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LAW PRESENTATION.

CASE STUDY.

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Malik has operated a construction firm as a sole proprietor for several years. He would now like to become a company.

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Explain the meaning and definition of a Company and why should Malik change his form of business?
Meaning and definition of a Company: A company is a form of business organization. It is an association or collection of individual real persons and/or other companies, who each provide some form of capital. This group has a common purpose or focus and an aim of gaining profits. This collection, group or association of persons can be made to exist in law and then a company is itself considered a "legal person". The name company arose because, at least originally, it represented or was owned by more than one real or legal person.

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A company can be defined as an "artificial person", invisible, intangible created by Law, with a discrete legal entity, perpetual succession and a common seal. It is not affected by the death, insanity or insolvency of an individual member. Types: A company limited by gurantee. A company limited by shares. A limited liability company. An unlimited company.

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Advantages of a company. RISK AVOIDANCE -by limiting liability - as outlined above and especially employment legislation weighted in favour of employees. Risks that would normally be the responsibility of partners and sole traders become the responsibility of the company. ANONYMITY - You can appoint nominee company officers and shareholders. No-one need ever know who is running the company. Protection of name Many of the problems of partnership are avoided such as defining who is in charge, who owns the business (the shareholders), resignation of partner, etc.

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More credibility in the market place. Raising capital - easier to raise loans for the business, etc. Reduced tax bills - (For the fiscal year to 31st March 2005 Corporation tax on profits is 0% (zero) on first 10,000. When net profit reaches 50,000 the rate of tax is 20%, i.e. 10,000). If you are a higher rate (40%) taxpayer it can be beneficial to draw a low wage from the company so that the higher 40% rate is avoided, leaving the balance of net profit liable for the 20% rate. This is a common way of preserving valuable cash resources for the business.

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Advantages of a corporation.

Limited liability for the owners. Since a corporation is a

separate and distinct legal entity, owners of a corporation are only indebted to the extent of their interest in the corporation. Ease on the sell and transfer. If the stock of a corporation is publicly traded, owners and investors can sell their ownership interest in a corporation in a matter of minutes through a stockbroker.

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Continuity. The corporations power of succession

enables it to enjoy a continuous existence. Unlike a sole proprietorship, the death of a stockholder will not terminate the corporation. Ease in raising money. Because of limited liability, ease of transfer of shares and continuity, investors are more attracted to investing in corporations rather than in sole proprietorships .

CASE STUDY.
Disadvantages of sole propritorship limited capital.

In a sole proprietorship business, the owner arranges for the required capital for the business. It is difficult for a single individual to raise a huge amount of capital. The owners own funds as well as borrowed funds sometimes become insufficient to meet the requirement of the businesss growth and expansion. Venture capitalists and banks generally do not lend money to sole proprietorships.

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Unlimited liability: In case the sole proprietor fails to pay the expences arising out of business activities, his personal properties may have to be used to pay for those. This generally discourages the sole proprietor from taking risks. He thinks cautiously while deciding to start or expand the business activities. Lack of continuity: The existence of a sole proprietorship business is dependent on the life of the proprietor. Illness, death etc. of the owner brings an end to the business. The continuity of business operation is therefore uncertain. Limited size: There is a limit beyond which it becomes difficult for a sole proprietor to expand the business activities. It is not possible for a single person to supervise and manage the affairs of the business if it grows beyond a certain limit.

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Discuss the steps involved in the formation of a Company and describe the duties of the promoters of the Company? The steps involved in the formation of a company are: Step 1: Choose the type of company that suits you.

Step 2: Choose a catchy company name and make sure it is not already taken.
Step 3: You will need to get a DIN (director Identification Number) along with signatures of the chosen directors for your company in digital. Step4: Every company needs to draft an Articles of Association and a Memorandum.

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Step 5: You will need to go to the company

registrar and sign all of the necessary documents that they give to you. Step 6: You will need to pay the Company Registrar the registration fees for your company.
Step 7: You will need to receive a certificate of registration for your company.

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Some more requirements for private limited companies: 1. You will need to have at least two separate directors for your company. 2. These directors will need to subscribe to the memorandum. 3. These directors will need to agree to the minimum capital (INR 100,000) 4. The Registration fee varies depending on the capital of your company, it should be more or the same as the directors agreement for minimum capital.

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The main duties of the promoters are summarized as follows: 1- To conceive the idea of floating the company. 2- To find out suitable persons who may sign the memorandum of association and are also willing to act as the first detectors of the company. 3- To select suitable names of the company and settle the amount and form of its capital, the kinds of shares to be issued the rights of various shareholders, etc. etc. 4- To select the bank where the account of the company is to be kept and also the auditors, legal advisers and brokers for the company.

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5- To prepare a draft of the memorandum of association and prospect of the company and get it printed. 6- To submit to the registrar of joint stock companies all the documents required for the incorporation of the company. 7- To arrange for advertisement of prospect of the company in the newspaper. 8- To meet all the preliminary expenses for the forming or floating of the company. 9- To disclose fully all the material facts relating to the information of the company. 10- To arrange for the completion of the contracts with vendors managing agents and underwrites. 11- To receive remuneration from the vendors in the form of a commission on the sold property or get founder's shares fully paid up for the services rendered by them to the company.

Law is a reason, free from passion -Aristole-

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