Difference Between Partnership and Club or Society

A partnership and a club or society may both involve a group of persons working together for a common purpose, but their legal nature is different. 

A partnership is formed to carry on a business and share profits, while a club or society is generally formed for social, charitable, educational, cultural or recreational purposes. The major differences relate to mutual agency, profit distribution, management, liability, ownership of property and dissolution.

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What Is a Partnership?

A partnership is a contractual relationship between two or more persons who agree to carry on a business and share its profits. It is governed by the Indian Partnership Act, 1932.

Section 4 of the Indian Partnership Act, 1932 defines partnership as the relationship between persons who have agreed to share the profits of a business carried on by all or any of them acting for all. The persons who enter into the relationship are individually called partners and collectively known as a firm.

The following elements are essential for the existence of a partnership:

• There must be an agreement between two or more persons to form the partnership. A partnership arises from contract and not from status, family relationship or inheritance.
• The agreement must relate to the carrying on of a business. Mere joint ownership of property or sharing of income does not by itself create a partnership.
• The persons must agree to share the profits of the business. Actual distribution of profits is not always necessary, but the business must be carried on with the intention of earning and sharing profits.
• The business must be carried on by all the partners or by any one or more partners acting on behalf of all. This principle is known as mutual agency.

Mutual agency is the most important test of partnership. Every partner is an agent of the firm and the other partners for the purpose of the business. An act done by one partner within the scope of the firm’s business may bind all the partners.

A partnership is therefore a commercial relationship based on agreement, profit-sharing and mutual confidence.

What Is a Club or Society?

A club or society is an association of persons formed to pursue a common social, recreational, educational, charitable, scientific, literary, cultural, professional or similar objective.

A club is generally formed to provide common facilities or activities to its members. It may be established for sports, recreation, social interaction, professional networking or cultural activities. Its members usually contribute subscriptions or membership fees to meet common expenses.

A club may exist in different legal forms, such as:

• an unincorporated members’ club;
• a proprietary club;
• a registered society;
• a trust; or
• a non-profit company.

An unincorporated members’ club is ordinarily not a separate legal entity. It consists of members who contribute to a common fund and use the facilities provided out of that fund. Its affairs are governed by its constitution, rules or bye-laws.

A society is commonly registered under the Societies Registration Act, 1860 or an applicable state law. It is generally formed for literary, scientific, charitable, educational, cultural or other non-commercial purposes.

The society is usually managed by a governing body, committee, council, board or group of office-bearers. The income and property of a society are applied towards its stated objects and are not ordinarily distributed among its members.

Difference Between Partnership and Club or Society

The main difference between partnership and club or society is their legal purpose. A partnership is formed to carry on a business and distribute its profits among partners. A club or society is ordinarily formed to promote a common interest or object without distributing profits among members.

A partnership is also based on mutual agency. Every partner may bind the firm and other partners through acts done in the ordinary course of business. In a club or society, an ordinary member does not automatically become an agent of the other members.

The relationship between partners is governed by the partnership agreement and the Indian Partnership Act, 1932. The relationship between members of a club or society is governed by its constitution, memorandum, rules, regulations or bye-laws.

Aspect-Wise Difference Between Partnership and Club or Society

Purpose of Formation

• A partnership is formed primarily to carry on a business. The existence of a business activity is essential because a partnership cannot ordinarily exist without a commercial undertaking.
• A club or society is formed to promote a common social, charitable, educational, recreational, cultural or professional objective. Earning and distributing profits is not usually its main purpose.

Nature of Agreement

• A partnership is created through an agreement between the partners. The agreement may be written, oral or implied from the conduct of the parties.
• A club or society is created through a constitution, memorandum of association, rules or bye-laws. Membership is governed by these documents rather than by a partnership contract.

Profit Motive

• A partnership business is carried on with the intention of earning profits. The partners agree to share those profits in the proportion fixed by the partnership deed.
• A club or society may earn income from subscriptions, donations, events or services, but such income is ordinarily used for its objects and not distributed as profit among members.

Mutual Agency

• Every partner is an agent of the firm and the other partners. A partner may bind the firm through acts done in the usual course of the partnership business.
• A member of a club or society does not automatically have authority to bind other members. Only authorised office-bearers or members of the governing body may act on behalf of the association.

Management and Control

• Every partner generally has a right to participate in the management of the partnership business, unless the partnership agreement provides otherwise.
• A club or society is usually managed by a committee, governing body, council or board. Ordinary members may vote or participate in general meetings but do not necessarily manage daily affairs.

Liability of Members

• Partners usually have unlimited personal liability for the debts and obligations of the firm. They may be jointly and severally liable for acts of the firm.
• Members of a club or society are not ordinarily personally liable merely because of membership. Liability depends on the legal structure, rules and personal involvement of the member.

Ownership of Property

• Partnership property is used for the purposes of the business. The partners have a collective interest in the assets of the firm, subject to the rights and liabilities of the partnership.
• Property of a club or society is held for its objects. It may vest in trustees, a governing body or another legally recognised authority, depending on its structure.

Admission of New Members

• A new partner cannot ordinarily be introduced without the consent of all existing partners, unless the partnership agreement provides a different procedure.
• New members of a club or society are admitted according to its rules, such as through application, approval, nomination, election or payment of membership fees.

Transfer of Interest

• A partner cannot freely transfer the entire status of partnership to another person without the consent of the remaining partners.
• Membership of a club or society is generally personal and non-transferable. It usually ends by resignation, death, expulsion or non-payment of fees.

Continuity of Organisation

• A partnership may be affected by the death, retirement, insolvency or admission of a partner, depending on the terms of the partnership agreement.
• A club or society usually continues despite changes in membership. The exit or death of an individual member does not ordinarily dissolve the organisation.

Distribution of Surplus on Dissolution

• On dissolution of a partnership, the assets are applied towards debts and liabilities. The remaining surplus is distributed among partners according to their rights.
• On dissolution of a registered society, the remaining property is generally not distributed among members. It is usually transferred to another society or organisation with similar objects.

Right to Sue and Be Sued

• A partnership firm may sue or be sued in its firm name, subject to procedural law and statutory restrictions relating to registration.
• A society may sue or be sued through its authorised office-bearers. An unincorporated club may have to act through trustees, committee members or representative members.

When to Choose a Partnership

A partnership is appropriate where two or more persons intend to carry on a commercial activity together and share the profits arising from it.

It may be suitable in the following circumstances:

• The primary objective is to start and operate a business for profit.
• The proposed members intend to contribute capital, skill, labour or business connections.
• All or some of the persons will manage the business on behalf of the others.
• The participants are willing to accept mutual agency and personal liability.
• The business requires a relatively simple structure with flexible internal management.
• The parties are prepared to record their rights, duties, profit-sharing ratio and decision-making process in a partnership deed.

A partnership is commonly used for professional firms, small businesses, trading ventures, consultancy practices and family-run commercial enterprises.

When to Choose a Club or Society

A club or society is more suitable where the objective is social, educational, charitable, cultural, recreational, literary, scientific or professional rather than commercial profit-making.

It may be appropriate in the following situations:

• The association is being formed to promote a common cause or interest.
• Membership benefits are more important than profit distribution.
• The organisation intends to collect subscriptions, grants or donations for common activities.
• The members do not wish to become agents of one another.
• The organisation requires a governing committee or democratic membership structure.
• Any surplus is intended to be used for the objects of the association rather than distributed among members.

Clubs and societies are commonly formed for sports, cultural activities, education, charity, resident welfare, professional development and community service.

Conclusion

The difference between partnership and club or society primarily lies in their purpose, legal relationship and financial structure. A partnership is a commercial arrangement formed to carry on business, share profits and operate through mutual agency. A club or society is generally formed to promote common social, educational, charitable, cultural or recreational objectives.

Partners may bind one another and usually bear personal liability for the firm’s obligations. Members of a club or society do not ordinarily act as agents of each other and are generally governed by a constitution, memorandum or bye-laws. The correct form depends on whether the main objective is commercial profit or the promotion of a common non-commercial purpose.