• A private company has many advantages over partnership.
• Partnership is a relationship which subsists between persons carrying on business in common with a view of profit.
• The difference between a private company and partnership are:
a) Limited Liability:
Members in private company are generally not liable for debts and other obligations of the company since their liability is limited shares or guarantee. This is not the case in partnership.
b) Wide capital base:-
Compared to partnership private companies generally have more capital reason of wide spectrum of membership.
c) Perpetual succession.
A private company can exist in perpetuity unlike partnership which is affected death or bankruptcy of any of the members.
d) Qualified or specialized management
Under section 177 of the Act, every private company must have at least one director. Directors are elected members in general meeting. Members have an opportunity to elect qualified persons as directors.
e) Owing property and Capacity to Contract
The fact that a private company can own or hold property or enter into contractual relationship makes it different from a partnership.
f) Sue or be sued
Shareholders are not obliged to sue to remedy wrongs done to the company and generally cannot be sued for the wrongs of the company. This attribute is not present in partnerships.
g) Transfer ability of Shares
Shares in private companies are not freely transferable. Under section 75 of the Companies Act, the shares or other interest of any member shall be movable properly transferable in the manner provided the articles. The fact that shares are transferable means that the company membership keeps on changing from time to time.
Under section 30 (1) (a) of the Companies Act, a private company is restricted to transfer its shares.
However, a partnership cannot transfer its shares.
b) Borrowing floating charge:
• Private companies can utilize the facility of floating charge to borrow. This is an equitable charge securing a debenture on the assets of a going concern.
• A partnership cannot utilize this facility Other differences include:
• Both partnerships an private companies are subject to different taxation rates.
• It is more expensive to form a private company than to form a partnership. Formation expenses of companies include legal fees, registration fees, stump duty etc.