Difference between shareholder and principal
In general terms, the principals of a corporation are the owners or investors, referred to as shareholders or stockholders. The agents of the corporation are generally considered to be the board of directors, officers or other persons the corporation authorizes to act on its behalf. In some instances, the principals and agents for a corporation are the same persons. A corporation is formed under state law as a legal entity that exists separate and distinct from its owners. Under general corporate law, shareholders are required to take action once a year, referred to as the annual shareholder meeting. The primary purpose of the meeting is to elect the board of directors.SEE VIDEO BY TOPIC: Director/Shareholder-Big Difference
SEE VIDEO BY TOPIC: The Principal Agent ProblemContent:
- Who Are the Principal and Agents of a Corporation?
- Divorce between Ownership and Control
- 19 Differences between a Company and Partnership
- Shareholders and managers as principal-agent hierarchies and cooperative teams
- Principal Shareholder
- Partnership or company - which business structure should you choose?
Who Are the Principal and Agents of a Corporation?
The special features of a joint stock company can be well understood if we compare the features of a company form of organization with that of a partnership firm. The important points of distinction between the company and partnership are given below:. Any voluntary association of persons registered as a company and formed for the purpose of any common object is called a company.
But a partnership is the relation between two or more individuals who have agreed to share the profits of a business carried on by all or any of them acting for all. The partners are collectively called as a firm. A company is regulated and controlled by the Companies Act. But a partnership firm is regulated by the Partnership Act, A company should be compulsorily registered under the Companies Act.
Its formation is very difficult. But registration of a partnership firm is not compulsory under the Partnership Act.
The firm is based on the partnership deed. Its formation is very easy. A company is a body corporate and a legal person having a corporate personality distinct from its members. The members are not liable for the acts of the company. But a partnership has no legal existence distinct from its members. Partners are liable for the acts of the firm. A company is a mere abstraction of law. So its existence is not affected by the change of membership or death or insolvency of its members.
But a partnership is a mere aggregation of individuals. So the life of a partnership ends on the death or insolvency or insanity of any one partner.
The maximum liability of the shareholders, in case of a limited company, is limited to the face value of the shares purchased by them. In case of companies limited by guarantee, the liability of the shareholders will be up to the amount guaranteed by them. But in case of a partnership. The partners are jointly and severally liable for all the debts of the partnership firm. Shares of a company are freely transferable unless restricted by the Articles.
But a partner cannot transfer his share without the consent of all other partners. A member of a company can enter into a contract with the same company. But a partner of a firm cannot enter into contract with the same partnership firm.
A private company should have a minimum of 2 members and can have a maximum of 50 members. A public company should have a minimum of 7 members and there is no maximum limit. But a partnership should have a minimum of 2 and can have a maximum of 20 persons [10 in the case of banking business]. The accounts of a company should be audited by a qualified auditor. But in the case of a partnership, the accounts need not be audited.
Even though the partners decide to arrange for the audit of their firm, the auditor need not be a qualified person. The powers, duties and liabilities of an auditor of a company are regulated by the Companies Act.
But in the case of a partnership audit, the duties are governed by the provisions of the contract entered into by the partners with the auditor. In case of a company, a shareholder is not regarded as its agent in dealing with third parties. But in case of a partnership, a partner is an agent of the firm and of all other partners in dealing with third parties. Since they are more in number, most of the shareholders of the company may not know each other.
We cannot expect that all the shareholders are just and honest to one another. But in the case of a partnership, the partners know each other thoroughly. The partnership agreement is based on utmost good faith. So the partners are to be just and honest to one another. The management of a company is in the hands of a group of elected representatives of the shareholders. Even this group finds it difficult to administer the day-to-day affairs of the company.
It is carried on mostly by salaried people. Such people cannot be expected to take active part in the management as the owners. But in the case of a partnership, the management is in the hands of the partners themselves.
They work in absolute sincerity. They can give personal attention to the customers and thus strengthen the customer-firm relationship. In case of companies, taking decisions on important issues requires a fairly long time. But in case of a partnership firm, quick decisions are possible. Joint stock company is the only business organization which is authorized to borrow money through the issue of debentures.
A partnership firm cannot issue debentures. The outsiders who deal with a company should be aware of the provisions of its Articles of Association. This is because, the restriction on directors affect the outsiders.
But in case of a partnership, restriction on any partner does not affect the outsiders. So they need not be aware of the provisions of the partnership deed. The companies have to file their documents, returns, reports, balance sheet, profit and loss account etc. Some of them are open to public. So, there is no secrecy at all in case of companies. But in case of a partnership, the firm need not prepare and file such documents.
So its secrets are not leaked out. Outsiders cannot know the in and outs of the firm. Even people with limited resources can become the shareholders of a big company. This tempts them to save something out of their income for future. This is a green signal for capital formation in the country.
Such a capital formation is not possible in the case of a partnership. A company, being a creature of law, can only be dissolved as laid down by law.
A partnership firm, on the other hand, is the result of an agreement and can be dissolved at any time by agreement. This site uses Akismet to reduce spam. Learn how your comment data is processed. Business Law. Table of Contents Differences between a Company and Partnership 1. Definition 2. Law 3. Registration 4. Legal Position 5.
Life Time 6. Liability 7. Transferability of Shares 8. Contract 9. Number of Members Audit Implied Agency Good Faith Management Decision-Making Issue of Debentures Restrictions Secrecy Capital Formation Related Posts.
Tags: Company , Joint stock company , Partnership , private limited company , public limited company. Leave a Reply Cancel reply.
Divorce between Ownership and Control
The so-called "divorce between ownership and control" happens when the owners of a business do not control the day-to-day decisions made in the business. For example, the majority of shareholders in public companies are not involved in any way with operational decision-making by the companies in which they have invested. The owners of a company normally elect a Board of Directors to control the business's resources for them. Often in smaller firms, there is no difference between the Directors and the Shareholders - they are the same person or people.
Shareholders and managers can work in a hierarchy in which principals attempt to control the actions of agents to achieve the wealth objective. Alternatively, shareholders and managers can work together as a cooperative team in which shareholders provide financial capital and managers provide human capital. The authors aim to examine the different implications for value creation provided by the two approaches. By comparing the literature on the value implications of the incomplete contracting framework and control arrangements in principal-agent hierarchies, the authors identify deviations from optimal outcomes and suggest solutions. The review indicates that a cooperative framework has some advantages over the hierarchical model.
19 Differences between a Company and Partnership
A partner is someone who helps own and operate a company established as a partnership in a particular state. A shareholder is an investor in a corporation. Each role offers you distinct benefits and risks as someone looking to make money in business. In a general partnership, each partner shares in the profits and risks of operations. In a limited partnership, a general partner assumes primary roles and responsibilities, and limited partners can invest in the business without taking on active responsibilities and personal financial liability. A general partner is able to share in the profits of the business and leverage the strengths and expertise of other owners, but spread out the risks. In some cases, a key partner creates new business channels or supply relationships that spark greater profitability than what an individual owner could generate as a sole proprietor. With a limited partnership, general partners can attract investors and avoid loan financing. This structure is useful for someone who wants singular control, but shared financial investment.
Shareholders and managers as principal-agent hierarchies and cooperative teams
The special features of a joint stock company can be well understood if we compare the features of a company form of organization with that of a partnership firm. The important points of distinction between the company and partnership are given below:. Any voluntary association of persons registered as a company and formed for the purpose of any common object is called a company. But a partnership is the relation between two or more individuals who have agreed to share the profits of a business carried on by all or any of them acting for all.
The company can be private or publicly traded. Principal shareholders are subject to special Securities and Exchange Commission SEC filing rules that pertain to insider trading. Smaller investors often look to the behavior of the principal shareholder as an indication of the company's performance. If the principal shareholder makes a large additional investment in the company, for example, this is probably an indication that the company is performing well.
Both the terms stockholder and shareholder refer to the owner of shares in a company, which means that they are part-owners of a business. Thus, both terms mean the same thing, and you can use either one when referring to company ownership. To delve into the underlying meaning of the terms, "stockholder" technically means the holder of stock , which can be construed as inventory , rather than shares. Conversely, "shareholder" means the holder of a share , which can only mean an equity share in a business.SEE VIDEO BY TOPIC: Shareholders and Stakeholders Compared in One Minute: Definition/Meaning, Explanation and Examples
Agency conflicts can occur when the incentives of the agent do not align with those of the principal. Moral hazard and conflict of interest COI may thus arise. Conflict of Interest : Principal-agent problems — which arise when managers act on the behalf of a firm and its investors — include potential conflicts of interest. When a firm has debt, conflicts of interest can also arise between stockholders and bondholders, leading to agency costs on the firm. Much of the contemporary interest in corporate governance is concerned with mitigation of the conflicts of interests between stakeholders.
Partnership or company - which business structure should you choose?
Whether that firm is legal, financial, investment-based or focused on consulting does not tend to matter. If a business may be appropriately described as a firm, it likely contains both partners and principals. Similarly, if a limited liability corporation or partnership is structured a certain way, that business may contain both partners and principals regardless of whether it may be described as a firm. In the broadest possible terms, a partner is an individual with an ownership interest in a business structured as a partnership. But most often, an individual that may be described as a partner is someone who possesses equity in a firm that is structured as a specific kind of limited liability company or as a partnership. Depending on the role that a partner has opted to assume, he or she may or may not be entitled to a voting interest, but almost certainly remains entitled to a share of business-related profits. When a business has been structured as a corporation, individuals with a partnership equity interest are referred to as shareholders. Once this status is achieved, a partner becomes entitled to certain benefits and constrained by specific obligations.
Whether you organise your business within a company or a partnership structure depends on the balance you are willing to strike between cost of administration, tax costs, start up costs, privacy, control and liability. For most business owners, the decision relates to the differences in tax paid and limitation of personal liability risk. A company is a single legal person known as a body corporate , able to make contracts through its directors or other staff.
All the contents of www. The Project envisages the development of a common methodology for the preparation, storage, dissemination and evaluation of scientific literature in electronic format. As the project develops, new journal titles are being added in the library collection.
A limited company shareholder is an owner of a company. A limited company director is appointed by shareholders to manage the business on their behalf. Alternatively, lots of different people can take on these roles. To set up a limited by shares company, it must be incorporated at Companies House.