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Difference between Partnership Firm and Private Limited Company

Download the PDF: http://bit.ly/3EutgIu Many people who want to start their business, have one common doubt, what is the difference between a partnership firm and a private limited? Which one to choose?. Some other people say, there is plenty of content available online, which says about the difference between a private limited company and a partnership firm. So in this article, we are going to discuss the difference in simple terms. What is a Partnership? An entity is formed between two or more people with the common object or intention to make a profit is called a Partnership Firm. Registration is not compulsory as per the Act. Here two people join together, invest some money from their savings, sign up an agreement called a Partnership deed agreeing to share the profit and loss. A legal document that is used to create a Partnership business is called a Partnership deed. What is a Private Limited company? A Private Limited company is a type of privately held small business entity. Here two shareholders join together to start a private limited company and the requirements are two shareholders, two directors, a minimum 1 lakh shareholder, and registered office space in India. To form a private limited company, formalities to have complied before the Registrar of companies. Difference between the partnership and private limited company 1. Creation of the firm: partnership can be created just by signing a simple partnership deed. Which speaks about the terms, conditions, object, capital, and profit and loss sharing percentage. And by signing the deed, the partnership firm comes into existence. But whereas the private limited is completely different. 2. Limited liability: The second biggest difference between a partnership and a private limited company is Liability. The liability of the partners in a partnership firm is unlimited jointly and personally. Whereas the liability of the shareholder is limited to the shares that they hold. 3. Attract Investors: Generally, we use our own savings to start our own business, in some cases get some loans from our friends and relatives. But using this money, how big we can grow? Can we expand our business across the country that too in a short time span? This is where the Investor will help us. We can get a huge sum of money to invest in your business and as a consideration, they will get some percentage of shares. But a proper professional Investor will not invest in the partnership firm. To attract an investor, they need a private limited company. 4. Foreign direct investment: FDI what we call it as Foreign Direct investment. A partnership is not qualified for foreign direct investment but whereas FDI is permitted in various services in a Private Limited Company 5. ROC Compliance: In a private limited company, there are many regulations like Board of Directors meeting, minutes of the meeting, auditor appointment, annual general body meeting, this avoids any misunderstanding between the director or shareholders. Whereas their compliance is not required for partnership business 6. Perpetual succession: The private limited company is a continuous existing independent business entity and the directors are just agents to act on behalf of the company. The demise of the directors or shareholders will not affect the existence of the business. But whereas if one partner among the two partners passes away, the partnership business ends up. So hope I had explained the difference in simple words.