Partnership and Private Limited - Simplified

What is Partnership Firm:

Two or more person Join together to carryout a business is called PARTNERSHIPFIRM. As we all already seen in our earlier article ( had seen that the partnership is not a separate legal entity, its merely a collective name given to the individuals called PARTNERS.

Characteristics for Partnership Firm:

1. Minimum 2 Partners are required

2. Partnership is formed based on the written agreement called partnership deed

3. Profit shared as per the agreement agreed upon

4. Partners are collectively and individually responsible for liabilities

What is Private Limited Company?

Private Limited is a more popular business entity among small and medium entrepreneur. The Act governs the Private Limited registration is The Companies Act, 2013. This type of entity is more attracted because of its Character "Limited on Liability" and we will see this more detail in this article.

Characteristics for Private Limited Company:

Members:  Minimum two members are required to form a private limited company

Limited Liability: The liability of each members is limited by its shares

Index of members: A private limited company need not keep an index of its members. whereas the public limited company need to maintain Index of its members. 

What is the Difference between Pvt. Ltd and Partnership

Private Limited
Partnership Form
Minimum Number of members that is needed to form a Private Limited Company is 2. But the maximum is 200
Minimum Number of members that is needed to form a Private Limited Company is 2. But the Indian Partnership Act doesn't mention about the maximum limit for members.
The most important feature of a Limited Company is that the Liablity of share holders are limited by their Shares
The partners are Jointly and individually liable. Which it is called as unlimited liablity. 
Governing Law
Private Limited Company is Governed by The Companies Act, 2003
Partnership Firm is governed by Indian Partnership Act, 1932
By Incorporating the Company under Companies Act, it can be formed
By simply signing the Partnership Agreement, a Partnership Firm can be formed. Registration is Optional
Name of the Company need to be approved by the ROC. Further there are many regulations for name approval.
No option for getting a name approval in Partnership Firm.
Not Mandatory
The Board of Directors Manages the Private Limited Company
Partners manages the Partnership Firm
Minimum 1 lakh share capital is required to form a Private Limited Company
Partnership Act does not mention requirement on Capital
Separate Legal Entity
Private Limited is a Separate legal entity
Partnership Firm is not a Separate legal  Entity
Perpetual Succession
The company keeps on existing in the eyes of law even in the case of death, insolvency, the bankruptcy of any of its members. This leads to the perpetual succession of the company.
It does not have perpetual succession as this depends upon the will of partners

Advantage of Partnership Firm:

1. Easy to Form:  A partnership firm is very easy to form. It can be formed by simply signing a partnership firm. Registration is just optional. 

2. Flexibility in operation: Partnership is flexible to operate. At any time the Partners can decide and change the Object, Capital, and even the business activity.

3. Sharing the Risk: As the profit any also Loss are shared between all the partners as per the agreement agreed upon. Hence the risk is equally shared upon.

4. Credit: As the Partnership firm is of the nature of Unlimited Liability, the debtors can easily process the loan. 

5. Legal Restrictions: There is no excessive legal restriction as related to Partnership firm. Hence there is a freedom in administration.

6. Simple Dissolution process: The Partnership firm can be dissolved by simply signing the dissolution deed. Even the partners can quit easily from a Partnership firm by simply signing the reconstitution deed. 

Disadvantage of Partnership Firm:

1. Unlimited Liability: The partners are personally and jointly liable for any claim.

2. no legal status: Partnership firm is not a independent legal entity.

3. Instability: On death or insolvency of partners, there is a risk that the partnership firm will automatically dissolve. 

Advantage of a Private limited Company

1. Attract investors: The basic criteria for attracting investor or approaching Angel Investors or Start-up India Scheme, it is mandatory to be a Private Limited Company

2. Perpetual succession:   The company keeps on existing in the eyes of law even in the case of death, insolvency, the bankruptcy of any of its members. 

3. Independent Legal Entity: It can enter into contracts on its own name. It can sue and be sued in its own name.

4. Limited Liability:  The member's liability is limited to their shares. Eg. Let's assume that the assert of the company is  1,50,000/-. If the liability goes up by 5,00,000/-, the recovery can be done only for 1,50,000/- and for the balance 3,50,000/- it is not possible to recover from the shareholders or director's property.  

5. Business status: This world always looks for status in the businesses they deal with. If a company is started as a proprietorship or partnership firm, the business is it doesn't gives a better sound. But if it is Private Limited, it gives a great status. So it gives a great credibility.

Disadvantage of a Private Limited Company:

1. Complex Exit: The closure of the Private limited company has its own formalities

2. Transfer of Shares: One of the disadvantages of private limited company is that it restricts transferability of shares.

3. Maximum Share Holders: There can be only 200 share holders in a Private limited Company.

4. Taxation: As compared with the Proprietorship firm, it doesn't got taxation slabs.

M/s. Le Intelligensia Law Firm
Phone: 9941993399



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