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Soorya Kiran
Asked August 04, 2016

Private Limited Company or Partnership?

  • 1 Answer
  • 360 Views

HI, We three people are planing to register an It company.We are confused ,as which one to choose among Private Limited Company and Partnership.Which one will be beneficiary for us.Thank you

Answer 1

We shall briefly explain you the differences between a Private Limited Company and a Partnership and the advantages of both. Based on your requirements, you can choose to register your company.

A partnership is a contractual relationship between parties where they agree to share the profits and losses gained by either/all of them. Principle of agency applies to a partnership and every partner is considered as an agent of the partnership firm. If the contract does not specify the ratio in which the profit/loss shall be shared, then it is divided equally irrespective of the contribution of the partners. Principle of Indemnity applies to a partnership i.e. the firm indemnifies the partner who acts on behalf of the firm and vice versa. Each and every partner is jointly and severly liable for the acts and omissions of other partners.

Companies on the other hand assures limited liabilities.  [Take this into consideration if a huge amount of money is being invested or where a third party is involved with respect to funding].

The incorporation procedure for a partnership is easier as compared to that of a company. While partners are liable for the acts of a firm, members of a company gain protection with this regards. Please note that a partnership is not allowed to receive foreign loans. Similarly creating Employee Stock Options is easier in companies as compared to the partnership firms. Companies are mandatorily required to rotate the auditors while partnerships are required to do so only if the turnover reaches a certain prescribed limit.

Hence if you are looking for a smaller start with a safe game, you are recommended to go for a partnership. However if you are looking for major capital investment and to attract foreign investment, you are being adviced to register as a company.

Please note that you can always switch from one form of business to the other. Also, now the new Companies Act provides benefits for small companies (having share capital of less than 50 lakhs and revenue capital of less than 2 crores).

 

Hope we were able to help you. Do write back if you need details on Small companies or with regards to Public Companies v Private Companies. All the best for your new business. 

 

Answered by: Sammanika Rawat, Researcher, Lawfarm.

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