Comparison between ordinary partnerships and companies

Question 1

Advantages of incorporation

Answer 1

Separate legal personality
-Company has this. Partnership doesn’t but in Scotland it does

Liability for contracts made in the name of the company / partnership
-Company is liable for contracts in its name. Partner are personally and jointly liable for contracts

Limited liability of members / partners / owners
-Members of a company’s liability can be limited by share or guarantee. Whereas partnerships have unlimited liability

Ownership
-A company owns all of the assets in its name. Whereas partners own assets jointly but in Scotland property is owned by the partnership.

Perpetual succession
-A company can enjoy this as it is unaffected by a change in its members. Whereas the death, retirement, bankruptcy, and mental disorder of a partner dissolves the partnership.

Transferability of ownership
-Shares are freely transferable (subject to AOA). Whereas partners can transfer interest but the transferee does not become a partner.

Limit on membership (Size)
One for private limited companies and two for public limited companies. Partnerships no maximum but minimum of two

Question 2

Disadvantages of incorporation

Answer 2

Formation
-A company must be registered with the registrar of companies. There are no formal requirements for partnerships.

Administrative consequences (Accounts)
-A company must file accounts and documents to the registrar whereas partnerships don’t need to comply with any formalities 

Cost
-Companies have a cost of compliance with administrative requirements (eg filing fees for documents) and annual audit. Whereas partnerships have no such costs

Privacy / Publicity
-A company must make several accounts and documents available for public inspection. Whereas partners only have the right to access the businesses accounts.

Management – Division between ownership and control
-A company member cannot be directly involved in the management of the company unless they are a director. Whereas partners in a company have the right to be involved in the management unless agreement states otherwise

Withdrawal of capital
-A company is subject to strict rules of withdrawal and repayment of capital. Whereas with partnerships it’s a lot more straight forward to withdraw capital.

Question 3

Other differences

Answer 3

Constitution

Taxation