Differences between a joint stock company and a partnership firm are:
1. Regulating Act:
A partnership firm is governed by the provisions of the Indian Partnership Act, 1932, whereas a company is governed by the provisions of the Companies Act, 1956.
2. Number of Members:
The maximum number of members in the case of a firm is fixed at 10 for banking business and at 20 for any other business, but no such maximum limit is fixed in the case of public company.
The maximum number of members of a private company, however, must not exceed 50 excluding members who are or were in the employment of the company.
The minimum number of members in a public company is seven and in case of a private companies two. In case of a partnership the minimum number of partners are two.
A partnership firm has no separate legal entity distinct from the members composing it. A company, on the other hand, is a separate legal entity different from its members.
In partnership, each partner has unlimited liability and is personally liable for all the debts of the firm. In a company, on the other hand, a shareholder has limited liability-limited to the extent of the unpaid amount on the shares held by him or the amount guaranteed by him to be his contribution in case the company is wound up-unless it is an unlimited company which is an exception.
5. Authority of members:
In partnership each partner has an implied authority to bind his co-partners by acts done within the ordinary course of business, but in a company a shareholder has no such authority, there being no mutual agency between various shareholders.
All the partners of a firm are entitled to take part in the management of the business; but in the case of a company the right to control and manage the business is vested in the Board of Directors elected by the shareholders.
7. Transfer of interest:
A partner cannot transfer his interest in the firm without the consent of all other partners. He may, of course, assign his share in the partnership but the assignee merely becomes entitled to the financial benefits in respect of the share and does not become a partner unless the other members of the firm agree.
In case of a private company also the transfer of shares requires the prior permission of the Board of Directors. But in the case of a public company a shareholder can transfer his shares freely without restriction and the transferee succeeds to all the rights of membership.
The audit of the accounts of a company is a legal necessity but it is not so in the case of a partnership carrying on business if the annual total sales, turnover or gross receipts in business do not exceed Rs 40 lakhs.
A partnership firm may or may not be registered but in the case of a company registration is essential.
10. Winding up:
A partnership firm can be wound up at any time by any partner, if it is ‘at will’, without legal formalities. In the case of a company, no one member can require it to be wound up at will and winding up involves legal formalities.