A company is a legal entity representing an association of people, whether natural, legal or a mixture of both, with a specific objective.

It is governed by Indian Companies Act 2013.

Minimum number of members required is 2 in case of private limited company and maximum is 200.

Audit in case of companies is mandatory.

Minimum capital of Rs.1 Lakhs is mandatory.

Partnership Firm

When two or more persons agrees to carry on the business or profession and to share the profit and losses on the basis of ratio decided by them.

It is governed by Indian Partnership Act 1932.

Minimum numbers of partners required is 2 to form a partnership.

Audit in case of partnership firm is not mandatory.

No minimum capital is required.

Differences between company and partnership firm

Tax Rate: Normal tax rate in case of companies is 25% and in case of partnership firm 30%.

Cost Analyses:Cost of incorporating the company is high as comparision to partnership firm.

As registration  in case of company is compulsory under MCA and in case of partnership firm no registration is needed.

Compliances: Annual compliances in case of companies is high and there is a huge penalty in case of any defaults.

Prosecution is also there in case of companies.

Termination: Cancellation or closure of partnership is easy.

While in case of there is lot of compliances to do.

Sourcing of funds: The credibility of a company is high as compared to partnership firm.

It is governed by statutory bodies like MCA and SEBI that keep a check upon the business from time to time it. Raising funds is easier internally and even from external sources.

Why Company is preferred over partnership firm?

1. Tax rate in case of companies is low as compared to partnership.

2. Credibility of the companies is high.

3. Corporations can more easily raise funds than other forms of businesses.

4. A Private Limited Company is a legal entity in its own right, allowing the business owner to keep their assets separate from the business itself. This means that the business owners aren’t subject to any personal liability, as their work is undertaken as an agent for the company, rather than as an individual.

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Qualification: CA in Practice
Location: Meerut, Uttar Pradesh, India
Member Since: 10 Apr 2021 | Total Posts: 7
Practicing CA having knowledge of Income Tax, Gst, Corporate Laws and compliances related to firms. A Professional with strong academic background. View Full Profile

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May 2021