A 'Company' is a form of business organisation formed generally for carrying on larger business than could be possible by a 'Partnership.' In a partnership, the maximum number of persons, who can join as partners, is 10 if they want to carry on a banking business, and 20, if they want to carry on other than a banking business. The size of the business, therefore, gets limited to the extent of investment, resources and efforts, which can be put in by those joining as partners. When larger amount of capital and resources are required, a company is a more suitable form of business organisation. A private company could be formed with a membership of up to 200 persons,¹ and in the case of a public company, there is no maximum limit as to the number of persons, who can be its members or shareholders. Thus, there could be a public company having one lakh members, each one of them having purchased one share of Rs. 100 each, and thereby having a capital of one crore rupees to run the business.
Another important characteristic of a company is that it is an artificial person, having a personality different from its members. A partnership firm, on the other hand, is merely a collective name of all the partners, who constitute it. Therefore, if there are two partners, who constitute the partnership firm and if one or both of them die, or become insolvent, the partnership must end. A company being an artificial person has its own life under the law, altogether different from its members. The members may come and go, but the company continues to exist uninterrupted. A company, therefore, has a perpetual succession, or practically an unending life.
The liability of the members of the company is limited to the maximum of the value of share or shares, which any particular member agrees to purchase. The liability of the partners in a partnership firm, on the other hand, is unlimited. Irrespective of the investment, which a partner agrees to make by way of his contribution to the firm's capital, or his share of loss as agreed between the partners, he and his personal property can be required to pay for the firm's liability for all the acts of the firm done during the period he remains a partner. The element of limited liability in a company is not only a great advantage to every individual member, but it is also a great incentive to any person to become a member of a company. This enables a company to have a large number of members and corresponding larger capital.
The shares of the members of a company could be transferred from one person to another, or could devolve on the legal representatives on the death of a member. The company's existence is in no way affected by the change of its membership. That is not so in the case of a partnership firm. The relation of partnership is based upon mutual confidence and trust between the various partners, who constitute it, and therefore, without the consent of the co-partners, a partner cannot substitute another person in his place, nor'on the death of a partner his legal representative automatically substitutes him. Thus, if there are only two partners in a partnership firm and one of them leaves or dies, the firm gets dissolved, compulsorily.
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