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Complete 6 pages APA formatted article: LLC Legal Analysis. A Company is a distinct legal entity whereas a partnership firm in not distinct from the several persons who compose it (The ICFAI Universit
Complete 6 pages APA formatted article: LLC Legal Analysis. A Company is a distinct legal entity whereas a partnership firm in not distinct from the several persons who compose it (The ICFAI University, 2005). When it comes to the issue of liability, a partner's liability is always unlimited whereas that of shareholders may be limited either by shares or by guarantee. The main difference between a partnership and a limited company is that the liability of a company's shareholders is limited to the amount of the unpaid amount on the shares that they own (Complete Business Services Ltd). Partners, on the other hand, can not restrict their liability, i.e. as they have unlimited liability and therefore can be held personally responsible for any unpaid debts the partnership incurs.
In a partnership firm, partners are joint and severally liable for partnership debts. Thus, if one partner engages in an activity that results in large debts, all partners, regardless of whether or not they had prior knowledge of the activities, would be equally liable to make good any shortfall in funds from their assets. But this is not the case with a company. As discussed earlier, the liability of the participants in a company is limited to the number of shares that are held by them in the company.
The case of Salomon vs. Salomon & Co. Ltd. took place in the year 1879. . According to the case, Salomon was a prosperous leather merchant who converted his company into a limited company named .Salomon & Co. Ltd. .The company so formed consisted of Salomon, his wife, and five of his children as members. The company purchased the business of Salomon for 39,000, and the purchase consideration was paid in terms of debentures worth 10,000 conferring a charge over the company's assets, and 20,000 shares of £1 each fully paid-up and the balance amount in cash. The company in less than one year ran into difficulties and liquidation proceedings commenced. The assets of the company were not even sufficient to discharge the debentures and nothing was left for the unsecured creditors. The unsecured creditors contended that though incorporated under the Act, the company never had an independent existence. it was an alter-ego of Salomon, the other directors being his sons under his control.
