Legal Terminology of Firm and Company
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| Legal Terminology of Company and Firm |
Firm:
When few people share their resources and start a business, then it is known as firm.
Partnership:
The relationship of these people among one another is called partnership.
Co-partner:
In partnership or firm, one partner is the co-partner to another.
Example:
If A, B and C are three persons and they shared their resources and started a business. Then, this business is called firm and the relation among A, B and C is partnership and these A, B and C are co-partners to one another.
In a partnership, all the partners may get equal profit or according to their share if they had not equally contributed.
Sole Proprietorship:
If the business is owned by a single person and there is no partnership, then it is called sole proprietorship.
Joint Ownership:
Joint ownership is completely different from partnership. For example, if few people shared their resources and bought a land and then gave it on rent and then, distribute the rent among one another equally or according to their share, then, it is called a joint ownership.
Liability:
Liability means responsibility. In case of firm and company, liability has two types.
- Limited Liability,
- Unlimited Liability.
Limited Liability:
Limited liability simply means limited responsibility. For example, in certain business say company, if the business faced a huge loss, then the shareholders are not are not responsible to fulfil that loss from an external source. They have already given their shares and that is enough. In this case, the company is held responsible, for here the company is the owner.
Unlimited Liability:
Unlimited liability simply means unlimited responsibility. For example, in some business, say firm or sole proprietorship, if the business faced a huge loss then the owner or the partners is/are held responsible to fulfil the loss at any cost. In this case, the owner or the partners is/are bound to fulfil the loss even from external source as by selling house, land, cattle etc.
Company:
Company is a different concept than a firm. In a firm or sole proprietorship, the liability of the partners or the owner is unlimited. So the people were afraid to start a business. For this purpose, the concept of company was introduced.
Shareholders:
In company, there is no partnership or joint ownership, but the members are called shareholders.
Single Member Company:
A single person can make a company, and then it is called a single member company.
Owner of the Company:
The company itself is the owner, the member starting the company are just shareholders.
Liability in Case of Company:
In case of a company, the shareholders have limited liability and the company itself has unlimited liability. If the company faced a huge loss and it is sued; a suit is filed in the court against it, then it is given time by the court to earn and fulfil the loss. After fulfilling the loss, the court may or may not dissolve the company as case of Taj Company Ltd in Lahore High Court.
Difference between Firm and Company:
A company and firm have the following differences.
- A company is a legal or juristic or artificial or juridical personality
While
A firm is not a distinct personality.
- A company never dies unless dissolved
While
A firm dies with the death of the owner.
- The members of the company are called shareholders
While
The members of a firm are called partners.
- A company has unlimited liability and the shareholders have limited liability
While
In case of firm, the members have unlimited liability.
Types of Company:
A company is of two types.
- Private Limited Company
- Public Limited Company
Private Limited Company:
A private limited company is that which is not allowed to sell its share or stock to the public. If the shareholders want to include a new shareholder, then, they will dissolve the old company and will make a new company including the new shareholder.
The capital of this company is arranged privately by the shareholders.
Example may be ABC Grocer (Pvt) Ltd.
Public Limited Company:
A public limited company is that which is allowed to sell its share in the public. The capital of this company is arranged by the public.
Examples of public limited company are Pakistan Tele Communication Authority (PTCL), Pakistan International Airlines (PIA) etc.
It is notable that in a company, the shareholder, having the greater share will have more authority. Therefore, the government sells 49% of the stock so that the authority may remain with the government
