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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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