The Difference Between a Partnership and a Limited Company The major difference between a partnership and a limited company is that partners do not have unlimited liability and are legally responsible for all debts that the partnership incurs. In a limited liability company, the shareholders of the company are only liable to the amount of unpaid amount on the shares. This makes partnerships quite dangerous for the partners as all partners are legally liable for partnership debts incurred by any partner whether or not they were agreement or did not have, or had prior knowledge of any business transaction, because that does not spare them from being responsibility for any debts or liabilities that have been incurred by the business during the course of the partnership and have to repay the debts even to the extent of their personal assets. Partnership Deed and Act.
Partnerships are formed by a deed, which is like the memorandum and articles of association that form limited companies. The partnership deed details the set of laws and regulations that details all issues such as contribution of startup capital, sharing of profits, tasks allocated to the partners, the inclusion of new partners and discontinuation of existing partners. However the partnership act does not lay down do all-inclusive rules for running the business and many essential matters such as disagreements and the method of working within the organization are not included in the partnership act which could result in conflicting and inequitable decisions may be made.
Partnership and Limited Company Tax Another substantial dissimilarity between a limited company and a partnership is that companies pay their taxes on profits earned, and the directors are liable to pay tax on the amount of payments that they receive from the company, whereas in a partnership each individual partner pays taxes on their share of profits, without taking into consideration any amount large or small that they have withdrawn from the business. Although both forms of business are actually required to pay taxes on 500,000 Pounds within the company, in a limited company the tax is divided amongst the company and the directors. Opposed to this the partners will have to pay full income taxes and would probably be in a much higher tax bracket. However, partners are in a position to safeguard themselves for personal liability by taking out insurance to cover any liabilities. Partners may also work out formal contract with their creditors or customers wherein the partners are not obligated to the extent of personal liabilities incase of the company acquiring debts. Other difference between a partnership and limited is that a share holder or stock holder has the options of selling their shares or interest to any other person, whereas in a partnership that could not be so easy without the consent of all partners.
Since partnerships are voluntary, it is difficult for any one partner to make any decision without the agreement of all the partners. However, the partners could agree among themselves regarding the induction of new partners, and other such matters regarding the new member (s) contribution of capital, and also whether all the partners have to agree unanimously for bringing in new partners and for any other change that was not written in the initial agreement. Custom Term Paper on Partnership and Limited Company is written by Mr. Ajiz Asif, who is well known writer at Term Papers Ltd.