Partnership and Co-ownership are two different segments in a business which should not be misunderstood. The earlier article on essential features for formation of partnership explains in detail some of the difference between partnership and co-ownership.
Meaning of Partnership and Co-ownership
The mere fact that two or more persons jointly employ their property in a business and share its income does not mean that there is partnership between them. They are called co-owners. For instance, sons who inherit some property from their father, are not partners even though the property was to be managed jointly and its income were to be shared. Such type of relationship is regarded as co-ownership.
A partnership comes into existence only when there is an agreement between the persons to carry on some lawful business and share the profits arising from there.
Example: If the sons of a father enter into an agreement to run a cafe in the building, inherited from their father and share the income thereof, they will be regarded as partners immediately on starting the cafe.
Difference between Partnership and Co-ownership
Difference between partnership & co-ownership can be summed up in the following six points.
1. Agreement: Co-ownership is not necessarily the result of an agreement, but a partnership is bound by the terms of agreement between partners.
2. Sharing of Profit and Loss: Terms of Co-ownership may not be based on profit and loss, but partnership is based on profit and loss of the business, as the former does not necessarily involve carrying on of a business, whereas a partnership does.
3. Transfer of Interest: A co-owner can transfer his interest to a total stranger without the knowledge of the other co-owners. But in a partnership, a partner cannot transfer such an interest on his own without the knowledge and consent of all other partners.
4. Lien on Property: A co-owner has no lien on the property co-owned, neither for expenses nor for what may be due from the others as their share of a common debt, but a partner has.
5. Maximum number of Partners & Owners: In co-ownership there is no pre defined limit for maximum number of co-owners. But if a firm is engaged in financial services, the maximum number of partners should not exceed 10. If the firm is engaged in other businesses, the maximum number of partners shall be up to 20.
6. Claim of partition of property: Under the terms of co-ownership, a co-owner can claim partition of property owned by other co-owner. Whereas in a partnership, a partner cannot exercise such a right. He can sue the other partners for his share in the property of the firm only in the event of the dissolution of firm.