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Question No 14:Differentiate between
i. Sole tradership, Partnership & Joint StockCompany.
ii. Public & Private Limited Company.iii. Article Of Association & Memorandum Of
Association.iv. Shareholder & Debentureholder. Answer:
i. Differentiation Between Sole Tradership, Partnership
& Joint Stock Company:
1. Definition:
SOLE TRADERSHIP:“Sole proprietorship means the business in which one person is
the owner who solely responsible for all the losses and enjoys
all the profit .”
PARTNERSHIP:
“Part nership is the relat ionship between persons who have
agreed to share prof it of business, carried on by all or any ofthem act ing for all”
JOINT STOCK COMPANY OR (Public Limited Company):
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“Joint Stock Company is a voluntary associat ion of individuals
for prof it , having a capit al divided into transferable shares,
the ownership of which is the condit ion of membership”
Other Points of Difference:
The other points of difference between Sole tradership,Partnership and Public Limited Company (JSC)arementioned below.
POINTS SOLE
PROPRIETORSHIP
PARTNERSHIP
PUBLICLIMITED
COMPANY(JSC)
2.Formation There are nocomplicatedformalities forthe
formation ofsole-tradership.
There is asimpleprocess forthe
formationof thepartnership. Nolegaldocumentsarerequired.
There is a longandcomplicatedprocess for the
formation ofpublic limitedco.
3.Legislationor Act
There is nolegal Act ofsole-tradership.
Activities ofpartnershipcontrolled
by the
The activities ofthe PLCo. Arecontrolled byCompanies
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Partnership ACT 1932.
Ordinance1984.
4.Number of
Members
There must be
only oneowner in soletradership.
There must
beminimum(2)membersand notmore than(20).
There must be
minimum (7)members andthere is no
restriction onmaximum.
5.Capital The capital isincreased ordecreasedaccordingto thecircumstancesor
accordingto the ownerwish.
Its capital isdescribedin theagreement.It may bechanged bymutual
consent ofthepartners.
Its authorizedcapital ismentionedin the MOA. Itis verycomplicatedprocess to
change theamount ofcapital.
6. Registration Theregistration ofsoletradership is
not requiredby the law.
Registration isoptionalaccording
toPartnership
Act 1932.
Registration ofPLCo.is
compulsory
and there isspecialOrdinance1984 for itsregistration.
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7.Management All businessaffairs aremanaged by
theownerhimself.
All thepartnerscan take
part in themanagement of thebusiness.
All theshareholderscan’t take
part in themanagement.So,managementdependsupondirectors of thecompany.
8.Liabilities The liability ofthe owner isunlimited. Thepersonalproperty of theownercan besold to paydebts.
TheLiability ofthe partnerisunlimited.Thepersonalpropertyof thepartner isliable topay debt.
The Liability ofshareholderis limited tothe value ofshares theyheld.
9.Title There is no
need to useany specificword with itsname.
There is no
need to useanyspecificword withits name.
It is necessary
to use thespecificword “PublicLimited” withits name.
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10.LegalDocuments
There is noneed ofpreparation
any otherlegaldocuments.
There is noneed ofpreparation
anyother legaldocumentsexceptregistration,which isalso onyour option.
The Publiclimitedcompany
can’t start anywork whetherthecertificate ofcommencement of business isnot received.
11.WorkingLife
The life ofsoletradershipis tooshort.Because ondeath of anowner it cancause ofthe end ofbusiness.
The life ofpartnershipis short.Becauseon death ofa partner isa causeof the endofbusiness.
Public Ltdenjoys long life.The deathof shareholdercan’t affectthe life of thebusiness.
12.Submissionof Reports
There is noneed to
prepare andsubmit anyreport.
There is noneed to
prepareandsubmit anyreport tothe
There iscompulsory to
submitreport to theregistrar.
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registrar.
13.Changes The ownercan change
anythingaccording tohis mind.
Thepartners
can makeanychangein theagreementas andwhen
they feel.
The changes inMOA and
AOA canbe made tolimited extentas provided bythe law.
14.Audit The audit ofbooks ofaccounts isnotcompulsory
by law.
The auditof books ofaccountsis notcompulsoryby law. It
isoptionaland usesimplemethod.
The audit isverycompulsory.For thispurpose, legalmethods are
used bythe Chartered
Accountantsunder therequirementof CompanyOrdinance
1984.15.Tax The rates of
taxes arevery lowbecause of
Eachpartnerpaysindividual
Double tax ispaid by thecompany. Taxis paid in whole
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the singleincome of theowner.
andsingle taxon his
income.
profit of thecompany andon the
shareholder.16.ProfitDistribution
Soletradership isan only inwhichbusinessmanenjoys
100% profitand alsohave tobear all theloss.
Profit &loss isdistributedamongthepartners
accordingtopartnershipdeed.
Some amountis distributedamongtheshareholdersaccording to
the numberof share theyheld, andotheramount is keptin reserve.
17.Books of
Accounts
The owner
can keep andmaintain thebooks ofaccounts. It isnotcompulsory.
The
partnerscan keepandmaintainthe booksofaccounts. It
is notcompulsoryby Act1932.
The books of
accounts to bekept under thelaw arecompulsory.
18.Prospectus There is no There is no In Public Ltd h t t p : /
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need andrequirement toissue
prospectus.
need andrequirement to
issueprospectusof firm.
Co. it isnecessary toissue
prospectus togeneral public.
19.Promoters The ownerhimself is thepromoter ofthe business.
Minimum 2andmaximum20 partners
arepromoters.
There must beat least 7promoters.
20.Size ofBusiness
It is suitablefor smallscale ofbusiness.
It issuitable forsmall andmediumsize of
business.
It is suitable forlarge sizebusiness.
21.Meeting There is noneed to callany meetingbecause ofsingle owner.
There is noneed to callanymeeting ofpartners ofthe
partnership.
Statutory and AnnualGeneralmeeting arecompulsory bylaw.
22.Transfer of Sole NO partner Shares of
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Shares tradership cansell or transferhis
businesswithout anyrestriction.
cantransfer orsale his
sharewithout theconsent ofallotherpartners.
Public Ltd Co.are easilytransferable to
any person.
23.Dissolution The
dissolution ofsoletradershipdoes notrequire anylegal formalityorrestriction.
Dissolution
ofpartnershipis veryeasy.There areno rulesandregulationsfor thispurpose.
Dissolution of
Public Ltd Co.is a verycomplicatedprocess.
24.Withdrawalof capital
The soletradership canget hiscapital only at
the timeof liquidationof thebusiness.
Any partnercanwithdrawhis share of
capital bytransferringthe rights toanotherperson bythe consent
The membersof the companycan receivetheir money
back byselling theshares instockexchange.
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of otherpartners.
25.Expensesof Formation
Soletradershipbears lessformationexpenses ascompared toother forms of
business.
Partnershipbears lessformationexpensesascomparedto a JSC.
The formationexpenses aremuch morethan theformation of apartnership orsole tradership.
26.Paymentsof Debt
The soletradership isliable topay the debtsof thebusiness.
All thepartnersare liable topay theobligationsof the
business.
The shareholder isnotresponsible topay the debtsof the
company.27.Listed inStockExchange
Soletradershipcannot belisted in stockexchange.
Partnershipalso cannotbe listed instockexchange.
Only Publiclimitedcompanycan belisted in stockexchange.
Conclusion:
Sole proprietorship business plays an important role in under
developing countries like Pakistan. It is helpful in equalizing
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control. It is considered the best for small scale
business. Partnership business plays an important role in
under developing countries like Pakistan. The partners are of
equal status, ability and resources. In JSC, it means ifmanagement of company is good then it is considered as best
suited. The formation of a company is need of the day. JSC are
fit for large scale business due to country grows.
ii). Differentiation between Public & Private Limited Company:
1. DEFINITION:
Public Limited Company:
“Joint Stock Company is a voluntary associat ion of individuals
for prof it , having a capit al divided into transferable shares,
the ownership of which is the condit ion of membership.”
Private Limited Company:
“Joint Stock Company is a voluntary associat ion of individualsfor profit , having a capital divided into non t ransferable
shares, the ownership of which is the condit ion of
membership.”
The other points of difference between Partnership, PublicLimited Company (JSC) and Private Limited Company arementioned below.
Other Points of DIFFERENCES:
POINTS PUBLIC LIMITED
COMPANY
PRIVATE LIMITED
COMPANY
2.Formation There is a long and There is a complicated
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complicated processfor the formationof public limited co.
process but easy ascompared to PublicLimited Company.
3.Legislation The activities of thePLCo. are controlledby
CompaniesOrdinance 1984.
It is govern byCompanies Ordinance1984.
4.Number ofMembers
There must beminimum (7)members andthere is norestriction onmaximum.
Minimum number ofmembers is (2) andmaximum limit is(50).
5.Capital Its capital is solarge.
Private limited Co.’scapital is less than
Public limited Co.6. Sale Of Shares
Public limitedcompany can saleits shares togeneral public.
Private Companycannot sale its sharesto general public.
7.Management All the shareholderscan’t take part in the
management. So,managementdepends upondirectors of the
The management ofPrivate limited
company dependsupon owners of thecompany.
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company.
8.Liabilities The Liability ofshareholder is
limited to the valueof shares they held.
The Liability ofshareholder is limited
upto the value ofshares, which they heldwith them.
9.Title It is necessary touse the specificword “PublicLimited” with itsname.
It is has to use thespecific word “PrivateLimited” with itsname.
10.LegalDocuments
The Public limitedcompany can’t startany work whetherthe certificate ofcommencement of
business is notreceived.
The Private Ltd Co.required onlyincorporation certificateand there is no need ofcommencement of
business.
11.Working Life Public Ltd enjoyslong life. The deathof shareholdercan’t affect the lifeof the business.
Private Ltd also enjoyslong life but less thanPublic Ltd Co.
12.Submissionof Reports
There is compulsoryto submit report tothe registrar.
There is no strict rulefor the submission ofreports to theregistrar.
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13.Changes The changes inMOA and AOA canbe made to
limited extent asprovided by the law.
The changes in MOAand AOA arevery complicated
procedure.
14.Audit The audit is verycompulsory. Forthis purpose,legal methods areused by the
Chartered Accountants underthe requirementof Ordinance 1984.
Audit of books ofaccounts may or maynot be compulsory. It isoptional case.
15.Tax Rebate The Govt. givesrebate for investingin public Ltd Co.
The Govt. does notgives rebate forinvesting in Private
Ltd Co.
16.ProfitDistribution
Some amount isdistributed amongthe shareholdersaccording to thenumber of sharethey held, and other
amount is kept inreserve.
All profit is distributedaccording to the valueof shares, and noreserve is made by aprivate limitedcompany.
17.Books ofAccounts
The books ofaccounts are to be
It is compulsory to keepthe books of
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kept under the laware compulsory.
accounts underCompanies Ordinance1984 but to a little bit.
18.Prospectus In Public Ltd Co. it isnecessary to issueprospectus togeneral public.
There is no need andrequirement to issueprospectus.
19.Promoters There must be atleast 7 promoters.
There must be at least2 promoters.
20. Directors There must be atleast 7 directors.
There must be at least2 directors.
21.Size ofBusiness
It is suitable forlarge size business.
It is suitable for mediumbusiness.
22.Meeting Statutory and Annual General
meeting arecompulsory by law.
There is no need to callstatutory meeting.
23.Transferof Shares
Shares of Public LtdCo. are easilytransferable to anyperson.
The shares of PrivateLtd Co. are nottransferable to anypersons.
24. Dissolution Dissolution of PublicLtd Co. is a verycomplicatedprocess.
The Dissolution ofPrivate Ltd Co. is acomplicated procedurebut less difficult ascompare to Public Ltd.
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Co.
25. Allotmentof Shares
There is restrictionfor minimum
subscription.
There is no restrictionfor minimum
subscription.
26. WrittenConsent ofDirectors
The directors’written consent isrequired.
The directors’ writtenconsent is not required.
27. ListedWith StockExchange
Public Ltd Co canbe listed withstockexchange.
Private Ltd Co cannotbe listed with stockexchange.
28. Quorum In directors meetingminimum number ofdirectors is four or
1/3
rd
whichever isgreater.
In directors meetingminimum number ofmembers is 2.
29. Publication Public Ltd Co mustpublish its annualperformance report.
There is no restrictionfor Private Ltd Co isto publish itsannual performancereport.
30. Loans A public Ltd Cocannot get loan afterits incorporation butcan after its
A private Ltd Co canget loan after itsincorporation.
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commencement.
31. Secrecy Public Ltd Co has
less secrecy.
Private Ltd Co has
more secrecy.
32. Powers ofDirectors
The powers ofdirectors are not sowide but dependingupon article ofassociation.
The powers of directorsare so wide.
33. LegalRestrictions Public Ltd Co has toface strict legalrestrictions.
Private Ltd Co has toface more but less strictlegal restrictions.
34. Area ofOwnership
Area of ownership ina Public Ltd Cois wide. It isnot restricted to one
family.
Area of ownership in aPrivate Ltd Co isrestricted to onefamily.
35.MemorandumSignatures
There must be atleast 7 signatures toform memorandum.
There must be at least2 signatures to formmemorandum.
CONCLUSION:
It is concluded that Public Ltd. Joint Stock Company is better
than Private Ltd Joint Stock Company due to Large Capital,
free Issuance & Transference of Shares & debentures, Listed
with Stock Exchange, Less Chances of frauds, large numbers of
Directors to operate the company, Govt. Incentives, etc……
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iii). Differentiation Between Article Of Association &
Memorandum Of Association.
1. Definition:
Memorandum Of Association (MOA):
“The MOA is the most important document of the company. It
defines the relationship between the company and the public.It depicts the character of a JSC as it includes all the objects of
formation of JSC.”
Article Of Association (AOA):
“The AOA are the rules of the company. These rules are used
to manage the Internal affairs of the company and to achieve
the objects stated in MOA. A set of 85 articles are given inTable A of Companies Ordinance 1984.”
Other DIFFERENCES BETWEEN MOA & AOA:
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Association (MOA) (AOA)
2.Usage MOA is an officialdocument setting out
the details of thecompany existence.
The AOA are theregulations by laws
which govern theinternal origination conduct of a comp
3.Scope MOA states the worka company can do.
AOA contains the sof rules andregulations tocomplete the objecstated in MOA.
4.Status A MOA is subordinateto CompaniesOrdinance 1984.
An AOA is subordito CompaniesOrdinance 1984MOA.
5.Approval If a company violatesthe MOA it cannotbe approved by the
shareholders.
If a company violatthe MOA it cannotbe approved by
the shareholders.6.Filing It is necessary to file
the MOA withregistrar.
It is not necessary file the AOA withregistrar as perTable A of CompanOrdinance 1984.
7.Preparation It is prepared under
the provision ofCompaniesOrdinance 1984.
It is prepared unde
the provision ofCompanies Ordina1984 and MOA.
8.Main Object Main object is to giveinformation to the
Main object is tocontrol and regulat
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outsiders about thecompany.
the Internalaffairs of the comp
9.Importance It has a primary
importance in theformation of thecompany.
It has a secondary
importance in theformation of thcompany.
10.Nature It is a constitution ofthe company.
It contains the ruleswhich govern theadministration of thcompany.
11.Objects MOA only lays downthe objects of thecompany.
AOA contains theprocedure forachieving theobjects of thecompany.
12.Alteration It is not alterable butcan be altered onlybe special
resolution of thecourt.
The provision can changed by speciaresolution easily.
13.Relation- ship It is the relationshipbetween the companyand the outsidepublic.
It is the relationshipbetween the memband the manageme
14.Registration Purpose It is necessary for the
registration ofthe company.
It is not necessary
the registration ofthe company.
15.Legal Effect A company cannot gobeyond the scope ofMOA. Otherwise
A company can gobeyond the scope
AOA. The activities
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consider illegal andcannot rectified.
cannot become ille
16.Clauses The MOA has usually
six clauses. According toCompaniesOrdinance 1984.
The AOA has man
clauses. It is notlimited to six clauseTable (A) has (85)clauses foroperating thecompany.
CONCLUSION:
In short, AOA is used only by the management of company
because it the secrets container and secrets should not be
unfold. MOA is used by management as well as outsider to
information related to company.
iv). Differentiation Between Shareholder & Debentureholder:
1. Definition:
Shareholder:
The total capital of the company is divided into small parts /
units, each small part is called share. The person who
purchased the shares of the company is called shareholder.
Debentureholder:
The certificate issued to as a receipt by borrower to lender for
the settlement of the debts in future as by borrower (JSC) is
called debenture and the holder of debenture is called
Debentureholder.
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Other DIFFERENCES BETWEEN Shareholder &
Debentureholders:
Points Shareholder Debentureholde2.Nature The amount paid by theshareholder is kind of anequity instrument.
The amount given by tdebentureholder is kinof an equity instrument
3.Liquidity These are considered asliquid instrument.
These are considered liquid instrument ascompared to Sharehol
4.Return These get return in theform of dividend.
These get return in theof Interest.
5.RiskSharing
Shareholders share therisk of the company.
Debentureholders do nshare the risk of thecompany because theyfix interest.
6.Time Period The life of shareholders isshort as they can be
sold and bought any timein stock exchange.
Debentureholders areconsidered to be long t
instruments. Usually thare issued for the perio3, 5 & 7 years.
7.Position Shareholders are theowners of the company.
Debentureholders are creditors of thecompany.
8.Share in
Profit & Loss
Shareholders have the
right to share the profit& loss of the company.
Debentureholders hav
concern with the profit& loss of the company
9.Withdrawnof Capital
These can withdrawcapital by selling sharesin the stock
These cannot withdrawcapital before the matudate.
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exchange.
10.Legality orJustification
These are legal asexpressed in terms of
Islam.
There is as such noconcept of interest in Is
because the debenturecontain the element ofinterest.
11.Prefrence Shareholders have thesecondary right toshare the value ofassets at the time ofliquidation.
Debentureholders havprimary right to claim fdebts at the time ofliquidation.
12.Security Shareholders areconsidered to be Insecure.
Debentureholders areconsidered to be secur
13.Liability Shareholders may beconsidered asresponsible for thecompany’s liability.
Debentureholders are considered asresponsible for thecompany’s liability.
14.Rights &
Powers
The rights and powers of
shareholders arewritten in AOA.
The rights and powers
debentureholders arewritten on the certificatissued to them.
15.Bonus Sometimes shareholdersreceive bonus inaddition to their dividend.
No bonus is paid to thedebentureholders.
16.Convertab-
lity
The shares of
shareholders can beconverted into the stock.
The debentures of
debentureholders mayconverted into shares.
17.Listings The shareholders’ sharesare listed in stockExchange.
The debentureholders’debentures are notlisted in stock
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Exchange.
18.Participation Shareholders canparticipate in the
management of thecompany.
Debentureholders canparticipate in the
management of thecompany.
19.Nature ofAmount
The amount contributedby the shareholders iscalled company’s capital.
The amount contributethe debentureholdersis called loan to thecompany.
20.Existance Shareholders can existboth in private & publicLtd company.
Debentureholders canonly in public Ltdcompany.
Conclusion:
In the end we can say that the shareholders are the owners of
the company for the value of shares purchased by them and
they receive dividend whereas debentureholders are creditors
of the company for the value of debentures acquired by them
and they receive a fixed rate of interest. But both provide
funds to the JSC.
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