Differences between Soleproprietorship , Partnership and Company

Basis

       Sole-Proprietorship

                 Partnership

                   Company

1.     Meaning

Sole proprietorship is that form of business organization which is owned and controlled by a single person who supplies the entire capital to finance the starting and running of the business. He takes all the profit and alone runs the risk of the failure.

Partnership is a relationship between persons who have agreed to share the profits of the business carried on by all or any of them acting for all.

Company is an artificial person created by law to carry on its business on its common seal.

2.     Governing Law

It has no governing law.

It is governed by Partnership Act , 1932

It is governed by Companies Ordinance , 1984.

3.     Creation

It is started with the wish and intention of owner.

Partnership is created by the mutual oral or written agreement between the partners.

Company is created by the process of incorporation under Companies Ordinance , 1984.

4.     Life

Life of sole-proprietorship depends on the life of single owner.

Life of partnership depends on the life and relationship of partners.

Life of company is independent of the shareholders.

5.     Transferability

Share of single owner can be transferred but the finding of suitable buyer is a difficult process.

Share of a partner may be transferred but with the consent of all partners.

Shareholders may transfer his share freely except in the case of private company.

6.     Membership

In sole-proprietorship , only real person can start and manage it.

In partnership, only individual can become the member.

In company , an institution can also become a member by purchasing its shares.

7.     Scope of Business

Scope of business is defined , amended , extended or shortened by the single owner himself.

In partnership , according to the wishes of partners , any lawful business can be initiated and change can be easily introduced in it.

In company , its business is determined by its memorandum of association at its registration and any change in the law by country is incorporated in it further.

8.     Registration

There is no requirement for registration for it.

Registration is voluntary which has some benefits for firm that are not available if the firm is not registered.

Registration of a company is compulsory to start a business as a company.

9.     Minimum no of Owners.

Only one owner is required for sole-proprietorship business.

In partnership , minimum 2 owners are required.

In company , minimum 1 owner in SMC(Single member company) , 2 owners in other private company , 3 owners in public unlisted company and 7 owners in public listed company are required.

10.  Maximum no of Owners

Only one owner is the maximum limit of this business.

In partnership , in case of banking business maximum 10 and in case other than banking , maximum 20 owners are allowed.

Maximum limit of owner in SMC is 1 and in other private company is 50.Whereas in  public limited company, there is no maximum limit.

11.  Audit

Audit of sole-proprietorship is not mandatory requirement.

Audit of partnership business is not mandatory.

Audit of public company is a mandatory requirement.

12

Management of the concern

In sole-proprietorship , mostly, owner is also the management.

In partnership , partners are the management itself.

In company , directors of the company that are elected by shareholders are the management of the company.

13

Liability

Liability of sole-proprietorship is unlimited.

Partnership is usually with unlimited liability but it can be formed as limited liability partnership where at least one partner’s liability is unlimited.

Company may be limited by shares , limited by guarantee or unlimited.

14

Contractual Capacity

A sole owner can enter into contract in his own name and not in the name of business.

A partnership firm cannot enter into contracts in its own name but in the name of its partners.

A company can enter into contract in its own name and sue and be sued in its own name.

15

Use of Word Limited

Word limited cannot be used with the name of sole-proprietorship business.

A partnership cannot use the word limited with it in spite of being limited partnership.

Company is required to use the words limited by shares or  limited by guarantee with its name.

16

Legal Formalities in Winding-up

There is no legal formality while closing the sole-proprietorship business.

There is not legal formality while closing the partnership business.

There is much legal formality to follow as liquidation process is to start.

17

Separate Legal Entity

Sole-proprietorship does not have any separate legal entity other than its owner.

Partnership does not have any separate legal entity other than its owners.

Company has separate legal entity other than its owners.

18

Mutual Agency

Mutual agency cannot exists in sole-proprietorship.

There is a mutual agency between partners in partnership.

In company , there is no mutual agency among shareholders.

19

Conclusion

It is a very weak form of organization with uncertain existence and is thus not suitable for large scale business operations.

It is a weak form of organization with uncertain existence and is thus not suitable for large-scale business operations.

It is comparatively more sound and durable form of business organization and is thus suitable for doing business on large scale.