A partnership is a form of business where two or more people share ownership, as well as the responsibility for managing the company and the income or losses the business generates. That income is paid to partners, who then claim it on their personal tax returns – the business is not taxed separately, as corporations are, on its profits or losses. Limited liability company or simply company is a business entity with all the protection of a corporation plus the ability to pass through any business profits and losses to your personal income tax return.
The following are differences between a company and Partnership
Name – A partnership cannot use the word “limited” in its name.
No separate legal personality – a partnership has no separate legal personality, separate from its partners/members of the partnership. However, a company does have a separate personality from its shareholders. A company owns its property, not the shareholders. Partners own the partnership property.
Limitation of Personal Liability– a partnership has unlimited liability for all the debts of the firm whereas shareholders in a company have liability limited.
Succession – when one partner dies, the partnership is dissolved unless the partnership agreement provides otherwise. However, a company has “perpetual succession”. Shareholders may die but the company continues until it is wound up.
Management – a partnership is managed by the partners together – they are the shareholders, managers and workers. A company is managed by the directors not the shareholders.
Shares – partners have a share in a partnership as agreed between them. A partner’s share cannot be transferred without the consent of the other partners. In reality there is not a substantial difference in the definition of a share between a company and a partnership. Size – a partnership can have between 2 and 20 partners, except solicitors and accountants. A private company can have more and a public company can have 7 or more shareholders.
Regulation – a company has memorandum & Articles of Association and a partnership usually has a Partnership Agreement to regulate its affairs.
Taxation – it is often said that partnerships are tax-transparent. Tax is paid by the partners on the profits each partner makes at the usual income tax levels for an individual. A company, being a separate legal personality, pays corporation tax but in addition to this, the shareholders will pay tax on any dividends received from the company.
Accounts – Partnerships are not required to file accounts in the Company records office. Companies must file accounts at the Company records office. Therefore while a lot of a company’s financial details are a matter of public record, Partnerships financial details are kept private.