Difference Between Partnership Firm and Company

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 a legal entity that is an association of a certain number of persons with the common objective of providing goods and services to customers.

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 50 members if it is a private limited, while there is no restriction on the number of members for a public limited company.

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.

Difference Between Partnership Firm and Company
Basis of Comparison 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.
Law governed by Governed by the Indian Partnership Act, 1932 Governed by the Indian Companies Act, 2013
Minimum Number of Members Required 2 in case of a partnership firm 2 in case of Private Limited, 7 in case of Public Limited
Maximum Number of Persons Required 100 200 maximum in case of Private Limited, unlimited in case of Public Limited
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 Required No such amount required 1 Lakh minimum for a Pvt Ltd and 5 lakh in case of Public Company
Audit No audit required A mandatory audit is required every year
Transferability of Shares Consent required from all partners before transferring Can be shared
Legal Entity No Yes
Liability Unlimited Limited

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.