Partnership is defined as a relation between two or more persons who have agreed to share the profits of a business carried on by all of them or any of them acting for all. The owners of a partnership business are individually known as the "partners" and collectively as a "firm". A partnership is easy to form as no cumbersome legal formalities are involved. Its registration is also not essential. However, if the firm is not registered, it will be deprived of certain legal benefits. The Registrar of Firms is responsible for registering partnership firms.

A partnership is formed by an agreement, which may be either written or oral. When the written agreement is duly stamped and registered, it is known as "Partnership Deed". Ordinarily, the rights, duties and liabilities of partners are laid down in the deed. But in the case where the deed does not specify the rights and obligations, the provisions of the THE INDIAN PARTNERSHIP ACT, 1932 will apply. The deed, generally contains the following particulars:-

• Name of the firm.
• Nature of the business to be carried out.
• Names of the partners.
• The town and the place where business will be carried on.
• The amount of capital to be contributed by each partner.
• Loans and advances by partners and the interest payable on them.
• The amount of drawings by each partner and the rate of interest allowed thereon.
• Duties and powers of each partner.
• Any other terms and conditions to run the business.

Advantages

• Ease of formation
• Greater capital and credit resources
• Better judgement and more managerial abilities

Disadvantages

• Absence of ultimate authority
• Liability for the actions of other partners
• Limited life
• Unlimited liability

Partnership is an appropriate form of ownership for medium sized business involving limited capital. This may include small scale industries, wholesale and retail trade; small service concerns like transport agencies, real estate brokers; professional firms like charted accountants, doctors' clinic, attorney or law firms etc.

A corporate business vehicle that enables professional expertise and entrepreneurial initiative to combine and operate in flexible, innovative and efficient manner, providing benefits of limited liability while allowing its members the flexibility for organizing their internal structure as a partnership.
Owing to flexibility in its structure and operation, it would be useful for small and medium enterprises, in general, and for the enterprises in services sector, in particular. Internationally, LLPs are the preferred vehicle of business, particularly for service industry or for activities involving professionals.

LLP is governed by the provisions of the Limited Liability Partnership Act 2008, the salient features of which are as follows: -

• The LLP shall be a body corporate and a legal entity separate from its partners. Any two or more persons, associated for carrying on a lawful business with a view to profit, may by subscribing their names to an incorporation document and filing the same with the Registrar, form a Limited Liability Partnership. The LLP will have perpetual succession.
• The mutual rights and duties of partners of an LLP inter se and those of the LLP and its partners shall be governed by an agreement between partners or between the LLP and the partners subject to the provisions of the LLP Act 2008 . The act provides flexibility to devise the agreement as per their choice.
• The LLP will be a separate legal entity, liable to the full extent of its assets, with the liability of the partners being limited to their agreed contribution in the LLP which may be of tangible or intangible nature or both tangible and intangible in nature. No partner would be liable on account of the independent or un-authorized actions of other partners or their misconduct. The liabilities of the LLP and partners who are found to have acted with intent to defraud creditors or for any fraudulent purpose shall be unlimited for all or any of the debts or other liabilities of the LLP.
• Every LLP shall have at least two partners and shall also have at least two individuals as Designated Partners, of whom at least one shall be resident in India. The duties and obligations of Designated Partners shall be as provided in the law.
• The LLP shall be under an obligation to maintain annual accounts reflecting true and fair view of its state of affairs. A statement of accounts and solvency shall be filed by every LLP with the Registrar every year.
• The Indian Partnership Act, 1932 shall not be applicable to Limited Liability Partnerships.

A private limited company is a voluntary association of not less than two and not more than two hundred members, whose liability is limited, the transfer of whose shares is limited to its members and who is not allowed to invite the general public to subscribe to its shares or debentures. Its main features are :-

• It has an independent legal existence. Companies Act, 2013 contains the provisions regarding the legal formalities for setting up of a private limited company.
• The liability of its members is limited.
• The shares allotted to it's members are also not freely transferable between them. These companies are not allowed to invite public to subscribe to its shares and debentures.
• It enjoys continuity of existence i.e. it continues to exist even if all its members die or desert it.
• Hence, a private company is preferred by those who wish to take the advantage of limited liability but at the same time desire to keep control over the business within a limited circle and maintain the privacy of their business.

Advantages

• Continuity of existence
• Limited liability
• Less legal restrictions

Disadvantages

• Shares are not freely transferable
• Not allowed to invite public to subscribe to its shares
• Scope for promotional frauds
• Undemocratic control

A public limited company is a voluntary association of members which is incorporated and, therefore has a separate legal existence and the liability of whose members is limited. Its main features are :-

• The company has a separate legal existence apart from its members who compose it
• Its formation, working and its winding up, in fact, all its activities are strictly governed by laws, rules and regulations. Companies Act, 2013 contains the provisions regarding the legal formalities for setting up of a public limited company.
• A company must have a minimum of seven members but there is no limit as regards the maximum number.
• The shares of a company are freely transferable and that too without the prior consent of other shareholders or without subsequent notice to the company.
• The liability of a member of a company is limited to the face value of the shares he owns. Once he has paid the whole of the face value, he has no obligation to contribute anything to pay off the creditors of the company.
• The shareholders of a company do not have the right to participate in the day-to-day management of the business of a company. This ensures separation of ownership from management. The power of decision making in a company is vested in the Board of Directors, and all policy decisions are taken at the Board level by the majority rule. This ensures a unity of direction in management.
• As a company is an independent legal person, its existence is not affected by the death, retirement or insolvency of any of its shareholders.

Advantages

• Continuity of existence
• Larger amount of capital
• Unity of direction
• Efficient management
• Limited liability

Disadvantages

• Scope for promotional frauds
• Undemocratic control
• Scope for directors for personal profit
• Subjected to strict regulations

The major difference between Private Limited Company & Limited :

• In Private Limited Company the shareholders comprise of close group of friends and relatives.
• A Private Limited company cannot make an offer for public to subscribe its shares. Whereas a Limited Company can give an advertisement and invite general public to subscribe for its shares.
• Basically a Private Limited company is a corporate version of partnership firm where as a Public Limited company is a full-fledged corporate body.
• For a Private Limited company minimum 2 shareholders are required whereas for Public Limited Company minimum 7 shareholders are required.
• A shareholder of a Public Limited company can transfer his shares freely at the stock exchange where the shares are listed whereas in a Private Limited Company a shareholder cannot transfer his shares without the consent of other shareholders.
• Also shares of the Private Limited company cannot be listed on stock exchanges and hence cannot be traded there like shares of a Public Limited company.