Company Law

Company vis-a vis other Forms of Business

Types of Entities

Partnership

LLP HUF

Company

Formation of different forms of Business Organizations

Formation of a company is as per the Companies Act, 2013. Association of

Person who are intended to register or incorporate as a company must comply

with the procedure of incorporation as laid down in Section 7 of the companies

act, 2013 and these provisions are mandatory in nature.

However, formation of a partnership firm is as per the provisions contained in

Partnership Act, 1932. And registration of a partnership firm is not mandatory.

Incorporation of a Limited Liability partnership firm is as per the LLP Act 2008

and provisions specified in LLP agreement.

Formation

Company

Formed by the process of Incorporation

Partnership

Formed by partners agreement

LLP

Formed by the process of Incorporation

HUF

Formed by Karta

Hindu Undivided family is formed by Karta and is governed by Hindu Law. The

Karta is a person with controlled capacities but within this fringe outline, he

holds an immensely important position of responsibility.

Dissolution

Company

Partnership

LLP

Dissolution is subject to Legal

Process

Dissolution is subject to Legal

Process

Dissolved by an Agreement

Dissolved by Karta

HUF

Dissolution: ❖ Dissolution involves sale of assets, properties of the business concern and

payment for liabilities and settlement of claims etc.,

❖ Dissolution of a company is governed by the Companies Act, 2013. The company

can be dissolved or wound up only after complying with the provision of the act.

❖ However, partnership firm can be dissolved as per the terms of the agreement, or

due to insolvency of partners, expiry of the term or on an order of the court of

such higher authority.

The business carried under Limited Liability Partnership organization can

be closed at the will of Partners by any of the following ways:

1. Declare LLP as defunct; or

2. Voluntary winding-up of the LLP; or

3. Compulsory winding-up of the LLP (initiated by Tribunal)

Dissolution of HUF occurs when partition of HUF's property is done. Partition of

HUF can be done at any time i.e. either on Survival of Karta or on death of Karta

Legal Personality:

A company and LLP bear its own name, acts under name, has a seal of its own

and its assets are separate and distinct from those of its members. However, a

partnership firm and HUF does not have its own legal personality.

Legal Personality

Company

Partnership

LLP

HUF

Yes

Yes

No

No

Transfer of Ownership ❖ Shareholders of a public company can generally transfer their shares without

restrictions. However, transfer of shares of a private company are subject to the

conditions put by company.

❖ Rights of LLP are subject to terms of contract/ agreement.

❖ Partners of firm cannot sell or transfer their share without obtaining the consent of

the other members.

Transfer of Ownership

Company

Partnership

LLP

HUF

Member can sell his shares generally.

Private companies may restrict

Economic Rights can be transferred.

Absolute rights are subject to partnership

agreement

Partner cannot sell his share without

consent from other partners

Not Applicable

Perpetual Succession

Company

Partnership

LLP

HUF

Company survives the death or insolvency

of all the shareholder

LLP survives the death or insolvency of all

the Partners

The death or insolvency of a partner dissolves the

firm, unless otherwise provided in the agreement.

Formed by Karta

Membership ❖ Membership of a company can be obtained by purchasing shares of the company

or by way of transmission of securities of the company. Transmission of securities

may be taken place in case of death of member, insolvency of member or lunacy

of member etc.,

❖ Membership of Partnership firm and LLP is governed by the partners agreement.

Whereas, in case of HUF membership is obtained by birth.

Membership- By Birth

Company

Partnership

LLP

HUF

Only in case of transmission, a legal heir

can become a member

Transmission is governed by Partners

Agreement

Transmission is governed by Partners

Agreement

Membership is by birth only

Contracting with the Entity

Company

Partnership

LLP

HUF

Possible

Possible

Not Possible

Not Possible

Contracting with the entity

Since, company and LLP are a body corporate, legal entity is separate from its

members/partners. Hence, there can be contract within the entity. Whereas, for

partnership firm and HUF, which does not constitute a partnership firm, there

cannot be any internal contracts.

Agency relationship

Members are the owners of the company and not the agents. Whereas, Partners

of the partnership firm and LLP acts as agents of the partnership firm. And, in

case of HUF, other members are not the agents of the HUF. Karta acts on behalf

of members.

Agency Relation

Company

Partnership

LLP

HUF

Members are not agents of the

company

Partners are agents of the LLP

Partners are agents of the firm

Co-parceners are not agents of HUF

Ownership of Assets

Company

Partnership

LLP

HUF

Company

LLP

Partners

HUF

Ownership and disposal of assets

Ownership of the assets of the Company, LLP, HUF lies with them. However, assets of

the partnership firm are the assets of the partners of such firm.

In case of company, power to dispose of the assets of company are entrusted to the

Board. Partners of the firm and LLP have the right to dispose the assets belongs to

firm. Whereas, in case of HUF, Karta has the power to dispose the assets and not any

other members.

Ownership and disposal of assets

Ownership of the assets of the Company, LLP, HUF lies with them. However,

assets of the partnership firm are the assets of the partners of such firm.

In case of company, power to dispose of the assets of company are entrusted

to the Board. Partners of the firm and LLP have the right to dispose the assets

belongs to firm. Whereas, in case of HUF, Karta has the power to dispose the

assets and not any other members.

Disposal of Assets

Company

Partnership

LLP

HUF

Members cannot dispose assets of

the Company

Partner can dispose assets of the

Company

Partner can dispose assets of the

Company

Karta can dispose. Not others.

Liability towards creditors

Since, Company and LLP has separate legal existence, members of the company

or the partners of LLP are not liable to creditors. However, in case of partnership

firm, since there is unlimited liability on partners, they are personally liable for

creditors. In case of HUF, only Karta is responsible and not all the other members

of HUF.

Liability towards Creditors

Company

Partnership

LLP

HUF

It is on Company. Not on members

On LLP. Not on partners

Partners are liable jointly and

severally without limit. Decree can be

executed against partners

Karta is liable

Joint Liability

Since, there is concept of limited liability in case of LLP and Company, members

of the company are not jointly liable and partners of LLP are not liable in respect

of any act which is done by other member of firm without proper authority or

for an independent act of other member.

Members of the Partnership firm are jointly and severally be liable for wrongful

acts of other partners of the firm. And in case of HUF, it is only the Karta who

accepts the sole responsibility.

Joint Liability

Company

Partnership

LLP

HUF

No joint liability for members

No partner is liable on account of the

independent or un-authorized actions

of other partners

All partners are jointly liable for the

wrongful acts of partners

Karta alone is liable

Mutual Rights

There is no concept of Mutual rights in case of Company and LLP. However,

members of Partnership firm and LLP enjoy the mutual rights subject to partners

agreement.

Mutual Rights

Company

Partnership

LLP

None

Governed by partners agreement

Governed by partners agreement

Not Applicable

HUF

Incurring liabilities

Due to concept of separate legal existence, members of the company shall not

be held liable for the acts of company. However, partners of the partnership firm

and LLP shall be liable for the acts of the firm if they are acting in the ordinary

course of business. In case of HUF, only Karta will be held liable for the acts of

HUF.

Incurring Liabilities

Company

Partnership

LLP

HUF

Members cannot incur liabilities for the

company

Partners can incur liabilities on the firm,

if acting in the ordinary course of

business

Partners can incur liabilities on the firm,

if acting in the ordinary course of

business

Only Karta can incur liabilities for HUF

Regulation of Governance Structure

Company

Partnership

LLP

HUF

Prescribed by the Companies Act

As per the partners agreement

As per the partners agreement

Karta has free hands

Regulation of Governance Structure

Governance structure of the Companies are subject to the provision of the

Companies Act, 2013. However, in case of partnership firm and LLP governance

structure shall be as decided by the partners is the partnership agreement. Karta

has the sole authority to take decision on the governance structure of the HUF.

Separation of ownership and management

Members do not have control over the working affairs of the company. They

elect their representatives to conduct corporate functions through managerial

personnel.

However, in all other cases, there is no separate line of authority to look after

day to day affairs which differentiates from its owners.

Separation of Management and Ownership

Company

Partnership

LLP

HUF

Exists

Does not exist

Does not exist

Does not exist

Liability

Liability of the members of the company is limited by the shares held or the

amount guaranteed by them. In case of the Partnership firm and HUF, members

have unlimited liability. Liability of the members of LLP is limited to the extent

of amount agreed.

Liability

Company

Partnership

LLP

HUF

The liability of shareholder may be

limited either by shares or by guarantee

Limited to the extent of agreed

contribution

Unlimited Liability

Unlimited liability

Auditing

Auditing of the company is governed by the Companies Act, 2013. Whereas,

auditing of accounts of LLP is as per the Limited Liability Partnership Act 2008.

Auditing of accounts of the firm is at the discretion of the partners. In case of

HUF, Karta must decide whether the accounts of the HUF are required to be

audited or not.

Auditing

Company

Partnership

LLP

HUF

Regulated by

the Companies Act, 2013

Regulated by the Limited Liability

Partnership Act 2008

The accounts of a firm are audited at

the discretion of the partners

At the discretion of

Meetings Meetings of the company are regulated by the Companies act, 2013 and Articles

of Association of the company. Which stipulates the manner of holding the

meeting, validity of appointment of proxy, quorum, manner of voting etc., In

case of partnership firm and LLP there is no legal requirement as to holding

meeting, appointment of proxy, quorum etc.,

Meetings

Company

Partnership

LLP

HUF

Regulated

Not Regulated

Not Regulated

Not Regulated