Introduction
When starting a new business one should know the main difference between the two. Both of them have distinct features and which makes it suitable for different businesses based on the kind of investment and the risk involved. Which one is better is left to the discretion of the businessman as each and every businessman has some or the limitation he must decide what is best for the company and the kind of business his company needs to flourish in the market.
Let us see what these two really mean are they even distinct? A partnership is a kind of business in which two or more people; agree of form a company on mutual consensus and distribute responsibilities; for running an organization and share the profit and losses that the business generates co-branding partnership. Examples are Red Bull and GoPro, Spotify and Uber, Levi’s & Pinterest whereas. On the other hand, the private limited company is a business entity. Held by a small group of people it is register for predefine object and own but its shareholder.
Major Differences
I. Number of Members
In a partnership the least a company can have is 2 members and the maximum it can have is 20 members, in the private limit company the least numbers of members are the same which is 2 but it can go on to keep 200 members at max.
II. Registration
Partnership can be register or unregister. Registration of Partnership is optional. If registered, Partnership is register under the Partnership Act, 1932. Whereas it is mandatory to register a Private Limited Company. It will be register with the Ministry of Corporate Affairs under the Companies Act, 2013.
III. Name of Entity
In a partnership firm the Promoters choice of name can be used for the Partnership. No approval is necessary for using the name; however, it is good to avoid trademarked names. On the other hand, the choice of the name provided by the Promoter must be approved by the Registrar of Company. Only names that are not identical/similar to an existing company or LLP name and names that are not offensive or illegal would be allowed. The name of the entity will end with the words “Private Limited Company”.
IV. Legal Status
Partnership is not recognize as a separate legal entity and the promoters are personally liable for the liabilities of the partnership, Partners have unlimited liability and is responsible for all the liabilities of the Partnership. Private Limited Company is a separate legal entity Wherein, shareholders have limited liability and are liable only to the extent of their share capital which means The Directors and Shareholders of a Private Limited Company are not personally liable for the liabilities of the Company.
V. Existence and Transferability
The existence of a Partnership business is dependent on the Partners, could be up for dissolution due to the death of a Partner and a partnership is non-transferable. The existence of a Private Limited Company is not dependent on the Directors or Shareholders could be dissolved only voluntarily or by Regulatory Authorities. In the present case the ownership can be transferred in the form of share transfer.
VI. Annual Filing
No requirements to file an annual report with Registrar of Companies. Income Tax Return must be filed for the Partnership. Private Limited Company must file Annual Accounts and Annual Return with the Registrar of Companies each year. Income Tax Return must also be filed for the Private Limited Company.
VII. Winding-up
A partnership firm can be wound up at any time by any partner if it is at will, without any legal formalities. Winding up a private limited company is a long and painful legal process.
Conclusion
The article has talked about that each and every company has its requirement and the business model should be selected to what is suitable but when you are just starting your venture, go for a partnership firm. Once you see a certain level of stability/growth and you need credibility in the market, go for company incorporation. In business to business deals especially, the customers are always worried if one is a registered company or not.
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