Page 130 - DCOM404_CORPORATE_LEGAL_FRAMEWORK

Unit 7: Companies Act, 1956

3. Liability of members: Liability of a partner is unlimited, i.e., even his own personal assets are Notes

liable for the debts of the firm. Liability of a member or shareholder of a limited company is
limited to the extent of the amount remaining unpaid on shares held by him or the amount
of guarantee as mentioned in the memorandum of association of the company.
4. Transfer of interest: A partner cannot transfer his interest without the consent of all other
partners. A shareholder, subject to restrictions contained in the articles can freely transfer
his share.
5. Duration of existence: Unless there is a contract to the contrary, the death, retirement or
insolvency of a partner results in the dissolution of the firm. A company enjoys a perpetual

succession. Death or retirement or insolvency of a member does not affect the existence of
a company.
6. Minimum membership: The minimum number of persons required to form a partnership is
2. The minimum number required to form a private company is 2 and in the case of a public
company the minimum number should be 6.
7. Maximum membership: A partnership cannot be formed with persons exceeding 20. The
number is limited to 10 in the case of a banking business. In the case of a public company
there is no limit to the maximum numbers of members. However, a private company
cannot have more than 50 members.

8. Audit: The audit of the accounts of a firm is not compulsory, whereas the audit share counts
of a company is mandatory.
9. Registration: in partnership is optional whereas registration is compulsory for a
Company.

10. Contract: A partner cannot contract with his firm a shareholder can make contract with the
Company.
The difference is probably going to depend on corporation and partnership laws in the state
where they are located. A corporation is basically a group of people who have filed for a special

status with their state’s corporation commission. This allows them not to be personally liable for
the acts of the corporation. The corporate form has many components that one must consider like:
corporate formalities (most corporations must meet annually, and keep very meticulous records),
taxation, management (can be more centralized and delegated), issuing shares (ownership in the
company) an other business related problems. It’s difficult for me to be more specific because I

don’t know what state. A partnership is a group of people who merely decide to go into business
together. Their liability is based on their investment many times. In a partnership, partners
are also owners and managers of the partnership. They can be held personally liable in many
situations; however some prefer this to a corporate because it is so easy to form. The bare bone is
that these two are different types of groups of people that are formed to conduct business. They
don’t necessarily use the corporate commission to do this. In a partnership, partners are also
owners and managers of the partnership. They can be held personally liable in many situations;
however some prefer this to a corporate because it is so easy to form. The bare bone is that these
two are different types of groups of people that are formed to conduct business. A company is
established by a single person on support of others. It is boss- worker coordination in company,
where as in a partnership two or more people come together to establish the firm and there is no

single boss.

7.3 Lifting the Corporate Veil

The advantages of incorporation are allowed to be enjoyed only by those who want to make
an honest use of the ‘company’. In case of a dishonest and fraudulent use of the facility of
incorporation, the law lifts the corporate veil and identifies the persons (members) who are

behind the scene and are responsible for the perpetration of fraud.

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