DISTINCTION BETWEEN FIRM AND COMPANY

  1. Personality

A firm is a relationship between the persons who have agreed to share the profits of a business carried on by all or any of them, acting for all. It does not have a separate personality apart from the partners. It is just the name given to the collection of partners. It is not a legal person.

A company on the other hand is having a separate existence apart from its members. It is a legal person.

  1. Creation

Partnership firm is the creation of contract between the partners whereas company is created by the registration or incorporation under the Indian Companies Act, as a company.

  1. Perpetual succession

The firm’s position changes according to the changes in the position of partners. The death, retirement, admission of a partner brings a change in the position of partnership. In case of company, any change in the position of members does not affect the existence of the company. It continues as it is. So, it has a perpetual succession.

  1. Separate property

In a firm, a firm cannot have separate property. It cannot own property. It is the partners who actually own the property.

A company can itself own property. It can sell or purchase the property. It can alienate the property. Members have no personal interest in it ( V.Subramaniam v. Rajesh Raghuvendra Rao AIR 2009 SC).

  1. Liability

In firm, the partners’/members’ liability is unlimited. In a company, the members’ liability is limited to their shares or guarantee except in case of unlimited company.

  1. Mutual agency

Mutual agency is the essential element of firm. It is not the essential element of a company. The acts of directors can only bind the firm except in some cases. But not the acts of all members.

  1. Registration

Registration is not compulsory for a firm, though it has some disadvantages of non-registration. But, for a company, registration is must for its creation.

  1. Conduct of business

In a firm all partners have a right to take part in the conduct of business of the firm. They may agree as to who has to act on behalf of the firm. Act of every partner binds the firm.

In case of company, it is only the directors who can act or take part in the conduct of business.

  1. Transfer of interest

In firm, a partner cannot transfer his interest without the consent of all others. Because, it is the matter of trust and confidence. The transferee must have got the trust of confidence of the other partners. In case of private company, there is limitation on the transfer of interest as in firm. But, in public companies, it is different. A member can transfer his share to others as a negotiable instrument.

  1. 10. Number of members

In firm, the minimum is two, maximum is 10 for banking and 20 for non-banking.

For a private company, minimum is 2, maximum is 50. For a public company, minimum is 7 and maximum is unlimited.

  1. Dissolution

In firm, the breaking of relationship by any kind, brings the firm dissolved.

A company is dissolved/liquidated or wound up according to the Indian Companies Act.

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