Page 155 - DMGT407Corporate and Business Laws

Corporate and Business Laws

Notes (i) Legal status: A partnership firm has no existence apart from its members. A company is a
separate legal entity distinct from its members.
(ii) Mutual agency: Partnership is founded on the idea of mutual agency – every partner is an
agent of the rest of the partners. A member of a company is not an agent of other members.
(iii) Liability of members: Liability of a partner is unlimited, i.e., even his own personal assets
are 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.
(iv) 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.

(v) 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.
(vi) 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 7.

(vii) 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.
(viii) Audit: The audit of the accounts of a firm is not compulsory, whereas the audit share
counts of a company is mandatory.

6.1.6 Partnership and Joint Hindu Family (JHF) Business

A JHF is a Hindu joint family carrying on a trade or business inherited from its ancestors.
Section 5 lays down that the relation of partnership arises from contract and not from status and
in particular the members of Hindu Undivided Family (HUF) carrying on a family business as
such are not partners in such business. However, the Act does not prohibit the members of JHF
to enter into partnership amongst themselves. The principal differences between a partnership
and a JHF business are as follows:

(i) Creation: Partnership is essentially the result of an agreement between the parties whereas
a JHF is the result of status.
(ii) Admission: In a partnership, new partners can be admitted only with the consent of all the
existing partners, whereas in JHF business a person becomes a member merely by his
birth in that family.
iii) Female members: A female member of the family does not become a member of a JHF
business, though she can join partnership business as a full fledged partner.

(iv) Minor members: A minor cannot be a member of a partnership firm except that he may be
admitted to the benefits of an already existing partnership firm. Minors, in the case of JHF,
are members of the family business right from the moment of their birth.

(v) Death of a member: Death of a partner dissolves the firm, unless otherwise agreed to by
the partners. The death of a member of a JHF business leaves the firm unaffected.

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