Comparison Between Partnership and Limited Companie

Comparison between Partnership and Limited Companies

1. Formation

A partnership is formed by agreement of the partners and it can be created informally under the Partnership Ordinance. A registered company can only be formed if all the formal requirements of the Companies Ordinance are compiled with and it comes into existence upon Certificate of Incorporation being used.

1. Perpetual Succession

A partnership is dissolved if a partner dies, becomes bankrupt, gives notice of his intention to retire etc. subject always to the express agreement that the firm is to continue after any changes in the partnership structure. A company once incorporated can only be dissolved by a court order or voluntarily. The death of a director or member of a company has no effect on the existence of the company itself.

1. Legal Entity

Individual partners are the legal entities, not the partnership. A company is separate legal entity or artificial person.

1. Liability

A partner ( except in the case of a limited partner), is liable for the debts of the partnership to the full extent of his private estate. A shareholder or member of an ordinary limited company enjoys liability limited to the amount unpaid on the shares he holds. If the company is limited by guarantee, the liability is limited to the amount of his guarantee.

1. Management and Control

Each partner is , subject to contractual agreement, entitled to take part in the management and control of the business and affairs of the partnership. The business of a company is managed by the board of directors elected by the shareholders.

1. Agency

Each partner is both a principal and an agent of his co-partners. A shareholder is neither a principal nor an agent of a limited company.

1. Contractual Authority

Contractual powers of partnership are limited unless otherwise provided in the partnership agreement. The contractual powers of a company are subject to the ultra vires doctrine.

1. Transferability of Interest

Interest of a partner in a partnership cannot be transferred without the approval of all other partners. Shares or stock in a public or listed company are freely transferrable. However, the transfer of shares of a private company is subject to restrictions imposed in its articles of association.

1. Lawsuits

Any partners in respect of a cause of action and carrying on business may sue or be sued, in the name of the firm of which they were partners at the time when the cause of action accrued.

1. Number of Members

In general, a partnership cannot have more than twenty members (S. 345, Companies Ordinance). There are exceptions like accountants, stock brokers, solicitors etc. A private company can be formed with a maximum of fifty members (S. 29, Companies Ordinance). A public company has no limit on the number of shareholders. However, a company must have at least one director. (S.4, Companies Ordinance)