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.
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.