non-corporate business entities

7/31/2019 Non-corporate Business Entities

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NON-CORPORATE BUSINESSENTITIES

Sole Proprietorship

OnePerson Company

Hindu Undivided family

Partnership Firm Limited Liability Partnership

Co-operative Societies

Non-Government Organizations Non-Profit Company

Insolvency Law


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Sole - ProprietorshipMeaning and Features


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Sole-Proprietorship

A Sole Proprietorship is an unincorporated businessowned by one person.

The business is owned and represented legally by anindividual.

The life of sole proprietorship is limited to owners lifespan.

No registration required

All liabilities are the personal liabilities of owner.

Can engage any no. of employees or contractors. All incomes and expenses are included in Sole

Proprietors income tax returns.


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Merits of Sole - Proprietorship

Low start up costs.

Easy to form.

Better control and effective businessadministration.

Quick decisions.

Minimal reporting requirements.


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Limitations of Sole - Proprietorship

Personal liability of the Sole Proprietor isthe major disadvantage.

All personal wealth and assets is at stake.

No strict standards of financial control.

Productivity and creativity of business is

affected as all decisions, activities rest onsole proprietor.


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ONE-PERSON COMPANY (OPC)

OPC was proposed by Irani Committee.

OPC may be registered as a privatecompany with one member and at least

one director. Nominee Director should be appointed to

manage the affairs of the company in case

of death or disability of sole person tilldate of transmission of shares to legalheirs of the demised person.


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HINDU UNDIVIDED

FAMILY (HUF)Meaning and Features


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HINDU UNDIVIDED FAMILY

The joint family business carried out by themembers of a Hindu family is legally called

Hindu Undivided Family. Consists of people who have lineally descended

from a common ancestor and includes wives anddaughters.

Person acquires by birth an interest in the Jointfamily property.

It is not a creation by contract. Business is carried under the control and

supervision of head of family also known askarta.


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A HUF cannot enter into a partnership with

another person, but the karta can. Two kartas of HUF can form a partnership but

the individual members of the two HUF s do notautomatically become partners.

Male members are called as coparceners andfemale members are referred as members.

Coparceners are entitled for the partition of HUF.

Members receive maintenance from HUF.


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Generally a HUF should consist of two male

members. The rights and liabilities are governed by the

Hindu law.

But in case of partition a small family receivinga share can form a new HUF with one malemember.

A HUF is assessed to tax as a separate person.

HUF is considered as a good tax cutter.


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PARTNERSHIP FIRMTHE PARTNERSHIP ACT 1932


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THE PATNERSHIP ACT

Came into force on 1st October 1932. A partnership contract is a special contract and

hence principles of law of contract apply. Definition

Partnership is the relationship between personswho have agreed to share the profits of abusiness carried on by all, or any of them actingfor all.

A Partnership arises from contract and not fromspecial status as in case of HUF.Partnership firm may have minimum to partners.


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Partnership

Business

The parties to a partnership agreement mustcarry a series of business transactions.

The profit must be distributed among the

partners in agreed ratio. Type of relationship among the partners is

termed as Mutual agency.

The partner can act as agent (to bind otherpartners by his acts) and as a principal (beingbound by the acts of other partners).


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Kinds of Partners

Actual or Ostensible Partner.

Sleeping or Dormant Partner.

Nominal Partner. Partner in Profits only.

Sub-Partner.

Partner by Estoppel or Holding out.


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Registration of Firms

The registration of Partnership firms is notcompulsory and can take place at any timeduring the continuance of the partnership firm.

A partner of an unregistered firm cannot sue thefirm or any partner by civil suit but he caninstitute criminal proceedings against them.

An unregistered firm cannot sue a third party

however a third party can sue such anunregistered firm.

An unregistered firm cannot claim a set-off.


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There are certain exceptional circumstanceswherein the non-registration of a firm does notaffect the following rights.The right of third party to sue the firm or anypartner.The right of a firm having no place of businessin India.

The partner can sue for criminal proceedingsagainst other partners or third party.The right of the partner to sue for dissolution offirm or for the accounts of dissolved firm, or for

share of the property of dissolved firm.The powers of an Official assignee, Receiver orthe Court to realize the property of an insolventpartner of an unregistered firm.


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Types of Partnership

Partnership at will.

Partnership for a fixed term.

Particular Partnership.

Relations of Partner to One Another


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Rights of a Partner

Every Partner has a right to take part inthe partnership business.

Right to be consulted.

Freedom to express his views.

Right to access and inspect the accounts.

Equal share in absence of P/L sharing

ratio. Right to be indemnified for the losses

incurred in the course of business.


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Right to receive interest on capital.

Right to do all acts to protect the firmfrom losses.

Right not to be expelled.

Right to retire. Right to dissolve the Partnership at will.


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Duties of Partners

To conduct the business in common advantage.

To attend duties diligently.

To be just and faithful to each other.

To render true accounts and full information. To indemnify other partner.

Not to ask for remuneration unless provided inthe agreement.

Contribute losses.

Not to carry competitive business.


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Insolvency of Partner

Partner ceases to be a Partner from the date ofinsolvency declared.

In absence of any agreement, firm stands

dissolved on insolvency. If Partnership deed contains provision for

insolvency then the insolvent partner shall notbe liable for any act of the firm.

Nor shall the firm be liable for any act of theinsolvent partner done after the date ofinsolvency.


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Limited Liability Partnership (LLP)

LLP is proposed by Irani committee.

Liability joint and several.

Unlimited liability is the cause for creationof LLP.

LLP can function in competitive

international market as it has unlimitedcapacity and provides internal flexibility.


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Salient features of Proposed LLP

Corporate body.

LLP as last word in partnership name.

It can sue and be sued.

Cannot be regulated by partnership law.

A person ceases to be a Partner as perterms of agreement or by giving 30 days

notice or upon his death or upondissolution of LLP.

Registration of LLP.


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Co-Operative Societies

Co-Operative Societies are enterprises or businessoriented organizations owned by an association ofpersons, wherein the members have common interest toachieve common goals.

A Co-operative Society is a separate legal entity andenjoys a perpetual existence.

The objective of Co-operative Society is both economicaland social.

The Co-operative Societies operate democratically whichmeans, one man one vote, and through two bodies i.e.members and board of directors.


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Types of Co-Operative Societies

Consumers Co-Operative Societies.

Producers Co-Operative Societies.

Workers Co-Operative Societies.


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Legal Regulations of Co-Operative

Societies

The Co-Operative Societies in India areregulated by

The state Co-Operative Societies Act.

The multi state Co-Operative SocietiesAct.


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Requirements for forming a

Co-Operative Societies Minimum membership

10 in case of state Co-Operative Societies.

50 in case of multi state Co-Operative Societies.

The objective of forming of Co-Operative Societies must

be promotion of economic interest of its members.Registration of Co-Operative Societies should not beadverse to co-operative movement.

The perspective members are willing to contribute

minimum amount of share capital prescribed byRegistrar of Co-Operative Societies.


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Membership


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Registration

Under State Act Applications (minimum10)

Share money

Copy of proposed Bye-laws. Under the Multi-State Co-operative act

Applications at least by 50 persons

Share moneyCopy of proposed Bye-laws.


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Advantages of Co-Operative

Societies

Social and educational needs are served.

Can stimulate community development inremote areas.

Enjoys perpetual existence.

Community needs are met with greatability.


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Disadvantages of Co-Operative

Societies

Members investing in large capital have noadvantage over smaller contributors.

Due to democratic, social and educationalobjectives, business decisions are morelikely to be made for reasons other thanthe returns on investment.


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Non-Government Organization

NGO

NGO may be a

Societyregistered under SocietiesRegistration Act 1960.

Trust (constituted under the Trust deedand registered with Income Tax

Authority).

Limited company incorporated underSection 25 of the Companies Act.


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NGO as a Society

Common purpose is both legal and usefulfor others.

Registration with Registrar of Soy

Documents for registration Application,Memorandum of Association, Consentletters of members of managing

committee, authority letters, affidavits,declaration


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NGO as a Trust

Work for charitable purpose

Powers embodied in Trust Deed

Registration with Charity Commissioner


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Non Profit Company (sec.25)

Objectives can include promotion ofcommerce, art, science, religion, charityetc.

Profits applied for fulfillment of objects

Non profit Co may be Public or Private

Registration documents Memorandumof Association & Articles of Association


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Insolvency Law in India

A person who cannot or does not pay debts infull has committed an act of insolvency. He mustbe a debtor and must have committed an actof insolvency.

Acts of Insolvency refers an act or defaultcommitted by the debtor.

Consequences of Insolvency debtor gets

protection against legal proceedings bycreditors, his properties are assigned to court,an insolvent is disqualified of his civil rights


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Insolvency Proceedings

Insolvency Petition

Admission of petition

Interim Receiver

Hearing of petition

Adjudication of Debtor

Vesting of Insolvents property

Realisation and distribution of property

Discharge of Insolvent.


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Law Relating to Corporate

Business Entities

List of Documents required to Incorporatea Company

Buy back of Securities

Mergers and Acquisitions

LIST OF DOCUMENTS


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LIST OF DOCUMENTSREQUIRED TO INCORPORATE A

COMPANY (i) Declaration of compliance in Form No. 1 that all therequirements of the Companies Act, 1956 and the rulesmade thereunder have been complied with in respect ofregistration and matters precedent and incidental

thereto. Declaration to be given by advocate of the Supreme

Court or a High Court, an attorney or a pleader entitledto appear before a High Court or a Secretary or aChartered Accountant, in whole time practice in India

who is engaged in in the formation of a Company, or bya person named in the Articles as a director, manager orsecretary of the company.


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(ii) The stamped and signed cop of theMemorandum and Articles of Association.

(iii) Notice of the situation of the registeredoffice of the company in Form No. 18.

(iv) Particulars in favour of one of thesubscribers to the memorandum of associationor any other person authorising him to file thedocuments and papers for registration and tomake necessary corrections, if any. This shouldbe executed on non-judicial stamp paper of therequisite value.


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(v) Any other agreement, if referred to in theMemorandum and Articles of Association

(vi) Any agreement which the company to be

incorporated proposes to enter into with anyindividual for appointment as its managing orwhole-time director or manager.

Original true copy of the Registrar of Companies

letter intimating about the availability of name.


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BUY-BACK OF SECURITIES

Purchase of its own securities by a company is popularlyreferred to as buy-back of securities.

The basic provisions of buy-back of securities are thatthe articles of the company shall contain a provision

authorizing the company to purchase its own securities. Authorized by special resolution passed in general

meeting of the company.

Buy-back only from the sources and in the modesprescribed by sec. 77A.

Company is prohibited from purchasing its securitiesthrough its subsidiary company or an InvestmentCompany.


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A public company whose securities are listed on arecognized stock exchange shall, in addition to theprovisions of the Companies Act, also comply with theSEBI (Buy-Back of Securities) Regulations, 1998.

A listed company may buy-back its securities throughtender offer or from the open market which may bethrough the stock exchange etc.

A company whose securities are not listed on arecognized stock exchange i.e. private company and

public unlisted company shall, in addition to compliancewith the provisions of Companies Act, also comply withthe Private Ltd. Company and Unlisted Public Company(Buy-Back of Securities) Rules, 1999.


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Dividend on Shares

The term dividend can be defined in two ways

In case of company which is going concern,dividend represents that portion of the profitswhich are distributed among the shareholders ofthe company.

In case of a company which is to be wound up,dividend represents a distribution of the cosrealized assets among the creditors andcontributories according to their rights.


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The power to pay dividend is inherent andis not derived from Companies ACT ORM/A or A/A.

Sources out of which dividend should bepaid

Current Profits

Reserves Monies provided by Govt, and

Depreciation


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A final dividend for any financial year can bedeclared and paid only when the Balance Sheetand Profit and Loss Account are presented to

shareholders at Annual General Meeting. Shareholders can approve the recommended

rate of dividend

Preference Sh holders receive dividend at a fixed

rate before any dividend is declared on EquityShares.


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Dividend may be paid

in cash

In the form of paid-up shares ordebentures

By issue of share warrant

Capital profits for distribution of dividend ifArticle of Association permits


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MERGERS AND ACQUISITIONS

Merger / Amalgamation

One company loses corporate existenceand the survivor co acquires the assets as

well as takes liabilities of the merged co.Acquisition means acquiring the

ownership in the property by purchase of

controlling interest in the share capital ofthe company acquired.

Takeover is also an acquisition.


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Conglomerate Merger

It is merger of two or more companieswhich are dealing in different products or

areas.

This kind of merger diversify the productsmarketed.

A l ti d R t ti


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Amalgamation and Reconstruction

of Non-Banking Companies

To follow procedure u/s 391 to 396A ofthe Companies Act. Amalgamation of cosis done through a Scheme of arrangement

approved by shareholders and or creditorsof the companies concerned.

Brief procedure

A company has to approach the court witha scheme of arrangement and a petition


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for the fulfillment of the desired merger /amalgamation.

The company is to file an affidavit giving

all material facts like latest position of thecompany, latest auditors report on theaccounts of the company.

Directors disclosure of their interest in thescheme.


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The court will hold a general meeting ofthe company and gives directions like how& where to conduct the meeting and will

appoint a Chairman for the meeting. Chairman submits minutes of the meeting

to court.

If number representing is 3/4th in value ofthe creditors, the court will pass its orders.

The power to amalgamate is statutory.

A l ti d R t ti


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Amalgamation and Reconstruction

of Banking Companies

RBI to manage the risk level of banking system

The decision to wind up or merge the sick bankwith another healthy bank.

RBI has to cancel licenses of many cooperativebanks.

The move to cancel licenses of bigger banks willhave negative consequences and adverse impacton credibility of the banking system.

Procedure & Schemes for


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Procedure & Schemes forAmalgamation and Reconstruction

of Banking Companies Banking Regulation Act, 1949 (B R Act) providesfor procedure and scheme.

Banking Co different from mfg or tradingcompany.

Banking co carries banking busi in India.

i.e accepting deposits from public, lendingmoney, investment .

Foreign Banks doing banking business in Indiaare also covered under B R Act and provisions ofCompanies Act.

B R Act o errides Memorand m


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B R Act overrides Memorandum

and Articles of Banking Company

Provisions of the B R Act overridesprovisions contained in memorandum and

Articles of a banking company.

A resolution passed in general meeting orBoard Resolution or an agreement is notvalid if it is inconsistent with the provisions

of B R Act.

Scheme of Compromise /


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Scheme of Compromise /

Arrangement by Banking Company

To follow procedure given under sections391 to 393 of the Companies Act.

Protection of interest of members,

creditors and public is considered. RBI has to certify that such scheme does

not harm interest of depositors

RBI can propose winding up ifcompromise / arrangement sanctioned bycourt is not satisfactorily worked out.

Procedure for Amalgamation of


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Procedure for Amalgamation of

Banking Companies

The B R Act provides for scheme of compromiseor arrangement for amalgamation of twobanking companies.

Compromise

High Court along with RBI has powers to finalizea scheme.

If both parties are banking companies, B R Act

will apply. If not, then provisions of Companies Act will

apply.


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The draft of the terms of the scheme ofamalgamation to be placed beforeshareholders of each banking company.

Full details of such meetings to bepublished in two newspapers once a weekfor three consecutive weeks.

Resolution by 2/3rd majority value of shareholders of each banking company.

After that, scheme to be submitted to RBI.

Reconstruction or Amalgamation of


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Reconstruction or Amalgamation of

Sick Banking Company


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