Lecture 5

Firm

. Business Entity or Enterprise

Types of Firms

. Proprietorship
. Partnership

Proprietorship

. A business which is owned by a person who has either the legal right and
exclusive title or dominion or the ownership of that business.
. A business usually unincorporated, owned and controlled exclusively by one
person.
. No special law to regulate Proprietorship.

Partnership

. When two or more persons agree to pursue a common business venture with a
view to share its profit, they are said to be in partnership.
. Regulated by Partnership Act 1932

Essence of Partnership:

. Relationship
between
. Persons
For
. business
In
. common
aimed at
. Profits

Distinctive Features:

Relationship

. Partners -----Principal as well as Agent

. What one partner does is binding on others.
. may be Express or Implied

Between Persons

. excludes-----one-man partnership firm

. Legal persons can get into partnership-----“Consortium of companies”
. Long term consortium called “merger”

For Business

. includes every trade, occupation and profession undertaking a single venture or

project as long as there is commercial element.
In common

. Business is to be carried out in common.

. Every partner is lawfully entitled to participate in the management of the
business.

Aimed at Profit

. Business for gains.

. Sharing of profit----an important feature

Creation of Partnership

. Partnerships are created through agreement between a group of persons who

freely agree to pool up part of their sources such as money, effort and skill to
carry on lawful business or commerce with clear understanding that the profit or
loss arising from their common business will be shared proportionately amongst
them.
. New member can be admitted only with the consent of all existing partners.
. No partnership if the minor is a partner from the inception of partnership.

Partnership Agreement

. A document that describes the terms and conditions governing the partnership.
. usually describes the name, nature of business type of partnership and rights and
obligations of partners.

Types of Partnerships

Universal Partnership

. When the partners contribute their entire property to the partnership fund.

General Partnership

. When any partnership is based on the equality of management and profit-loss

sharing without regard for the proportion of partners contribution.

Particular Partnership

. partners united for only single business transaction.

Special Partnership

. For limited purpose

Partnership at Will

. No time limit---ends when any of the partners dissolves it.

Partnership in Commendam

. Profit or loss according to the contribution

Kinds of Partners

. Active
. Sleeping
. Nominal
. Senior
. Junior
. Partner in profits only
. Secret
. Minor

Rights and Duties of Partners

Rights

. To take part in business

. To inspect books
. To share profits
. To interest on capital
. To be indemnified
. To act in emergency
. To retire
. Not to be expelled

Duties

. To carry on business
. To be just and faithful
. To render accounts
. To provide information
. To indemnify
. To share losses
. To use firm’s name
. To account for personal profits

Registration of Partnership Firm and its Effect of Non-Registration

. Registered with Registrar of Firms of the area under S 59

. Application has to be submitted alongwith statement containing details of
partnership with fee applicable. After the satisfaction of the Registrar, a
certificate will be issued
. Intimation of changes after registration
. Change in firm’s name, branches, name and address of partners,
constitution.

Effect of Non-Registration

. Registration----optional
. Partners will have to settle all their disputes out of the court

Exceptions

. A suit requesting the court to end the partnership.

. To render accounts of dissolved partnership
. Seeking court’s assistance to realize the property of the dissolved firm.

Dissolution of Partnership

. Agreed Dissolution
. Compulsory Dissolution
. When Partners are unable to discharge their business debts.
. Business is rendered unlawful
. Prescribed Dissolution
. Dissolution by Death
. By Notice
. By Court

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