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Company Distinguished

The document distinguishes between a company and several other forms of business: 1) A company is a distinct legal entity, whereas a partnership consists of individuals. A company's property belongs to the company, not individuals. 2) A company has perpetual existence and members have limited liability, unlike partnerships which dissolve upon a partner's death. 3) A Hindu undivided family business consists of family members only and the karta has sole authority, unlike a company. 4) A limited liability partnership provides benefits of limited liability like a company but flexibility of a partnership, and partners have limited liability for unauthorized actions of others.

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Srishti Malhotra
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30 views

Company Distinguished

The document distinguishes between a company and several other forms of business: 1) A company is a distinct legal entity, whereas a partnership consists of individuals. A company's property belongs to the company, not individuals. 2) A company has perpetual existence and members have limited liability, unlike partnerships which dissolve upon a partner's death. 3) A Hindu undivided family business consists of family members only and the karta has sole authority, unlike a company. 4) A limited liability partnership provides benefits of limited liability like a company but flexibility of a partnership, and partners have limited liability for unauthorized actions of others.

Uploaded by

Srishti Malhotra
Copyright
© © All Rights Reserved
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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COMPANY VIS-A-VIS OTHER FORMS OF BUSINESS

Though there are a number of similarities between a limited company and other
forms of associations, there are a great number of dissimilarities as well. In both
the cases individuals are the subjects, and trading is generally the object. In the
following paragraphs, a limited company is distinguished from a partnership
firm, a Hindu Undivided Family (HUF) business and a registered society.

Distinction between Company and Partnership

The principal points of distinction between a company and a partnership firm


are as follows:

(1) A company is a distinct legal person. A partnership firm is not distinct from
the several persons who form the partnership.

(2) In a partnership, the property of the firm is the property of the individuals
comprising it. In a company, it belongs to the company and not to the
individuals who are its members.

(3) Creditors of a partnership firm are creditors of individual partners and a


decree against the firm can be executed against the partners jointly and
severally. The creditors of a company can proceed only against the company
and not against its members.

(4) Partners are the agents of the firm, but members of a company are not its
agents. A partner can dispose of the property and incur liabilities as long as he
acts in the course of the firm’s business. A member of a company has no such
power.

(5) A partner cannot contract with his firm, whereas a member of a company
can.
(6) A partner cannot transfer his share and make the transferee a member of the
firm without the consent of the other partners, whereas a company’s share can
ordinarily be transferred.

(7) Restrictions on a partner’s authority contained in the partnership contract do


not bind outsiders whereas such restrictions incorporated in the Articles are
effective, because the public are bound to acquaint themselves with them.

(8) A partner’s liability is always unlimited whereas that of shareholder may be


limited either by shares or a guarantee.

(9) A company has perpetual succession, i.e. the death or insolvency of a


shareholder or all of them does not affect the life of the company, whereas the
death or insolvency of a partner dissolves the firm, unless otherwise provided.

(10) A company may have any number of members except in the case of a
private company which cannot have more than 200 members (excluding past
and present employee members). In a public company there must not be less
than seven persons in a private company not less than two. Further, a new
concept of one person company has been introduced which may be incorporated
with only one person.

(11) A company is required to have its accounts audited annually by a chartered


accountant, whereas the accounts of a firm are audited at the discretion of the
partners.

(12) A company, being a creation of law, can only be dissolved as laid down by
law. A partnership firm, on the other hand, is the result of an agreement and can
be dissolved at any time by agreement among the partners.

Distinction between Company and Hindu Undivided Family Business


1. A company consists of heterogeneous (varied or diverse) members, whereas
a Hindu Undivided Family Business consists of homogenous (unvarying)
members since it consists of members of the joint family itself.

2. In a Hindu Undivided Family business the Karta (manager) has the sole
authority to contract debts for the purpose of the business, other coparceners
cannot do so. There is no such system in a company.

3. A person becomes a member of a Hindu Undivided Family business by


virtue of birth. There is no provision to that effect in the company.

4. No registration is compulsory for carrying on business for gain by a Hindu


Undivided Family even if the number of members exceeds twenty [Shyamlal
Roy v. Madhusudan Roy, AIR 1959 Cal. 380 (385)]. Registration of a company
is compulsory.

Distinction between company and Limited Liability Partnership (LLP)

LLP is an alternative corporate business form that gives the benefits of limited
liability of a company and the flexibility of a partnership. LLP can continue its
existence irrespective of changes in partners. It is capable of entering into
contracts and holding property in its own name. LLP is a separate legal entity, is
liable to the full extent of its assets but liability of the partners is limited to their
agreed contribution in the LLP.

Further, no partner is liable on account of the independent or un-authorized


actions of other partners, thus individual partners are shielded from joint
liability created by another partner’s wrongful business decisions or
misconduct.
Mutual rights and duties of the partners within a LLP are governed by an
agreement between the partners or between the partners and the LLP as the case
may be. The LLP, however, is not relieved of the liability for its other
obligations as a separate entity.

Since LLP contains elements of both ‘a corporate structure’ as well as ‘a


partnership firm structure’ LLP is called a hybrid between a company and a
partnership.

LLP is a body corporate and a legal entity separate from its partners, having
perpetual succession. LLP form is a form of business model which :(i) is
organized and operates on the basis of an agreement.(ii) provides flexibility
without imposing detailed legal and procedural requirements (iii) enables
professional/technical expertise and initiative to combine with financial risk
taking capacity in an innovative and efficient manner.

A basic difference between an LLP and a company lies in that the internal
governance structure of a company is regulated by statute (i.e. Companies Act)
whereas for an LLP it would be by a contractual agreement between partners.

The management-ownership divide inherent in a company is not there in a


limited liability partnership. LLP have more flexibility as compared to a
company. LLP have lesser compliance requirements as compared to a company.

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