Definition of” Partnership”, “Partner”, “Firm” arid “firm name”.
📘 Difference Between Partnership and Company: Detailed Explanation with Case Law
1. Legal Status
Partnership:
A partnership is not a separate legal entity distinct from its partners. The law treats the firm and partners as one and the same.
Case: Salomon v. Salomon & Co. Ltd (1897) – This landmark case confirmed the separate legal entity status of a company, which does not apply to partnerships. The company was recognized as a separate legal person distinct from its shareholders, unlike partnerships.
Company:
A company is a separate legal entity with its own rights and liabilities, separate from its members. It can own property, sue, or be sued in its own name.
2. Number of Members
Partnership:
Under Indian Partnership Act, maximum 10 partners for banking firms and 20 for other firms.
Exceeding this limit makes the firm illegal.
Case: Nair Service Society Ltd. v. K.C. Alexander (1968) – Although a company, the Supreme Court reiterated that partnerships have membership limits as per law.
Company:
Minimum 2 members for private company, minimum 7 for public company, with no upper limit.
3. Liability
Partnership:
Partners have unlimited liability—they are personally liable for all debts of the firm.
Case: Mohan Lal v. Raghubir Singh (1918) – A partner is personally liable for the acts of other partners done in the ordinary course of business.
Company:
Members have limited liability, i.e., liable only to the extent of their shareholding.
4. Perpetual Succession
Partnership:
Partnership dissolves on death, insolvency, or retirement of a partner.
No perpetual succession.
Case: Cox v. Hickman (1860) — Illustrated that partnership depends on mutual consent; death or retirement dissolves the firm.
Company:
Exists perpetually regardless of changes in membership.
5. Management
Partnership:
Managed directly by partners. Each partner is an agent of the firm and can bind the firm.
Case: Foster v. Driscoll (1929) — A partner acting in the ordinary course of business can bind the firm.
Company:
Managed by directors appointed by shareholders; shareholders generally don’t participate in day-to-day management.
6. Registration
Partnership:
Registration is optional under Indian Partnership Act, but unregistered firms have limited legal remedies.
Case: Khandelwal Brothers Ltd. v. Mahalakshmi Finance Ltd. (2000) — Highlighted the disadvantages of non-registration for partnerships.
Company:
Registration is compulsory under Companies Act.
7. Raising Capital
Partnership:
Limited to capital contributed by partners and loans.
Company:
Can raise capital from the public by issuing shares and debentures.
8. Transfer of Interest
Partnership:
Generally, requires consent of all partners to transfer partnership interest.
Case: Nair Service Society Ltd. v. K.C. Alexander — Highlighted restrictions on transferability in partnerships.
Company:
Shares are generally freely transferable, especially in public companies.
9. Taxation
Partnership:
Partnership firm is taxed separately, but partners are also taxed on their share of profits.
Company:
Companies pay corporate tax; shareholders pay tax on dividends.
Summary Table with Case Law
| Aspect | Partnership | Company | Case Law Reference |
|---|---|---|---|
| Legal Status | No separate legal entity | Separate legal entity | Salomon v. Salomon |
| Number of Members | Max 10 (banking), 20 (others) | Minimum 2 (private), 7 (public), no max limit | Nair Service Society Ltd. |
| Liability | Unlimited | Limited to share capital | Mohan Lal v. Raghubir Singh |
| Perpetual Succession | No | Yes | Cox v. Hickman |
| Management | By partners themselves | By board of directors | Foster v. Driscoll |
| Registration | Optional | Compulsory | Khandelwal Brothers Ltd. |
| Capital Raising | Limited to partner contributions and loans | Through shares, debentures | — |
| Transfer of Interest | Restricted, requires consent | Freely transferable (subject to company type) | Nair Service Society Ltd. |
| Taxation | Firm taxed; partners taxed on profits | Company taxed; shareholders taxed on dividends | — |
RELATED Blog
0 comments