For students pursuing business education or Commerce, the terms partnership firms and company will sound very familiar. However, at times, it becomes difficult for students to differentiate between the two terms.
This article aims to help students develop a clear understanding of the differences between a partnership firm and company.
Meaning of Partnership Firm
A partnership firm is a type of business entity that is formed by the association of two or more members who have agreed to share the profits of the business, which is carried on by all partners or one partner acting for all.
According to Indian Partnership Act, 1932, Section 4 defines Partnership as – “An agreement between persons who have agreed to share profits of the business carried on by all or any one of them acting for all.”
The members involved in the partnership are known as partners individually, while they are jointly known as a firm. The agreement on which terms and conditions of a partnership are written is known as Partnership Deed.
Meaning of Company
A company is said to be a legal entity that is an association of a group of persons engaged in operating a business. It is voluntary and autonomous in nature.
According to The Indian Companies Act, 2013 Section 2(20) defines the term “company” to mean “a company incorporated under the Companies Act 2013 or any previous company law.”
A company can be formed by minimum of 2 to a maximum of 200 members if it is a private limited, while in case of public limited, the minimum number of members is 7 and there is no restriction on the maximum number of members.
In the following table, we present the most fundamental differences between a partnership firm and a company to help students get a clear idea about the two different business entities.
| Partnership Firm |
Company |
| Definition | |
| Partnership Firm is a mutual agreement between two or more persons to run the business and share profit and loss mutually. | Company is an association of persons with a common objective of providing goods and services to customers. |
| Applicable Act | |
| Indian Partnership Act, 1932 | Indian Companies Act, 2013 |
| Minimum Number of Members Required | |
| 2 members for a partnership firm | 7 for public limited, 2 for Private Limited, |
| Maximum Number of Persons allowed | |
| 100 members | Maximum 200 members for a Private Limited, unlimited members for a Public Limited |
| Essential Documents Required | |
| Partnership Deed required for the creation of a partnership firm | Memorandum of Association and article of association is mandatory for incorporating a company |
| Capital Requirement | |
| No such amount required | 1 Lakh minimum for a Pvt Ltd and 5 lakh in case of Public Company |
| Requirement of Audit | |
| No audit required | Mandatory audit is required every year |
| Transferability of Shares | |
| Consent required from all partners before transferring | Can be transferred |
| Is it considered a Legal Entity? | |
| Not considered | It is considered a legal entity |
This article will assist Commerce students in developing a clear idea of the concepts of Partnership Firm and Company. For more such insightful articles stay tuned to BYJU’s.
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