PRIVATE LIMITED COMPANY VS PARTNERSHIP FIRM

INTRODUCTION:

 

A company is a legal entity structured or formed by a group of people who are engaged there to incorporate a particular goal set by the proprietors or an entrepreneur. A company can be distinguished between Private and public companies.

The ownership part of an organization can behold by an individual or in partnership but there is a thin line gap between a Pvt ltd company and a partnership firm.

 

Private Limited Company

 

A Private Ltd. may be a company that's held privately by the members. within the case of a personal Ltd., the liability of the members is restricted to the number of shares respectively held by them. The liability arrangement during a private Ltd. is that of a limited partnership, wherein the liability of a shareholder extends only up to the number of shares held by them. The owners of the company are not liable for any losses incurred by them. This means that they cannot sue for damages if their share price falls below the value of their shares and vice versa. In addition, the owner of a private Ltd. Has no right to sue for damages arising from the sale of shares or other assets.

 

Advantages of Pvt Ltd Company

 

• The liability of the members on a winding-up is restricted to the quantity unpaid on their shares. Shares of a corporation limited by shares are transferable by a shareholder to the other person.

• The transfer is straightforward as compared to the transfer of an interest in the business run as a proprietary concern or a partnership.
• This Capital that you simply invest within the company isn't an Asset of the corporate, it’s a "Liability" of the corporate.

 

Partnership Firm

 

A partnership firm is a type of partnership where two or more partners share the same ownership and control over all aspects of the business. It is a legal entity with no rights or obligations to any other party except for that of the owner. There are many types of partnerships, but they all have different benefits. Partnership firm represents a business entity that's formed with the purpose of creating a take advantage of the business. Two or more parties close with a proper agreement (known as Partnership Deed) to have and manage the business.

 

Advantages of Partnership Firm

 

• The relation between the partners of a partnership firm is made by contract. The partners enter into a partnership through an agreement which can be verbal, written or implied. If the agreement is in writing it's referred to as a ‘Partnership Deed’.
• Any loss sustained by the firm is going to be borne by all the partners equally with the benefit that the burden borne by each partner is going to be much less whereas the only proprietor has got to bear the whole loss of the business.
• All loss sustained by the firm is equally distributed amongst each and every partner.

 

Pvt. Ltd. Company vs Partnership Firm, which one to choose?

 

The most important step is to choose first what business model you are going to follow and on what your business is all about. This will give you a clear idea about choosing between Pvt. ltd. or partnership.

 

In an Ltd., ownership and day to day management of the business is split between shareholders and directors (although they’re often an equivalent people). which will mean that directors are constrained by shareholder preferences in pursuing what they see because of the best interests of the business.

 

By contrast, during a business partnership, the partners both own and control the business. As long because the partners can agree with the way to operate and drive forward the partnership, they’re liberal to pursue that without interference from any shareholders. this will make a partnership business potentially more flexible than an Ltd., with the power to adapt more quickly to changing circumstances.

 

The Major difference between the Private Ltd. and Partnership there's no minimum capital requirement for starting a partnership firm and therefore the minimum capital requirement for a personal company it's 1 lakh. A Partnership Firm isn't sure to use the word Limited or Pvt Ltd at the top of its name while a personal Ltd. has got to add the word Pvt Ltd at the top of its name. The Partnership Firm is regulated by the Registrar of Firms of the government and personal Ltd. is regulated by the Registrar of Companies of the Central Government. The Structure of both the firms is designed in a very sceptical way that a person is always going to get confused between both the parties and it is not easy to find out which one will do better than the other. Many factors can affect the decision-making process of a person when he decides to join an Ltd. or partnership firm.

 

Few of them are:

• the type of partnership - if you have a limited liability company, then you can choose either to form your own partnership or to form a partnership with another partner.
• the size of the business - if you have more than 50 employees, then you can form a partnership with someone who has more than 50 employees.
• the number of shares issued by each partner - if you have more than 50 shares in a partnership, then you can form a joint venture without any restrictions.

 

So, the decision should be made clearly having a precise idea about both the sides, advantages and drawbacks of both the sides and then understanding your viewpoint you can surely end up on a final decision. It is very important to know that there are many differences between a partnership and an LLC. For example, the partners may not share all their profits and losses with one another but they will share some of them with the other partners. In addition, the partners may have different interests and preferences which might lead to conflicts. The partnership also has its own benefits and disadvantages. It is a good way to get information on the pros and cons of each partner's views. It is also a good way to learn about the differences between a partnership and an LLC.

You can also get foreign partners easily while staying in your local place or India for business purposes.

You can also later convert your partnership firm into a private limited company, but have to agree on major basic factors.

 

Conclusion

 

So, the bottom line would be both sides have their key benefits and drawbacks and you can definitely choose wisely having a transparent idea about private limited and partnership firm. This thing not totally but still depends upon the size of your company and the business model that you follow.