2. SOLE PROPRIETORSHIP
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Simplest , unincorporated & owned by one person
Life limited to owner’s life span
No perpetual existence
Need not to be registered
All the liabilities arising out of business are of personal
nature ie; unlimited liability
• Owner is called as “sole proprietor”
• Sole proprietor can carry out business in own name or
trade name
• All the income & expenses of proprietor are included in
income tax returns & credited or debited in capital account
3. MERITS & LIMITATIONS
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Low start up cost & ease of formation
Better & close control and effective administration
Quick decisions
Minimal reporting
Taxation & filing of returns is comparative easier
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• Personal & unlimited liability
• Doesn’t necessitate books & standards of financial control
resulting to problems of disclosure
• Al decisions, activities & results rest on sole proprietor &
hence productivity is affected
• Raising capital is difficult
4. HINDU UNDIVIDED FAMILY
• Unique feature of ancient Indian social life
• Carried out by members of Hindu family
• HUF consists of people who have lineally descended from
a common ancestor& includes wives & unmarried
daughters
• It doesn’t arise by a contract but from status
• the person acquire his right in joint family property by
birth
• Its funded out of funds of the members [ tax planning ]
• It’s a separate legal entity for law & taxation purposes
• Administered by “ KARTA” who is caretaker & has full
control over the affairs
• Membership is acquired by birth & keeps on changing
5. HUF cont.
• Male members are called as “coparceners” & female as
“members”
• May consist of females only if original HUF remains
undivided with the widows of the members
• It is governed by Hindu law
• Registration is not compulsory
• Generally it is consisted of at least two males but on
partition even the small family receiving share can form a
new HUF
• Coparceners can claim partition while members can
receive maintenance only
• Assessed to tax as separate person & is a good tax cutter
as it is eligible for exemptions, deductions & basic limit
of tax
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PARTNERSHIP FIRM
Act came into force on 01-10-1932
Partnership is relationship between persons who have agreed
to share profits of a business carried on by all or any of them
acting for all
Agreement or deed is either expressed ( oral or written ) or
implied which can be ascertained from the conduct of parties
Agreement should carry some business ( series of transactions)
Purpose is to make profit , sharing in agreed ratio
Some partners may share loss too
Partner can act as agent ( binds other partners by his acts ) or
principal ( bound by acts of other partners) “ mutual agency”
Minimum two partners are necessary.
Any member who is competent to contract is partner ( minor,
insolvent or unsound mind)
Liability unlimited
7. KINDS OF PARTNERS
• Actual or Ostensible
– Actively engaged in conduct of business
• Sleeping or dormant
– Invest capital, share profit but doesn’t take part actively
• Nominal
– Neither invest ,nor share profit but lends his name to
business
• Partner in profit
– Agree to share in profit only & not in losses
• Sub- partner
– When partner shares profit in firm with an outsider then
such outsider is called as sub partner
8. Partnership Contd.
• Partner by Estoppel or Holding out
– Where a person by words spoken or written or by his
conduct represents himself as partner , he shall be liable
as partner for all credits given by outsiders who acted
on such representations & honestly believed him to be a
partner
• For example – if a partner retires & does not give
notice and an outsider lends to firm believing him to
be a partner , then the retiring partner is liable as the
lender was unaware
9. REGISTRATION OF FIRMS [ SECTION 58 & 59]
• Not compulsory & can take place at any time
• Prescribes application & fees to the registrar of firms
• Signed by all partners or anyone acting on their behalf
• Contains
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name , place of business, branches , duration
of firm and name , address & date of joining
of partners
• Registrar shall record an entry in statement of registers
• Deed can be altered by giving notice to registrar along with fees
• Minimum members are two but maximum is 10 for banking
business & 20 for all other business
10. EFFECT OF NON REGISTRATION ( SEC 69 )
• Partner cannot sue the firm in civil court , however they can
institute criminal proceedings
• Firm cannot sue the third party , however the third party
can sue the firm
• When an outsider sues the firm for recovery of any sum then
firm cannot claim “set off ” against the outsider who is also to
pay some money to the firm.
• But
• Rights of firms or partners having no place in India is not
foregone
• Right of partners to sue for the dissolution is not forgone
• Power of official assignee or receiver of court is still there to
realise the property of insolvent partner
11. TYPES OF PARTNERSHIP
• Partnership at will
– No provision of duration & can be terminated at any
time by a notice in writing to other partners of firm
• Partnership for a fixed term
– The term or tenure of partnership is fixed , however the
partners if mutually decide are free to carry partnership
even after term but then it will becomes partnership at
will
• Particular partnership
– Partnership comes to an end when particular venture is
completed
12. RIGHTS OF PARTNERS
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Right to take part in business activities
Right to access, inspect & take copies of any books of account
In absence of agreement , right to share profit equally
Right to be indemnified for losses to protect the firm from a
probable loss
Right to receive interest on capital ( max 12 % )
Right to do any act to protect firm from losses
Right not to be expelled unless exercise of power in good faith
Right to retire with consent of partners or according to deed or
by giving notice to other partners
Right to dissolve the firm by giving notice to other partners
13. DUTIES OF PARTNERS
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Conduct the business to the greatest common advantages
Attend diligently his duties in conduct of business
Just & faithful
Render true account & full information
Indemnify the other person for his unlawful act
Unless the agreement is there , he cannot ask for remuneration
Obligation to contribute towards the losses
Prohibited to acquire any secret profit
Not supposed to conduct any business which compete to
present business
14. LIMITED LIABLITY PARTNERSHIPS
• Proposed by Naresh Chandra Committee& Irani committee
• In partnership , every partner is jointly or severally liable for all
acts of the firms
• This unlimited liability has become a cause of concern as the
litigation of professional negligence is increasing the size of
claims & risk to partner’s personal assets
• That’s why the partnership firm of professionals has not grown
in size to meet challenges of WTO & GATT
• It fills the gap between sole proprietorship , partnership which
are unregulated and limited liability companies governed by
companies Act 1956
• Provides small & professional firms to conduct business
effectively
15. SALIENT FEATURES OF LLP
• LLP is a corporate body with a perpetual succession & is legal
entity
• LLP is to suffixed in the name of firm
• It can sue or be sued
• LLP should not be related to law relating to partnerships
• Formation requires at least two partners ,no max limit
• Agreement between partners will govern the partners interse
• Person ceases to be partner :
– As per terms of agreement
– 30 days notice to partners
– Death
– Dissolution of LLP
16. LLP Contd.
• ROC should be intimated within 30 days when person
ceases to be a partner
• Legal heirs will be given capital contribution & share in
accumulated profit
• Manager appointed for legal compliance & particulars of
appointment should be submitted to ROC
• Two partners should at least sign incorporation document
before ROC
• Liability of partner is LIMITED EXCEPT UNAUTHORISED ACTS
• Annual declaration of solvency is to be filed with ROC
• Proper books of account as per rules should be maintained
• Government inspectors may investigate its affairs
17. LLP Contd.
• For tax purposes, property of LLP shall be treated a that of
partners & they are personally liable
• Partner can TRANSFER HIS INTEREST to third person
& LLP will not be dissolved nor winding up nor the
partner will be dissociated
• A firm or Pvt. ltd or unlisted public company can be
converted into LLP
• It may be wound up voluntarily or by Company law
tribunal
• Defunct LLP may be struck off from the register of ROC
18. COOPERATIVE SOCIETY
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It is AOP united voluntarily to meet common ,economic
& cultural needs through a jointly owned enterprise
Separate legal entity with perpetual existence
Minimum members for forming state coop society is 10
( State Coop Society Act of individual states )while for
forming multi state society is 50 (Multi – State Coop
Society Act 2002 )
Members of SCS
1. Individual competent to contract
2. Any other society
3. The government
19. Co-op Society Contd.
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MEMBERS OF MSCS
1. Individual
2. Any other SCS or MSCS
3. State government or Central government
4. National cooperative development corporation ( NCDC )
5. Any other corporation formed or controlled by
Government
FORMATION OF SCS
– Prescribed duly filled application to Registrar
– Four copies of proposed bye laws
– Signed by each applicant if individual or person
authorised if member is society
– If all members are individual then at least 10 members are
necessary
20. Co op Society Contd.
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FORMATION OF MSCS
Application is to be signed by
1. if all members are individuals then at least 50
members from each state is necessary
2. In case members are SCS, representatives of at least 5
societies of different states
3. In case of MSCS representatives of each of such
societies
4. If there is mix of all three above , then
1. At least 50 individuals from each of the two states
AND
2. One SCS from each of the two states or one
MSCS
21. Co op Society Contd.
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ADVANTAGES OF COOPERATIVE SOCIETY
1. Social & educational need are served
2. Community development in remote areas ( AMUL in
ANAND )
3. Perpetual existence
– Ex Gujarat cooperative milk marketing federation
TTO 9774 Crores in 2010-11
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DISADVANTAGES OF COOPERATIVE SOCIETIES
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Members investing large capital have no advantages
Business decisions are not based on ROI but based on
social & democratic objectives
22. NON PROFIT COMPANIES
• Voluntary association of people U/S 25 of Companies Act
1956
• At least 3 trustees are needed to form section 25 company
• Not established for making profits or commercial gains
• The purpose is promotion of Commerce ,art ,science , religion
or charity etc
• Profits not distributed as dividend & are applied for purpose
• Registration fees of ROC is concessional & enjoys tax benefits
23. NON- GOVERNMENTAL ORGANISATION
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They are Non Profit organisation that work for social ,
cultural educational or religious cause.
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It can be formed under the following
1. As a Society under Society registration Act, 1860
2. As a Trust under Public Trust Act
3. As a limited company U/s 25 of Companies Act 1956
