on the mutual agreement of the partners.

• Company: A company has perpetual succession, which means it continues to exist even if its members change due to death, retirement, or transfer of shares. The company's existence is not affected by changes in membership.

6. Capital Contribution:

• Partnership: Partners contribute capital to the partnership based on the terms of the Partnership Deed. The capital contribution of each partner determines their share in the profits and losses of the business.

• Company: Shareholders contribute capital to the company by purchasing shares. The ownership of the company is determined by the number of shares held by each shareholder.

7. Taxation:

• Partnership: In a partnership, the business itself is not taxed. Instead, partners are taxed individually on their share of the partnership's profits, based on their individual tax rates.

• Company: A company is taxed separately from its shareholders. The company pays corporate tax on its profits, and shareholders are taxed on any dividends they receive.

8. Compliance and Regulation:

• Partnership: Partnerships have fewer compliance requirements compared to companies. They are not required to hold annual general meetings or file annual returns with the Registrar of Companies.

• Company: Companies are subject to more stringent compliance requirements, including holding annual general meetings, filing annual returns, and maintaining statutory registers.

Conclusion:

In conclusion, while both partnerships and companies are common forms of business organizations, they differ in terms of legal structure, formation, liability, management, continuity, capital contribution, taxation, and compliance. The choice between a partnership and a company depends on various factors, including the nature of the business, the number of members, the level of liability protection desired, and tax considerations. It is advisable to seek professional advice when deciding on the most suitable form of organization for a business.