The Difference Between Partnership Firm and Joint Stock Company

A Difference between partnership firm and joint stock company are two different forms of business organizations. A partnership is an association of two or more people for their own profit, where as a joint stock company is a legally registered business that offers limited liability to its shareholders.

Why is partnership firm converted into a joint stock company?

Partnership firms are regulated by the Partnership Act and a company is governed by the Companies Act. There are a few major differences between the two types of businesses.

Continuity of Existence

A company has a continuous and perpetual succession which means that it continues to exist even after one or more of the partners retire, die or declare bankruptcy. The continuity of a partnership firm, on the other hand, depends on the terms of the partnership agreement.

Number of Members

A partnership firm can have a maximum of 20 partners. However, to ensure harmony amongst the partners, the number is usually kept smaller. This makes it difficult for a partnership to expand beyond a certain size.

Unlimited Liability

In a partnership, all the partners have unlimited liability which means that they can be held responsible for paying the debts of the company from their personal assets. This can lead to a lot of problems for the partners if the company is not successful.

Transferability of Shares

Shareholders of a joint stock company can freely transfer their shares to other parties. However, in a partnership, transferring shares is only possible with the consent of all the partners.

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