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Firm and a comapany:- close analysis.


















                                                                                                                                                                                                    




Most important point before discussing about the topic:- The organization which do not have separate legal entity cannot have limited liability, but the organization which have separate legal
 entity can have unlimited liability.
Few days back, I gave accountancy presentation on the topic "Annual report of a company". That was the first day of the second semester and I was the "Bakra" of the first day as mam had announced on the day of orientation, the names of the students who are to give presentation on the very first day of the class and I was one of them. Since I was absent on the day of orientation, so mam had allotted me a topic annual report of a company. Initially I was confused. Then I misinterpreted the topic as of Financial statement of a company and prepared the presentation accordingly.
During the presentation mam explained that it also includes the Auditor's report, director's feedback along with the contents of a financial statement that is balance sheet and profit and loss account. So my presentation was all a flop effort. Also I was using the term "Firm" again and again in between the presentation instead of using the term "company". So at the end of the presentation mam asked as a viva question who will present the annual report of the company? A firm or a company? I was blank at that moment, because the notion that I had in my mind was that the firm and the company is one and the same thing, so I answered that firm is a company so obviously company will prepare the annual report. No it is not same, I got my answer and the discussion ends. I researched a lot about that topic later on. Because if I being a 90 scorer in accountancy(12th boards), had such a doubt then others for sure would have this doubt. So I would like to explain these 2 terms briefly and in a laymen language. Here it is:-


First Both firm and company are meant for organization where people grouped together or individual work for the achievement of Economic, monetary or other Goals.
Individually both of the terms differ.they differ in their connotation and functions.  The structure, the focus to achieve goal and leadership makes them differ.
Firm basically refers to that organization that will have an unlimited liability. But it needs to be a registered entity which has single legal entity or it should not have a separate legal entity. The entity of the owner should not be separated from it's firm. Legal entity of firm and the owner shall be the same. The firm can file a complaint against another on owner's personal capacity and in case of insolvency, his personal property can be sold off for paying off the liabilities. The examples for firms can be 1]registered sole proprietorship business 2]registered partnership firm. Partnership firms are different from Limited liability partnership{new concept of partnership developed in 2008 by Institute of chartered accountants of India and inducted into law through companies act 1956 amendment act}. Partnership firms are firms including the partners who joined together for achieving common objective and for sharing profit and liabilities and carrying out the business activities. The partners have unlimited liability and does not have separate legal entity, means partners and firm are one and the same thing in the eyes of law. Funds can be introduced by partners only. While in Limited liability partnership, funds can be raised through initial public offerings, by inviting public for investing in the business. It is a company form of organization. It has a separate legal entity. Owners are considered separate from business or company. And the case can be filled in the name of the company only, not on the name of partners like in partnership firm. The liability of partners are limited to the extent of capital introduced by them in the business. I shall be dealing with the topic of both types of partnership in details in my next article. Let us now come back to the topic. we were discussing the examples of firm.3]Law firms 4]accounting firms etc.

Company:-  Registered organization, that has got a separate legal entity. Separate from it's owners. Owners have limited liability, to the extent of the capital introduced by them in the organization. It is mandatory for companies to get themselves registered under the companies act 1956. Company is considered as artificial person which can file cases on it's name. Firm can file cases on the name of its owners not on the name of firm because firm is not an artificial person like company.
Conclusion:-
The difference between firm and company is very minor that is separate legal entity. Firms do not have separate legal entity and companies do have separate legal entities.
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