COMPANY LAW

Ordinarily speaking, the word company means an association of a number of individuals formed
for some common purpose. It involves two ideas:
a. It has numerous members; and
b. A member may transfer his interest without the consent of others.
In law, a company means a company formed and registered under the Companies Ordinance,
2016 or under the Company Law, i.e. the Companies Act, 1913 and Companies Ordinance,
1984.1 But, this definition does not reveal the distinctive characteristics of a company. Some
definitions of a company are given below:

S. E. Thomas: A company is an incorporated association of persons formed usually for

the pursuit of some commercial purpose.

Haney: A company is a voluntary association of individuals for profit, having a capital

divided into transferable shares, the ownership of which is the condition of membership.
C. J. Marshall: A company is a person, artificial, invisible, intangible and existing only
in the contemplation of the law. Being a creature of the law, it possesses only those
properties which the character of its creation confers upon it either expressly or as

incidental to its very existence.

L. J. Lindley: A company is meant an association of many persons who contribute
money or moneys worth to a common stock and employ it in some trade or business, and
who share the profit and loss (as the case may be) arising there from. The common stock
contributed is denoted in money and is the capital of the company. The persons who
contribute it, or to whom it belongs, are members. The proportion of capital to which
each member is entitled is his share. Shares are always transferable although the right to
transfer them is often more or less restricted.

From the above definitions, it can be concluded that a company is registered association which is
an artificial or legal person,2 having an independent legal entity with a perpetual succession, a
common seal for its signatures, a common capital comprised of transferable shares and carrying
limited liability.
1 Section 2(1) (17) of the Companies Ordinance, 2016.
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DIFFERENCES BETWEEN A COMPANY AND A PARTNERSHIP

1. Mode of creation: A company is created by registering it under a statute or law while a
partnership is created by means of an agreement.
2. Legal statute: The legal entity of a company is distinct from its members, and it
possesses perpetual succession. Firms and partners are not separate or distinct; they do
not possess a separate entity and the life of a partnership firm is uncertain.3
3. Legal person: Being a legal person in law, a company can sue others and be sued by
others in its own name. This is not the case with a partnership firm.
4. Dissolution: A company is dissolved only according to the provisions of a statute or by
an order of the court. The death of a shareholder does not affect the status of a company.
In a partnership, the death of one of the partners, an order of the court, or wilful
termination by the parties brings the existence of the partnership to an end.
5. Liability: The liability of members of a company are limited, whereas, in a partnership,
the liability of the partners is unlimited both jointly and severally. In the case of a
company, the creditors can proceed against the company alone and the members of the
company are not liable to them. Their liability, if any, is limited only to the extent of the
shares invested or guarantees given. Creditors of a partnership, however, are the creditors
of individual partners. The partners are liable to the creditors jointly and severally.
6. Transferability of shares: The shares of a company are easily transferable to a third
party as they do not require the consent of the company itself or other shareholders or
directors. A partner cannot transfer his share in the firm without the consent of the other
members of the partnership firm.
7. Property: In a company, the property of the company belongs to the company alone as it
is a legal person and can hold property in its own name and not to the individuals
composing it. It is fully capable of transferring property to others by any means

2 Law recognises two sorts of persons: natural and artificial. Human beings are classified as
natural persons while legal/artificial/juridical or juristic persons are created by law. They
comprise of a group of natural persons or perhaps a group of more legal persons and they have
certain rights and duties in the eyes of law.
3 A partnership comes to an end on death of its members or by wilful termination by one of the
partners. A company lasts forever.
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whatsoever, i.e. by sale, purchase, gift, mortgage, lease, etc. However, in a partnership
firm, the property of the firm is the property of the individuals composing it.
8. Ability to contract: A company can execute almost all sorts of contracts without the need
or presence of its shareholders. A partnership firm cannot enter in an agreement or
contract with a third party without its partners.
9. A shareholder of a company can contract with the company itself but a partner cannot
contract with the partnership firm of which he is a partner.
10. Agency: A member of a company is never deemed to be an agent of a company while a
partner can dispose of the property and incur liabilities in the course of the firms
business because each partner is the agent and principal of the other partner.
11. Resources: A company has large and unlimited resources while a partnership firm holds
limited resources.
12. Legal formalities: There are numerous formalities which a company has to go through,
e.g. audit, filing and publication of accounts, annual reports, etc., which are compulsory
under the law There are no legal formalities as such in a partnership and these formalities
are not compulsory in a partnership.
13. General Powers: Memorandum of association and articles of association defines and
confines the scope of the powers granted to a company thus making alteration difficult.
The agreement, the powers and responsibilities in a partnership firm are easy to change.
14. Members: In a private company, the minimum number of members is 2 while the
maximum is 50. In a public company, the minimum is 7 members while maximum
number of members is unlimited. In a partnership, the minimum number of members is 2
while the maximum is 20.
15. Availability of restrictions on powers against outsiders: The restrictions on powers
imposed on the company in the articles of association are effective against the public
because they are a public document and one can find out what they contain. This is not
the case in a partnership firm.