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 (http://leintelligensia.blogspot.in/2018/04/company-registration-in-chennai.html)we
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
SL
|
Feature
|
Private
Limited
|
Partnership
Form
|
1
|
Members
|
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.
|
2
|
Liability
|
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.
|
3
|
Governing Law
|
Private
Limited Company is Governed by The Companies Act, 2003
|
Partnership
Firm is governed by Indian Partnership Act, 1932
|
4
|
Creation
|
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
|
5
|
Name
|
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.
|
6
|
Audit
|
Mandatory
|
Not Mandatory
|
7
|
Management
|
The Board of
Directors Manages the Private Limited Company
|
Partners
manages the Partnership Firm
|
8
|
Capital
|
Minimum 1 lakh
share capital is required to form a Private Limited Company
|
Partnership
Act does not mention requirement on Capital
|
9
|
Separate Legal
Entity
|
Private Limited is a Separate legal entity
|
Partnership
Firm is not a Separate legal Entity
|
10
|
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.
A.Arivazhagan
Advocate
M/s. Le Intelligensia Law Firm
Phone: 9941993399
http://leintelligensia.com/
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