Business Enterprises 3rd Proof

8/7/2019 Business Enterprises 3rd Proof

1/68

In od ion o Fo s of B siness En e p ises,nd Non-B siness O g nis ions (NGOs)

chapter at a glance

1.01 Selection o Business Organisation 1.02 Forms o Business Enterprise.to Start a New Enterprise

1.01 Selection of BuSineSS organiSation to Start a new enterpriSe

The selection of a form of organisation to carry on the business is rst and the most crucialdecision to ta e. Selection of form of business organisation is dependent upon a number of interdependent factors, which are brie y discussed hereunder:

( i ) The nature of business is probably the most important factor. It is important becausein many businesses / professions human face is very important, such as restaurantbusiness or profession of doctors, chartered accountants, company secretaries, etc.Businesses where pool of resources and s ills such as nances, managerial s ills orengineering s ills etc. are involved can be better carried on if they are operated as aPartnership Firm or Limited Liability Partnership or Limited Liability Company. To illustrate,large construction contracts or manufacturing can be better operated as a company.

( ii ) Scale or volume of business operations is another ey factor to decide on the form of the enterprise. Large scale operations are better carried on as a company, whreas smallscale operations are better carried on as proprietorship or partnership or even LimitedLiability Partnership.

( iii ) The management policy with respect to management is another ey factor to decideform of business organisation. Management, that has a policy to exercise direct control,is more suitable where the business is operated as a proprietorship rm. If themanagement has a policy of indirect control, company form of business is moresuitable.

( iv ) Capital involved in the business is another ey factor for the decision. The businessesrequiring large capital are generally carried on as a company because under this formof business organisation large capital can be raised either through share capital or loancapital, i.e. loans, etc.

( v ) Risks and liabilities involved also in uence the decision. If the ris and liabilities aregoing to be large, it may be better to operate as a company.

( vi ) Likely tax liability is another factor in uencing the decision. The form of businessorganisation under which the tax liability is li ely to be low is generally morepreferred.

1.02 formS of BuSineSS enterpriSeS

Normally ve types of business organisations are available to choose from to start a businessventure. These forms of businesses are:

( i ) S p s : It is a form of business enterprise where ownership lies with oneperson alone and having unlimited liability. The sole proprietor has to club his income

Chapter 1


2/68

Establishing Business Enterprises and Non-Business Organizations (NGOs)

1.2

from all businesses or sources and prepares one single income tax return. As far asCentral Sales Tax and VAT are concerned, sole proprietor may have different registrationsunder Sales Tax Act and VAT for different businesses. It is the least expensive and easiestform to commence a business.

( ii ) p s : It is a form of establishment in which two or more persons join togetherto commence the business by pooling in their individual resources and s ills. Everypartnership rm is assessed to income tax as a separate entity and therefore, everypartnership must le its own return of income. Partner receiving income from the rmincludes it to his individual return of income, subject to certain conditions relating toexemptions. We shall discuss them in detail under Direct Tax.

( iii ) l l b p s (llp): The concept of LLP is relatively new. It is acombination of partnership and a limited liability company. LLP li e a limited liabilitycompany has the advantage of limited liability (with exceptions) and also the exibilityof a partnership. It is governed by the LLP Act under the Companies Act, 1956. An LLPhas to le its own return of income whereas income from LLP earned by the partners istaxed in their individual hands. Besides an LLP has to le an annual return with theControlling Of ce i.e. Registrar of Companies.

( iv ) l l b c : A company limited by shares is governed by the CompaniesAct, 1956. The main advantage of a company is that the liability of the shareholders islimited to the shares subscribed by them, except where the company is incorporated asa company with unlimited liability besides it being in a position to raise si eable capital.A company has to le its own return of income. A shareholder normally gets dividend,which is not taxable presently. It is so because the company pays Dividend DistributionTax on dividend paid to the shareholders.A company may be a private limited company or a public limited company or even anunlimited private or public company.

( v ) c b t s s, S s c b c s (ngo): It is not a form of business organi ation but are set up to render services for the bene t of the society ingeneral. They are often referred to as Non- Governmental Organi ation (NGO). Examplesare World Wild Life Fund (WWLF), UNICEF. Similarly, credit and Thrift Societies areestablished to provide cheaper loans to its members out of the contributions receivedalso from its members.Non-governmental organi ation (NGO) is a term that widely usedwith reference to a legally constituted, non-governmental organisation established witha purpose to do welfare activities for the welfare of the society in general and upliftmentof poor and downtrodden in particular. They are referred to as NGO because theyunderta e to wor in the area of public welfare, predominantly an area of wor for theGovernment.


3/68

Introduction to Forms of Business Enterprises and Non-Business Organisations (NGOs)

1.3

n s


4/68


1.4


5/68

Chapter 2

So e P op ie o s ip

chapter at a glance

2.01 Meaning 2.02 Capital2.03 Final Accounts 2.04 Bank Accounts2.05 Loans 2.06 Central Sales Tax and Value Added Tax (VAT)2.07 Income Tax 2.08 Closure o Sole Proprietorship Firm2.09 Merits 2.10 Limitations2.11 Legal Formalities to Establish a Sole Proprietorship

2.01 meaning

Sole Proprietorship form of business is generally preferred where the operation of businessis small. A Sole Proprietorship is a form of business owned by an individual. A sole proprietorship

rm is not a legal entity by itself but it derives it from the owner (Proprietor) who owns thebusiness. The proprietor of such rms is personally responsible for rms debts because theowner and the business, in the eyes of law, are not separate from each other. The owner maymix his business assets and personal assets. But, following the Business Entity Concept of accounting the transactions and events should be recorded in the boo s of account from thebusiness point of view.

2.02 capitalCapital is introduced by the owner. Besides, he or she may raise loans in the name of the

rm. However, he or she cannot raise capital by selling the interest in the business. It is sobecause on sale of his share in part will convert the sole proprietorship into partnership rm.In case, he or she sells the entire share then the ownership will change from one person tothe other.

2.03 final accountS

The nal accounts of a sole proprietorship rm are prepared following the accounting conceptsand principles. The main accounting concept followed being Business Entity Concept -business being considered to be separate from the owner (proprietor) of the business andthus, transactions and events are recorded in the boo s from the business point of view andnot from the owners point of view. It is because of this concept that the owner is shown asa creditor of the rm to the extent of his capital. The rms nal accounts comprise of TradingAccount and Pro t & Loss Account and the Balance Sheet. It must be borne in mind that theassets and liabilities appearing in the balance sheet are those of the rm and not the proprietoralthough the proprietor is individually owner of the assets and also liable for the liabilities if the rm is not able to meet them.

2.04 Bank accountS

The Sole Proprietorship rm may have any number of ban ing accounts as it requires. Theseban accounts may be operated by the sole proprietor or the by authorised person empoweredby the sole proprietor. The ban ing account(s) is opened in the name of the rm and showing


6/68


2.2

the individual as the proprietor. PAN of the proprietor will be used as PAN for the bank account .Ban will require the proprietor to sign the Account Opening Form duly stamped for the rmas a proprietor. Example, the stamp will be as follows:

For Bharat Textile & Co.

(Proprietor)

The stamp is required to be put on ban instruments say cheques and communication withthe ban . Besides the ban will also see an af davit from the proprietor of the rm.

2.05 loanS

The Sole Proprietorship rm can raise loan in its own name from the private parties or ban s.It is again reiterated that even though loan is raised in the name of the rm yet, the ownerwill be personally liable to repay it.

2.06 central SaleS tax (cSt) and Value added tax (Vat)

The Sole Proprietorship rm must get its own registration number under the Central SalesTax Act and VAT Act. If the owner is sole proprietor of more than one sole proprietorship rms,every such rm should have its own registration under the two Acts.

2.07 income tax

The owner reports in his return of income, the pro t earned by him from the Proprietorshiprm as is reported in the Pro t and Loss Account. It means that the sole proprietorship rm

does not le its return of income separately.

2.08 cloSure of Sole proprietorShip firm

The business ceases to exist on the owners death. However, an owner can sell the business,

but can no longer remain the proprietor. He may also close the business, if he so desires.2.09 meritS

A sole proprietorship form of organisation enjoys following bene ts:( i ) It is easy and inexpensive to form a sole proprietorship.

( ii ) It involves least regulatory burden .( iii ) The owner exercises direct control on decision making .( iv ) It requires minimal working capital to start-up .( v ) It enjoys tax advantages if your business is not doing well, li e, deducting your losses

from your personal income (except setoff of business loss against salary income).( vi ) It involves lower tax bracket when pro ts are low , and so on.

( vii ) There is a positive relationship between the risks undertaken and the pro ts shared since pro ts will go to you directly

2.10 limitationS

Sole proprietorship is not free from limitations. It suffers from the following limitations( i ) It faces unlimited liability (if there are business debts, personal assets would be used

to pay off the debt)( ii ) Entire income of your business would be taxable at your personal rate and, if your

business is pro table, this may put you in a higher tax brac et( iii ) In case of death or illness of the proprietor there is a chance of lack of continuity for

the business( iv ) It is dif cult to raise capital for one person , since his credibility also has limitations.


7/68

Sole Proprietorship

2.3

2.11 legal formalitieS to eStaBliSh a Sole proprietorShip

It requires following legal formalities:( i ) The proprietor is required to have Permanent Account Number ( PAN ) from the Income

Tax Department, if he does not have the same. It may be noted that if the sole proprietorhas a PAN in his individual name, it will be ta en as the PAN of the sole proprietorship

rm.( ii ) Tax Deducted Account Number ( TAN ) from Income Tax Department. TAN is required to

be obtained where the rm is required to deduct tax at source.( iii ) The proprietor should have a current account with a bank in the name of the rm .( iv ) All of cial papers li e letter-heads, invoice and vouchers etc. must be in the name of

proprietorship rm.( v ) It should be registered under the Value Added Tax,Central Sales Tax, Custom, Service

Tax and Excise as applicable. Please refer to chapter on Value Added Tax, Central SalesTax and Excise/Custom in the Indirect Tax Module.

( vi ) The proprietorship should also be registered under Delhi Shops and Establishment Act,

1954 as applicable.


8/68


2.4

n s


9/68

Chapter 3

P ne s ip

chapter at a glance

3.01 Meaning 3.02 Features o Partnership3.03 Applicability o Partnership Act, 1932 3.04 Advantages o a Partnership Form3.05 Limitations o Partnership 3.06 Types o Partners:3.07 Legal Formalities to Establish Partnership 3.08 Main Clauses o Partnership Deed3.09 Registration under the Partnership Act 3.10 Dissolution o Partnership3.11 Dissolution o Firm 3.12 Taxation o a Partnership Firm

3.01 meaning

Partnership is the re lation between persons who have agreed to share the pro ts of a businesscarried on by all or any one of them acting for all .

[ Section 4 of the Partnership Act, 1932 ]Partnership, thus, is a form of business organisation where two or more persons come togetherpooling in their individual resources ( nances, management s ill or technical s ills etc.) andagree to share the pro ts of the business. In a partnership, business may be conducted byall or any one of them acting for all. They settle the terms and conditions and reduce theminto writing.With a partnership, one would combine his nancial resources with his partner into thebusiness. One can settle the terms of the agreement with the partner(s) on the basis of whichthe business will be conducted.

3.02 featureS of partnerShip

A Partnership form of business organisation has the following characteristics:( i ) The Partnership Act, 1932 does not require that an agreement ( partnership deed ) be in

writing , it can be oral also. But, it is not only preferable that the partnership deed be inwriting but, but it must be in writing under the Income Tax Act, 1961.

( ii ) The object of the agreement must be to share the pro ts ( losses ) of a business that islegal .

( iii ) The business may be carried on by all the partners or by any of them acting for all of

them .( iv ) There should be at least two persons to form a partnership.( v ) The maximum number of members that can exist in partnership is 10 in case of a rm

carrying on ban ing business and 20 in case of any other business.( vi ) In his/her role as a partner , a person acts both as a principal as well as an agent .

3.03 applicaBility of partnerShip act, 1932

The partnership form of business organisation is governed by the Partnership Act, 1932.

3.04 adVantageS of a partnerShip form

The Partnership form of business organisation enjoys following bene ts:

( i ) Easy to form - li e sole proprietorships. Partnership can be formed easily without anylengthy legal fo rmalities by agreeing to the terms and conditions and thereafter reducing


10/68


3.2

them into writing. A sample agreement or partnership deed is appended as annexurefor your reference.

( ii ) It is not necessary to get the rm registered under the Partnership Act, 1932. But it isalways advantageous to get the rm registered. It is so because it has the majoradvantage that a registered rm can sue any other party in the court of law, if it isregistered.

( iii ) Availability of large resources - Since two or more partners join hands to start apartnership business, it may be possible to pool together more resources as comparedto a sole proprietorship. The partners can contribute more capital, more effort and moretime for the business.

( iv ) Better Decisions - The partners are the owners of the business. Each of them has equalright to participate in the management of the business. In case of any con ict, they cansit together to solve the problem. Since all partners participate in the decision-ma ingprocess, there is less scope for rec less and hasty decisions.

( v ) Flexibility in Operations - A partnership rm is a exible organi ation. At any time, the

partners can decide to change the si e 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 isrequired.

( vi ) Risk Taking - In a partnership rm all the partners share the business ris s. Forexample, if there are three partners and the rm incurs a loss of Rs.12,000 in a particularperiod, then all partners share it and the individual burden will be Rs. 4,000 only. Becauseof this, the partners may be encouraged to ta e up more ris and hence expand theirbusiness more.

( vii ) Protection of Interest of Each Partner - In a partnership rm, every partner has an equalsay in the decision ma ing and the management of business. If any decision goes againstthe interest of any partner, he can prevent the decision from being ta en. In extremecases an unsatis ed partner may withdraw from the business and may as for itsdissolution. In such extreme case the partnership deed is required. In the absence of the partnership deed, no legal protection is given to the partners.

( viii ) Bene ts of Specialization - Since all partners are owners of the business, they canactively participate in every aspect of business as per their speciali ation, nowledgeand experience. If you want to start a rm to provide legal consultancy to people, thenone partner may deal with civil cases, one in criminal cases, and another in labour casesand so on as per the individual speciali ation. Similarly, two or more doctors of differentspeciali ations may start a clinic in partnership.

( ix ) Division of Work . Partners may allocate wor among themselves for better and effective

wor ing and controls. Such allocation may be administrative, mar eting, productionetc.

3.05 limitationS of partnerShip

Partnership rm suffers from the following limitations:( i ) Unlimited liability - All the partners are jointly liable for the debt of the rm. They can

share the liability among themselves or any one can be as ed to pay all the debts evenfrom his personal properties depending on the arrangement made between thepartners

( ii ) Uncertain life - The partnership rm has no legal existence separate from its partners.

It comes to an end with death, insolvency, incapacity or the retirement of a partner.


11/68

Partnership

3.3

Further, any unsatis ed or discontent partner can also give notice at any time for thedissolution of the partnership.

( iii ) Lack of harmony - In a partnership rm every partner has an equal right to participatein the management. Also, every partner can place his or her opinion or viewpoint beforethe management regarding any matter at any time. Because of this, sometimes thereis a possibility of friction and discontent among the partners. Difference of opinion maylead to the end of the partnership and the business

( iv ) Limited Capital - Since the total number of partners cannot exceed 20, the capital to beraised is always limited. It may not be possible to start a very large business in partnershipform.

( v ) Non-transferability of share - If you are a partner in any rm, you cannot transfer yourshare or part of it to outsiders, without the consent of other partners. This createsinconvenience for the partner who wants to leave the rm or sell part of his share toothers.

3.06 typeS of partnerS

( i ) Active partners - The partners who actively participate in the day-to-day operations of the business are nown as active partners. They contribute capital and are also entitledto share the pro ts of the business. They also share the losses that the businessfaces.

( ii ) Dormant partners - Those partners who do not participate in the day-to-day activitiesof the partnership rm are nown as dormant or sleeping partners. They only contributecapital and share the pro ts or bear the losses, if any.

( iii ) Nominal partners - These partners only allow the rm to use their name as a partner.They do not have any real interest in the business of the rm. They do not invest anycapital, or share pro ts and also do not ta e part in the business of the rm. However,they do remain liable to third parties for the acts of the rm.

( iv ) Minor as a partner - In special cases a minor can be admitted as partner with certainconditions. A minor can only share the pro t of the business. In case of loss his liabilityis limited to the extent of his capital contribution for the business.

Partnership is an appropriate form of ownership for medium si ed business involving limitedcapital. This may include small scale industries, wholesale and retail trade; small serviceconcerns li e transport agencies, real estate bro ers; professional rms li e charteredaccountants, doctors' clinic, attorney or law rms etc

3.07 legal formalitieS to eStaBliSh partnerShip

Under the Act, persons who have entered into partnership with one another are individuallycalled as 'partners' and collectively as ' rm' and the name under which they run their businessis called the ' rm name'. When establishing a partnership, you should have a partnershipdeed. Draft of partnership deed is attached as annexure for better understanding.

3.08 main clauSeS of partnerShip deed

( i ) Description of the partners.( ii ) Description of the rm

( iii ) Principal Place of business( iv ) Nature of business.( v ) Commencement of business.


12/68


3.4

( vi ) Capital contribution

( vii ) Interest on capital

( viii ) Interest on drawings

( ix ) Salary to partners

( x ) Pro t sharing ratio( xi ) Interest on loan

( xii ) Method to value assets and liabilities, in case of reconstitution of rm

( xiii ) Continuation of rm in the event of death of a partner

( xiv ) Settlement of accounts

( xv ) Accounting period

( xvi ) Rights and duties of partners

( xvii ) Duration of partnership

( xviii ) Ban operation

( xix ) Settlement of disputes

3.09 regiStration under the partnerShip act:

Registration of partnership rms in India is though not compulsory but is desirable. Forregistration, an application in Form I (annexure 5) along with the fee, a copy of the PartnershipDeed is submitted to the Registrar of Firms of the state in which any place of business of the

rm is situated or is proposed to be situated.The application form is signed by all the partners or by their agents specially authorised inthis behalf, and in presence of a Witness. The Partnership Deed may be typed or handwritten

on a Non- Judicial Bond paper as per the duty prescribed under the Stamp Act applicable inthe respective state. It is prescribed to be 1% of Capital, subject to maximum of Rs.500provided the capital Rs. 5,000 (the value of Bond Paper is different in other States). Everycopy of the deed should be on a Non-Judicial Bond Paper of Rs. 2. Every page of the originaldeed, as well as of its copies, has to be signed by all the partners, in presence of two (Non-Partner) witnesses. On being satis ed, that the requirement as to registration have beencomplied with, the Registrar will issue a certi cate of registration under his hand, in theprescribed form.

3.10 diSSolution of partnerShip

Dissolution of Partnership means change in partnership. It may be:( i ) Change in pro t sharing ratio among existing partners; or

( ii ) Induction of new partner or partners; or( iii ) Retirement of one or more partners; or( iv ) Death of a partner, but the rm is continuing.

It is important to note that a change in pro tsharing ratio and induction of new partner orpartners is made only if the partnership has a clause to that effect or all the partners agreeto the change. Partnership is usually at will and therefore, a partner can retire by giving noticeof retirement.It is important to note that in the event of death of a partner a rm may cease to exist if it

does not have a clause in the partnership deed to the effect that the rm will continue to exist


13/68

Partnership

3.5

in the event of a death of a partner. If the deed does not have a clause to this effect, PartnershipAct comes into play which provides that the rm will cease to exist from the date of death.All the assets will have to be sold and liabilities paid. Balance in the capital accounts of thepartners will be paid after payment of outside liabilities.

3.11 diSSolution of firm

Dissolution of rm means discontinuation of business by the rm. All the assets will have tobe sold and liabilities paid. Balance in the capital accounts of the partners will be paid afterpayment of outside liabilities.

3.12 taxation of a partnerShip firm

Partnership rms are subject to tax as a separate entity. The taxable income is arrived atafter allowing salary to partners and interest on capitals of the partners. Salary is allowed asstated in the partnership deed or as per the provisions of section 40(b)(v) of the Income TaxAct, 1961. Interest is allowed as provided in the partnership deed or at the rate prescribed

in section 40(b) (iv) of the Act. The maximum rate of interest is twelve percent per annum.The remuneration and interest paid to the partners are taxable in the hands of the respectivepartners up to the amount allowed as expense under the above sections.

is p s d n ss ?

Before a partnership is formed, a Partnership deed should be prepared. This partnershipdeed may be oral or in writing. However, it is wise to ma e sure that the partnership deed isin writing because of the following main reasons:

( i ) Future con icts may be resolved.( ii ) Bene ts under section 184 of the Income Tax Act, 1961, i.e. , the rm shall be eligible

for deduction on account of interest, salary, etc. [This point is discussed in detail underthe module Direct Tax.]


14/68

SamPlE DEEDS OF PartNErShIP

partnerShip deed

(Where a new rm is commenced)(Establishing a New Partnership Form)THIS DEED of Partnership is made on this .................... day of ...................., at New Delhiamongst:1 Mr. ..................................S/o................................,resident of..............................,

New Delhi-.........................hereinafter called the f s p ;2 Mr. ..................................S/o................................,resident of..............................,

New Delhi-.........................hereinafter to be called the S p ;

3 Mr. ..................................S/o................................,resident of..............................,New Delhi-.........................hereinafter to be called the t p ; and

4 Mr. ..................................S/o................................,resident of..............................,New Delhi-.........................hereinafter to be called the f p ;

preamBle

1. whereaS the parties to this deed have agreed to carry on the business of Import, Export and Trading of Merchandise under the name and style of ........................................................

2. and whereaS all the parties to this deed have decided to actively devote their timeand attention to the business of the partnership.

3. and whereaS the parties to this deed have agreed to invest in the capital of thebusiness

4. and whereaS the parties to this deed have settled all the other terms andconditions

5. and whereaS it has been considered expedient to reduce the terms and conditions sosettled into writing.

now thiS deed iS witneSSeth aS under:

name

1. The name of the rm shall be ........................ or any other name that may be agreedupon by the parties to this deed time to time.

place of the BuSineSS

2. The principal place of business of the partnership shall be located at ......................, NewDelhi- .................However, the business may be conducted from such place or places asmay be mutually decided by the parties to this deed from time to time.

effectiVe

3. That this partnership shall be effective from ..........................., the date above written.

nature of BuSineSS

4. That the business of the partnership shall be that of ............................... and related

line of business or any other business that may be mutually decided by the parties to thisdeed .

annexure 1


15/68

Partnership

3.7

capital

5. That all the parties to this Deed shall invest capital of the business as required by thebusiness from time to time or as may be mutually agreed to by the parties to this Deed.Initial Capital will be Rs................, which will be introduced by all the partners to thisDeed equally.

drawingS

6. That the parties to this deed shall ma e drawings as and when required for their personalneed.

Sharing of profitS

7. That the Pro t/Loss shall be shared by the parties equally.The pro t/loss shall be determined after changing all expenses relating to the business.

BookS of account

8. That the partnership shall maintain regular boo s of account and the same shall be opento inspection by the parties to this deed at all reasonable hours.

financial year

9. That the nancial year of the business shall end on March 31 every year. Accordingly, theBoo s of Account for the rst year of partnership shall close on March 31, 2010

Bank account

10. That the partnership shall open ban account(s) with such ban (s) in the name of thepartnership and the same shall be operated by any of the parties to this Deed.

duration and notice

11. That the partnership has been and shall be a partnership at will . Any partner wishingto retire from the partnership may do so after giving two clear calendar months notice inwriting, to the other party and the party wishing to retire shall be deemed to have retiredfrom the partnership upon expiry of the notice.

pledge, aSSign, mortage

12. That no partner shall pledge, assign or mortgage his share in the partnership nor shallthe partnership be liable for any liabilities by any of the parties to this deed for the purposeother than those relating to the business of the partnership nor shall the rm be liable forthe personal debts or obligations of the parties to this deed .

death or inSolVency 13. That it is speci cally agreed that the death or insolvency of any of the parties to this deed

shall not result in the dissolution of the partnership rm. The business of the partnershipshall be carried on as before, in such an event, by the remaining partners with legal heirsof such deceased or insolvent partner.

Salary to partnerS

14. That the salary shall be paid to the partners actively devoting time to the business of therm, as agreed from time to time amongst partners, it shall however not exceed the

amounts speci ed in the Income Tax Act, 1961 as in force.Or

That the partners shall be paid salary as follows:


16/68


3.8

a. Rs. ....................... per annumb. Rs. ....................... per annumc. Rs. ....................... per annumd. Rs. ....................... per annum

That the partners shall be entitled to salary as per the Income Tax Act, 1961in their pro t-sharing ratio.

intereSt on capital

15. Parties shall be paid interest on their capital at the rate of .......... percent per annum butit shall not exceed the rate that may be prescribed in the Income Tax Act, as amendedand in force.

amendmentS

16. That any alteration or amendment to this Deed can be made in the Partnership Deed byexecuting a Supplementary Partnership Deed or Amendment to Partnership Deed.

arBitration 17. That in case of doubt, dispute or difference of opinion amongst the partners regarding the

partnership, business or any of the terms of the partnership or the construction thereof,the same shall be settled by the arbitration, in accordance with the provisions of the IndianArbitration Act, 1961 then in force.

application of indian partnerShip act

18. That anything not hereinafter speci cally provided for shall be governed by the provisionsof the Indian Partnership Act, 1932

thiS partnerShip deed iS Signed By the partnerS in the preSence of the

witneSS of the date and place written aBoVe.

witneSSeS:

1. ________________________________________________

2. ________________________________ (________________)________________ FIRST PARTY

(________________)________________ SECOND PARTY

(________________)________________ THIRD PARTY

(________________)________________ FOURTH PARTY

___________________________________________________________________


17/68

PartNErShIP DEED (INDuctION OF NEwPartNErShIP IN thE ExIStING PartNErShIP FIrm)thiS deed of Partnership is made on this ..................day of ................., 2010 at NewDelhi amongst:1. Mr. ...............................son of Mr. ................................,resident of.........................,

New Delhi-.........................hereinafter referred to as the f s p ;2. Mr. ...............................son of Mr. ................................,resident of.........................,

New Delhi-.........................hereinafter referred to as the S p ; and3. Mr. ...............................son of Mr. ................................,resident of.........................,

New Delhi-.........................hereinafter referred to as the t p ; and

preamBle

1. whereaS the rst and second parties were carrying on business and style of M/s.............................. since ..............................as a partnership vide Partnership Deeddated................................ .

2. and whereaS they were sharing pro ts and losses equally.3. and whereaS they have agreed to induct Mr. ...............................son of

Mr. ..............................resident of......................................into partnership w.e.f. ......................................

4. and whereaS the rst and second parties were carrying on business and style of M/s........................... since ....................... as a partnership vide Partnership Deeddated......................... Parties to this deed have agreed to continue carrying on thebusiness of Import, Export, Trading, Sourcing, Mar eting, Operation in Financial Mar etli e Mutual Funds, Insurance Companies etc. under the name and style of .............................

5. and whereaS , the parties to this deed have decided to actively devote their time andattention to the business of the partnership.

6. and whereaS the parties to this deed have agreed to invest in the capital of the businessin their pro t-sharing ratio. Excess capital in their Capital accounts shall be transferred totheir respective loans accounts. Any shortcoming shall be brought in by them.

7. and whereaS the parties to this deed have agreed to devote time and attention to thebusiness of the rm.

8. and whereaS the parties to this deed have settled all the other terms and

conditions.9. and whereaS it has been considered expedient to reduce the terms and conditions so

settled into writing

now thiS deed iS witneSSeth aS under:

name

1. The name of the rm continue to be M/s........................ or may be changed to any othername that may be agreed upon by the parties to this deed from time to time.


2. The principal place of business of the partnership shall be located at ........................

However; the business may be conducted from such place or places as may be mutuallydecided by the parties to this deed .

annexure 2


18/68


3.10

effectiVe


nature of BuSineSS

4. That the business of the partnership shall continue to be that of Import, Export, Trading,Sourcing, Mar eting , Operation in Financial Mar et li e Mutual Funds, Insurance Companiesof every ind and nature and related line of business or any other business that may bemutually decided by the parties to this deed

capital

5. That all the parties to this Deed shall invest capital in the business as required by thebusiness from time to time or as may be mutually agreed to by the parties to this Deed.Initial Capital will be Rs..................., but in their respective Pro t-Sharing ratio.

intereSt on loan from partner

6. Loan from partners shall carry interest @ 10 % per annum.

drawingS

7. That the parties to this Deed shall ma e drawings as and when required for their personalneed.

Sharing of profitS

8. That the Pro t/Loss shall be shared by the parties as follows:Party A 30%Party B 40%Party C 30%

The pro t/loss shall be determined after changing all expenses relating to the business.

BookS of account


financial year

10. That the nancial year of the business shall end on March 31 every year as is being followedpresently.

Bank account

11. That the partnership shall open ban account(s) with such ban (s) in the name of the

partnership and the same shall be operated by any two parties to this Deed.

duration and notice

12. That the duration of the partnership is at will . Any partner wishing to retire from thepartnership may do so after giving two clear calendar months notice in writing, to theother party and the party wishing to retire shall be deemed to have retired from thepartnership upon expiry of the notice.

pledge, aSSign, mortage

13. That no partner shall pledge, assign or mortgage his share in the partnership nor shallthe partnership be liable for any liabilities by any of the parties to this deed for the purpose

other than those relating to the business of the partnership nor shall the rm be liable forthe personal debts or obligations of the parties to this deed


19/68

Partnership

3.11

death or inSolVency

14. That it is speci cally agreed that the death or insolvency of any of the parties to this deed shall not result in the dissolution of the partnership. The business of the partnership shallbe carried on as before, in such an event, by the remaining partner with legal heirs of such deceased or insolvent partner.

Salary to partnerS


amounts speci ed in the Income Tax Act, 1961 as in force. 16. That if the pro ts of the business are insuf cient to pay the above salary, partners shall

be entitled to salary as per the Income Tax Act, 1961in the above said proportion.

intereSt on capital

17. Parties shall be paid interest on their capital at the rate of 12 percent per annum but itshall not exceed the rate that may be prescribed in the Income Tax Act , 1961 as amendedand in force.

amendmentS


arBitration

19. That in case of doubt, dispute or difference of opinion amongst the partners regarding thepartnership, business or any of the terms of the partnership or the construction thereof,the same shall be settled by the arbitration, in accordance with the provisions of the IndianArbitration Act, 1961 then in force.


20. That anything not hereinafter speci cally provided for shall be governed by the provisionsof the Indian Partnership Act.

thiS partnerShip deed iS Signed By the partnerS in the preSence of thewitneSS of the date and place written aBoVe.

witneSSeS:

1. ________________________________

________________

2. ________________________________ (________________)________________ FIRST PARTY

________________ (________________)SECOND PARTY

(________________)________________ THIRD PARTY

___________________________________________________________________


20/68

DEED OF PartNErShIP (whErE a PartNErrEtIrES FrOm PartNErShIP)

thiS deed of Partnership is made at.................... on this .................... day of ...............by and between:1. Shri ............................... aged about .............. years, son of Shri ............................

...... resident of (hereinafter called the First Party);2. Shri ............................... aged about ............... years, son of Shri ...........................

....... resident of . (hereinafter to be called the Second Party);3. Shri ............................. aged about ................ years, son of Shri ...........................

resident of (hereinafter to be called the Third Party); and

4. Shri .......................... aged about ................. years, son of Shri .................................. resident of (hereinafter to be called the Fourth Party);

preamBle

whereaS the parties to this deed have been carrying on the business of ................................ under the name and style of M/s. ......................... with its principal place of businessat ............. on the terms and conditions incorporated in the Partnership Deed executed on .........................................and whereaS the parties to this deed have been carrying on the above said business inpartnership on the terms and conditions mutually agreed amongst themselves as aforesaid.and whereaS the fourth party namely Shri . has desired to retire from the rmas partner. In compliance with the terms and conditions of the Partnership Deed dated ..he has served a written notice dated . expressing his desire to retire from thepartnership.and whereaS the remaining partners after considering the partnership deed dated .and in view of the clause to the effect that partnership is at will, acceded to the request.and whereaS it was agreed among all that Shri .. Shall retire from the partnershipw.e.f. on which date accounts of the rm shall be drawn and share of the fourth party(retiring partner) shall be determined.and whereaS the parties to this deed have settled the terms and conditions post retirementof the fourth party namely Shri and have desired to reduce the settlement terms withthe retiring partner and also among themselves which shall govern the partnership postretirement.

thiS deed iS witneSSeth aS under:

name clauSe

1. That the partnership business shall continue to be carried on under the name and style of M/s. ....................................

nature and place of BuSineSS

2. That the partnership business has been and shall continue to be that of .... ............ withits principal place of business at .............. The continuing partners namely Shri ..( rst party); Shri .. (second party) and Shri . (third party) may by mutualconsent carry on any business and from any other place or places, in such other name or

annexure 3


21/68

Partnership

3.13

names and of such other nature or natures, as they may deem t and proper from timeto time.

Settlement of accountS with retiring party

3. That the accounts of the rm have been drawn as on the date of retirement i.e. . and

the pro t arrived at, which have been credited to the capital accounts of all the partners(including retiring partner) in their pro t sharing ratio as per the original partnershipdeed dated..

4. That the assets have been revalued at the current mar et value and also liabilities havebeen re-assessed. The surplus arising from this has been credited to the capital accountsof all the partners in their old pro t sharing ratio. In the light of the clause in the oldpartnership deed dated , the surplus so arrived at has been reversed and debited tothe capital accounts of the continuing partners.

5. That the payment to the retiring partner shall be made as follows:( i ) Rs. . is transferred to his loan account and shall be paid after one year along

with the interest @ % p.a.( ii ) Balance Rs. .. is paid by cheque bearing number .. dated .. drawn

on

dormant partner

6. That the third party namely Shri ...................... is not a wor ing partner but is onlynancing, dormant and sleeping partner. The party shall not be in charge of, responsible

to the rm for the conduct of the business of the rm and need not ta e interest in day-to-day wor ing and business of the partnership rm.

Salary to partnerS

7. That Shri................................ and Shri ............................ the rst and the third partieshave agreed to be actively engaged in the business of the partnership rm. The saidpartners shall be wor ing partners. It is hereby agreed to that in consideration of the saidparties eeping themselves actively engaged in the business of the partnership rm andwor ing as wor ing partners, shall be entitled to remuneration.The remuneration payable to the said wor ing partners shall be computed in the mannerlaid down under section 40(b)(v), read with Explanation 3 of the Income-tax Act, 1961 orany other applicable provision as may be in force in the income-tax assessment of thepartnership rm for the relevant accounting year. Such amount of remuneration shall bedistributed between the said wor ing partners in the following proportion:A. Shri...............................(First Party) ....... per cent of such amount; andB. Shri...............................(Second Party) ....... per cent of such amountThe partners shall be entitled to increase or reduce the above remuneration and may agreeto pay remuneration to other wor ing partner or partners as the case may be. The partnersmay also agree to revise the mode of calculating the above said remuneration as may beagreed to by and between the partners from time to time.

intereSt on capital to partnerS

8. That interest at the rate of 12% per annum or as may be prescribed under section 40(b)(iv) of the Income-tax Act, 1961 or any other applicable provisions as may be in force inthe Income Tax Act, 1961 for the relevant accounting period or at a lower rate as may beagreed to by and between the parties from time to time shall be paid to the partners or

credited to the partners on the amount standing to the credit of the account of thepartners.


22/68


3.14

Such interest shall be considered as an expenditure of the rm and shall be debited to thePro t & Loss Account of the rm before arriving at the divisible pro t or loss. The interestto persons other than partners shall be paid or credited to their accounts at the rate orrates as may be agreed to by and between the partners and such persons from time totime.

determination of diStriBution SurpluS

9. That the net pro t of the partnership rm after deduction of all expenses including rent,salaries, other establishment expenses, interest and remuneration payable to the partnersin accordance with this deed of partnership or any supplementary deed as may be executedby the partners from time, to time, shall be divided and distributed amongst the partnersin the following proportion:

Sr. No. Name of Party Share in pro ts1.2.3.The losses, if any, including loss of capital suffered in any year shall also be apportioned inthe above said proportion.

accountS

10. That the parties shall eep or cause to be ept proper boo s of account and documentsand shall ma e entries therein of all receipts, payments and other matters as is usuallydone and entered in the boo s of account ept by persons engaged in business similar tothat of the rm. Each partner shall have a right to have access to and to inspect and ta ecopy of the same.

11. That the boo s of account shall be closed on 31st day of March each year. The net pro tor loss after deducting all expenses, interest, remuneration, out goings shall be dividedbetween the parties in proportion to the sharing ratio referred to hereinabove.

duration of partnerShip

12. That the partnership has been and shall be a partnership at will.

Banking accountS

13. That the ban account or accounts have been and shall be maintained in the name of therm and shall be operated singly or jointly by the partners.

financial inStrumentS

14. All bonds, bills, notes, bills of exchange, hundies or promissory notes or other securitiesgiven on behalf of the partnership (except cheques) shall be signed, endorsed, acceptedor executed jointly by all the partners and any bond, bill, note, bill of exchange, etc. towhich any partner may be a party contrary to this provision shall be deemed to have beenon the personal account of such partner and he shall pay and discharge the same out of his own moneys and indemnify other partners and the rm against payment thereof andagainst all actions, proceedings, costs, charges, expenses, claims and demands in respectthereof.

applicaBility of partnerShip act, 1932

15. That notwithstanding anything contained in the Indian Partnership Act it is hereby mutuallyagreed to by and between the parties that in case of death of any one or more partners,the rm shall not be dissolved but shall continue to be carried on by and between the


23/68

Partnership

3.15

surviving partners and legal heirs and/or representatives of the deceased partner, as acontinuing concern, on the same terms and conditions as incorporated in this Deed or onsuch terms and conditions as may be agreed to by and between them from time to time.It is hereby further clari ed that it shall be deemed as change in constitution and notsuccession.

general

16. That with respect to any matter connected with the affairs of the rm, which is notspeci cally provided for herein, the partners may ma e such agreements there for andmay set in such manner with regard thereto as may be agreed upon by and betweenthemselves.

17. That the parties hereto shall be true and faithful to each other and shall not do or causeto be done anything which may be detrimental to the interest of the rm.

18. That if the partners deem proper and in their interest, they may admit any other personor persons as partners on the terms and conditions as may be mutually agreed amongstthemselves.

19. That the partners to this deed are partners in their individual capacity/representing HinduUndivided Family styled as M/s. ..................................... The parties do not representany other person.

20. That the partners shall be entitled to modify the above terms relating to remuneration,interest, etc. payable to partners by executing a supplementary deed and such deed whenexecuted shall have effect unless otherwise provided from the rst day of accountingperiod in which such supplementary deed is executed and the same shall form part of thisdeed of partnership.

21. That the retiring partner has signed this Partnership Deed as a con rming party. 22. That all disputes arising out of the partnership deed among the partners or between any

one of them or their legal representatives and whether during or after the partnership,shall be referred to the sole arbitrator in accordance with the provisions of the Arbitrationand Conciliation Act, 1996 then in force.

in witneSS whereof the parties to this deed have set their hands on the day and yearrst above written and in the presence of:

witneSSeS:

1. ________________________________________________

2. ________________________________ (________________)________________ FIRST PARTY

________________ (________________)SECOND PARTY

________________(________________)

________________ THIRD PARTY

___________________________________________________________________


24/68

PartNErShIP DEED (cONvErSION OF SOlEPrOPrIEtary BuSINESS tO PartNErShIP FIrm)

This DEED OF PARTNERSHIP is made on this .................... day of .................., 2010 at NewDelhi amongst:a. Mr. .............................. son of Mr. ....................................., resident of ....................

.................................................., hereinafter referred to as the First Party; andb. MMr. .............................. son of Mr. ....................................., resident of ....................

.................................................., hereinafter referred to as the Second Party.preamBle

1. whereaS the rst party was carrying on business of ...................... under the name

and style of M/s .......................................... since ......................... as a partnershiprm.

2. and whereaS the rst party is in requirement of funds for business expansion.3. and whereaS the first party has decided to convert the proprietary firm into

partnership.4. and whereaS he has agreed to induct Mr. ............................ son of Mr.

............................ resident of ...................... into partnership w.e.f. ........................5. and whereaS the rst and second parties have agreed to carry on the same Business

under the name and style of M/s ............................. .........6. and whereaS , all the parties to this deed have decided to actively devote their time

and attention to the business of the partnership.

7. and whereaS the parties to this deed have agreed to invest in the capital of the businessin their pro t-sharing ratio.

8. and whereaS the parties to this deed have settled all the other terms andconditions.

9. and whereaS it has been considered expedient to reduce the terms and conditions sosettled into writing.

now thiS deed iS witneSSeth aS under

name

1. The name of the rm shall continue to be M/s .......................... or may be changed toany other name that may be agreed upon by the parties to this Deed from time to time.


2. The principal place of business of the partnership shall continue to be located at .................................................................................. However, the business may be conductedfrom such other place or places as may be mutually decided by the parties to this deed from time to time.

effectiVe


nature of BuSineSS

4. That the business of the partnership shall continue to be that of Import, Export, Trading,Sourcing, Mar eting, Operations in Financial Mar et li e Mutual Funds, Insurance Products

annexure 4


25/68

Partnership

3.17

of every ind and nature and related line of business or any other business that may bemutually decided by the parties to this deed .

capital

5. That all the parties to this Deed shall invest capital in the business as required by the

business from time to time or as may be mutually agreed to by the parties to this Deed.Initial Capital will be Rs. ................./-, but in their respective Pro t-Sharing ratio.

intereSt on loan from partner

6. Loan from partners shall carry interest @ 10% per annum.

drawingS

7. That the parties to this Deed shall ma e drawings as and when required for their personalneed.

Sharing of profitS

8. That the Pro t/Loss shall be shared by the parties as follows:Party A 50%Party B 50%

The pro t/loss shall be determined after charging all expenses relating to the business.

BookS of account


financial year

10. That the nancial year of the business shall end on March 31 every year as is being followedpresently.

Bank account

11. That the partnership shall open ban account(s) with such ban (s) in the name of thepartnership and the same shall be operated by any two parties to this Deed.

duration and notice

12. That the duration of the partnership is at will . Any partner wishing to retire from thepartnership may do so after giving two clear calendar months notice in writing, to theother party and the party wishing to retire shall be deemed to have retired from the

partnership upon the expiry of the notice.

pledge, aSSign, mortgage

That no partner shall pledge, assign or mortgage his share in the partnership nor shall thepartnership be liable for any liabilities by any of the parties to this deed for the purpose otherthan those relating to the business of the partnership nor shall the rm be liable for thepersonal debts or obligations of the parties to this deed .

death or inSolVency

13. That it is speci cally agreed that the death or insolvency of any of the parties to this DEEDshall not result in the dissolution of the partnership. The business of the partnership shallbe carried on as before, in such an event, by the remaining partner with legal heirs of such deceased or insolvent partner.


26/68


3.18

Salary to partnerS


amounts speci ed in the Income Tax Act, 1961 as in force. 15. That if the pro ts of the business are insuf cient to pay the above salary, partners shall

be entitled to salary as per the Income Tax Act, 1961 in the above said proportion.

intereSt on capital

16. Parties shall be paid interest on their capital at the rate of 12 percent per annum but itshall not exceed the rate that may be prescribed in the Income Tax Act, 1961 as amendedand in force.

amendmentS


arBitration 18. That in case of doubt, dispute or difference of opinion amongst the partners regarding the

partnership, business or any of the terms of the partnership or the construction thereof,the same shall be settled by the arbitration, in accordance with the provisions of the IndianArbitration Act, then in force.


19. That anything not hereinafter speci cally provided for shall be governed by the provisionsof the Indian Partnership Act.

thiS partnerShip deed iS Signed By the partnerS in the preSence of the

witneSS on the date and place written aBoVe.

witneSSeS:

1. ________________ (________________)________________ FIRST PARTY________________

2. ________________ (________________)________________ SECOND PARTY

________________

___________________________________________________________________


27/68

Partnership

3.19

(preScriBed under the indian partnerShip act,1932)

filling fee rS.3/-

the indian partnerShip act, 1932

APPLICATION FOR THE REGISTRATION OF FIRM BY THE NAME ..

PRESENTED TO THE REGISTER OF FIRMS FILLING BY SHRI

WE, THE UNDERSIGNED, BEING THE PARTNERS OF THE FIRM * M/S

HEREBY APPLY FOR REGISTRATION OF THE SAID FIRM AND FOR THAT PURPOSE THE FOLLOWING, PURSUANT TO

SECTION 58 OF THE INDIAN PARTNERSHIP ACT, 1932.

THE FIRMS NAME

PLACE OF BUSINESS (A) PRINCIPAL PLACE

(B) OTHER PLACE

NAME OF PARTNERS IN FULL DATE OF JOINING THE FIRM PERMANENT ADDRESS IN FULL

DURATION OF THE FIRMSTATION. SIGNATURE OF THE PARTNERS OR THEIR SPECIFICALLYAUTHORIzED AGENTSDATE.?? HERE ENTER THE NAME OF THE FIRM

?? IF ANY PARTNER IS A MINOR THE FACT WHETHER HE IS ENTITLED TO THE BENEFITS OF PARTNERSHIP SHOULDBE SET OUT HEREIN.N.B.- THIS FORM MUST BE SIGNED BY ALL PARTNERS OR THEIR SPECIFICALLY AUTHORIzED AGENTS IN THISBEHALF IN THE PRESENCE OF WITNESS OR WITNESSES WHO MUST BE EITHER A GAzETTED OFFICER, ADVOCATEATTORNEY, PLEADER OR HONORARY MAGISTRATE.1 I.SON OF.YEARS OF AGE OF..RELIGION, DO

HEREBY DECLARE THAT THE ABOVE STATEMENT IS TRUE AND CORRECT TO THE BEST OF MY kNOWLEDGEAND BELIEF.DATE SIGNATURE.WITNESS..

2 I.SON OF.YEARS OF AGE OF..RELIGION, DOHEREBY DECLARE THAT THE ABOVE STATEMENT IS TRUE AND CORRECT TO THE BEST OF MY kNOWLEDGEAND BELIEF.DATE SIGNATURE.WITNESS..

3 I.SON OF.YEARS OF AGE OF..RELIGION, DOHEREBY DECLARE THAT THE ABOVE STATEMENT IS TRUE AND CORRECT TO THE BEST OF MY kNOWLEDGEAND BELIEF.DATE SIGNATURE.WITNESS..

4 I.SON OF.YEARS OF AGE OF..RELIGION, DOHEREBY DECLARE THAT THE ABOVE STATEMENT IS TRUE AND CORRECT TO THE BEST OF MY kNOWLEDGEAND BELIEF.

DATE SIGNATURE.WITNESS..

FOrM nO.1


28/68


29/68

Join S o k co p n

chapter at a glance

4.01 What is a Company? 4.02 Company and its Characteristics4.03 Merits o a Company 4.04 Distinction between a Company4.05 Types o Companies and a Partnership4.06 Formalities to Establish a Company 4.07 Additional steps to be taken or ormation4.08 Additional steps to be taken or registration o a Public Limited Company

o a Part IX Company 4.09 Memorandum o Association and Articles4.10 Certifcate o Incorporation o Association4.11 Certifcation o Commencement o Business 4.12 Public Subscription and Prospectus.4.13 Tax Registration. 4.14 Flow Chart o Incorporation o Private Company.4.15 Flow Chart o Incorporation o Public Company. Private Company.

4.01 what iS a company?

The term company means a company formed and registered under the Companies Act, 1956or an existing company. The phrase existing company means a company formed and registeredunder any of the previous companies laws, i.e.

( i ) The Indian Companies Act, 1866;( ii ) The Indian Companies Act, 1882;

( iii ) The Indian Companies Act, 1913.

4.02 company and itS characteriSticS

A company possesses following characteristics:( i ) c b : A company is a voluntary association of persons formed for some

common purpose (generally business), with capital divisible into parts, nown as sharesand with a limited liability. It is created under law and is thus, nown as an arti cialperson with a perpetual succession and a common seal .On registration, a company acquires a personality distinct from its members. A membercan, therefore, be both its shareholder and a creditor simultaneously.

( ii ) p s ss s : A company is a juristic person with a

perpetual succession and a common seal. Members of a company may change fromtime to time, but that does not affect the continuity of the company. Thus, the death orinsolvency of a member does not affect the corporate existence of the company. Thecompany goes on until it is wound up. Again, since the company has no physical existence,it must act through its agents and all such contracts entered into by its agents must beunder the seal of the company.

( iii ) l : A company is a legal entity distinct from its members. It can sue and besued.

( iv ) l b :The privilege of limited liability for business debts is one of the principaladvantages of doing business under the corporate form of business. A company may bea company limited by shares or a company limited by guarantee. In a company limited

by shares, the liability of members is limited to the unpaid value of the shares whereasin a company limited by guarantee, the liability of members is limited to such amount

Chapter 4


30/68


4.2

as the members may underta e to contribute to the assets of the company, in the eventof its being wound up.

( v ) f t s b S s: Shares in a company are freely transferable so thatno shareholder is permanently or necessarily wedded to a company.

( vi ) c S : A common seal acts as the of cial signature of the company. The nameof the company should be engraved in it. Any business document not bearing the commonseal of the company is not legally enforceable. A common seal is required to be af xedon the following deeds and contracts-(a) Power of attorney made in favour of a person to execute the deeds on behalf of the

company;(b) A share certi cate;(c) A share warrant;(d) Any deed as required by the Articles.

4.03 meritS of a company

The main advantages of a company form of organisation are as follows:( i ) l b :The liability of all the members of a limited company is limited to the

nominal amount (face value) of their shares therein. This enables even not too enterprisingpeople to invest part of their money in industrial ventures carried on by limited companiesbecause they now beforehand that their liability is limited.

( ii ) t s b s s: Shares in a company can be transferred (subject to anyrestriction in the Articles of Association) from one person to another without the consentof the other members.

( iii ) S : A company is a separate legal entity from its members and itsexistence is not affected by the death or insolvency of a member.

( iv ) c : The control of a company can be secured by acquisition of the majority of thecompanys shares which carry the voting power.

( v ) m : The formation of a company permits the proprietor of a business torealise his goodwill or to relieve himself of the actual management if he so desires, whileretaining the controlling interest in the business. It also enables the employees to becomeshareholders.

( vi ) d b b s : In the case of a company which is alegal person distinct from its members, loans between the members and between thecompany and its members present no dif culty. The company and its members can sueeach other in the ordinary way.

4.04 diStinction Between a company and a partnerShip

S.

No.

Basis of

Difference

Company Partnership

1. Entity A company is a separate and distinct legal entity , apart from its members.

A partnership rm is an association of several persons called partners and hasno separate legal entity apart from thepartners.

2. Number of members

A private company can have a maximumof 50 members. In case of a publiccompany, there is no limit as to themaximum number. However, the minimumnumber of members is 2 in case of aprivate company and 7 in case of a publiccompany.

In case of partnership, the maximumnumber of partners in case of a rmcarrying on ban ing business shouldnot exceed 10, and in case of any otherbusiness 20.

3. Management The management of a company isconducted by elected persons called,directors .

Any partner has a right to ta e part inthe management.


31/68

Joint Stock Company

4.3

4. Liability The liability of the members is generallylimited to the value of their shares in thecompany, and that too, to the extent of the unpaid value.

The liability of the partners is unlimited ,and is joint and several.

5. Position of

Members

A member of a company is not an agent

of the company, and has no power to acton its behalf.

A Partner, by implication, is an agent

of the rm for the purposes of thebusiness of the rm.

6. Position of Creditors

The creditors of the company cannot suethe members individually.

The creditors of the partnership rmcan sue the partners individually andalso in the name of the rm.

7. Position of amember anda partner

A member of a company can enter intoa contract.

A partner cannot enter into contractwith the rm.

8. Transfer of shares

Shares are freely transferable in caseof a public company whereas there arerestrictions on transfer of shares in caseof a private company.

A partner may assign his interest in therm to anyone without the consent of

all other partners.

9. Boo s of accounts

Proper boo s of accounts must be ept. keeping prope r boo s of account sthough desirable is not compulsory.

10. Audit Audit is compulsory under law. A companyshould get its accounts audited by achartered accountant.

Audit is not compulsory under law.

11. Winding A company, being a legal person, canonly be dissolved as laid down underthe law.

A partnership rm can be dissolved atany time by any partner if it is at will.

4.05 typeS of companieS

A company can be classi ed into different categories, as described below:( i ) p b c p v c A company which is not a private company

is called a public company. The minimum number of shareholders and directors requiredfor registering a Public Company is 7 and 3 respectively. It must have a paid up capitalof at least Rs. 5,00,000. There is no restriction as to number of members, issue andtransfer of shares and acceptance of deposits. On the other hand a private company isa company which has the following characteristics:( a ) It should have minimum 2 members, the number of shareholders is limited to

fty,( b ) It should have minimum 2 directors,( c ) Shareholders right to transfer shares is restricted, and( d ) An invitation to the public to subscribe to any shares or debentures is prohibited,

and( e ) It must have a minimum paid-up share capital of Rs. 1,00,000.

( ii ) Pro t and Non-pro t making companies Generally companies are incorporatedwith a purpose of earning pro t. However, a non-pro t company may also be registeredunder (Section 25) the Indian Companies Act, 1956, with the following features:( a ) Promotion of commerce, art, science, religion and charity etc.( b ) Prohibits distribution of pro t / income among members , and( c ) Registered with limited liability without addition of Limited / Private Limited to its

name.

4.06 formalitieS to eStaBliSh a company

All companies are required to be registered under the Companies Act, 1956. Company is nowregistered online under MCA 21. For Registration of a company following steps are required:

( i ) Proposed directors should obtain DIN (Director Identi cation Number) which is to belled in all documents for registration. If the proposed director is a director in another


32/68


4.4

existing company then he will be in possession of DIN, which shall use in promoting thenew company. If a person is becoming a director for the rst time, he will have to obtaina DIN.

( ii ) The promoters decide on up to maximum 6 names which should be in conformity withthe proposed objects of the business. Ensure that the name does not resemble the name

of any other already registered company and also does not violate the provisions of emblems and names (Prevention of Improper Use Act, 1950) by availing the servicesof chec ing name availability on the website of the Registrar of Companies (ROC).The last words in the name are required to be "Private Ltd." in the case of a privatecompany and "Limited" in the case of a Public Company.

( iii ) Apply in eForm 1A for approval of the name of the company, suggesting 6 alternativenames in order of preference, along with a lling fee of Rs. 500/- to the Registrar of Companies having jurisdiction, where the company proposes to have its registered of ce.The ROC generally informs the applicant within seven days from the date of submissionof the application, whether or not any of the 6 proposed names applied for is available,if found in order and as per the guidelines for name approval. If any of the proposednames is not found in order, the ROC will see further 6 proposed names to be consideredfor approval.

( iv ) Once a name is approved, it is valid for a period of six months, within which timeMemorandum of Association and Articles of Association together with other documentsshould be led. If one is unable to do so, an application may be made for renewal of name by paying additional fees. After obtaining the name approval, it normally ta esapproximately two to three wee s to incorporate a company depending on where thecompany is registered. If for any reasons the registration cannot be applied for, thepromoters should see extension of time.

( v ) After the name approval the applicant can apply for registration of the new company byling the required forms (that is eForm 1, 18 and 32) within 60 days of name

approval.( vi ) Get the Memorandum of Association (MOA) and Articles of Association (AOA) prepared

by a chartered accountant, company secretary or solicitor.( vii ) Get the MOA and AOA stamped from the state treasury with appropriate stamp duty. ( viii ) Get the MOA and the AOA signed by at least two subscribers (in case of private limited

company) and seven subscribers (in case of public limited company) in his/her ownhand, his/her father's name, occupation, address and the number of shares subscribedfor and witnessed by at least one person. It should be noted that a private companycan be registered if the subscribers underta e to subscribe shares of Rs. 1,00,000. Inthe case of a public limited company, the limit is Rs. 5,00,000. Ensure that the subscribersare the same persons who are named in eform 1A as promoters. Subscribers must signthe MOA and AOA only after they have been stamped by the treasury

( ix ) Ensure that the Memorandum of Association and Articles of Association are dated on adate after the date of stamping.( x ) Login to the portal and ll the following forms and attach the mandatory documents

listed in the eForm( a ) Declaration of compliance - eForm-1( b ) Notice of situation of registered of ce of the company - eForm-18.( c ) Particulars of the Director's, Manager or Secretary - eForm-32.( d ) Consent to act as director, etc. eForm 29.(Applicable only for Public limited

Companies).( xi ) Submit the above eForms after attaching the digital signature along with the challan of

payment of the requisite ling and registration fees (either through credit card or paymentin the designated ban ). The physical copy of Memorandum of Association and Articlesof Association must also be sent to the ROC.


33/68

Joint Stock Company

4.5

( xii ) After processing of the documents processing is complete and Corporate Identity isgenerated to obtain Certi cate of Incorporation from the ROC.

4.07 additional StepS to Be taken for formation of a puBlic limitedcompany:

To obtain Commencement of Business Certi cate after incorporation of the company the publiccompany has to ma e following compliances

( i ) File a declaration in eForm 20 and attach the statement in lieu of the prospectus (scheduleIII).

( ii ) File a declaration in eForm 19 and attach the prospectus (Schedule II) to it.( iii ) Obtain the Certi cate of Commencement of Business.

4.08 additional StepS to Be taken for regiStration of a part ix company:

The Part IX Company is required to le eForm 37 and eForm 39 apart from ling eform 1, 18and 32.The company is required to le eForm 1 rst and then the company can le the other eforms(18, 32, 37 and 39) or separately.

4.09 memorandum of aSSociation and articleS of aSSociationThe Memorandum of Association and Articles of Association are the most important documentsto be submitted to the ROC for the purpose of incorporation of a company. The Memorandumof Association is a document that sets out the constitution of the company. It contains, amongstothers, the objectives and the scope of activity of the company besides also de ning therelationship of the company with the outside world.The Articles of Association contain the rules and regulations of the company for the managementof its internal affairs. While the Memorandum speci es the objectives and purposes for whichthe company has been formed, the Articles lay down the rules and regulations for achievingthose objectives and purposes.Registration fee is scaled according to the share capital of the company, as stated in its

Memorandum. A private company can commence business on receipt of its certi cate of incorporation.4.10 certificate of incorporationAfter the duly stamped and signed Memorandum of Association and Articles of Association,documents and forms are led and the ling fee is paid, the ROC scrutini es the documentsand, if necessary, instructs the authorised person to ma e corrections. Thereafter, a Certi cateof Incorporation is issued by the ROC, from which date the company comes in to existence.It ta es one to two wee s from the date of ling Memorandum of Association and Articles of Association to receive a Certi cate of Incorporation. Although a private company can commencebusiness immediately after receiving the certi cate of incorporation, a public company cannotdo so until it obtains a Certi cate of Business from the ROC.

4.11 certification of commencement of BuSineSSA public limited company must obtain a Certi cate for Commencement of Business from ROC.ROC issues the certi cate only if the prescribed formalities have been ful lled. Company hasto submit the statement in Lieu of Prospectus detailing therein the required information inform no...... .On completion of the legal formalities, ROC will issue the Certi cate.4.12 puBlic SuBScription and proSpectuS

A Public company has the option of inviting the public for subscription to its share capital.Accordingly, the company has to issue a prospectus, which provides information about thecompany to potential investors. The Companies Act speci es the information to be containedin the prospectus.The prospectus has to be led with the ROC before it can be issued to the public. In case the

company decides not to approach the public for the necessary capital and obtains it privately,it can le a Statement in Lieu of Prospectus with the ROC.


34/68


4.6

On ful lment of these requirements, the ROC issues a Certi cate of Commencement of Businessto the public company. The company can commence business immediately after it receivesthis certi cate.

4.13 tax regiStration

Companies, under the Income Tax Act, 1961, are required to le its return of income, whetherthe company has conducted any business or not. They therefore, must obtain PermanentAccount Number. In addition to this, business liable to deduct tax must necessarily obtain aTax Deduction Number (TAN). The PAN is required to be stated in various other documentsand correspondence such as the documents pertaining to sale or purchase of any immovableproperty (exceeding Rs 5 lacs), etc.4.14

incorporation of priVate company

Start Process o Incorporating a Private Company

Company incorporated.

Check WhetherDIN is available.

Whether Nameavailable.

Apply or DIN

Apply or Name/ Reapply or Name.

A ter getting name approved memorandum has to be printed and are duly stamped( orm treasury). Stamped ee depends on the authorized capital o the company.

Preparing documents or incorporation and flling with ROC: Form 1, Form 32 [Directorsappointment], Forms 18[Registered o fce address], POA rom all the promoters. DD or ROC ees.

A ter flling all these documents. Certifcate o incorporation is sent by registrar o thecompanies through speed post at registered o fce o the company.

No

No

Yes

Yes


35/68

Joint Stock Company

4.7

4.15

incorporation of puBlic company

Start Process o Incorporating a Public Company

Company incorporated.

Check WhetherDIN is available.

Whether Nameavailable.

Apply or DIN

Apply or Name/

Reapply or Name.

A ter getting name approved memorandum has to be printed and are duly stamped

( orm treasury). Stamped ee depends on the authorized capital o the company.

Preparing documents or incorporation and flling with ROC: eForm 1, eForm 32 [Directorsappointment], Forms 18[Registered o fce address], POA rom all the promoters. DD or ROC ees.

e orms related to companies are annexed as per their serial number hereina ter.

A ter flling all these documents. Certifcate o incorporation is sent by registrar o thecompanies through speed post at registered o fce o the company.

Apply to obtain the certifcate o commencing business orm ROC. In order to obtain this certifcate,the company must apply with the provision o section o 149 o the Companies Act, i.e. i the

company issued the prospectus, then the procedure stated in section 149 (1) is become applicableand i it has not issued a prospectus, then the procedure as laid down in section 149 (2) shall apply

and statement in lieu o prospectus in eForm No-20 shall be fled with the registrar.

No

No

Yes

Yes


36/68


4.8

(e) *Sub-category

(g) *Whether the company isHaving share capital Not having share capital

(a) Authorised capital of the company (in Rs.)

a i io d d io fo i o o io of om yFOrM nO. 1

[pu su o s io s 33(1) d (2) of com i s a , 1956]

(f) Section 25 licence number

2.(a) Name of the company

no - a fi ds m k d i * o b m d o i y fi d.

(d) *Category

Public Private(c) Whether the company is public or private

1. *Indicate Registrar of Companies (RoC) reference number for name approval(Service request number (SRN) of Form 1A)

(b) *Type of the company New company (others) Section 25 company Part IX company Producer (Part IXA) company

3. Name of the state in which the company is to be registered

4. Name of office of the Registrar of Companies in which the company is to be registered

5. Capital structure of the company, in case of company having share capital

Break up of Authorised capital

Total amount of preference shares(in Rs.)

Total amount of equity shares (in Rs.)

Number of preference shares

Nominal amount per equity share

Nominal amount per preferenceshare

Number of equity shares

Nominal amount per preferenceshare

(b) Subscribed capital of the company ( in Rs.)

Total amount of equity shares (in Rs.)Number of equity shares

Nominal amount per equity share

Number of preference shares

Break up of Subscribed capital

Total amount of preference shares(in Rs.)

6. Details of number of members, in case of company not having share capital

(a) Enter the maximum number of members

(b) Maximum number of members excluding proposed employee(s)

7. *Main division of industrial activity of the company

Description of the main division

8. *Enter the number of promoters (first subscribers to the Memorandum of association (MoA))

Pre-fill

n : Only rst page of the relevant eforms are given here because of continuous amendmentsand updations complete forms are available of supplimentary copy.


37/68

Joint Stock Company

4.9

1. *Application for Incorporating a new company Changing the name of an existing company

(j) *e-mail ID

(e) *City

(b) *Name

(l). Fax

p a : av i bi i y of m

(k) Phone

(d) *Address Line I

Line II

(f) *State

(c) *Occupation

2. D i s of i

(a) *Director identification number (DIN) or Income taxpermanent account number(Income tax PAN) or passport number

(h)*ISO country code

(g). *Pin code

(i) Country

a i io fo m fo v i bi i y o of mFOrM 1a[pu su o s io s 20 d 21of com i s a , 1956]

no - a fi ds m k d i * o b m d o i y fi d.

6. *Name of office of the Registrar of Companies in which the proposed company is to be registered

5. *Name of the state in which the proposed company is to be registered

Public Private(b). *State whether the proposed company is public or private

3.(a) *Type of company Section 25 company Part IX company Producer(PartIXA)companyNew Company(others)

(c). *State the category of proposed company

(d). *State the sub-category of proposed company

4. *Whether the proposed company is Having share capital Not having share capital

7. D i s of omo s ( o os d fi s subs ib s o M mo dum of sso i io (Moa))

*Enter the number of promoters (proposed first subscribers to MoA)

*Category

*DIN or Income-tax PAN or passport number or corporateidentity number (CIN) or foreign company registrationnumber (FCRN) or any other registration number

*Name

I.

*DIN or Income-tax PAN or passport number or corporateidentity number (CIN) or foreign company registrationnumber (FCRN) or any other registration number

*Name

II. *Category

Pre-fill

Pre-fill

Pre-fill


38/68


4.10

5. *Reason(s) for change of name or conversion of a public company into a private company

(b). Global location number (GLN) of company

(b). *Date of passing the special resolution

(c). *Date of filing Form 23

(i) *Number of members

(ii) *Number of shares held by them

1.* Purpose of application

2(a). *Corporate identity number (CIN) of company

(DD/MM/YYYY)

(DD/MM/YYYY)

Change of name Conversion of a public company into a private company

6. Particulars of filing Form 23 with Registrar of Companies(RoC)

a i io fo ov of c gov mfo of m o o v sio of ub i

om y i o iv om yFOrM 1B

[pu su

Documents

Business Enterprises 3rd Proof