DIFFERENCES BETWEEN PARTNERSHIP AND JOINT STOCK COMPANY

Partnership and a company differ in many ways. Following are the main differences between them:

(1) Formation : A partnership is easily format without much expenses. The legal formalities for registration are simple and less time consuming. It is registered under Nepal partnership Act, 2020. A company is incorporated by registration under Company Act 2053. Lots of legal formalities have to be observed for registration of a company.

(2) Legal Entity : A partnership has no distinct legal entity. So the acts of the firm bind the partners and the acts of individual partners ordinarily bind the firm. But the company has a distinct legal entity separate from that of shareholders. It may act in its own right without making shareholders liable for it.


(3) Number of Members : The minimum number of partners in two and maximum number is not prescribed according to Partnership act. In a private company the minimum number of members can be one while the maximum number is fifty. In a public company minimum number is seven while there is the maximum limit.

(4) Liability : In partnership, the liability of the partners is unlimited and they are jointly and severally liable for the debts of the firm. The liability of the shareholders of a company is limited up to the face value of the shares purchased by them.

(5) Existence : A partnership does not have stable life and perpetual existence. But a company has a continuous and perpetual succession. The change of membership or death of bankruptcy of the member does not affects its existence.

(6) Transfer of Shares : A partner can transfer his share only with the consent of all partners. But shareholders of a company enjoy perfect freedom to transfer their shares. However, there is some restriction in a private company.

(7) Management : Every partner has the right to take part in the management of the firm. But in company every shareholder has no right to take part in the management. Instead they elect Board of Directors, who manages the company.

(8) Capital : In partnership, partners invest capital according to their wish and the consent of other partners. The capital of a company is divided into shares. It has no right to issue shares more than the authorized capital.

(9) Final Accounts and Audit : A partnership is not under statutory obligation for the preparation of final accounts and audit the books of accounts. However, final accounts of the company must be prepared, distributed among the shareholders and audited by a qualified auditor.

(10) Dissolution : A partnership is dissolved according to the agreement among partners or by the court. A company is dissolved only through legal procedures.

ADVANTAGES AND DISADVANTAGES OF JOINT STOCK COMPANY

The company provides so many advantages that it is widely popular all over the world. The advantages and disadvantages of joint stock company are as follows :

Advantages

(1) Huge Financial Resources : A company can collect large sum of money from large number of shareholders. There is no limit on the number of shareholders in a public company. Since its capital is divided into shares of small value even a person of small means can contribute to its capital by simply purchasing its shares. It facilities the mobilization of savings of millions for the productive purposes. In addition, a company can borrow from banks to a large extent and also issue debentures to public.

(2) Limited Liability : The liability of shareholders in a company is limited to the face value of the shares they have purchased. The limited liability encourages many people to invest in shares of joint stock companies. If the funds of a company are insufficient to satisfy the claims of the creditors, no members can be called to pay anything more than the value of shares held by them.

(3) Perpetual Existence : Due to its separate legal existence, it has perpetual existence. The life of company is not dependent die or become insolvent. The members of a company may go on a company. The stability of business is of great importance to the society as well as to the nation.

(4) Transferability of Shares : The shares if a public company are freely transferable. This transferability of shares brings about liquidity of investment. It encourages many people to invest. It also helps a company in tapping more resources.

(5) Diffusion of Risk : In sole proprietorship and in partnership business, the risk is shared by few persons. But in company, the number of shareholders is large, so many persons share risk. Therefore, the burden of risk upon any individual is not huge. This attracts many investors. It enables companies to take up new ventures.

(6) Efficient Management : In company ownership is separate from management.
A company has enough resources to utilize the services of experts and managers who may be highly specialized in different fields of management. It can attract talented persons by offering them higher salaries and better career opportunities. The efficient management will help the company to take balanced decisions and can direct the affairs of the company in the best possible manner. It also helps to expand and diversify the activities of the company.

(7) Economies of Large Scale Production : Large scale production of modern days is the result of company form of organization. This results in economics in production, purchase, marketing and management. These economies will help company to provide quality goods at lower cost to the consumers.

(8) Democratic Management : The company is managed by the elected representatives of shareholders called the ‘directors’. Directors are responsible and accountable to the general body of shareholders. Decisions are taken by a majority of votes completely based upon democratic principles. This prevents in mismanagement of a company.

(9) Public Confidence : A company enjoys a greater public confidence and reputation in the market due to legal control, publicity of accounts and perpetual existence. Audit of Joint Stock Company is compulsory. A company’s financial accounts and statements are published , circulated and are open to public inspection. Therefore public have enough faith in it. So, it can get loan from different financial institutions.

(10) Social Importance : The company provides opportunity to mobilize scattered savings of the community. It also creates employment opportunities. Due to large-scale production consumers get cheaper goods. The society is supplied with enough quantity of goods. Government gets income in the form of taxes.

Disadvantages

(1) Difficulty in Formation : A company is not easy to form and establish. A number of persons should be ready to associate for getting a company incorporated. It requires a lot of legal formalities to be performed. The shares will have to be sold during the prescribed time. It is both expensive and risky.

(2) Lack of Secrecy : A company has to observe many legal formalities. Most of the business activities are decided through meetings. Profit and Loss Accounts and Balance Sheet are required to be published. So trade secrets cannot be maintained.

(3) Delay in Decisions : In company decisions making process is time consuming. All important decisions are made by either Board of Directors of by General Annual Meetings. So many opportunities may be lost due to delay in decision making.

(4) Separation of Ownership and Management : A company is owned by shareholders but managed by directors. The shareholders play an insignificant role in the working of the company. Though directors are owners of some qualification shares only, yet the result of their activities are to be borne by all shareholders. The profit of the company belongs to shareholders and the Board of Directors is paid only on a commission. There is no direct relationship between efforts and rewards. So the management does not take personal interest in the workings of company. Hence, they may work against the interest of vast majority of shareholders.

(5) Speculation in shares : The Joint Stock Companies facilitate speculation in the shares at stock exchanges. It has been found that even the directors and the managers of the company indulge in manipulating the value of shares to their advantage. When they want to purchase the shares they lower the rate of dividend and when they want to dispose of the shares they declare dividends at a higher rate.

(6) Oligarchic Management : The shareholders who are the real owners do not have much voice in the management. A handful of shareholders, which also manage the affairs of the company, are able to have control over it. Theoretically the company is democratic, but in practice it is mostly a case of oligarchy (Rule by few). A few persons hold power and control and try to exploit the majority. Thus, it does not promote the interest of the shareholders in general.

(7) Excessive Regulation : A company has to observe excessive regulations imposed by the law of the country. The excessive regulations are made with a view to protect the interest of the shareholders and the public but in practice they put obstacles in their normal and effective working. A lot of precious time, efforts, and financial resources are wasted in complying with statutory requirements.

(8) Conflict of Interest : In a company there are many parties whose interest may clash and the result may be conflict of interests. The management, the shareholders, the employees, the creditors and the government may have their own individual interests. Thus, a permanent type of conflict of interests may continue to exist in the companies. These conflicts generally lead to inefficiency in the management and reduce employee morale.

(9) Neglect of Minority : All major issues in company are decided by the shareholders having majority of them. Majority group always dominate over the minority group whose interest are never represented in the management. The company act provides measures against oppression of minority, but the measures are not very effective.

As compared with a public limited company, the additional advantages of a private limited company are as follows:
1. There is a greater facility for the formation of a private company as compared with a public company. The minimum shareholders may be only one in private whereas there must be seven in the public company. Private company does not invite public subscriptions to its shares.

2. A private company is free from certain restriction placed on a public company. For instance a private company may start business after getting the certificate of incorporation but public company must get certificate of commencement of business. Private company need not issue prospectus. No restrictions are placed on the allotment of shares and appointment of directors.

From the above discussions, it may be concluded that the advantages of company form of organization outnumber its weakness. It is clear that the company is best suited for business, which requires huge capital and maximum stability.

CHARACATERSTICS OF JOINT STOCK COMPANY

The important characteristics of Joint Stock Company are discussed below.

(1) Artificial Person : A company is an artificial person created by law. So it has a separate existence of its own. It enjoys almost all the privileges of a natural person doing business. Like ordinary person it has power to set or purchase the property on its own name. It can hold property, incur debts and enter into contracts. It can be sued too. As it has no body, no soul, and conscience, it is regarded s artificial person.

(2) Legal Entity : A company is created by law. It has the separate legal entity apart from its shareholders. It acts independently. So shareholders are not liable for the acts of the company even though they are the owners. Similarly a company cannot be held liable for the acts of the company even though they are the owners. A creditor of the company is not the creditor of its members. Similarly a company cannot be held liable for the action of its members. Thus, a company can file a suit against its shareholders and the shareholders can sue the company.]

(3) Limited Liability : A basic feature of the company is that the liability of its owners is limited to the value of shares they have purchased. As the debts of the company are the debts or a separate legal person, shareholders are not personally liable for the company. In a company limited by shares, the liability of shareholders is limited to the unpaid values of shares held by them.

(4) Transferable Shares : The capital of a company is divided into shares. The shares of the company are freely transferable except in case of private companies. Every shareholder of a public limited company is free to transfer the shares to anybody.

(5) Perpetual Existence : The company has a permanent existence. The death, lunacy or bankruptcy of its member does not affect its existence. Its old shareholders may go by selling their shares and new shareholders may come, but it does not affect the existence of the company. The company can be dissolved only by law.

(6) Common Seal : The company being an artificial person cannot sign any document. Therefore the law requires that every company should have a common seal. The common seal of a company is affixed in all important documents as a token of the company’s approval. It is the official signature of the company.

(7) Share Capital : A company is incorporated with a fixed share capital. It is known as Authorized or Registered capital. The capital is divided into shares of fixed face value. The membership of the company is obtained by purchasing the shares.

(8) Ownership and Management : Shareholders are the owners of the company. The number of shareholders is generally large and widely scattered. They have no right to participate in company management but they have the right to elect ‘Board of Director’. The directors are the agents and trustees of the company. They manage and control the company. Hence, the ownership and management are in two different hands, shareholders and directors. Directors are the legal representatives of the shareholders.

(9) Right to Sue : All the activities of the company are preformed in the name of the company. Company is an artificial person having separate legal entity. Thus, company can sue other in its own name and the others can sue in the name of the company.