Differences between registered companies and partnerships:
The basic differences between registered companies and partnerships are as follows:
(a) Formation
Registration is the legal pre-requisite for the formation of a registered company: Fort Hall Bakery Supply Co v Wangoe (1).
The Partnership Act does not prescribe registration as a condition precedent to partnership formation. A partnership may therefore be formed informally or, if the partners deem it prudent, in writing under a Partnership Deed or Articles.
(b) Legal Status
A registered company enjoys the legal status of a body corporate which is conferred on it by the Companies Act.
A partnership is not a body corporate and is non-existent in the contemplation of the law. Such business as appears to be carried on by it is in fact carried on by the individual partners.
(c) Number of Members
A registered private company must have at least two members under s.4 of the Companies Act and a maximum of fifty members (excluding current and former employees of the company who are also its members), under s.30 of the Act. A public registered company must have at least seven members under s.4 of the Companies Act but without a prescribed upper limit. A partnership cannot consist of more than 20 partners.
(d) Transfer of Shares
Shares in a registered company are freely transferable unless the company's articles incorporate restrictive provisions.
A partnership has no shares as such but a partner cannot transfer his interest in the firm to a third party unless all the partners have agreed to the proposed transfer.
(e) Management
A company's members have no right to participate in the company's day to day management. Such management is vested in the board of directors.
Partners have the right to participate in the firm's day to day management since s.3 of the Partnership Act requires the business to be carried on "in common". The right of participation in the firm's management is however not given to a partner who has limited his liability for the firm's debts.
(f) Agency
A member is not, per se, an agent of the company: Salomon v Salomon & Co Ltd (3). A partner is an agent of the firm because the business is carried on "in common" by the partners themselves. The Partnership Act, s.7 also expressly provides that every partner is an agent of the firm and his other partners for the purpose of the business of the partnership.
(g) Liability of Members
A company's member is not personally liable for the company's debts because, legally, they are not his debts.
A partner is personally liable for the firm's debts. This rule has been codified by s.11 of the Partnership Act which provides that "every partner in a firm is liable jointly with the other partners for all debts and obligations of the firm incurred while he is a partner", unless the partner is a limited partner.