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Starting a business is an adventurous experience to entrepreneurs. That too first time entrepreneurs face lots of trouble to make their business dreams, a reality. Choosing right business model is one of the significant business decisions. Entrepreneurs may have lots of confusion in selecting type of business structure.
Private companies are one of the popular types of business models. Private companies are governed by companies act & Ministry of Corporate Affairs. Companies need to file all forms and compliance with Registrar of Companies online. To start a private company minimum of 2 members and share capital of 1 lakh is necessary.
Partnership firm can be easily set up by drafting a partnership deed on a stamp paper. Partnership firm registration is not compulsory but advisable. Partners get bound by partnership agreement clauses and obligations. Partners cannot transfer shares without approval from other partners.
For Startups and new entrepreneurs, the Terms Company and partnership firm may sound very familiar. But, it is very essential to understand the difference between the two forms of business structure before you start your business.
The aim of this write-up is to help budding entrepreneurs to develop a clear understanding about the difference between a partnership firm and a company.
Meaning of Partnership Firm
Partnership firms is a business structure which can be started with a legal contract/ agreement between two or more members who agree to share business’ profit/ loss. Either one partner or all or any of the partners can operate the business.
The business owners or members of the partnership firm are known as partners. The partners are collectively known as a partnership firm. The contract agreement that contains terms and conditions of the partnership business are drawn is known as Partnership Deed
It is easy to get Partnership firm registration in Chennai. Partnership firm is the simplest form of business type in India. “2 or more heads is always better than 1”
To form a Partnership firm, you need to draw-up partnership deed. Partnership deed is drawn-up on judicial stamp paper. It has to be signed by all the partners. It contains details about capital contribution, profit sharing ratio, rights, duties and obligations of partners and so on.
Meaning of Company
Company is a separate legal entity which is association of persons engaged in business operations. A company is a separate legal person unlike partnership. It is under the control of Ministry of Corporate affairs where in every state has its own Registrar of companies.
As per Indian Companies Act of 2013, ‘a company’ means a business incorporated under Indian companies Act or any other previous laws.
You can start your own company with minimum of 2 members. And can have up to 200 members. These members are called share holders who are business owners of the company. In case of Public limited company the minimum number of members is 7 and no restriction for maxim um members.
Partnership firm Vs. Company
We present you most fundamental differences between partnership firm and a company to help you get a clear idea about two different forms of business structure.
- Partnership – Partnership firms is a business structure which can be started with a legal contract/ agreement between two or more members who agree to share business’ profit/ loss. Either one partner or all or any of the partners can operate the business.
- Company – A Company is a separate legal entity which is association of persons engaged in business operations. A company is a separate legal person unlike partnership. It is under the control of Ministry of Corporate affairs where in every state has its own Registrar of companies.
- Partnership- Indian Partnership Act, 1932
- Company- Indian Companies Act, 2013
Minimum members / owners
- Partnership- 2 members are necessary to start a firm Indian Partnership Act, 1932
- Company- 2 members to start Private limited Company and 7 Members for Public Company
Maximum members / owners
- Partnership- up to 100 members can be partners / owners in a firm
- Company- Up to 200 members can be shareholders in Private limited Company and unlimited Members for Public Company
- Partnership – Partnership deed is a must for partnership creation
- Company – Memorandum of Association and article of association is mandatory for incorporating a company
- Partnership- No such minimum amount requirement
- Company- Rs. 1 Lakh minimum to start Private limited Company and Rs. 5 Lakh for Public Company
- Partnership- No audit is necessary for partnership business every year except restrictions
- Company- Audit is mandatory every year for Private limited Company and for Public Limited Company
- Partnership- All partners’ consent necessary before transferring
- Company- can be easily transferred Indian Companies Act, 2013
Is it a Legal Entity?
- Partnership – Not considered a legal entity
- Company –It is a separate legal entity or person right from the date of its incorporation
Limited liability feature
- Partnership – Partners have unlimited liability. In extreme situations business owners need to meet company creditors demands which could extend to their personal assets too.
- Company – Shareholders have limited liability. In extreme situations business owners need to meet company creditors demands as company is a separate legal person. Their liability is up to value of shares held by them
- Partnership – partnership firms cannot own property in its own name. Partnership firms do not have separate legal entity.
- Company – The Private limited company is artificial legal business entity as per law. Company can own assets or borrow loan in its own name
Life of the Company
- Partnership- When there is change in partners, the partnership firm gets dissolved /closed. A new deed must be formed to continue business
- Company- Whereas when there is change in shareholders the company continues to exist. The longevity of private company is more when compared to partnership
Source of funds
- Partnership – It is a bit difficult to get loan for partnership firms when compared to companies
- Company- Private limited company can source capital and funds by issuing shares. Foreign direct investments are allowable for companies but not for partnership firms. Statutory compliance is relative-ly less in partnership when compared to companies.
- Partnership- Relatively less when compared to companies
- Company- Involves various statutory compliance
Ownership and business management
- Partnership- Ownership and business management cannot be separate for firms. The partners usually own and manage the business
- Company- Ownership and business management can be separate for companies. Shareholders can opt not to be involved in business management
Fees for Registration
Get your business registered with best rated corporate consultants in India. Avail best professional services at reasonable fees @ FilingPoint. We are top rated consultants in business registration, advisory and filing services in India. Business registration fee varies based on the company structure you choose. FilingPoint fees for business depends based on the professional services you require. Our professional consultants offer excellent support and advice. They help you choose right business model for your business as per your needs. Be wise to seek best company registration services at low cost. We are here to support your business needs for a reasonable fee.
Words of Wisdom
We understand Entrepreneurs may have lots of confusion in selecting type of business structure. Private companies are one of the popular types of business models. Ownership and business management can be separate for companies. Whereas it is not so with partnership firms. When you want to source huge funds for your business private limited registration is advisable. It is easy to transfer ownership of shares to other people without approval of other share holders unlike partnership firms. But partners cannot transfer shares. The maximum number of members in private companies is 200 where as maximum number of partners gets limited to 20.
You get more tax benefits with Private company compared to partnership firms. When you want to have grand launch of your business in to corporate world private limited company is the right choice rather than partnership firms. For more information get in touch with our consultants.
Avail private limited company registration services from best company registration experts in Chennai. FilingPoint is a popular leader & expert in business registration. Avail excellent professional Private limited company registration services from industry leaders. Be wise to seek professional help from the best corporate consultant in Chennai. We support international / global companies / foreign investors who have vested interest in India. We deliver best in the industry services at reasonable cost.
Our core competency is that we have vast knowledge about regulatory rules; govt. Policies and compliance about Private limited company registration. We have got reputed experience & exposure about various industries. We have strong knowledge in the subject matter of private company compliance and business set up. We deliver innovative solutions & comprehensive corporate services to all our clients.
To contact best rated Private company corporate consultants in Chennai call or text us on 72999-72500. Please send us your mail to firstname.lastname@example.org.