November 22, 2023

Difference Between Partnership Firm And Joint Stock Company

Difference Between Partnership Firm And Joint Stock Company

A significant difference between a Partnership Firm and a Joint Stock Company is that in a partnership, the firm is managed and operated by all partners collectively, sharing profits and losses according to their agreed-upon ratio. On the other hand, a Joint Stock Company is a separate legal entity with shareholders owning stocks representing ownership, and its management is carried out by elected representatives or directors.

Partnership Firm Meaning

A partnership firm is a legal entity composed of two or more individuals who operate and manage a business in adherence to the provisions and goals outlined in a partnership deed. This type of business organization is simple to form with minimal regulatory compliance and paperwork. The partnership deed encompasses all pertinent particulars pertaining to the partnership, such as its name, objectives, capital contributions, profit and loss sharing ratio, as well as the obligations and responsibilities assigned to each partner. 

Consider a scenario where three friends, A, B, and C, decide to start a textile business. They pool in resources and draft a partnership deed stating the terms and conditions of their partnership. They agree upon a profit and loss sharing ratio of 3:3:4 respectively. Their business kicks off, and over time, they share profits and losses as per the agreed ratio, demonstrating a typical working of a partnership firm.

What Is The Meaning Of Joint Stock Company?

A Joint Stock Company is a corporate structure in which the ownership stake is distributed among investors in the form of tradable shares. In contrast to a partnership, a Joint Stock Company exists legally independently of its shareholders. This type of organization requires more compliance and legal formalities for its formation and operation. The management of a Joint Stock Company is carried out by a board of directors elected by the shareholders, and the company’s profits are distributed among shareholders in the form of dividends.

Imagine a tech start-up XYZ Tech Pvt Ltd, which decides to go public to raise more capital. It transitions into a Joint Stock Company, XYZ Tech Ltd, issues shares to the public, and gets listed on a stock exchange. Shareholders now own a part of the company, and a board of directors is elected to manage the company’s affairs. The company grows over time, and shareholders receive dividends, showcasing the typical functioning of a Joint Stock Company.

Distinguish Between Partnership Firm And Joint Stock Company

The primary difference between a Partnership Firm and a Joint Stock Company is in terms of liability, management, and legal compliance. Below is a table explaining the differences based on seven parameters:

ParameterPartnership FirmJoint Stock Company
LiabilityUnlimited LiabilityLimited Liability
ManagementManaged by PartnersManaged by Board of Directors
Legal ComplianceLess Regulatory ComplianceMore Regulatory Compliance
Capital ContributionContributed by PartnersRaised through Issuing Shares
Profit DistributionAccording to Partnership DeedIn the form of Dividends
Legal EntityNot a Separate Legal EntitySeparate Legal Entity
Number of MembersMinimum 2, Maximum 20 (in most cases)Minimum 7, No Maximum Limit (in most cases)

We hope that you are clear about the topic. But there is more to learn and explore when it comes to the stock market, commodity and hence we bring you the important topics and areas that you should know:

What is Dividend Policy
What Is Unclaimed Dividend
Types Of Dividend Policy
Features of joint stock company
Sideways Market
Property Dividend
Joint Stock Company
What Is Non Convertible Debentures
Rolling Returns

Difference Between Partnership Firm And Joint Stock Company – Quick Summary

  • The core difference between partnership firm and joint stock company lies in the structure and liability; Partnership Firms have unlimited liability and are managed collectively by the partners, while Joint Stock Companies have limited liability with a management led by a board of directors.
  • Partnership Firms are relatively easy to form with fewer legal compliances, whereas Joint Stock Companies require more stringent regulatory adherence and are structured with share capital.
  • These key differences shed light on liability, management, the legal status of these two business entities, and other important factors that define them.
  • Begin your investment journey for free with Alice Blue. Most importantly, with our 15 Rs brokerage plan, you can save up to ₹ 1100 brokerage every month when compared to other brokers. We also don’t levy clearing charges. 

Distinguish Between Partnership Firm And Joint Stock Company  – FAQs  

What is the difference between Partnership Firm And Joint Stock Company? 

The primary difference is the liability and management structure; partners have unlimited liability and manage the firm collectively, while a Joint Stock Company has limited liability with management handled by a board of directors.

What do you mean by partnership firm? 

A partnership firm is a business entity formed by two or more individuals who manage and operate the business collectively, sharing profits and losses according to a pre-agreed ratio stipulated in a Partnership Deed.

What is a joint stock company?

 A joint stock company is  business a entity where the capitais divided into l shares, and the company operates asa  separate legal entity with management carried out by a board of directors elected by shareholders.

Why is a joint stock company better than a partnership firm? 

A joint stock company is often seen as better due to its limited liability, separate legal entity status, and the ability to raise capital more efficiently by issuing shares to the public.

What is the main purpose of a partnership firm? 

The main purpose of a partnership firm is to carry out business operations collectively to earn profits, with a simpler regulatory framework and a closer, more personal management structure.

To understand the topic and get more information, please read the related stock market articles below.

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