NMIMS Global Access School for

Continuing Education

Business Law
Session-5

Heena Bhagtani
 Session Objectives and Outcomes

Topic Objective Outcomes

Forms of Business What are the different forms of Understanding the forms and structures through
organisations in India business organisations in India which business can be done

Partnership Firm What is the concept and legality Understanding how partnership business can be
surrounding partnership firms in India formed and its legality

Limited Liability Partnership What is limited liability partnership Understanding the law of limited liability
partnership and how it is different from general
partnership

Features of Different Forms of What are the different forms of Discussing on specific features of each organisation
Organisations organisation
 Forms of Business organisations

•An individual • Partnership results •A Limited •HUF is Hindu • As per Section

starts a from a contract and is Liability Undivided Family 2(20) of the
governed by the Partnership (LLP) Business established Companies Act,
business with under the Hindu 2013, A company
Partnership Act 1932. is a hybrid type of

Limited liability Partnership (LLP)

his own capital corporate Marriage act, 1955. A means a company
•A business
and manages incorporated under

Hindu Undivided Family (HUF)

organization where structure which family that consists of
all the this Companies
two or more persons has the advantage a common ancestor Act, 2013 Act or
operations on have joined together and flexibility of a and all his lineal male under any
his own. to carry out the traditional descendants and their previous company
business for the partnership firm wives and unmarried law.
•The profits and purpose of earning and features of a daughters.)
Sole Proprietorship Firm

•A company is
risks are also the profits. joint stock considered as a
managed by •HUF cannot be created
• An extension of a sole company. by acts of any party. separate entity or
the owner only. proprietorship and is

Joint Stock company

•LLPs are an association.
better than sole
The only exceptions
•Advantage: governed by the are in the case of an • A company can be
proprietorship Limited Liability described as a
Simplicity, because in adoption or a marriage contractual entity
Partnership Act,
Ease of setup, partnership, a number 2008.
when a stranger may distinct from its
and Nominal of partners join become a HUF members.
together with their •LLP has more member. An
cost. • It has legal rights
Partnership

capital to form an formalities than a undivided family, and obligations. A

•Indistinguishab agreement and carry partnership which is a normal company runs and
le from its out a business jointly •firm registered condition of Hindu governed under
owner on a larger scale. under the society, is ordinarily the Companies
• Minimum 2 Partnership Act, joint, not only in estate Act, 2013.
maximum 100 1932. but also in food and
members worship.
Sole Proprietorship
 Features of Sole Proprietorship Concern
- The business is owned singly by an individual.
- The business is controlled by a single person.
- The individual assumes all the risks to which the business is exposed.
- The individual’s liability is unlimited, i.e., his personal assets can be used for the payment of business
liabilities.
- The business has no separate legal entity distinct from the sole proprietor.
- No legal formalities are necessary to set up the business as such, but there may be legal restrictions on a
particular type of business.
- The individual derives all benefits as he bears the entire risk.
- He enjoys almost unlimited freedom of action and decides everything for the business without fear of
opposition, but at his own risk. The proprietor is his own master in this form of organisation.
- Having employees makes no difference. The proprietor may instead take the help of the members of his
family.
- Some examples of sole proprietorship are retail shops, professional firms, household and personal services
 Advantages & Disadvantages
Advantages
• No registration required.
• No maintenance of formal accounts
• Control and ownership
• Tax
Disadvantages:
No Perpetuity
Unlimited Liability
Difficulty in raising funds
Limited Size
 Features of Partnership Firm
- A partnership is a legal relation between persons who have agreed to work together to perform certain business activities.
- The persons in a partnership have agreed to share the profits in the desired ratio of the business carried on by all or by some of
them.
- A partnership is defined as, “the relationship between persons who have agreed to share profits of a business carried on by all, or
by any of them acting for all”.
- The Partnerships are governed under the Partnership Act, 1932
- Characteristics of Partnership:
- Partnership is an association of two or more persons
- Partnership should be the result of an agreement between two or more persons
- The agreement must be to carry on some business
- The agreement must be to share profits of the business
- Business must be carried on by all or any of them acting for all
- The Section 4 of the Partnership Act, 1932 states that “partnership is an agreement between two or more persons who agrees to
share the profit as well as the losses, Section 2 further defines the term “act” as an acts of the firm which means:
“Any act or omission by all the partners or by any of the partner or agent of the firm which gives rise to a right enforceable by or against him
and since the partners are allowed to carry any business, profession or occupation, hence it can be stated that partnership can carry any
business, profession or occupation which shall be undertaken through the acts of the partners or their agents which shall be enforceable by
law.”
- Position of Minor: Through a minor cannot be able to contract in the partnership but he can be admitted to the benefits of the
firm.
 Types of Partnership Firms and Partner

Active
Partners

Partner by
Partnership at Will Holding
Sleeping
Partner
Types of Partnership

Out

Types of
Particular Partnership
Partners

Incoming Nominal
Partnership for Fixed Period Partner Partner
Time

Partner for
Profit Only
 Partnership Deed
- A partnership deed is a written Name and
address of
agreement made between the partners the Firm and
Conduct and Nature of
Partners
which contain all the rights and duties of Management partnership
of Business business
the partners, the name and objective of
Dispute
the partnership business, address and Resolution Commencem
and ent and
other details. Settlement duration of
between partnership
- A partnership between persons can be
Partners Partnership
established through an agreement which
Deed Partner’s
can be written or can be oral. But an oral
Accounts capital and
agreement may cause disputes in a future and Audit Interest on
Capital
period. Further Partnership Act, 1932
Admission,
recognizes written contract retirement.
Insolvency Drawings
- This partnership deed is then basis of and death of Profit and
functioning of the partnership business. a Partner Loss Sharing
ratio
Changes to Partnership Firm
•When new partnership firm is formed or a new

Admission partner is admitted to a already existing partnership

firm. Addition of a new partner shall be subject to
consent of other partners and the terms mentioned in
the Partnership Deed.

Retirement •When a partner, subject to the terms of Partnership

Deed, voluntary desires to exit the partnership. He
can do so by providing a notice to other partners

•When a partner has been adjuded insolvent (i.e.

Insolvency
his/her liabilities are more than assets) in that event
such partner ceases to be a partner of the firm. He is
not a partner the day he is adjudged insolvent. In case
there are only 2 partners and 1 is adjudged insolvent
then the partnership could dissolve

•In case there are only 2 partners and 1 has died then

Death the partnership could dissolve. Partnership Deed can

also provide for legal heirs of the deceased partner to
be added as partner to partnership firm in case of
death of partner
 Rights of Partners
• Right to take part in the conduct of the business
• Right to be informed
• Right to renumeration
• Right to share profit
• Right to retire.
 Limited Liability Partnership Firm, 2008
• The limited liability partnership is a hybrid type of corporate structure which has the advantage and
flexibility of partnership as well as of the partnership, the cost of developing an LLP and the compliance costs
of the LLP are relatively lower. Limited liability partnerships are governed by the Limited Liability
Partnership Act, 2008; The salient features of the same can be summarised in following manner:
– The LLP is a body corporate which has a separate legal entity and any two or more persons can incorporate an
LLP. The partners for a lawful business can carry the business by subscribing their names in the incorporation
document of the limited liability partnership.

– The mutual rights and liabilities of the LLP are governed by the LLP agreement entered between the partners,
which are subject to the provisions of the Limited Liability Partnership act, 2008

– The LLP is a separate legal entity and is liable to the extent of all the assets which the partners have agreed as
the contribution between the partners.

– The LLP shall have at least 2 designated partners and out of that one should be resident in India.

– The LLP under the provisions of the LLP Act, 2008 shall be required to maintain the annual accounts reflecting
the true and fair position and statement of accounts and solvency shall be filed by every LLP with the registrar
every year.

– The winding up of an LLP will be either voluntary or by the National Company Tribunal.
 Features of HUF
A family can establish an HUF provided they have any ancestral property. A wife is not considered as a coparcener as
long as her husband is a coparcener and Karta. She plays the role of an HUF member. She is entitled to property right
only upon partition or death of the husband. But after 2005, as per the judgement of the Delhi High Court, in 2006, the
eldest female member of HUF can be its ‘Karta’ in her ancestral family. Earlier, the law used to say: “The daughter, on
marriage, ceases to be the member of her father’s family and becomes a member of her husband’s family.” After 2005, a daughter
continues to be the coparcener of her father’s HUF. Therefore, a daughter can ask for the partition of her share. The
following are the characteristics of a Hindu Undivided Family:
‰
Formation: There is no complexity in the formation of a HUF as the minimum number of people required to open a
HUF is only
two and there is no maximum limit. Every member who is born in the family becomes a part of the HUF, irrespective
of his willingness.
‰
L iability: The liability of the coparceners is limited to the amount of their share in the family property. However, the
liability of Karta is unlimited.
‰ontrol: The entire business of a HUF is controlled by the Karta and he is the sole person to take all its decisions. He
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may choose to consult with coparceners, but he can also take decisions independently.
 Features of Joint Stock Company
• I‰ncorporated association: A company is required to be registered under the Companies Act, 2013 in order to function as a legal entity. The
minimum number of people required to formulate a public company and a private company are seven and two, respectively. Every member of a
company should subscribe his/her names in the memorandum of association and also fulfil various other legal compliances.
• ‰rtificial legal person: A company is artificial in nature as it is invisible, intangible, immortal and exists only in the realm of law. Due to its
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artificial nature, it needs to be operated and managed by the board of directors consisting of individuals.
• ‰
S eparate legal entity: The company is a legal entity separate from its promoters or shareholders. It is an autonomous body, self-controlling and self-
governing. The ownership of assets of the company belongs to the company as a legal entity and not to the shareholders. In the eyes of law, a
company is a different entity from its shareholders.
• Perpetual succession: A company is a stable form of organisation unaffected by the insolvency, death, mental or physical incapacity of its
promoters or members. It can only be dissolved by the law. A company once incorporated by registration is said to exist forever until it is explicitly
dissolved for certain reasons. The lifespan of a company goes beyond the lifespan of any of its promoters, managers or shareholders. These entities
keep changing, but the company retains its identity and is said to have perpetual existence.
• ‰
L imited liability: The liability of the members of a company is limited to the extent of amount of their shareholdings. A shareholder may be
required to pay more than the nominal value of shares held by him or the amount of guarantee, in case a person is a member of a guarantee
company.
• ‰ransferability of shares: The shares or debentures of a company are considered as movable properties transferable without the permission of the
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company, but in a manner provided in the Articles of Association. The right to transfer shares is a statutory right and cannot be taken away by
making any provision to the contrary in the Articles of Association. However, a private company imposes restrictions on transfer as per Section
2(68).
• ‰
S eparate property: All the property of the company vests exclusively in itself. The company can control, manage and hold the same in its own
name. The members neither have ownership rights in the company’s property (either individually or collectively) nor do they have any insurable
right in the company’s property. The creditors of the company have a claim only against the assets of the company, but not those of the members of
the company.
• ‰apacity to sue: Being a legal person, a company is authorised to enforce its rights by filing suits in its own name and without any shareholder
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joining hands with it. It can also sue any other company in court against the breach of contract. Similarly, outside parties can sue the company in its
own name for breach of contractual or statutory duties
Thank You