DIFFERENCE BETWEEN PARTNERSHIP AND COMPANY

 

DIFFERENCE BETWEEN PARTNERSHIP AND COMPANY

 

Key Difference between Company and Partnership Firm

A company and a partnership firm are both business structures but have several key differences. Some of the main differences between a company and a partnership firm are:

1. Legal entity: A company is a separate legal entity, meaning it can enter into contracts, own property, and assets, and be held liable for its actions. A partnership firm, on the other hand, does not have a separate legal identity, and partners are personally liable for the debts and obligations of the partnership.
2. Liability: Shareholders in a company have limited liability, meaning their financial liability is limited to the amount of capital they have invested. In a partnership firm, partners have unlimited personal liability, meaning they can be held responsible for the entire amount of the partnership's debts and liabilities.
3. Management: A company is usually managed by a board of directors, while a partnership firm is managed by the partners.
4. Ownership: A company is owned by shareholders, while a partnership firm is owned by the partners.
5. Continuity of existence: A company has perpetual existence, meaning it continues to exist until it is dissolved, while the continuity of a partnership firm depends on the terms of the partnership agreement.
6. Raising capital: A company can raise capital by selling shares, while a partnership firm's ability to raise capital is generally limited to the partners' capital.
7. Taxation: Companies are taxed on their income and also shareholders are taxed on dividends and capital gains. In partnership firms, partners are taxed on their share of the partnership income.

KINDS OF COMPANIES

1. ONE PERSON COMPANY

2. PRIVATE COMPANY

3. PUBLIC COMPANY

 

ONE PERSON COMPANY OR OPC      Section 2(62) of the Companies Act defines One Person Company as ‘One Person Company which has only one person member.’

Rule 3 of the Companies (Incorporation) Rules,2014 further prescribes that:

1. Only a natural person being an Indian citizen and Resident in India can form One Person Company.

2. One Person can form only one ‘One Person    Company’ or become a Nominee of only one such company.

3. It can not be formed for charitable purposes.

4. It can not carry out Non-Banking Financial Investment activities including Investment in Securities of any body corporate.

5. Its paid-up share capital is not more than 50 lakhs.

6. Its average annual turnover of three years should not exceed Rs. 2 Crores.

7. A one one-person company should have at least one Director but not more than 15 Directors.

 

PRIVATE COMPANY 

• A private company is a firm that is privately owned.
• Private companies may issue stock and have shareholders, but their shares do not trade on public exchanges and are not issued through an IPO.
• Sole proprietorships, LLCs, S corporations, and C corporations are private companies.

 

PUBLIC COMPANY

A Public Company must have at least 7 members. There is no restriction on the maximum number of members. A Public Limited Company should have at least 3 Directors but not more than 15 Directors. The name of a Public Company ends with the word Limited.

A Public Company can raise its capital by issuing shares to the Public for subscription.

A Company, Private or Public may be

1. Limited Liability Company

2. Unlimited Liability Company

3. Company Limited by Guarantee

 

Limited Liability Company or Company Limited by Shares

A Company having the liability of its members limited by the memorandum to the amount, if any, unpaid on shares respectively held by them is termed as a Company Limited by Shares.Section2(22) of the Companies Act,2013

Unlimited Liability Company

It is a Company Where the Liability of its members is Unlimited.  Section2(92) of the Companies Act,2013

Thus, in the event of the winding up of Unlimited Company, Debts of the Company Shall be met from the Private Property of the members.

 

Company Limited by Guarantee

It is a Company having the liability of its members limited by the memorandum to such amount as the members may respectively undertake to contribute to the assets of the company in the event of it being wound up.      Section2(21) of the Companies Act,2013

DIFFERENCE BETWEEN PRIVATE COMPANY AND PUBLIC COMPANY

 

 

Private vs. Public Company: An Overview

A private company is a company held in private hands. This means that, in most cases, a company is owned by its founders, management, and/or a group of private investors. The public isn't privy to its business.

A public company is a company that has sold a portion of itself to the public via an initial public offering (IPO), meaning shareholders have a claim to part of the company's assets and profits
 Public disclosure of business and financial activities and performance is required of public companies.

Both private and public companies can contribute to the financial health and well-being of economies and nations through their business activities, employment opportunities, and wealth-building.

Read on to learn more about a private vs. public company and the differences between them.

KEY TAKEAWAYS

• A private company usually is owned by its founders, management, and/or a group of private investors.
• Information about its operations and financial performance is not available to the public.
• A public company has sold a portion of itself to the public via an initial public offering.
• After the IPO, a public company usually trades on a public stock exchange.
• The main advantage public companies have over private companies is their ability to tap the financial markets for capital, by selling stock (equity) or bonds (debt).

Private Companies

A popular misconception is that privately held companies are small and of little interest. In fact, many big-name companies are privately held. Take Mars, Cargill, Fidelity Investments, Koch Industries, and Bloomberg.

Ownership

Private companies are owned by those who establish them and those invited to invest in them. The public at large cannot buy shares or otherwise invest in private companies at their own discretion.

Capital for Growth

A private company can't use public capital markets to raise funds when it needs them. It must turn to private funding. That means private companies fund their growth with profits from operations and/or by borrowing money from banks, venture capitalists, or other types of investors.

Importantly, while a privately-held company can’t rely on getting cash by selling stocks or bonds in public markets, it may still be able to sell a limited number of shares without registering with the SEC, under Regulation D.3 In this way, private companies can use shares of equity to attract investors.

It has been said that private companies seek to minimize the tax bite, while public companies seek to increase profits for shareholders.

Public Companies

A public company is usually a very large business entity and is normally listed and traded on a public exchange. To continue trading publicly, exchanges require public companies to meet certain standards. For example, the New York Stock Exchange requires that public companies maintain a market capitalization of $15 million.4

Ownership

Once a public company's stock shares trade on public stock markets, they can be bought and sold by people outside of the company. So, the company is owned by those within the organization who possess shares of company stock and by members of the general public. As a consequence, members of the public who own shares have a stake in the company, and company management can be influenced by their opinions related to the company

Capital for Growth

A main advantage publicly traded companies have is their ability to tap the financial markets for needed capital for expansion through mergers and acquisitions, for internal projects that can drive profits and growth, or for other needs.

They do this by selling stock (equity) or bonds (debt).

For example, a public company may issue bonds that investors purchase. In this way, investors make loans to the company. The company will have to repay these loans with interest. But it won’t have to surrender any shares of ownership in the company to the investor.

Thus, bonds can be a good option for public companies seeking to raise money, especially in a depressed stock market. However, a company could also raise capital by selling additional shares. By doing so, it may relieve itself of the burden of repaying bonds.

Key Differences

Company Ownership

Private companies are owned by founders, executive management, and private investors. Public companies are owned by members of the public who purchase company stock as well as personnel within companies (founders, managers, employees) who possess shares of company stock as a result of the IPO and purchases.

Because they are entitled to a say, public company shareholders not involved in the company in any way other than share ownership can have an impact on the management and operations of public companies.

Source of Capital

Private companies normally obtain needed capital from private sources, such as their shareholding owners or private investors (e.g., venture capitalists). They can also raise funds by getting loans from financial institutions.

Public companies obtain needed capital by selling shares in the public marketplace or by issuing debt. This makes capital easier to get hold of for public companies compared to private companies.

DIFFERENCE BETWEEN ONE PERSON COMPANY, PRIVATE COMPANY AND PUBLIC COMPANY

1. One Person Company (OPC)

   - A type of company introduced to support entrepreneurs who wish to start a venture alone.

   - Only one person is required to incorporate an OPC.

   - The individual becomes both the shareholder and the director of the company.

   - OPCs have limited liability, meaning the personal assets of the owner are protected in case of any debts or liabilities of the company.

   - OPCs have certain restrictions, such as a limit on the maximum turnover and capital, and they cannot raise funds through public offerings.

 

2. Private Company

   - A privately held business entity.

   - Requires a minimum of two shareholders and can have a maximum of 200 shareholders.

   - Ownership is not publicly traded and shares are held by a few individuals, families, or a group of investors.

   - Private companies have limited liability, meaning the personal assets of shareholders are protected.

   - They are subject to fewer regulatory requirements compared to public companies.

   - Governance is typically more flexible and can be tailored to the needs of the shareholders.

 

3. Public Company

   - A company whose shares are traded freely on a stock exchange.

   - Can have an unlimited number of shareholders.

   - Shares are available to the general public and can be bought and sold on stock exchanges.

   - Subject to stringent regulatory requirements, including periodic financial reporting, disclosure of significant information, and compliance with various regulations.

   - Public companies often have a higher level of scrutiny from regulatory bodies, investors, and the public.

   - Governance structure typically involves a board of directors elected by shareholders and adherence to corporate governance standards.