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Question No 14:Differentiate between

i. Sole tradership, Partnership & Joint StockCompany.

ii. Public & Private Limited Company.iii. Article Of Association & Memorandum Of

Association.iv. Shareholder & Debentureholder. Answer:

i. Differentiation Between Sole Tradership, Partnership

& Joint Stock Company:

1. Definition:

SOLE TRADERSHIP:“Sole proprietorship means the business in which one person is

the owner who solely responsible for all the losses and enjoys

all the profit .”

PARTNERSHIP:

“Part nership is the relat ionship between persons who have

agreed to share prof it of business, carried on by all or any ofthem act ing for all”

JOINT STOCK COMPANY OR (Public Limited Company):

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“Joint Stock Company is a voluntary associat ion of individuals

for prof it , having a capit al divided into transferable shares,

the ownership of which is the condit ion of membership”

Other Points of Difference:

The other points of difference between Sole tradership,Partnership and Public Limited Company (JSC)arementioned below.

POINTS SOLE

PROPRIETORSHIP

PARTNERSHIP

PUBLICLIMITED

COMPANY(JSC)

2.Formation There are nocomplicatedformalities forthe

formation ofsole-tradership.

There is asimpleprocess forthe

formationof thepartnership. Nolegaldocumentsarerequired.

There is a longandcomplicatedprocess for the

formation ofpublic limitedco.

3.Legislationor Act

There is nolegal Act ofsole-tradership.

Activities ofpartnershipcontrolled

by the

The activities ofthe PLCo. Arecontrolled byCompanies

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Partnership ACT 1932.

Ordinance1984.

4.Number of

Members

There must be

only oneowner in soletradership.

There must

beminimum(2)membersand notmore than(20).

There must be

minimum (7)members andthere is no

restriction onmaximum.

5.Capital The capital isincreased ordecreasedaccordingto thecircumstancesor

accordingto the ownerwish.

Its capital isdescribedin theagreement.It may bechanged bymutual

consent ofthepartners.

Its authorizedcapital ismentionedin the MOA. Itis verycomplicatedprocess to

change theamount ofcapital.

6. Registration Theregistration ofsoletradership is

not requiredby the law.

Registration isoptionalaccording

toPartnership

Act 1932.

Registration ofPLCo.is

compulsory

and there isspecialOrdinance1984 for itsregistration.

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7.Management All businessaffairs aremanaged by

theownerhimself.

All thepartnerscan take

part in themanagement of thebusiness.

All theshareholderscan’t take

part in themanagement.So,managementdependsupondirectors of thecompany.

8.Liabilities The liability ofthe owner isunlimited. Thepersonalproperty of theownercan besold to paydebts.

TheLiability ofthe partnerisunlimited.Thepersonalpropertyof thepartner isliable topay debt.

The Liability ofshareholderis limited tothe value ofshares theyheld.

9.Title There is no

need to useany specificword with itsname.

There is no

need to useanyspecificword withits name.

It is necessary

to use thespecificword “PublicLimited” withits name.

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10.LegalDocuments

There is noneed ofpreparation

any otherlegaldocuments.

There is noneed ofpreparation

anyother legaldocumentsexceptregistration,which isalso onyour option.

The Publiclimitedcompany

can’t start anywork whetherthecertificate ofcommencement of business isnot received.

11.WorkingLife

The life ofsoletradershipis tooshort.Because ondeath of anowner it cancause ofthe end ofbusiness.

The life ofpartnershipis short.Becauseon death ofa partner isa causeof the endofbusiness.

Public Ltdenjoys long life.The deathof shareholdercan’t affectthe life of thebusiness.

12.Submissionof Reports

There is noneed to

prepare andsubmit anyreport.

There is noneed to

prepareandsubmit anyreport tothe

There iscompulsory to

submitreport to theregistrar.

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registrar.

13.Changes The ownercan change

anythingaccording tohis mind.

Thepartners

can makeanychangein theagreementas andwhen

they feel.

The changes inMOA and

AOA canbe made tolimited extentas provided bythe law.

14.Audit The audit ofbooks ofaccounts isnotcompulsory

by law.

The auditof books ofaccountsis notcompulsoryby law. It

isoptionaland usesimplemethod.

The audit isverycompulsory.For thispurpose, legalmethods are

used bythe Chartered

Accountantsunder therequirementof CompanyOrdinance

1984.15.Tax The rates of

taxes arevery lowbecause of

Eachpartnerpaysindividual

Double tax ispaid by thecompany. Taxis paid in whole

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the singleincome of theowner.

andsingle taxon his

income.

profit of thecompany andon the

shareholder.16.ProfitDistribution

Soletradership isan only inwhichbusinessmanenjoys

100% profitand alsohave tobear all theloss.

Profit &loss isdistributedamongthepartners

accordingtopartnershipdeed.

Some amountis distributedamongtheshareholdersaccording to

the numberof share theyheld, andotheramount is keptin reserve.

17.Books of

Accounts

The owner

can keep andmaintain thebooks ofaccounts. It isnotcompulsory.

The

partnerscan keepandmaintainthe booksofaccounts. It

is notcompulsoryby Act1932.

The books of

accounts to bekept under thelaw arecompulsory.

18.Prospectus There is no There is no In Public Ltd h t t p : /

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need andrequirement toissue

prospectus.

need andrequirement to

issueprospectusof firm.

Co. it isnecessary toissue

prospectus togeneral public.

19.Promoters The ownerhimself is thepromoter ofthe business.

Minimum 2andmaximum20 partners

arepromoters.

There must beat least 7promoters.

20.Size ofBusiness

It is suitablefor smallscale ofbusiness.

It issuitable forsmall andmediumsize of

business.

It is suitable forlarge sizebusiness.

21.Meeting There is noneed to callany meetingbecause ofsingle owner.

There is noneed to callanymeeting ofpartners ofthe

partnership.

Statutory and AnnualGeneralmeeting arecompulsory bylaw.

22.Transfer of Sole NO partner Shares of

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Shares tradership cansell or transferhis

businesswithout anyrestriction.

cantransfer orsale his

sharewithout theconsent ofallotherpartners.

Public Ltd Co.are easilytransferable to

any person.

23.Dissolution The

dissolution ofsoletradershipdoes notrequire anylegal formalityorrestriction.

Dissolution

ofpartnershipis veryeasy.There areno rulesandregulationsfor thispurpose.

Dissolution of

Public Ltd Co.is a verycomplicatedprocess.

24.Withdrawalof capital

The soletradership canget hiscapital only at

the timeof liquidationof thebusiness.

Any partnercanwithdrawhis share of

capital bytransferringthe rights toanotherperson bythe consent

The membersof the companycan receivetheir money

back byselling theshares instockexchange.

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of otherpartners.

25.Expensesof Formation

Soletradershipbears lessformationexpenses ascompared toother forms of

business.

Partnershipbears lessformationexpensesascomparedto a JSC.

The formationexpenses aremuch morethan theformation of apartnership orsole tradership.

26.Paymentsof Debt

The soletradership isliable topay the debtsof thebusiness.

All thepartnersare liable topay theobligationsof the

business.

The shareholder isnotresponsible topay the debtsof the

company.27.Listed inStockExchange

Soletradershipcannot belisted in stockexchange.

Partnershipalso cannotbe listed instockexchange.

Only Publiclimitedcompanycan belisted in stockexchange.

Conclusion:

Sole proprietorship business plays an important role in under

developing countries like Pakistan. It is helpful in equalizing

the unequal distribution of wealth and unemployment, and it

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control. It is considered the best for small scale

business. Partnership business plays an important role in

under developing countries like Pakistan. The partners are of

equal status, ability and resources. In JSC, it means ifmanagement of company is good then it is considered as best

suited. The formation of a company is need of the day. JSC are

fit for large scale business due to country grows.

ii). Differentiation between Public & Private Limited Company:

1. DEFINITION:

Public Limited Company:

“Joint Stock Company is a voluntary associat ion of individuals

for prof it , having a capit al divided into transferable shares,

the ownership of which is the condit ion of membership.”

Private Limited Company:

“Joint Stock Company is a voluntary associat ion of individualsfor profit , having a capital divided into non t ransferable

shares, the ownership of which is the condit ion of

membership.”

The other points of difference between Partnership, PublicLimited Company (JSC) and Private Limited Company arementioned below.

Other Points of DIFFERENCES:

POINTS PUBLIC LIMITED

COMPANY

PRIVATE LIMITED

COMPANY

2.Formation There is a long and There is a complicated

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complicated processfor the formationof public limited co.

process but easy ascompared to PublicLimited Company.

3.Legislation The activities of thePLCo. are controlledby

CompaniesOrdinance 1984.

It is govern byCompanies Ordinance1984.

4.Number ofMembers

There must beminimum (7)members andthere is norestriction onmaximum.

Minimum number ofmembers is (2) andmaximum limit is(50).

5.Capital Its capital is solarge.

Private limited Co.’scapital is less than

Public limited Co.6. Sale Of Shares

Public limitedcompany can saleits shares togeneral public.

Private Companycannot sale its sharesto general public.

7.Management All the shareholderscan’t take part in the

management. So,managementdepends upondirectors of the

The management ofPrivate limited

company dependsupon owners of thecompany.

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company.

8.Liabilities The Liability ofshareholder is

limited to the valueof shares they held.

The Liability ofshareholder is limited

upto the value ofshares, which they heldwith them.

9.Title It is necessary touse the specificword “PublicLimited” with itsname.

It is has to use thespecific word “PrivateLimited” with itsname.

10.LegalDocuments

The Public limitedcompany can’t startany work whetherthe certificate ofcommencement of

business is notreceived.

The Private Ltd Co.required onlyincorporation certificateand there is no need ofcommencement of

business.

11.Working Life Public Ltd enjoyslong life. The deathof shareholdercan’t affect the lifeof the business.

Private Ltd also enjoyslong life but less thanPublic Ltd Co.

12.Submissionof Reports

There is compulsoryto submit report tothe registrar.

There is no strict rulefor the submission ofreports to theregistrar.

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13.Changes The changes inMOA and AOA canbe made to

limited extent asprovided by the law.

The changes in MOAand AOA arevery complicated

procedure.

14.Audit The audit is verycompulsory. Forthis purpose,legal methods areused by the

Chartered Accountants underthe requirementof Ordinance 1984.

Audit of books ofaccounts may or maynot be compulsory. It isoptional case.

15.Tax Rebate The Govt. givesrebate for investingin public Ltd Co.

The Govt. does notgives rebate forinvesting in Private

Ltd Co.

16.ProfitDistribution

Some amount isdistributed amongthe shareholdersaccording to thenumber of sharethey held, and other

amount is kept inreserve.

All profit is distributedaccording to the valueof shares, and noreserve is made by aprivate limitedcompany.

17.Books ofAccounts

The books ofaccounts are to be

It is compulsory to keepthe books of

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kept under the laware compulsory.

accounts underCompanies Ordinance1984 but to a little bit.

18.Prospectus In Public Ltd Co. it isnecessary to issueprospectus togeneral public.

There is no need andrequirement to issueprospectus.

19.Promoters There must be atleast 7 promoters.

There must be at least2 promoters.

20. Directors There must be atleast 7 directors.

There must be at least2 directors.

21.Size ofBusiness

It is suitable forlarge size business.

It is suitable for mediumbusiness.

22.Meeting Statutory and Annual General

meeting arecompulsory by law.

There is no need to callstatutory meeting.

23.Transferof Shares

Shares of Public LtdCo. are easilytransferable to anyperson.

The shares of PrivateLtd Co. are nottransferable to anypersons.

24. Dissolution Dissolution of PublicLtd Co. is a verycomplicatedprocess.

The Dissolution ofPrivate Ltd Co. is acomplicated procedurebut less difficult ascompare to Public Ltd.

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Co.

25. Allotmentof Shares

There is restrictionfor minimum

subscription.

There is no restrictionfor minimum

subscription.

26. WrittenConsent ofDirectors

The directors’written consent isrequired.

The directors’ writtenconsent is not required.

27. ListedWith StockExchange

Public Ltd Co canbe listed withstockexchange.

Private Ltd Co cannotbe listed with stockexchange.

28. Quorum In directors meetingminimum number ofdirectors is four or

1/3

rd

whichever isgreater.

In directors meetingminimum number ofmembers is 2.

29. Publication Public Ltd Co mustpublish its annualperformance report.

There is no restrictionfor Private Ltd Co isto publish itsannual performancereport.

30. Loans A public Ltd Cocannot get loan afterits incorporation butcan after its

A private Ltd Co canget loan after itsincorporation.

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commencement.

31. Secrecy Public Ltd Co has

less secrecy.

Private Ltd Co has

more secrecy.

32. Powers ofDirectors

The powers ofdirectors are not sowide but dependingupon article ofassociation.

The powers of directorsare so wide.

33. LegalRestrictions Public Ltd Co has toface strict legalrestrictions.

Private Ltd Co has toface more but less strictlegal restrictions.

34. Area ofOwnership

Area of ownership ina Public Ltd Cois wide. It isnot restricted to one

family.

Area of ownership in aPrivate Ltd Co isrestricted to onefamily.

35.MemorandumSignatures

There must be atleast 7 signatures toform memorandum.

There must be at least2 signatures to formmemorandum.

CONCLUSION:

It is concluded that Public Ltd. Joint Stock Company is better

than Private Ltd Joint Stock Company due to Large Capital,

free Issuance & Transference of Shares & debentures, Listed

with Stock Exchange, Less Chances of frauds, large numbers of

Directors to operate the company, Govt. Incentives, etc……

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iii). Differentiation Between Article Of Association &

Memorandum Of Association.

1. Definition:

Memorandum Of Association (MOA):

“The MOA is the most important document of the company. It

defines the relationship between the company and the public.It depicts the character of a JSC as it includes all the objects of

formation of JSC.”

Article Of Association (AOA):

“The AOA are the rules of the company. These rules are used

to manage the Internal affairs of the company and to achieve

the objects stated in MOA. A set of 85 articles are given inTable A of Companies Ordinance 1984.”

Other DIFFERENCES BETWEEN MOA & AOA:

POINTS Memorandum Of Article Of Associat h t t p : /

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Association (MOA) (AOA)

2.Usage MOA is an officialdocument setting out

the details of thecompany existence.

The AOA are theregulations by laws

which govern theinternal origination conduct of a comp

3.Scope MOA states the worka company can do.

AOA contains the sof rules andregulations tocomplete the objecstated in MOA.

4.Status A MOA is subordinateto CompaniesOrdinance 1984.

An AOA is subordito CompaniesOrdinance 1984MOA.

5.Approval If a company violatesthe MOA it cannotbe approved by the

shareholders.

If a company violatthe MOA it cannotbe approved by

the shareholders.6.Filing It is necessary to file

the MOA withregistrar.

It is not necessary file the AOA withregistrar as perTable A of CompanOrdinance 1984.

7.Preparation It is prepared under

the provision ofCompaniesOrdinance 1984.

It is prepared unde

the provision ofCompanies Ordina1984 and MOA.

8.Main Object Main object is to giveinformation to the

Main object is tocontrol and regulat

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outsiders about thecompany.

the Internalaffairs of the comp

9.Importance It has a primary

importance in theformation of thecompany.

It has a secondary

importance in theformation of thcompany.

10.Nature It is a constitution ofthe company.

It contains the ruleswhich govern theadministration of thcompany.

11.Objects MOA only lays downthe objects of thecompany.

AOA contains theprocedure forachieving theobjects of thecompany.

12.Alteration It is not alterable butcan be altered onlybe special

resolution of thecourt.

The provision can changed by speciaresolution easily.

13.Relation- ship It is the relationshipbetween the companyand the outsidepublic.

It is the relationshipbetween the memband the manageme

14.Registration Purpose It is necessary for the

registration ofthe company.

It is not necessary

the registration ofthe company.

15.Legal Effect A company cannot gobeyond the scope ofMOA. Otherwise

A company can gobeyond the scope

AOA. The activities

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consider illegal andcannot rectified.

cannot become ille

16.Clauses The MOA has usually

six clauses. According toCompaniesOrdinance 1984.

The AOA has man

clauses. It is notlimited to six clauseTable (A) has (85)clauses foroperating thecompany.

CONCLUSION:

In short, AOA is used only by the management of company

because it the secrets container and secrets should not be

unfold. MOA is used by management as well as outsider to

information related to company.

iv). Differentiation Between Shareholder & Debentureholder:

1. Definition:

Shareholder:

The total capital of the company is divided into small parts /

units, each small part is called share. The person who

purchased the shares of the company is called shareholder.

Debentureholder:

The certificate issued to as a receipt by borrower to lender for

the settlement of the debts in future as by borrower (JSC) is

called debenture and the holder of debenture is called

Debentureholder.

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Other DIFFERENCES BETWEEN Shareholder &

Debentureholders:

Points Shareholder Debentureholde2.Nature The amount paid by theshareholder is kind of anequity instrument.

The amount given by tdebentureholder is kinof an equity instrument

3.Liquidity These are considered asliquid instrument.

These are considered liquid instrument ascompared to Sharehol

4.Return These get return in theform of dividend.

These get return in theof Interest.

5.RiskSharing

Shareholders share therisk of the company.

Debentureholders do nshare the risk of thecompany because theyfix interest.

6.Time Period The life of shareholders isshort as they can be

sold and bought any timein stock exchange.

Debentureholders areconsidered to be long t

instruments. Usually thare issued for the perio3, 5 & 7 years.

7.Position Shareholders are theowners of the company.

Debentureholders are creditors of thecompany.

8.Share in

Profit & Loss

Shareholders have the

right to share the profit& loss of the company.

Debentureholders hav

concern with the profit& loss of the company

9.Withdrawnof Capital

These can withdrawcapital by selling sharesin the stock

These cannot withdrawcapital before the matudate.

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exchange.

10.Legality orJustification

These are legal asexpressed in terms of

Islam.

There is as such noconcept of interest in Is

because the debenturecontain the element ofinterest.

11.Prefrence Shareholders have thesecondary right toshare the value ofassets at the time ofliquidation.

Debentureholders havprimary right to claim fdebts at the time ofliquidation.

12.Security Shareholders areconsidered to be Insecure.

Debentureholders areconsidered to be secur

13.Liability Shareholders may beconsidered asresponsible for thecompany’s liability.

Debentureholders are considered asresponsible for thecompany’s liability.

14.Rights &

Powers

The rights and powers of

shareholders arewritten in AOA.

The rights and powers

debentureholders arewritten on the certificatissued to them.

15.Bonus Sometimes shareholdersreceive bonus inaddition to their dividend.

No bonus is paid to thedebentureholders.

16.Convertab-

lity

The shares of

shareholders can beconverted into the stock.

The debentures of

debentureholders mayconverted into shares.

17.Listings The shareholders’ sharesare listed in stockExchange.

The debentureholders’debentures are notlisted in stock

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Exchange.

18.Participation Shareholders canparticipate in the

management of thecompany.

Debentureholders canparticipate in the

management of thecompany.

19.Nature ofAmount

The amount contributedby the shareholders iscalled company’s capital.

The amount contributethe debentureholdersis called loan to thecompany.

20.Existance Shareholders can existboth in private & publicLtd company.

Debentureholders canonly in public Ltdcompany.

Conclusion:

In the end we can say that the shareholders are the owners of

the company for the value of shares purchased by them and

they receive dividend whereas debentureholders are creditors

of the company for the value of debentures acquired by them

and they receive a fixed rate of interest. But both provide

funds to the JSC.

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