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OCT 2010Explain the differences between partnership and company.
PARTNERSHIPThe relevant statute applicable- Partnership Act 1961S3(1) Partnership Act defines partnership as the relation which subsists between persons carrying on business in common with a view of profit. Relation - existence of an agreement between persons Persons - means more than one
Carrying on business –defines business as ‘ include every trade, occupation or profession also means to do an act repeatedly. In common – means on behalf of both or all the partners. Profits – means profit motive.
GULAZAM V NOORZAMAN (1957)Facts : the plaintiff claimed that the defendants, who were cattle dealers, had made arrangements to form a partnership a partnership with him to purchase, keep, and sell cattle. The conditions were that the plaintiff was to provide capital for the purchase of the cattle and the defendants were to look after and sell them, with the profits to be divided equally amongst them. After a while, the defendants failed to render accounts to the plaintiff, neither did they pay his share of the profits. The plaintiff, therefore claimed for an account to be taken and payment of any sum of money found due to him. The defendants defense was that the partnership never existed
Issue – whether a partnership existed between the parties.Held :1. On the facts, a partnership existed between the parties2. Section 8 of the Registration and Licensing Business Ordinance 1953 did not affect the rights of one partners in a firm which had failed to comply with the Ordinance to bring an action against his co-partners. Claimed allowed.
COMPANY Company is a business organisation that is registered (or "incorporated") under the Companies Act, 1965 or its predecessor legislation. Section 4 of a companies act 1965 says that a company means a company incorporated pursuant to this act or pursuant to any corresponding previous enactment. As a legal entity which has its own name, a perpetual life with its own common seal. An incorporated association- Once it is formally incorporated, it becomes a separate legal person. It has existence apart from
section 361 companies act: a company is incorporated when it receives its certificate of incorporation.Co is born or its life start from the date stated on the certificate.
SALOMON V SALOMON & CO LTD (1897)FACTS :Solomon was a prosperous boot and shoe manufacturer. He ran the business as a sole trader under the style of ‘A. Salomon & CO’. Salomon was married and he had five children. All his children pestered him for a share in the business. Salomon then decided to incorporated his business as a limited liability company. He gave one share each to his wife and his five children and he himself took 20,001 shares. The business was then transferred to the company, and in consideration thereof debentures were issued to Salomon. But Salomon continued to run the business as before. The business floundered. Salomon was unable to salvage the company and the company was put into liquidation. There was enough assets to pay off the secured creditors including Salomon himself who was a debenture holder. But the unsecured creditors were left stranded. The liquidator sued Salomon. The Court of appeal held that he was liable to indemnify the company against the losses. Salomon appealed.
Issue : whether Salomon was liable for the debts of the company. Held : The House of Lords] incorporation of a company created a separated person. Even though the business of the company was the same as before and the same person managed the business and with the same hands that received the profits, yet the company was not an agent or a trustee for the members. The members were not liable in respect of the company’s obligations.
COMPARISON BETWEEN COMPANY AND PARTNERSHIP COMPANY PARTNERSHIPStructure Company is a person Two or more persons separate from its members carrying on business with a view of profitRegistration Need to be registered with Need to register their the Registrar of business under the Companies as a company Registration of Businesses Act, 1956Transferability Shares in a company are Generally, a partner generally transferable cannot transfer his status although the right of as partner to someone else transfer may be restricted without the con-sent of all the other partners
Number of members There is no maximum The maximum is twenty number of members is (there is no ceiling on the twenty (except where it is a number of members for private company, in professional which case the maximum is firms) fifty).Constitution A company must be A partnership may be constituted in writing, i.e. formed orally or in writing by a Memorandum and Articles of Association.Capital and liability Capital subscribed by Partners may with-draw members for their shares capital but their liability for cannot ordinarily be the firm’s debts to its returned to them, but (in a creditors is limited company) they are unlimited. not liable for its debts once they hold fully paid shares.
Borrowing powers Companies can borrow for Partners have un-restricted purposes covered by their powers of borrowing in objects as contained in their terms of amount and Memorandum of purpose AssociationSecurity over assets Companies can use current Partners cannot create assets as security by floating charges but they creating floating charges. can mortgage the firm’s assets. A sole-proprietor cannot create floating charges but can mortgage the firm’s assets.Rules, procedure and Companies are subject to Partnerships are formedinformation to public various statutory rules of informally and information procedure and are required about the firm need not be to supply certain published. infor-mation to the public
Dissolution A company is dissolved Partnerships may be by winding up and dissolved in-formally, liquidation which is a e.g. by agreement of the formal procedure partners.
CONCLUSION Based on discussion above, partnership and company have a various characteristic to form.