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NON-CORPORATE BUSINESS ENTITIES

Sole Proprietorship One Person Company Hindu Undivided family Partnership Firm Limited Liability Partnership Co-operative Societies Non-Government Organizations Non-Profit Company Insolvency Law

Sole - Proprietorship
Meaning and Features

Sole-Proprietorship

A Sole Proprietorship is an unincorporated business owned by one person. The business is owned and represented legally by an individual. The life of sole proprietorship is limited to owners life span. No registration required All liabilities are the personal liabilities of owner. Can engage any no. of employees or contractors. All incomes and expenses are included in Sole Proprietors income tax returns.

Merits of Sole - Proprietorship

Low start up costs. Easy to form. Better control and effective business administration. Quick decisions. Minimal reporting requirements.

Limitations of Sole - Proprietorship

Personal liability of the Sole Proprietor is the major disadvantage. All personal wealth and assets is at stake. No strict standards of financial control. Productivity and creativity of business is affected as all decisions, activities rest on sole proprietor.

ONE-PERSON COMPANY (OPC)

OPC was proposed by Irani Committee. OPC may be registered as a private company with one member and at least one director. Nominee Director should be appointed to manage the affairs of the company in case of death or disability of sole person till date of transmission of shares to legal heirs of the demised person.

HINDU UNDIVIDED FAMILY (HUF)


Meaning and Features

HINDU UNDIVIDED FAMILY

The joint family business carried out by the members of a Hindu family is legally called Hindu Undivided Family. Consists of people who have lineally descended from a common ancestor and includes wives and daughters. Person acquires by birth an interest in the Joint family property. It is not a creation by contract. Business is carried under the control and supervision of head of family also known as karta.

A HUF cannot enter into a partnership with another person, but the karta can. Two kartas of HUF can form a partnership but the individual members of the two HUF s do not automatically become partners. Male members are called as coparceners and female members are referred as members. Coparceners are entitled for the partition of HUF. Members receive maintenance from HUF.

Generally a HUF should consist of two male members. The rights and liabilities are governed by the Hindu law. But in case of partition a small family receiving a share can form a new HUF with one male member. A HUF is assessed to tax as a separate person. HUF is considered as a good tax cutter.

PARTNERSHIP FIRM
THE PARTNERSHIP ACT 1932

THE PATNERSHIP ACT

Came into force on 1st October 1932. A partnership contract is a special contract and hence principles of law of contract apply. Definition Partnership is 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. A Partnership arises from contract and not from special status as in case of HUF. Partnership firm may have minimum to partners.

Partnership Business

The parties to a partnership agreement must carry a series of business transactions. The profit must be distributed among the partners in agreed ratio. Type of relationship among the partners is termed as Mutual agency. The partner can act as agent (to bind other partners by his acts) and as a principal (being bound by the acts of other partners).

Kinds of Partners

Actual or Ostensible Partner. Sleeping or Dormant Partner. Nominal Partner. Partner in Profits only. Sub-Partner. Partner by Estoppel or Holding out.

Registration of Firms

The registration of Partnership firms is not compulsory and can take place at any time during the continuance of the partnership firm. A partner of an unregistered firm cannot sue the firm or any partner by civil suit but he can institute criminal proceedings against them. An unregistered firm cannot sue a third party however a third party can sue such an unregistered firm. An unregistered firm cannot claim a set-off.

There are certain exceptional circumstances wherein the non-registration of a firm does not affect the following rights. The right of third party to sue the firm or any partner. The right of a firm having no place of business in India. The partner can sue for criminal proceedings against other partners or third party. The right of the partner to sue for dissolution of firm or for the accounts of dissolved firm, or for share of the property of dissolved firm. The powers of an Official assignee, Receiver or the Court to realize the property of an insolvent partner of an unregistered firm.

Types of Partnership

Partnership at will. Partnership for a fixed term. Particular Partnership.

Relations of Partner to One Another

Rights of a Partner

Every Partner has a right to take part in the partnership business. Right to be consulted. Freedom to express his views. Right to access and inspect the accounts. Equal share in absence of P/L sharing ratio. Right to be indemnified for the losses incurred in the course of business.

Right to receive interest on capital. Right to do all acts to protect the firm from losses. Right not to be expelled. Right to retire. Right to dissolve the Partnership at will.

Duties of Partners

To conduct the business in common advantage. To attend duties diligently. To be just and faithful to each other. To render true accounts and full information. To indemnify other partner. Not to ask for remuneration unless provided in the agreement. Contribute losses. Not to carry competitive business.

Insolvency of Partner

Partner ceases to be a Partner from the date of insolvency declared. In absence of any agreement, firm stands dissolved on insolvency. If Partnership deed contains provision for insolvency then the insolvent partner shall not be liable for any act of the firm. Nor shall the firm be liable for any act of the insolvent partner done after the date of insolvency.

Limited Liability Partnership (LLP)

LLP is proposed by Irani committee. Liability joint and several. Unlimited liability is the cause for creation of LLP. LLP can function in competitive international market as it has unlimited capacity and provides internal flexibility.

Salient features of Proposed LLP

Corporate body. LLP as last word in partnership name. It can sue and be sued. Cannot be regulated by partnership law. A person ceases to be a Partner as per terms of agreement or by giving 30 days notice or upon his death or upon dissolution of LLP. Registration of LLP.

Co-Operative Societies

Co-Operative Societies are enterprises or business oriented organizations owned by an association of persons, wherein the members have common interest to achieve common goals. A Co-operative Society is a separate legal entity and enjoys a perpetual existence. The objective of Co-operative Society is both economical and social. The Co-operative Societies operate democratically which means, one man one vote, and through two bodies i.e. members and board of directors.

Types of Co-Operative Societies

Consumers Co-Operative Societies. Producers Co-Operative Societies. Workers Co-Operative Societies.

Legal Regulations of Co-Operative Societies


The Co-Operative Societies in India are regulated by The state Co-Operative Societies Act. The multi state Co-Operative Societies Act.

Requirements for forming a Co-Operative Societies

Minimum membership 10 in case of state Co-Operative Societies. 50 in case of multi state Co-Operative Societies. The objective of forming of Co-Operative Societies must be promotion of economic interest of its members. Registration of Co-Operative Societies should not be adverse to co-operative movement. The perspective members are willing to contribute minimum amount of share capital prescribed by Registrar of Co-Operative Societies.

Membership

Registration

Under State Act Applications (minimum 10) Share money Copy of proposed Bye-laws. Under the Multi-State Co-operative act Applications at least by 50 persons Share money Copy of proposed Bye-laws.

Advantages of Co-Operative Societies

Social and educational needs are served. Can stimulate community development in remote areas. Enjoys perpetual existence. Community needs are met with great ability.

Disadvantages of Co-Operative Societies

Members investing in large capital have no advantage over smaller contributors. Due to democratic, social and educational objectives, business decisions are more likely to be made for reasons other than the returns on investment.

Non-Government Organization NGO

NGO may be a Society registered under Societies Registration Act 1960. Trust (constituted under the Trust deed and registered with Income Tax Authority). Limited company incorporated under Section 25 of the Companies Act.

NGO as a Society

Common purpose is both legal and useful for others. Registration with Registrar of Soy Documents for registration Application, Memorandum of Association, Consent letters of members of managing committee, authority letters, affidavits, declaration

NGO as a Trust

Work for charitable purpose Powers embodied in Trust Deed Registration with Charity Commissioner

Non Profit Company (sec.25)

Objectives can include promotion of commerce, art, science, religion, charity etc. Profits applied for fulfillment of objects Non profit Co may be Public or Private Registration documents Memorandum of Association & Articles of Association

Insolvency Law in India

A person who cannot or does not pay debts in full has committed an act of insolvency. He must be a debtor and must have committed an act of insolvency. Acts of Insolvency refers an act or default committed by the debtor. Consequences of Insolvency debtor gets protection against legal proceedings by creditors, his properties are assigned to court, an insolvent is disqualified of his civil rights

Insolvency Proceedings

Insolvency Petition Admission of petition Interim Receiver Hearing of petition Adjudication of Debtor Vesting of Insolvents property Realisation and distribution of property Discharge of Insolvent.

Law Relating to Corporate Business Entities

List of Documents required to Incorporate a Company Buy back of Securities Mergers and Acquisitions

LIST OF DOCUMENTS REQUIRED TO INCORPORATE A COMPANY

(i) Declaration of compliance in Form No. 1 that all the requirements of the Companies Act, 1956 and the rules made thereunder have been complied with in respect of registration and matters precedent and incidental thereto. Declaration to be given by advocate of the Supreme Court or a High Court, an attorney or a pleader entitled to appear before a High Court or a Secretary or a Chartered Accountant, in whole time practice in India who is engaged in in the formation of a Company, or by a person named in the Articles as a director, manager or secretary of the company.

(ii) The stamped and signed cop of the Memorandum and Articles of Association. (iii) Notice of the situation of the registered office of the company in Form No. 18. (iv) Particulars in favour of one of the subscribers to the memorandum of association or any other person authorising him to file the documents and papers for registration and to make necessary corrections, if any. This should be executed on non-judicial stamp paper of the requisite value.

(v) Any other agreement, if referred to in the Memorandum and Articles of Association (vi) Any agreement which the company to be incorporated proposes to enter into with any individual for appointment as its managing or whole-time director or manager. Original true copy of the Registrar of Companies letter intimating about the availability of name.

BUY-BACK OF SECURITIES

Purchase of its own securities by a company is popularly referred to as buy-back of securities. The basic provisions of buy-back of securities are that the articles of the company shall contain a provision authorizing the company to purchase its own securities. Authorized by special resolution passed in general meeting of the company. Buy-back only from the sources and in the modes prescribed by sec. 77A. Company is prohibited from purchasing its securities through its subsidiary company or an Investment Company.

A public company whose securities are listed on a recognized stock exchange shall, in addition to the provisions of the Companies Act, also comply with the SEBI (Buy-Back of Securities) Regulations, 1998. A listed company may buy-back its securities through tender offer or from the open market which may be through the stock exchange etc. A company whose securities are not listed on a recognized stock exchange i.e. private company and public unlisted company shall, in addition to compliance with the provisions of Companies Act, also comply with the Private Ltd. Company and Unlisted Public Company (Buy-Back of Securities) Rules, 1999.

Dividend on Shares

The term dividend can be defined in two ways In case of company which is going concern, dividend represents that portion of the profits which are distributed among the shareholders of the company. In case of a company which is to be wound up, dividend represents a distribution of the cos realized assets among the creditors and contributories according to their rights.

The power to pay dividend is inherent and is not derived from Companies ACT OR M/A or A/A. Sources out of which dividend should be paid Current Profits Reserves Monies provided by Govt, and Depreciation

A final dividend for any financial year can be declared and paid only when the Balance Sheet and Profit and Loss Account are presented to shareholders at Annual General Meeting. Shareholders can approve the recommended rate of dividend Preference Sh holders receive dividend at a fixed rate before any dividend is declared on Equity Shares.

Dividend may be paid in cash In the form of paid-up shares or debentures By issue of share warrant Capital profits for distribution of dividend if Article of Association permits

MERGERS AND ACQUISITIONS

Merger / Amalgamation One company loses corporate existence and the survivor co acquires the assets as well as takes liabilities of the merged co. Acquisition means acquiring the ownership in the property by purchase of controlling interest in the share capital of the company acquired. Takeover is also an acquisition.

Types of Mergers

Horizontal Merger merging of two or more companies competing each other. For example, a pharmaceutical co of one place acquiring another pharmaceutical co at another place. Vertical Merger when a co acquires or merges with another company that supplies raw material or provide services e.g. heavy engineering co acquires supplier co that provides tools, thus ensuring economical and timely supply of tools.

Conglomerate Merger It is merger of two or more companies which are dealing in different products or areas. This kind of merger diversify the products marketed.

Amalgamation and Reconstruction of Non-Banking Companies

To follow procedure u/s 391 to 396A of the Companies Act. Amalgamation of cos is done through a Scheme of arrangement approved by shareholders and or creditors of the companies concerned. Brief procedure A company has to approach the court with a scheme of arrangement and a petition

for the fulfillment of the desired merger / amalgamation. The company is to file an affidavit giving all material facts like latest position of the company, latest auditors report on the accounts of the company. Directors disclosure of their interest in the scheme.

The court will hold a general meeting of the company and gives directions like how & where to conduct the meeting and will appoint a Chairman for the meeting. Chairman submits minutes of the meeting to court. If number representing is 3/4th in value of the creditors, the court will pass its orders. The power to amalgamate is statutory.

Amalgamation and Reconstruction of Banking Companies

RBI to manage the risk level of banking system The decision to wind up or merge the sick bank with another healthy bank. RBI has to cancel licenses of many cooperative banks. The move to cancel licenses of bigger banks will have negative consequences and adverse impact on credibility of the banking system.

Procedure & Schemes for Amalgamation and Reconstruction of Banking Companies

Banking Regulation Act, 1949 (B R Act) provides for procedure and scheme. Banking Co different from mfg or trading company. Banking co carries banking busi in India. i.e accepting deposits from public, lending money, investment . Foreign Banks doing banking business in India are also covered under B R Act and provisions of Companies Act.

B R Act overrides Memorandum and Articles of Banking Company

Provisions of the B R Act overrides provisions contained in memorandum and Articles of a banking company. A resolution passed in general meeting or Board Resolution or an agreement is not valid if it is inconsistent with the provisions of B R Act.

Scheme of Compromise / Arrangement by Banking Company

To follow procedure given under sections 391 to 393 of the Companies Act. Protection of interest of members, creditors and public is considered. RBI has to certify that such scheme does not harm interest of depositors RBI can propose winding up if compromise / arrangement sanctioned by court is not satisfactorily worked out.

Procedure for Amalgamation of Banking Companies

The B R Act provides for scheme of compromise or arrangement for amalgamation of two banking companies. Compromise High Court along with RBI has powers to finalize a scheme. If both parties are banking companies, B R Act will apply. If not, then provisions of Companies Act will apply.

The draft of the terms of the scheme of amalgamation to be placed before shareholders of each banking company. Full details of such meetings to be published in two newspapers once a week for three consecutive weeks. Resolution by 2/3rd majority value of share holders of each banking company. After that, scheme to be submitted to RBI.

Reconstruction or Amalgamation of Sick Banking Company

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