COMPANIES vs. PARTNERSHIPS

The mode of formation- differs in the sense that for a company it must be formed formally in writing and must be registered and a certificate of registration issued. With regard to partnerships, it depends on whether it is ordinary or Ltd partnership. If it is an Ltd partnership, it must be formed formally and be issued with a certificate of registration. If it is an ordinary partnership, then there are no strict rules of formation. May be formed in writing or an oral agreement or inferred from the conduct of the parties.

The legal personality of the businesses- once a company is incorporated successfully, it acquires its own separate legal personality, separate from the person who formed it. Salomon v Salomon; Mackaura v National Assurances Company Ltd.

Similarly, Ltd partnerships acquire separate personality. But ordinary partnerships do not and remain one and the same thin with the partners. It is said that partners in ordinary partnerships are partners and owners at the same time.

Management- in ordinary partnerships, partners are not only owners, they are also managers. The law recognizes that every partner has a right to manage the partnership business.

On the other hand, if it is a Limited Liability Partnership (LLP herein onward), then the right of management is not conferred as of right upon the owners. Section 27 of the LLP Act states that every LLP must appoint a manager of not less than 18 years of age. Failure to which constitutes a criminal offense against the partnership and each partner. In companies, shareholders do not have direct management rights because the day-day management of the company is vested upon the board of directors.

Limitation of liability- in companies and LLPs, shareholders and partners normally have some form of limitation of their liability unless the company is registered with unlimited liability. In ordinary partnerships however, partners do not have any limitation of liability. On the contrary, they are liable for third party debts and obligations up to the last penny.

Authority to bind- in ordinary partnerships, every partner is considered to be the principal and agent of the other partner as well as the partnership, both at the same time. Consequently, he has authority to bind that other partner and the partnership with his acts or deeds in the ordinary course of business. In an LLP, each partner is an agent of the partnership firm with authority to bind the partnership with his acts or deeds. In companies on the other hand, no shareholder is an agent of either the company or another shareholder. So no shareholder can bind another shareholder with his act or deed.

Number of members- in partnerships, the minimum number of members allowed is 2 and the maximum is 20. In companies, it depends on whether it is public or private. In the case of Forthall Barkery v Wangoe, the plaintiffs had brought a suit against the respondents for recovery of a debt. In the course of the proceedings, it emerged that the plaintiffs were an association of 45 individual's carrying on business in the form of a partnership. The court held that in the circumstances they were an illegal association and could not sustain their suit against the respondent. The court pointed out that such an association could only be recognized for purposes of punishment.

Transferability of shares and interests- in companies there are no restrictions to the transferability of shares if the company is public because they can even be transferred in the public stock market. But if it is a private company, then the transfer of shares must be consented to by the director. In the case of partnerships, a partner may transfer his shares to another person if there is unanimous consent from the other partners. He may however assign his interests to another person in which the person is assigned to a share. In an LLP, the assignee also becomes party to the management.

Dissolution- as regards ordinary partnerships, they may be dissolved fairly informally even without involvement of the court. May even be dissolved by the conduct of only one of the partners especially if it was a partnership at will. Mohammed v Hussein- there was a partnership which was operating from premises owned by one of the partners. The partnership delayed in paying rent and the partner who owned the premises evicted the partnership. Held that the conduct of eviction amounted to an expression of intention to terminate the partnership and the partnership was dissolved. On the other hand, LLPs and companies may only be dissolved after protracted procedures as prescribed under the Acts.