Basics of Partnership

8/6/2019 Basics of Partnership

1/32

MADE BYAkshay Malik

Apoorv SoniChirag Dua

Dhruv ChadhaGagan Khurana

Gaurav Aggarwal

Hriday Khanna


2/32

MEANING AND DEFINITION OF PARTNERSHIP

Section 4 of the Partnership Act, 1932 defines the termPartnership as under:

PARTNERSHIP IS THE RELATION BETWEEN TWO OR MOREPERSONS WHO HAVE AGREED TO SHARE THE PROFITS OF ABUSINESS CARRIED ON BY ALL OR ANY OF THEM ACTING FORALL.

Thus, Partnership is the name of legal relationshipbetween/among persons who have entered in to the contract.


3/32

MEANING OF PARTNER, FIRM ANDFIRM NAMEy Section 4 of Indian Partnership Act, 1932 provides that:

Persons who have agreed into partnership with one anotherare called individually PARTNERS and collectively FIRM andthe name under which their business is carried on is called theFIRM NAME

Partnership is thus Invisibility which binds the partnerstogether and firm is the visible form of those partners whoare thus bound together.


4/32

MAXIMUM LIMIT ON NUMBER OF PARTNERSy Section 11 Companies Act provides that the maximum no. of

persons, a firm can have:

If the number of partners exceeds the aforesaid limit, the

partnership firm becomes an illegal association.If an association of persons or firm having members or partners

exceeding the above limit will not be an illegal association if that

firms objective is not to earn profit.


5/32

ADVANTEGES OF PARTNERSHIP FIRMy Easy to form: Like sole proprietorships, partnership businesses

can be formed easily without any compulsory legal formalities.

It is not necessary to get the firm registered. A simple

agreement or partnership deed, either oral or in writing, issufficient to create a partnership.

y Availability of large resources: Since two or more partners join

hands to start a partnership business, it may be possible to

pool together more resources as compared to a soleproprietorship. The partners can contribute more capital,

more effort and more time for the business.


6/32

ADVANTEGES OF PARTNERSHIP FIRMy Better decisions: The partners are the owners of the business.

Each of them has equal right to participate in the management

of the business. In case of any conflict, they can sit together to

solve the problem. Since all partners participate in the

decision-making process, there is less scope for reckless and

hasty decisions.

y Flexibility in operations: A partnership firm is a flexible

organization. At any time, the partners can decide to changethe size or nature of the business or area of its operation.

There is no need to follow any legal procedure. Only the

consent of all the partners is required.


7/32

ADVANTAGES OF PARTNERSHIP FIRMy Protection of interest of each partner: In a partnership firm,

every partner has an equal say in decision making and the

management of the business. If any decision goes against the

interest of any partner, he can prevent the decision from being

taken. In extreme cases an unsatisfied partner may withdraw

from the business and can dissolve it. In such extreme cases

the partnership deed is required. In absence of the

partnership deed, no legal protection is given to the partners.


8/32

DISADVANTEGES OF PARTNERSHIP FIRMy Unlimited liability: All the partners are jointly liable for the debt of

the firm. They can share the liability among themselves or any one

can be asked to pay all the debts even from his personal properties

depending on the arrangement made between the partners.

y Uncertain life: The partnership firm has no legal existence separate

from its partners. It comes to an end with death, insolvency,

incapacity or the retirement of a partner. Further, any unsatisfied or

discontent partner can also give notice at any time for the

dissolution of the partnership.

y No transferability of share: If you are a partner in any firm, you

cannot transfer your share or part of the company to outsiders,

without the consent of other partners. This creates inconvenience

for the partner who wants to leave the firm or sell part of his share

to others.


9/32

DISADVANTAGES OF PARTNERSHIP FIRMy Lack of harmony: In a partnership firm every partner has an

equal right to participate in the management. Also, every

partner can place his or her opinion or viewpoint before the

management regarding any matter at any time. Because of

this, sometimes there is a possibility of friction and discontent

among the partners. Difference of opinion may lead to the end

of the partnership and the business.


10/32

TYPES OF PARTNERSy Active Partners: The partners who actively participate in the

day-to-day operations of the business are known as active

partners. They contribute capital and are also entitled to share

the profits of the business. They also share the losses that the

business faces.

y Dormant Partners or Sleeping Partners: Those partners who

do not participate in the day-to-day activities of the

partnership firm are known as dormant or sleeping partners.They only contribute capital and share the profits or bear the

losses, if any.


11/32


12/32

TYPES OF PARTNERSy Secret Partner: A partner who takes active part in the affairs of a

business but is not known to the public as a partner is called

Secret partner. He, like other partners, is liable to the creditors

of the firm to an unlimited extent He shares profits according to

the agreement signed.

y Special Partners: A partner who takes active part in the affairs of

a business but is not known to the public as a partner is called

Secret partner. He, like other partners, is liable to the creditorsof the firm to an unlimited extent He shares profits according to

the agreement signed.


13/32

PARTNERSHIP DEEDy A partnership is formed by an agreement. This agreement may

be in writing or oral. Though the law does not expressly

require that the partnership agreement should be in writing, it

is desirable to have it in writing in order to avoid any dispute

with regard to the terms of the partnership. The document

which contains the term of a partnership as agreed among the

partners is called partnership deed.

y The Partnership Deed is to be duly stamped as per the IndianStamp Act, and duly signed by all the partners.


14/32

CONTENTS OF PARTNERSHIP DEED

A partnership deed may contain any matter relating to theregulation of partnership but all provisions in the deed shouldbe within the limits of Indian Partnership Act, 1932. However,A Partnership Deed should contain the following clause:

y Nature of business

y Duration of partnership

y Name of the firm

y Capital

y Share of partners in profits and losses

y Bank Account firm

yBooks of account

y Powers of partners

y Retirement and expulsion of partners

y Death of partner

y Dissolution of firm

y Settlement of disputes


15/32


16/32

JOINT STOCK COMPANYy The shareholders are the owners of the company while the

Board of Directors is the chief managing body elected by the

shareholders.

y Usually, the owners exercise an indirect control over the

business.

y The capital of the company is divided into smaller parts called

shares which are transferred to the shareholders.


17/32


18/32

FEATURES OF JOINT STOCK COMPANYy Control

yLiability

y Common seal

y Risk bearing


19/32

TYPES OF COMPANIESThere are two types of companies:

y

PRIVATE COMPANY

yPUBLIC COMPANY


20/32

PRIVATE COMPANYy Has a minimum of 2 and maximum of 50 members.

y Must have a minimum paid up capital of Rs. 1lakh.

y

Restricts the right of members to transfer its shares.


21/32

PRIVATE COMPANYy Issue of prospectus

y

Allotment of shares

y Start of the business after certificate of incorporation

y No restrictions on amount of loans by govt.


22/32

PUBLIC COMPANYy Has a minimum of 7 members and maximum could be

unlimited.

y Minimum paid up capital is 5 lakh.

y No restriction on transfer of shares.


23/32

PUBLIC COMPANYy Issue of prospectus

y Allotment of shares

y Start of business after certificate of commencement.

y Restriction on loans


24/32

ADVANTAGES OF JOINT STOCK COMPANIESy Large Financial Resources: A joint stock company is able to collect a large amount

of capital through small contributions from a large number of people. In public

limited company shares can be offered to the general public to raise capital.

y Limited Liability: In case of a company, the liability of its members is limited to the

extent of the value of shares held by them.

y Professional management: Management of a company is vested in the hands of

directors, who are elected democratically by the members or shareholders.


25/32

ADVANTAGES OF JOINT STOCK COMAPNIESy Large-scale production: Due to the availability of large financial resources and technical

expertise it is possible for the companies to have large-scale production. It enables the

company to produce more efficiently and at lower cost.

y Contribution to society: A joint stock company offers employment to a large number of

people. It facilitates promotion of various ancillary industries, trade and auxiliaries to trade.

y Research and Development: Only in company form of business it is possible to invest a lot of

money on research and development for improved processes of production, new design,

better quality products, etc. It also takes care of training and development of its employees.


26/32

DISADVANTAGES OF JOINT STOCK COMPANIESy Difficult to form: The formation or registration of joint stock company involves a complicated

procedure. A number of legal documents and formalities have to be completed before a

company can start its business.

y Excessive government control: Joint stock companies are regulated by government through

Companies Act and other economic legislations. Particularly, public limited companies are

required to adhere to various legal formalities as provided in the Companies Act and other

legislations.

y Delay in policy decisions: Generally policy decisions are taken at the Board meetings of the

company. Further the company has to fulfill certain procedural formalities. These procedures

are time consuming and therefore, may delay action on the decisions.


27/32

DISADVANTAGES OF JOINT STOCK COMPANIESy Concentration of economic power and wealth in few hands:

A joint stock company is a large-scale business organization

having huge resources. This gives a lot of economic and other

power to the persons who manage the company. Any misuse

of such power creates unhealthy conditions in the society.


28/32

LIST OF DOCUMENTS REQUIRED BY A JOINT STOCK COMPANY

MEMORANDUM OF ASSOCIATION

(MOA)

ARTICLES OF ASSOCIATION (AOA)

CONSENT OF DIRECTORS

STATUTORY DECLARATION


29/32

(1) MEMORANDUM OF ASSOCIATION (MOA)

The Memorandum Of Association (MOA) Is the most Important

document as it defines the objectives of the Company.

No company can legally undertake activities that are not contained

in the in Its Memorandum Of Association (MOA).

The Memorandum contains different clauses which are Name

Clause, Registered Office clause, Objects clause , Liability Clause ,

Capital clause, Association Clause.


30/32

(2) ARTICLES OF ASSOCIATION (AOA)

The Articles of Association (AOA) are the Rules Regarding the

Internal Management of a company.

These rules are subsidiary to the Memorandum of Association(MOA) and should not contradict of exceed anything stated in

the MOA.

A Public Limited company can adopt Table A which is a modelset of articles given by the Companied Act.

The company has a choice to either choose Table A or to

prepare a separate Articles of Association (AOA).


31/32

(3) CONCENT OF PROPOSED DIRECTORS

Apart form the MOA & AOA, a written consent of each person named as director is

required along with his capacity and willingness to buy and pay for the Qualification

Shares.

(4) STATUTORY DECLARATION

A declaration stating that all the legal requirements pertaining to registration have

been duly completed and signed by a advocate of High Court Or Supreme Court Or a

Chartered Accountant needs to be submitted to the registrar of Companies(ROC) , along

with the due fees.


32/32

Documents

Basics of Partnership