CORPORATE ORGANISATIONS Chapter 1

Can you compare partnership and joint stock company ? Mode of creation: A company is created by law while partnership is the result of an agreement b/w partners. In the formation of partnership no legal formalities are involved and registration of the firm is not compulsory. A company can be formed only after fulfilling legal formalities and its incorporation under the act is essential.

Number of members The minimum number of partners in partnership firm is two and the maximum is 10 in banking business and 20 in other business. In a pvt company, the minimum number of members is 2 and the maximum is 50. In a public company minimum number of members is 7 and there is no maximum limit prescribed by law

Legal status A company has a separate legal entity independent of its members But partnership firm has no separate legal entity different from its partners.

Liability of members In a joint stock company liability is limited. In partnership partners are jointly liable to an unlimited extent.

Transferability of interest Shares of a public company are freely transferable but in a private company there is restrictions in transfer of shares. A partner cannot transfer his interest in the firm to an outsider without the unanimous consent of all the partners. Any person can become a member of a company by purchasing its shares but new a partner is admitted only the consent of all partners.

Statutory control A company has to comply with several legal requirements and it must submit reports to the government. On the other hand there is no statutory regulation on day to day working of partnership.

Change of objects The objects and powers of a company as laid down in its Memorandum of Association can be altered only by fulfilling legal formalities laid down in the companies Act. The objects of the partnership can be altered with the unanimous consent of all the partners without any legal formality.

Management In partnership, all the partners can take active part in management of the firm. In a company is managed by Board of directors consisting of elected representatives or nominees of the members. There is divorce between ownership and management of a company But there is no divorce in partnership.

Stability A company enjoys perpetual life or existence which is not affected by death,retirement,insolvency,etc.. The life of partnership is uncertain and come to an end with the retirement, death etc…

Accounts and audit A company must maintain its accounts in the prescribed form and must audited by C.A Accounts and audit are not obligatory for a partnership.

Implied agency In a partnership firm every partner has an implied authority to represent firm But no member of a company is an implied agent of the company or of other members.

Common seal In partnership one or more partners can sign the documents on behalf of firm. But in a company only director can sign and that too only after the common seal has been fixed on the document.

Regulating Act Companies are governed through companies Act 1956 Partnership are regulated under the partnership A ct of 1932

Winding up A partnership can be dissolved with the mutual consent of the partners at any time and without legal formalities. On the other hand winding up of a joint stock company involves several legal formalities prescribed under the companies Act.

Merits of joint stock company Limited liability Large financial resources Stability Transferability of shares Efficient professional management Scope for growth and expansion Public confidence. Diffused risk. risk spread over a large number of people Economies of large scale operations. Democratic control Social benefits…

Demerits of joint stock company Difficulty of formation Government control Lack of motivation an personal touch Oligarchic management Delay in decisions Conflict of interests Frauds in promotion and management Lack of secrecy Social evils

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