EORUPA SCIENCE & COMMERCE ACADEMY

Q. No. 14: Differentiate between a) Sole Proprietorship & Partnership b) Joint Stock Company & Partnership c) Public Company & Private Company ANSWER:

DIFFERENTIATE BETWEEN
SOLE PROPRIETORSHIP & PARTNERSHIP
SOLE PROPRIETORSHIP
1) FORMATION It is easy to form and simple to run. There Partnership deed and such other legal are no legal formalities for the documents are necessary for the formation commencement of such types of business. of partnership. 2) NUMBER In sole proprietorship, there is only one There are latest two members and person who is the owner and manages the maximum of twenty in ordinary and ten in business. banking partnership. 3) CONTRACT There is no concept of any contract due to It is created by contract. Agreement is most one man. important element of partnership. 4) RAISING OF CAPITAL The powers of one man business to raise Due to number of parties, the amount of capital are very limited. owned capital and power to raise borrowed capital is easier and higher. 5) PERSONAL PRESENCE It management is to be conducted by one All the partners as per oral or verbal man only. Therefore personal presence is agreement share profit and loss. compulsory. 6) DIVISION OF PROFIT AND LOSS Sole proprietor gets the whole profit and All the partners as per oral and verbal also bears the whole loss. agreement share profit and loss. 7) TRANSFER OF INTEREST A sole proprietor can easily transfer the A partner cannot transfer his interest interest in business without consulting without the consent of other parties. anyone. 8) REGULATION OF BUSINESS There is no special act or Ordinance to It is governed by Partnership Act. 1932 govern the working of sole proprietorship. 9) BUSINESS SECRETS: Secrets of business are known to one All the partners know the buses secrets. person only.

PARTNERSHIP

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10) DECISION: One man is the supreme authority of the All the matters are decided by mutual business. Therefore he may take any action consultation. There matters are not solved on any matter promptly. instantly. 11) ACCOUNTABILITY: As one man owns all business, he does not As partners are accountable to one as they have to obey order. So there is no fear of have to keep up-to-date record correct being accountable to anyone. information of the business. 12) MANAGEMENT Business is run and managed by one man. It is managed by any one or more of the acting for all.

13) SCALE OF BUSINESS: Business is on small scale due to limited It works on larger scale due to resources resources and limited managerial ability. and skills of the partners. 14) STABILITY There is no possibility of disruption due to There is always possibility or dissolution to one man. So this type of business may be misunderstanding and friction among run smoothly. partners. 15) QUESTION OF SUCCESSION Ownership of business passes on through Ownership of business doesnt pay business succession. automatically as it arises through agreement 16) ABILITIES One man cannot possess al type technical and administrative abilities. of Due to no. of partners, the firm may the combined abilities of all of them.

17) REGISTRATION: Registration is not possible so no benefits It can get registered and enjoy the benefit of registration. though it is not optional to get registering. 18) EXPANSION OF BUSINESS There are limited chances for the growth of As there may be many partners, so business due to lack of capital and business may be expanded by larger managerial abilities. capital, better technical and managerial abilities. 19) INCENTIVE TO WORK Due to sole claim on profit, he is more The relationship between effort and reward induced to work hard for the success of the is found in partnership so there is no business. incentive work hard. 20) ORGANIZATIONAL EXPENSES: There are minimum expenses to organize Partners have to bear a lot of expenses to and operate this form of business as legal fees and other expenses so it is organization. expensive to management such business. 21) DISSOLUTION The dissolution of sole proprietorship is Its dissolution takes place by agreement as easy like its formation. certain event or by order of court. 22) IMPORTANCE: It is very important in our country where Partnership is very suitable for people who the resources of people are little and they have resources but cant manage, as it can Prepared By: H.ABDUL REHMAN 0321-6485593

EORUPA SCIENCE & COMMERCE ACADEMY

want to work independently manage by any partner on behalf of other.

DIFFERENTIATE BETWEEN
PUBLIC COMPANY & PARTNERSHIP
The main points of distinction between public company and partnership are as follows:

PUBLIC COMPANY
1) FORMATION

PARTNERSHIP

There is a longer and complicated process It is much easier to form a partnership for the formation of public company. Many business. Oral or written agreement is legal documents are to be prepared and required of the formation of partnership. submitted to the registrars office 2) NUMBER There is a minimum requirement of seven There are at least two members and members for a public company and there is maximum of twenty in ordinary and ten in no limit to maximum members. banking partnership. 3) GOVERNING LAW It is governed by Companies Ordinance It is governed by Partnership Act 1932. 1984. 4) REGISTRATION The registration of a company is It can get registered and enjoy the benefits compulsory. It can start its business only though it is not optional to get registered. after obtaining the certificate of commencement of business. 5) LEGAL ENTITY: The public limited company has its own The partnership has no separate entity entity separate from its members. It can recognized by law. The partnership and sue or be sued, hold property in the name partners are the same. of company. 6) LIABILITY: In a public company, the liability of In partnership the liability of each partners members is limited to the value of shares of a firm is unlimited. held by them. 7) SHARE TRANSFERABILITY: Each shareholder in a public limited A partner in a partnership firm cannot company can transfer his shares at will. transfer his share with the consent of other partners. 8) OWNERSHIP & MANAGEMENT: A company is managed by the directors who are elected by the shareholders. The shareholders cannot take part in the management of the company. Ownership and management are separate. A firm is managed by one or more of the partners. Every partner has a right to participate in the management of the firm. Ownership and management are not separate. the partners

9) PROFIT: Profit is distributed among the It is distributed among shareholders according to the provision of according to their deed. articles and decision of the board of Prepared By: H.ABDUL REHMAN

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directors. 10) MAINTENANCE OF BOOKS: Statutory books and other account books There is no compulsion to keep statutory are to be maintained as prescribed by law. books. 11) DURATION: A company enjoys perpetual succession. The partnership may come to an end as The existence of the company is not death, insolvency, or insanity of any affected by the death or insolvency of its partner. members. 12) AUDIT: Under the law, the company must get its It is not obligatory for a partnership firm to account audited by an auditor. the account of audited by an auditor. 13) OBJECTS AND POWERS: The powers and objects of company are set The objects and powers are in the out in the MOA. It can be altered in partnership of which can be altered with accordance with the provision of the the mutual consent of the partners. ordinance. 14) SUBMISSION OF REPORTS: Certain statements and reports are There is no restriction to submit the report required to be submitted to the government and documents to any authority. authority. 15) NATURE OF BUSINESS: The promoters are restricted to carry on the Partners may carry any type of business business which is mentioned in the object may be easily changed by mutual consent. clause of the MOA. 16) CAPITAL: Its authorized capital is mentioned in the The capital is described in the agreement MOA, which can be increased or decreased which can be changed by mutual consent by special resolution which is passed in the of the partners. shareholders meeting. 17) MEETINGS: It has to call annual meeting which is There is no compulsion to call a meeting. compulsory by law in which various problems are resolved. 18) DISSOLUTION: A joint stock company may be: i) A partnership may be dissolved by the Compulsory wound up by the court ii) consent of all the partners or in according Voluntarily iii) Under the supervision of with a contract between the partners. court 19) RIGHT OF ISSUE It can issue shares; debentures and other It cannot issue any type of securities securities to increase its capital and market to increase its financial resources. business funds. 20) MEMBERSHIP: In a company, an institution can also In a partnership only individual scan be become its member by purchasing its the partners of the firm. shares. Prepared By: H.ABDUL REHMAN 0321-6485593

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21) NATURE A company is an artificial person. Partnership is the relation between persons having agreed to share the profits and loss business. In a partnership, each partner is an agent of the others and every one of them has a right to take active part in the management of the business.

22) MUTUAL RELATIONSHIP OF THE MEMBERS: The members of the company are nor its agent or representatives, they have no direct right to take active part in the management and control of the company.

23) SCOPE: The scope of the functioning of a company In a partnership, according to the mutual is determined by its memorandum at the consent of the partners any lawful business time of its formation and to introduce any can be conducted. change, the rules prescribed by the companies ordinance. 24) LEGAL FORMALITIES: According to companies ordinance, a For a partnership there are no such legal company has to observe certain legal formalities to be observed. formalities as prescribed under its provisions and certain information has to be sent to the registrar. CONCLUSION: The company is that form of business organization which has more chances of expansion and perpetual succession because it can easily increase its capital by issuing shares, debentures, and other form of securities.

DIFFERENTIATE BETWEEN
PRIVATE COMPANY & PUBLIC COMPANY
PRIVATE COMPANY PUBLIC COMPANY
1) NUMBER OF MEMBERS In a private company there can be In a public company, the minimum minimum of two and no limit to maximum number of members should be seven and members. there are no limits to maximum members. 2) AREA OF OWNERSHIP Area of ownership in a private company is On the contrary, a public company very limited. It is generally confined to one ownership scattered over a wide area. family. 3) SALE OF SHARES A private company cannot invite general A public company can invite the general public of purchase of shares. public for purchase of shares. 4) CERTIFICATE OF INCORPORATION It can commence its business soon after Public company cannot start its business receiving the certificate. for obtaining certificate of incorporation. 5) ALLOTMENT OF SHARES: Prepared By: H.ABDUL REHMAN 0321-6485593

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This company can allot its shares This company cannot allot its shares till immediately after receiving incorporation received it minimum subscription. certificate. 6) CERTIFICATE OF COMMENCEMENT There is no provision by law to receive this It must have to obtain this certificate of certificate for the commencement of commencement of business. business. 7) STATUTORY MEETING Such company does not have to call For this company, calling of the statutory statutory meeting by law. meeting and submission of statutory report necessary. 8) ISSUE OF PROSPECTUS This company cannot issue either It has to issue either prospectus prospectus or statement in lieu of statement in lieu of prospectus. prospectus. 9) FRAMING OF ARTICLES OF ASSOCIATION A private company has to frame it articles A public company can choose to have AOA of association as its own articles of association. It necessary for it to frame its own AOA. 10) TRANSFER OF SHARE There is restriction on eth transfer of Shares of this company can be transacted shares in this company. freely. or

11) MINIMUM NUMBER OF DIRECTORS A private company must have at least two A public company must have at least seven directors. directors. 12) BORROWING A private company can borrow money soon A public company can borrow only to after its incorporation. obtaining the certificate of commencement of business. 13) SENDING OF ACCOUNT A private company is not required to send copies of profit and loss account and balance sheet to the authority, stock exchange and the registrar. A public company is required to send copies of profit and loss account and balance sheet to the authority, stock exchange and the registrar.

14) USE OF THE WORD LIMITED A private company must use the word Pvt. A public company must only use the word Limited at the end of its name. limited at the end of its name 15) SIGNATORIES TO MEMORANDUM In order to form a private company, only In order to form a public company, at least two signatories to the memorandum are two signatories to the memorandum are required. required. 16) LOANS TO DIRECTORS A private company can give loans to A public company cannot give loans to directors or give guarantee for getting directors or give guarantee for getting loans. loans. Prepared By: H.ABDUL REHMAN 0321-6485593

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17) RIGHT OF DIRECTORS The directors of a private company can give The directors of a public company cannot his vote on such agreements in which his give their vote on such agreements in interests are involved. which their s=interests are involved. 18) PUBLICATION There is no restriction for publication of Some reports and statements must be various statements for public inspection. published for public inspection. 19) WORKING CAPITAL Its capital and financial resources remain Its working field is vast. It can attract huge limited due to certain restriction and amount of capital. So it is possible to hindrances. So large scale business cannot conduct heavy and large scale business. be arranged under this organization.

CONCLUSION: In the end we can say that both public company and private company are beneficial for the society for the economy but the chances for expansion for public company are more than private company.

Prepared By: H.ABDUL REHMAN

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