ORGANIZATION AND ITS CHARACTERISTICS

ORGANIZATION AND ITS CHARACTERISTICS

Robbins defines Organization as ' a consciously coordinated social unit, composed of two or more people, that functions as a relatively continuous basis to achieve common goals of set of goals.
Agrawal defines organization as ' a goal oriented open system composed of people, structure and technology.

From the above definitions, an organization has the following characteristics-

1. It is an open system.
2. It is a goal oriented.
3. It is a collection of people.
4. Organization consists of people.
5. Organization consists of technology, and
6. It has continuity.

Organization is an open system : An open system means open to environment. Organization exists and functions in environment. Environment compels the organization to acquire right type of people, technology and structure so that the goals to serve the environment can be attained. The organization is thus greatly influence the environment.

Usually the demands or wants of the people determines the strategies and goals of an organization. What are the needs in the market and how an organization can bring new and needy products to the market create an interaction between the organization and the environment. Without interaction, organization cannot fulfill required products or services to the users groups. This way, an organization is an open system, without which it cannot survive.

Organization is goal oriented : Without goal or set of goals, organization is useless. There is nothing for the organization to do. Therefore, the major characteristic of any organization is its goal. Type of people or technology is adopted so that the set goal can be achieved. The goal gives line of action; acquire required type of people and uses type of technology so that the goal is achieved in an anticipated time point. Without goal, organization cannot be formed.

Organization is a collection of people : People are the main performers in any organization. In other world, all the elements of any organization are the same except the people. Even with the same age, qualification, experience and facilities, the output of the people may vary, simply because the needs and wants of all people are not the same. What makes them work by heart and head is the one that differentiate organizations from one to others.

Organization consists of technology : Technology is the means of doing works. There are various kinds of doing works. As an organization consists of more people, its performance procedure should be of a fixed type so that each individual in the organization can exercise them well. This is how technology initiates. Technology eases the work and shortens the time. Technology originates a certain policy necessary to keep organizational beliefs in doings of the various people at different structural level. This saves the integrity of the people in achieving goals.

Organization has continuity : As the organization involves people, and the people generate different needs, they can leave the organization or some may die too. This does not affect the organization to stop or decrease in size. Hence, it is said that every organization has its own continuity. A good manager can leave but other better man can take over the charge of the organization.

ROLES OF MANAGEMENT

The roles of management or managerial roles are of the following three types in short-

a. Interpersonal roles,
b. Informational roles, and
c. Decision roles.

Interpersonal Roles :- The management needs to play interpersonal roles to maintain harmony in the organization. For this purpose, the management functions as a figurehead, a leader and a liaison in the organization. These three functions make the management playing an interpersonal role in the organization.

Informational Roles :- The management has all the information regarding to the organization. It has to provide or receive information regarding the organization. For this, it has to function as a spoke man, as an information news center and information disseminator.

Decision Roles :- The management has to play a role of decision maker in the organization. Under this decision-making role, the management functions as an entrepreneur, a disturbance handler, a resource allocator and a negotiator in the organization or out of the organization.

DIFFERENCES BETWEEN PARTNERSHIP AND JOINT STOCK COMPANY

Partnership and a company differ in many ways. Following are the main differences between them:

(1) Formation : A partnership is easily format without much expenses. The legal formalities for registration are simple and less time consuming. It is registered under Nepal partnership Act, 2020. A company is incorporated by registration under Company Act 2053. Lots of legal formalities have to be observed for registration of a company.

(2) Legal Entity : A partnership has no distinct legal entity. So the acts of the firm bind the partners and the acts of individual partners ordinarily bind the firm. But the company has a distinct legal entity separate from that of shareholders. It may act in its own right without making shareholders liable for it.


(3) Number of Members : The minimum number of partners in two and maximum number is not prescribed according to Partnership act. In a private company the minimum number of members can be one while the maximum number is fifty. In a public company minimum number is seven while there is the maximum limit.

(4) Liability : In partnership, the liability of the partners is unlimited and they are jointly and severally liable for the debts of the firm. The liability of the shareholders of a company is limited up to the face value of the shares purchased by them.

(5) Existence : A partnership does not have stable life and perpetual existence. But a company has a continuous and perpetual succession. The change of membership or death of bankruptcy of the member does not affects its existence.

(6) Transfer of Shares : A partner can transfer his share only with the consent of all partners. But shareholders of a company enjoy perfect freedom to transfer their shares. However, there is some restriction in a private company.

(7) Management : Every partner has the right to take part in the management of the firm. But in company every shareholder has no right to take part in the management. Instead they elect Board of Directors, who manages the company.

(8) Capital : In partnership, partners invest capital according to their wish and the consent of other partners. The capital of a company is divided into shares. It has no right to issue shares more than the authorized capital.

(9) Final Accounts and Audit : A partnership is not under statutory obligation for the preparation of final accounts and audit the books of accounts. However, final accounts of the company must be prepared, distributed among the shareholders and audited by a qualified auditor.

(10) Dissolution : A partnership is dissolved according to the agreement among partners or by the court. A company is dissolved only through legal procedures.

ADVANTAGES AND DISADVANTAGES OF JOINT STOCK COMPANY

The company provides so many advantages that it is widely popular all over the world. The advantages and disadvantages of joint stock company are as follows :

Advantages

(1) Huge Financial Resources : A company can collect large sum of money from large number of shareholders. There is no limit on the number of shareholders in a public company. Since its capital is divided into shares of small value even a person of small means can contribute to its capital by simply purchasing its shares. It facilities the mobilization of savings of millions for the productive purposes. In addition, a company can borrow from banks to a large extent and also issue debentures to public.

(2) Limited Liability : The liability of shareholders in a company is limited to the face value of the shares they have purchased. The limited liability encourages many people to invest in shares of joint stock companies. If the funds of a company are insufficient to satisfy the claims of the creditors, no members can be called to pay anything more than the value of shares held by them.

(3) Perpetual Existence : Due to its separate legal existence, it has perpetual existence. The life of company is not dependent die or become insolvent. The members of a company may go on a company. The stability of business is of great importance to the society as well as to the nation.

(4) Transferability of Shares : The shares if a public company are freely transferable. This transferability of shares brings about liquidity of investment. It encourages many people to invest. It also helps a company in tapping more resources.

(5) Diffusion of Risk : In sole proprietorship and in partnership business, the risk is shared by few persons. But in company, the number of shareholders is large, so many persons share risk. Therefore, the burden of risk upon any individual is not huge. This attracts many investors. It enables companies to take up new ventures.

(6) Efficient Management : In company ownership is separate from management.
A company has enough resources to utilize the services of experts and managers who may be highly specialized in different fields of management. It can attract talented persons by offering them higher salaries and better career opportunities. The efficient management will help the company to take balanced decisions and can direct the affairs of the company in the best possible manner. It also helps to expand and diversify the activities of the company.

(7) Economies of Large Scale Production : Large scale production of modern days is the result of company form of organization. This results in economics in production, purchase, marketing and management. These economies will help company to provide quality goods at lower cost to the consumers.

(8) Democratic Management : The company is managed by the elected representatives of shareholders called the ‘directors’. Directors are responsible and accountable to the general body of shareholders. Decisions are taken by a majority of votes completely based upon democratic principles. This prevents in mismanagement of a company.

(9) Public Confidence : A company enjoys a greater public confidence and reputation in the market due to legal control, publicity of accounts and perpetual existence. Audit of Joint Stock Company is compulsory. A company’s financial accounts and statements are published , circulated and are open to public inspection. Therefore public have enough faith in it. So, it can get loan from different financial institutions.

(10) Social Importance : The company provides opportunity to mobilize scattered savings of the community. It also creates employment opportunities. Due to large-scale production consumers get cheaper goods. The society is supplied with enough quantity of goods. Government gets income in the form of taxes.

Disadvantages

(1) Difficulty in Formation : A company is not easy to form and establish. A number of persons should be ready to associate for getting a company incorporated. It requires a lot of legal formalities to be performed. The shares will have to be sold during the prescribed time. It is both expensive and risky.

(2) Lack of Secrecy : A company has to observe many legal formalities. Most of the business activities are decided through meetings. Profit and Loss Accounts and Balance Sheet are required to be published. So trade secrets cannot be maintained.

(3) Delay in Decisions : In company decisions making process is time consuming. All important decisions are made by either Board of Directors of by General Annual Meetings. So many opportunities may be lost due to delay in decision making.

(4) Separation of Ownership and Management : A company is owned by shareholders but managed by directors. The shareholders play an insignificant role in the working of the company. Though directors are owners of some qualification shares only, yet the result of their activities are to be borne by all shareholders. The profit of the company belongs to shareholders and the Board of Directors is paid only on a commission. There is no direct relationship between efforts and rewards. So the management does not take personal interest in the workings of company. Hence, they may work against the interest of vast majority of shareholders.

(5) Speculation in shares : The Joint Stock Companies facilitate speculation in the shares at stock exchanges. It has been found that even the directors and the managers of the company indulge in manipulating the value of shares to their advantage. When they want to purchase the shares they lower the rate of dividend and when they want to dispose of the shares they declare dividends at a higher rate.

(6) Oligarchic Management : The shareholders who are the real owners do not have much voice in the management. A handful of shareholders, which also manage the affairs of the company, are able to have control over it. Theoretically the company is democratic, but in practice it is mostly a case of oligarchy (Rule by few). A few persons hold power and control and try to exploit the majority. Thus, it does not promote the interest of the shareholders in general.

(7) Excessive Regulation : A company has to observe excessive regulations imposed by the law of the country. The excessive regulations are made with a view to protect the interest of the shareholders and the public but in practice they put obstacles in their normal and effective working. A lot of precious time, efforts, and financial resources are wasted in complying with statutory requirements.

(8) Conflict of Interest : In a company there are many parties whose interest may clash and the result may be conflict of interests. The management, the shareholders, the employees, the creditors and the government may have their own individual interests. Thus, a permanent type of conflict of interests may continue to exist in the companies. These conflicts generally lead to inefficiency in the management and reduce employee morale.

(9) Neglect of Minority : All major issues in company are decided by the shareholders having majority of them. Majority group always dominate over the minority group whose interest are never represented in the management. The company act provides measures against oppression of minority, but the measures are not very effective.

As compared with a public limited company, the additional advantages of a private limited company are as follows:
1. There is a greater facility for the formation of a private company as compared with a public company. The minimum shareholders may be only one in private whereas there must be seven in the public company. Private company does not invite public subscriptions to its shares.

2. A private company is free from certain restriction placed on a public company. For instance a private company may start business after getting the certificate of incorporation but public company must get certificate of commencement of business. Private company need not issue prospectus. No restrictions are placed on the allotment of shares and appointment of directors.

From the above discussions, it may be concluded that the advantages of company form of organization outnumber its weakness. It is clear that the company is best suited for business, which requires huge capital and maximum stability.

CHARACATERSTICS OF JOINT STOCK COMPANY

The important characteristics of Joint Stock Company are discussed below.

(1) Artificial Person : A company is an artificial person created by law. So it has a separate existence of its own. It enjoys almost all the privileges of a natural person doing business. Like ordinary person it has power to set or purchase the property on its own name. It can hold property, incur debts and enter into contracts. It can be sued too. As it has no body, no soul, and conscience, it is regarded s artificial person.

(2) Legal Entity : A company is created by law. It has the separate legal entity apart from its shareholders. It acts independently. So shareholders are not liable for the acts of the company even though they are the owners. Similarly a company cannot be held liable for the acts of the company even though they are the owners. A creditor of the company is not the creditor of its members. Similarly a company cannot be held liable for the action of its members. Thus, a company can file a suit against its shareholders and the shareholders can sue the company.]

(3) Limited Liability : A basic feature of the company is that the liability of its owners is limited to the value of shares they have purchased. As the debts of the company are the debts or a separate legal person, shareholders are not personally liable for the company. In a company limited by shares, the liability of shareholders is limited to the unpaid values of shares held by them.

(4) Transferable Shares : The capital of a company is divided into shares. The shares of the company are freely transferable except in case of private companies. Every shareholder of a public limited company is free to transfer the shares to anybody.

(5) Perpetual Existence : The company has a permanent existence. The death, lunacy or bankruptcy of its member does not affect its existence. Its old shareholders may go by selling their shares and new shareholders may come, but it does not affect the existence of the company. The company can be dissolved only by law.

(6) Common Seal : The company being an artificial person cannot sign any document. Therefore the law requires that every company should have a common seal. The common seal of a company is affixed in all important documents as a token of the company’s approval. It is the official signature of the company.

(7) Share Capital : A company is incorporated with a fixed share capital. It is known as Authorized or Registered capital. The capital is divided into shares of fixed face value. The membership of the company is obtained by purchasing the shares.

(8) Ownership and Management : Shareholders are the owners of the company. The number of shareholders is generally large and widely scattered. They have no right to participate in company management but they have the right to elect ‘Board of Director’. The directors are the agents and trustees of the company. They manage and control the company. Hence, the ownership and management are in two different hands, shareholders and directors. Directors are the legal representatives of the shareholders.

(9) Right to Sue : All the activities of the company are preformed in the name of the company. Company is an artificial person having separate legal entity. Thus, company can sue other in its own name and the others can sue in the name of the company.

TYPES OF JOINT STOCK COMPANY

There are several types of companies. Their classifications can be made from many angles. In brief they are :

1. According to Incorporation
2. According to Liability
3. According to Number of Members

1. According to Incorporation

According to incorporation companies may be divided into three categories.

a. Chartered Companies : This type of companies are incorporated under Royal Charter issued by King or Head of the state. Under the charter, certain exclusive rights and privilege are granted to the company for undertaking certain commercial activities. The East India Company, The Charter Bank of India and Australia were incorporated under Charter. These companies are no longer formed in any country.

b. Statutory Companies : These companies are formed under the special Act of Parliament. A Parliament passes special act to form such company. The objects, powers, rights and responsibilities are clearly defined in the Act. When a company requires special rights and power these types of companies are established. Generally, companies for public utility services are formed. In our country, several such Acts have been passed. For example, Nepal Rastra Bank, Nepal Industrial Development Corporation, RNAC, Karmachari Sanchaya Kosh, etc.

c. Registered Companies : In general the companies are established under the Company Act of the country concerned. They are known as registered companies. In our country most of the companies have been established under the provisions of Company Act. The Act contains comprehensive provisions with regard to establishment, management, dissolution, etc.

2. According to Liability

According to liability, the companies may be classified into three categories.

a. Companies Limited by Shares : In general, the liability of a company is limited by shares. The capital of a company is divided into shares. Any person can be member of the company by purchasing its shares. The shareholders pay share money at one time or by installment up to the face value of the shares. He is not responsible beyond the face value of the shares, whatever be the liabilities of the company. This type of companies, are most common in actual practice.

b. Companies Limited by Guarantee : Non-profit earning companies are mostly registered with guarantee capital. These companies are formed by giving the written guarantee that members will pay up to a certain fixed amount in the event of the liquidation of the company. This guarantee amount is specified in Memorandum of Association. They may or may not have any share capital. The liability of its members in case of need extends to be unpaid value of the shares held by them plus the amount guaranteed by them. It implies that their liability exceeds the face value of the shares. Such companies are not found in the field of business.

c. Unlimited Companies : The companies registered without limiting the liability of shareholders to the value of shares are called unlimited companies. The liability of the shareholders remains unlimited as in partnership. Such companies are not usually found.

3. According to Number of Members

According to the number of members, companies may be classified into two categories.

a. Private Company : A private company can be formed with one member but the maximum number of shareholders cannot be exceed fifty. Shares and debentures are sold among its members only. According to Company Act, 2053, a private company is one which (1) restricts the right to transfer its shares, (2) limits the member of shareholders to fifty only, and (3) prohibits any invitation to the public to subscribe for any shares or debentures. A private company must use the words ‘Private Limited’ (Pvt. Ltd.) in its name.
b. Public Company: Clause 2(c) of Company Act, 2053 defines “Public Company” means any company incorporated under this Act. A minimum of seven members is required to constitute and register a public company. There is no restriction on the maximum number of shareholders. The shareholders are free to sell their shares in the market. Public companies must issue a prospectus for inviting people to purchase their shares.

DIFFERENCE BETWEEN SOLE TRADING AND PARTNERSHIP

The difference between Sole trading and partnership are as follows:

Sole Trading Concern :

1. Membership : It is owned and controlled by only one person.

2. Agreement : The question of agreement does not arise.

3. Capital : Only the capital of one person is used in the business. Thus, it may suffer from shortage of capital.

4. Decision : The owners has full control over his business. So he is able to take decision promptly.

5. Secrecy : There is a complete secrecy in the business.

6. Risk : The whole risk is beared by the proprietor.

7. Management : This business is controlled by one person only.

8. Desire for Work : The sole proprietor owns all and risks all. So, he works with interest and dedications.


Partnership Firm

1. Membership : Two or more persons known as partners own partnership.


2. Agreement : An agreement is necessarily required to form partnership.

3. Capital : All the partners contribute towards capital of the firm. So, more capital than sole trading can be collected.

4. Decision : All important decisions are taken by consent of all partners. So, it is time consuming process.

5. Secrecy : The secrets of the business are in the knowledge of all the partners.

6. Risk : All the partners share risk.

7. Management : All partners have equal rights and all of them can participate in the management.

8. Desire for Work : There is less desire for work because a partner may think that other partners will share the benefit of his work too.

CHARACATERSTICS OF JOINT STOCK COMPANY

The important characteristics of Joint Stock Company are discussed below.

(1) Artificial Person : A company is an artificial person created by law. So it has a separate existence of its own. It enjoys almost all the privileges of a natural person doing business. Like ordinary person it has power to set or purchase the property on its own name. It can hold property, incur debts and enter into contracts. It can be sued too. As it has no body, no soul, and conscience, it is regarded s artificial person.

(2) Legal Entity : A company is created by law. It has the separate legal entity apart from its shareholders. It acts independently. So shareholders are not liable for the acts of the company even though they are the owners. Similarly a company cannot be held liable for the acts of the company even though they are the owners. A creditor of the company is not the creditor of its members. Similarly a company cannot be held liable for the action of its members. Thus, a company can file a suit against its shareholders and the shareholders can sue the company.]

(3) Limited Liability : A basic feature of the company is that the liability of its owners is limited to the value of shares they have purchased. As the debts of the company are the debts or a separate legal person, shareholders are not personally liable for the company. In a company limited by shares, the liability of shareholders is limited to the unpaid values of shares held by them.

(4) Transferable Shares : The capital of a company is divided into shares. The shares of the company are freely transferable except in case of private companies. Every shareholder of a public limited company is free to transfer the shares to anybody.

(5) Perpetual Existence : The company has a permanent existence. The death, lunacy or bankruptcy of its member does not affect its existence. Its old shareholders may go by selling their shares and new shareholders may come, but it does not affect the existence of the company. The company can be dissolved only by law.

(6) Common Seal : The company being an artificial person cannot sign any document. Therefore the law requires that every company should have a common seal. The common seal of a company is affixed in all important documents as a token of the company’s approval. It is the official signature of the company.

(7) Share Capital : A company is incorporated with a fixed share capital. It is known as Authorized or Registered capital. The capital is divided into shares of fixed face value. The membership of the company is obtained by purchasing the shares.

(8) Ownership and Management : Shareholders are the owners of the company. The number of shareholders is generally large and widely scattered. They have no right to participate in company management but they have the right to elect ‘Board of Director’. The directors are the agents and trustees of the company. They manage and control the company. Hence, the ownership and management are in two different hands, shareholders and directors. Directors are the legal representatives of the shareholders.

(9) Right to Sue : All the activities of the company are preformed in the name of the company. Company is an artificial person having separate legal entity. Thus, company can sue other in its own name and the others can sue in the name of the company.

JOINT STOCK COMPANY

MEANING OF JOINT STOCK COMPANY

The limitation of sole trading concern and partnership firms of organization gave birth to Joint Stock Company Company. Their two important limitations were limited capital and unlimited liability. Unlimited liability discouraged people to invest more, even if they had the capacity to do so. So, new form of organization was invented with limited liability and the capacity of acquiring huge sum of capital. This form is known as Joint Stock Company. Thus, Joint Stock Company has evolved out of the defects and limitations of sole trading and partnership form of organization. In modern days, it is the most popular form of business organization.

A Company is a voluntary association of persons formed to carry on business in its own name under a common seal with the capital divided into shares. It is recognized by law as an artificial person having perpetual, continuous, and uninterrupted existence. Members of the company are owned by the share of a company gives perpetual succession to it. A Company is owned by the shareholders and managed by the directors, elected by the shareholders of a company. The liability of the shareholders remains limited to the extent of the nominal value of shares purchased by them.

According to Prof. L. H.Haney: " A Joint Stock Company is a voluntary association of individuals for profit, having a capital divided into transferable shares, the ownership of which is the condition of membership”. In other words of Kimball and Kimball: A corporation is by nature an artificial person created or authorized by the legal status for some specific purpose.”

The Nepalese Company Act, 2053(1997) has not given any comprehensive definition and simply mentions that “Company means any company incorporated under this act”. This does not make anything clear. We can define company indicates all the essential features in this way: “Company is an artificial person recognized by law with a distinctive name, a common seal, a common capital comprising transferable shares of fixed value carrying limited liability and having a perpetual succession”.

DISSOLUTION OF PARTNERSHIP FIRM IN NEPAL

Partnership is a contract between some partners. Dissolution means closure of partnership business. According to Partnership Act, partnership will be dissolved under the following conditions.

(1) Dissolution by Agreement : Partnership is created by the agreement. Similarly existing partners can dissolve by another agreement.

(2) Dissolution of Notice : When the partnership business has no fixed time or it is at will, any partner can dissolve the firm the firm by giving a written notice to all partners. Dissolution will be effective as mentioned in the notice.

(3) Dissolution at Any Time : In spite of partnership deed, partnership can be dissolved at any time under the following conditions:

a. If a partner becomes unable to take up his responsibility as per the partnership deed.
b. If a partner did not pay the amount payable to the firm or transfers his share to another person without the consent of remaining partners.
c. If the right of a partner is taken over by a court for compensation.
d. If any partner committed forgery of negligence.
e. If any partner is sentenced to prison.
(4) Dissolution After the Expiry of Time : As per the partnership deed a partnership will be automatically dissolved immediately after the expiry of the fixed period or on the completion of the specified job.

(5) Immediate Dissolution : The death of insolvency of any partner will immediately dissolve the partnership.

(6) Dissolution by Concerned Department : The concerned department can dissolve the firm under the following conditions:

a. If the firm is not renewed within a prescribed time.
b. It the partners apply in the concerned department for dissolution with reasonable causes.
c. If the firm does not provide accounts and progress report within specified period when demanded.
d. If the firm operates unlawful works or violates the rules and regulation of the Act.

If concerned department dissolves partnership firm except in case (b), the partners of the firm cannot register similar type of partnership for one year.

REGISTRATION AND RENEWAL OF PARTNERSHIP FIRM IN NEPAL

Nepal Government has provided "Partnership Act, 2020" to establish and operate partnership in Nepal. The Partnership Act protects and controls the partnership business in Nepal. Registration of a partnership firm is legally compulsory in Nepal. According to the Act, every partnership firm should be registered in the books of concerned department within the six months from the date of its formation. If the partnership is not registered within the prescribed date the work and transactions do not have legality according to Act.

Registration Procedures

Registration of partnership firm in Nepal is compulsory according to Partnership Act. The procedure for the registration of a partnership firm is very simple. It can be registered at any time. According to Partnership Act, it can be registered within the six months from the date of its formation. A procedure for getting a firm registered is as follows :

(1) Filling an Application : For registration the partners have to submit an application with the prescribed fees to the concerned department. The application for registration should contain the following particulars:
1. Full name of Firm.
2. The principal place of business.
3. Statement of work or services to be carried on and objective of the firm.
4. The names in full and permanent address of the partners.
5. Type of partner and amount of capital each partner is to invest.
6. Name of partner representing the firm.
7. Method of sharing profit and loss.
8. Procedure of determining profit and loss.
9. Restriction imposed upon the authority of the partner, if any.
10. Duration of the firm.
11. Other particulars as prescribed by the concerned department.

While submitting the application to the concerned department, it should be duly signed by all the partners. The application form also should be attested by one gazetted Government. The name of the firm should not be similar to the other firms, which had already been registered.

(2) Necessary Documents and Registration Fee : With the application, partnership deed must be enclosed . Attested copy of citizenship certificate of each partner should also be enclosed in the application. Registration fee should be deposited in Nepal Rastra Bank and the voucher of if should also be enclosed. For commercial business a recommended letter from Nepal Chamber of Commerce should also be enclosed in the application.

(3) Certificate of Registration : When the concerned department received the application for registration, authorized officer of the concerned department will examine and scrutinize the particulars of the application and all the documents attached with the application form. If the concerned department is satisfied with the application the firm will be registered. Department will issue the ‘Certificate of Registration’.

Registration Fees

The amount of registration fees depends upon the amount of capital invested in the business. The registration fees according to capital invested are as follows:
a. Capital up to Rs.20, 000 -Rs.50
b. Capital from Rs.20, 001 up to Rs.50, 000 -Rs.100
c. Capital from Rs.50, 001 up to Rs.1, 00, 000 -Rs.250
d. Capital from Rs.1, 00, 001 up to Rs.3, 00, 000 -Rs.850
e. Capital from Rs.3, 00, 001 up to Rs.5, 00, 000 -Rs.1,400
f. Capital from Rs.5, 00, 001 up to Rs.10, 00, 000 -Rs.3, 000
g. Capital from Rs.10, 00, 001 up to Rs.50, 00, 000 -Rs.4, 500
h. Capital more than Rs.50, 00, 001 -Rs.6,800

Renewal of the Partnership

According to the Partnership Act, once a partnership firm is registered, it should be renewed each year within 35 days after the completion of fiscal year. For the renewal of the firm, partners must fill the prescribed form for renewal and submit in the concerned department with the necessary renewal fee. The amount of renewal fees also depends upon the capital invested. The renewal fees are as follows:
a. For the firm with the capital up to Rs.50,000 - Rs.30
b. Capital from Rs.50, 001 up to Rs.1,00,000 -Rs.45
c. Capital from Rs.1,00, 001 up to Rs.3,00,000 -Rs.60
d. Capital from Rs.3,00, 001 up to Rs.5,00,000 -Rs.85
e. For the firm with the capital up to Rs.50,00,001 -Rs.150

Effects of False Statement

The statement mentioned in the application form submitted for registration should be true. If the statement given in the form is false, each partner of the firm is fined up to Rs.100.

Alternation in the Particulars

After the partnership firm is registered, the particulars mentioned in the application form and partnership deed can be changed only after the approval of the concerned department through application which must be signed by all partners. If the changes are not notified timely the concerned department will impose fine up to Rs.100. to the partnership firm.

Effects of Non-Registration of a Firm

a. Unregistered partnership firm cannot file a suit against a third party.
b. A partner of an unregistered partnership firm cannot file a suit against another partner of the same firm.
c. Partner of an unregistered partnership firm cannot use the firm for claims.
d. Unregistered partnership firm cannot file a suit against the partners of that firm.
e. If unregistered partnership firm found operating, the concerned department will impose fine of Rs.50 to each partner.
f. Above all the transactions of an unregistered firm have no legality.

Advantages of Registration

The transactions of a registered partnership firm have legality according to act. Besides, following are the important advantages of registration.

(1) Benefits to the firm : A registered partnership firm can file suits against the third parties. It can also file suits against the partners.
(2) Benefits to the Incoming Partner : An incoming partner can get required information of a registered firm from the concerned department. Thus he can decide properly whether to join the firm as partner or not.
(3) Benefits to Retiring Partner : A retired partner is exempted from liabilities of the firm incurred after his retirement.
(4) Benefits to Partners : A partner can file suits against the partnership firm as well as against the co-partners.
(5) Benefits to Third Partners : Third partners can get correct information of a registered partnership firm from the concerned department. Hence, they are protected against misrepresentation and fraud done by the members of the firm.

RELATION OF PARTNERS WITH THE THIRD PARTIES

According to Partnership Act the relationship of partners with the third parties are as follows:

(1) Right to Represent : Each partner can represent the firm as per partnership deed and the firm is liable to the acts of such partner. If a partner committed forgery then the other partner can deprive his right through the authorized court.

(2) Firm will liable : The right of a partner can be restricted by partnership deed. If third party has no knowledge about the restriction then the firm will be liable to the acts of each partner.

(3) Responsibility : Each partner is responsible jointly or personally for acts done on behalf of firm while he is a partner.

(4) New Partner is not Responsible : A new partner is not responsible for the acts done before his entry as partner. The outgoing partner will be free with the consent of concerned third party and remaining partners. The outgoing partner will not held liable for the acts done by other partners if third party had knowledge about his departure from partnership.

(5) Transfer of Ownership : If a partner has transferred or mortgaged his ownership even then he can claim his share of profit such person will not be a partner and he can not inspect the accounts of the firm without the consent of all partners.

INTER-RELATION S OF PARTNERS

In the partnership firm, an inter-relation of partners means the mutual relationship among the partners. Such mutual relationship among the partners is related with the rights and liabilities. According to Partnership Act, 2020, the rights and liabilities of partnership is maintained through partnership deed prepared among the partners. If there is written partnership deed inter-relations of partners will be in accordance to it, otherwise following clauses from 13 to 26 of Partnership Act will prevail.

(1) Assets of Partnership : The total assets of partnership will be as follows:
a. All assets collected during the operation of the partnership transactions.
b. The assets received for the utilization of partnership.
c. The wealth earned through partnership.
d. The goodwill earned by partnership firm


(2) Use of Partnership Asset : The partnership property should not be used for other purposes by the partners except for the partnership use.

(3) Additional Capital not Compelled : Although other partners demand for more capital, a partner will not be compelled to invest additional capital mentioned in the partnership deed.

(4) No Right to Keep Substitute : No partner has right to make or keep his substitute without the consent of all partners.

(5) Right to Participate in the Business : All partners, except restricted by partnership deed can participate in the management of partnership business. But without the consent of all partners, unrelated work should not be performed in the name of partnership.

In such a situation, where any or all functions of all business should be carried on by two or more than two partners jointly as per the partnership deed. In case any partner becomes unable to carry on such function then he can authorize any partner with reasonable cause.

(6) Right to Inspect and Copy Accounts : Each partner can inspect books of accounts. In case a partner requests for a copy of account, then the authorized partner should provide a copy duly signed by him.

(7) Remuneration an Internet : Each partner can get remuneration for his work in partnership as mentioned in the partnership deed. In case he has invested excess capital then he can get interest not more than 10 percent as per the deed. However, if a partner makes a loss due to his negligence he should pay the loss.

(8) Profit Earned by a Partner is the Profit of the firm : If any partner earns from the partnership business or by using firm’s property or in name of firm, then he should submit such profit and accounts to the firm.

(9) Amount Received from Partner must be shown : All the expense paid to partners and all incomes received from partners must be clearly shown in the profit and loss account of the fiscal year.

(10) Distribution of Profit and Loss : Profit and loss of partnership will be distributed as per partnership deed, in absence of it they will be distributed equally. If interest is to be paid to the capital of the partners as per partnership deed, such interest should be paid only by the profit.

(11) No Right to Get Profit : If a partner has not fully paid his capital payable to the firm, he cannot get his share of profit unless he pays fully.

RIGHTS AND DUTIES OF PARTNERS

If there is written partnership deed rights and duties of partners will be in accordance to it. In the absence of partnership deed, mutual rights and duties of partners are governed by partnership act. According to partnership act, the rights and duties of partners are as follows:
Rights of Partners
(1) Right to Take Part in Management : Every partner has the right to take active part in the management and operation of the business of the firm.
(2) Right to Express Opinion : Every partner has right to express his views and give advice to other partners for the benefits of business. These opinion and advises may be accepted or rejected by the other partners. However, no major business decisions can be taken without the unanimous will of all the partners.
(3) Right to Inspect and Take Copies of Accounts ; Every partner has right to inspect the books of accounts of the firm. They can also obtain copies of account.
(4) Right to Share Profit ; Every partner right to share the profit of business. They can share the profit equally or in the agreed ratio.
(5) Right to have Interest : Partners cannot demand any interest on their capital investment. But they have right to get up to 10% interest on loans and advances made by them to the partnership firm.
(6) Right to be Indemnified ; Every partner is entitled to get compensation from the partnership firm is respect of liabilities incurred and payment made by him. He should also be compensated for the losses caused by other partners.
(7) Right to Property ; Every partner has right to use the property of the partnership firm for the benefit of the firm. They should not use the business property for their personal purposes.
(8) Right to Leave the Firm ; Every partner has right to leave the firm with the consent of other partners.
(9) Right to Ownership : Every partner has right on the property of the firm. Thus, property of the firm cannot be sold by one partner without the consent of other partners.
(10) Right to Dissolve : A partner has the right to dissolve the partnership with the consent of all partners. Even, if other partners refuse then also he can dissolve the partnership by informing other partners.
Duties of Partners
(1) To share Losses : In case of loss, it is the duty if every partner to bear the loss equally or in the profit sharing ratio.
(2) To Work Faithfully : Partnership is based on mutual trust and confidence of the partners. It is the duty of every partner to be honest and loyal to other partners as well as to the firm.
(3) To Compensate : It is the duty of every partner to compensate the losses or damage to the firm or to others due to his negligence or deliberate misconduct.
(4) To Work Without Remuneration ; Partnership is operated either by all partners or by any of them acting for all. It is the duty of every partner to work in the firm without charging and expecting remuneration. However, the partner can demand remuneration if it is mentioned in the agreement.
(5) To Act Within Authority : It is the duty of every partner to act within the scope of the authority entrusted to him.
(6) To Maintain Current Account : It is the duty of every partner to maintain proper and correct books of accounts, so that they may give true and fair view of the business.
(7) Not to Run Competitive Business : A partner should not make any secret profit by way of commission from the partnership business. Similarly, the property of the firm including goodwill should not be used for personal purposes.

MEANING AND CONTENTS OF PARTNERSHIP DEED

Partnership firm can be established with an agreement between the partners. This agreement may be written or oral. An oral agreement may be the cause of dispute in future. So, it is better to have a written agreement in order to avoid future conflicts. The written agreement duly signed by the partners is known as partnership deed or agreement or Articles of Partnership. It is the written contract between partners. It contains the term and conditions of the partnership.

Partnership deed forms the basis of partnership. Partnership deed is a document containing all the matters according to which mutual rights, duties and liabilities of the partners in the conduct and management of the affairs of the firm are determined. Hence, it contains the terms and conditions of the partnership. It is helpful in preventing and resolving disputes among the partners. A partnership deed can be altered at any time with the consent of all the partners.

The past experiences of partnership firms show that there are disputes among partners over many things and these results in the closure of the firm. If the areas of dispute or conflict are spotted earlier and a clear understanding is reached, then the business can run smoothly. So, partnership deed or agreement is a document which is prepared to explain important points so that the chances of conflict are minimized. Even if there is a dispute it helps in easier settlement. So, written deed should be preferred.

Main Content of Partnership Deed

Some of the important clauses to be included in a partnership deed are as follows:

(1) Name of the firm and Its Address : The deed should contain of the firm and place of its business.

(2) Name and Address of Partners : The deed should also contains the names and address of all partners.

(3) Nature of Firm’s Business : The nature of business proposed to be carried and its limitation should be included in it.

(4) Duration of Partnership : It the partnership is established for a fixed duration or for a fixed work, it should be stated in it.

(5) Partners’ Capitals : The deed should contain the total amount of capital and contributions by each partner.

(6) Interest on Capital : If the partners decide to change interest on their capitals, the rate should be mentioned in the deed.

(7) Drawing and Interest on Them : The deed should contain the limit of drawings by every partner and the rate of interest to be charged.

(8) Division of Profit : Profit and loss sharing ratio should be stated in the deed. If it is not mentioned partners are authorized to share equally according to Partnership Act.

(9) Partners’ Salary and Commission : If the partners decide to pay salary and commission to the partners, the deed should contain the amount of salary or commission payable to any partner for the services rendered to the business.

(10) Rights and Duties of Partners : If any partner has some special rights and duties regarding to conducts of business or if the liability of any partner is limited to the capital invested by him, these facts should also be mentioned in it.

(11) Admission and Retirement of Partners ; After the establishment of partnership some new partners may be admitted and some may retire from the business. If any definite procedure is to be adopted at the time of admission or retirement of partner, it should be stated in it.

(12) Death of a Partner : The procedure of calculating the amount due to a deceased partner and the method of its payment to his successors, should also be decided and stated in the deed.

(13) Valuation of Goodwill ; The method of valuation of goodwill at the time of admission, retirement or death of a partner should be also be clearly stated in it.

(14) Revaluation of Assets and Liabilities ; The method of revaluation of assets and liabilities on admission, retirement or death of a partner should also be clearly stated in it.

(15) Accounts and Audit : The procedure of keeping accounts and their audit should also be stated in it.

(16) Dissolution of Partnership ; The deed should contain the firm and the method of the final settlement of accounts.

(17) Arbitration Clause ; In case of disputes the method of appointing arbitrators and their rights should be clearly mentioned.

TYPES OR KINDS OF PARTNERS

There are different types of partners in the different types of partners in the partnership firm and they may be classified as under:

(1) General, Active or Working Partner : The partner who provides capital and takes active part in the conduct of business is known as general or active partner. He is also known as working partner who gives special assistance to the firm. He may or may not be renewed by him. It depends upon the agreement between the partners.

(2) Inactive, Dormant or Sleeping Partner : The partner who provides capital to the business and shares in the profit or loss of the firm but does not participate in the management is known as inactive, dormant or sleeping partner.

(3) Nominal Partner : A nominal partner is one who lend his name to the firm as a partner. Such partner does not invest any capital nor he participates in management. However, his liability towards third parties is just like the other general partners.

(4) Partner in Profit Only : A person may become a partner for sharing profits only but he does not get a share in its loss. He provides capital and is also liable to third parties like other partners. Such a partner is generally inactive but associated for his money and goodwill.

(5) Limited Partner : A limited partner is a partner whose liability is limited to his invested capital only. Such partner cannot take part in the management of the business but he can inspect the accounts and receive profit from the business. Moreover, a partnership cannot be established only with limited partners.

(6) Secret Partner : Some people become partner but his membership is kept secret from outsiders. Such partner is known as secret partner. His liability is unlimited and liable for the losses of the business. He can take part in the working of business.

(7) Partner by Disposal or Holding Out : When a person is not a partner but poses himself as a partner either by words or in writing or by his acts, he is called a partner by disposal or holding out. He shall be liable to an outsider who deals with the firm on the presumption of that person being a partner in the business though is not a partner and does not contribute anything to the business.

(8) Minor Partner : A minor cannot enter into a contract according to the act. So a minor cannot be made partner in the real sense of the term. However, a minor may be taken as a partner with the consent of all partners. He is like a limited partner. His personal property is not liable to pay the debts of the firm. However, he can share in partnership property and profits of the firm. He cannot take active part in the management of the firm.

(9) Retired or Outgoing Partner : A partner is known as retired or outgoing partner when he leaves the firm but other partners continue to carry on the business. He is liable for all the debts of the firm, which were incurred before his retirement. He may continue to be liable if proper notice of his retirement is not given to the creditors.

(10) Incoming Partner : A person who joins an existing firm with the consent of all the existing partners is known as new or incoming partner. He is not held liable for the debts and obligations of the firm incurred before his joining the firm. However, he may be held liable for such debts only when he agrees to it and the creditors are informed accordingly. Incoming partner has not only to contribute to the capital of the firm but also to pay some goodwill to the existing partners.

(11) Quasi Partner : A quasi partner is one who is no longer a partner of business but has left his capital in the business as loan. He receives interest on such as loan is not paid off.

TYPES OF PARTNERSHIP

Partnerships may be divided into two kinds:
(1) General partnership, and
(2) Limited partnerships.

(1) General Partnership : The liability of partners is unlimited in general partnership. All the partners personally and collectively are liable for the obligations of the firm. All partners have equal rights and all of them can participate in management. General partnership are of the following kinds:
(a) Partnership at Will : This type of partnership continues up to the time partners have faith in each other. It is dissolved when all partners wants dissolution or any of the partners given notice for dissolution of the firm. The duration of the firm is not fixed beforehand.

(b) Particular Partnership : If a partnership is established for a definite work or a definite period, it is known as a particular partnership. It is of two kinds: (1) Fixed Work Partnership – This type of partnership is started to complete a fixed work. After the completion of work the partnership dissolves. (2) Fixed Term Partnership – This type of partnership is established for definite period. The partnership dissolves with the termination of period.


(2) Limited Partnership : If in a partnership, the liability of one or more partners is limited to the amount of capital invested by them, it is known as limited partnership. In such a firm at least one partner must have unlimited liability. So in limited partnership the liability of some partners is limited while liability of some partners is unlimited. The partners with limited liability are called special partners and they cannot participate in management. They can make suggestions only.

DIFFERENCE BETWEEN SOLE TRADING AND PARTNERSHIP

The difference between Sole trading and partnership are as follows:

Sole Trading Concern ;

1. Membership : It is owned and controlled by only one person.

2. Agreement : The question of agreement does not arise.

3. Capital : Only the capital of one person is used in the business. Thus, it may suffer from shortage of capital.

4. Decision : The owners has full control over his business. So he is able to take decision promptly.

5. Secrecy : There is a complete secrecy in the business.

6. Risk : The whole risk is beared by the proprietor.

7. Management : This business is controlled by one person only.

8. Desire for Work : The sole proprietor owns all and risks all. So, he works with interest and dedications.


Partnership Firm :

1. Membership : Two or more persons known as partners own partnership.


2. Agreement : An agreement is necessarily required to form partnership.

3. Capital : All the partners contribute towards capital of the firm. So, more capital than sole trading can be collected.

4. Decision : All important decisions are taken by consent of all partners. So, it is time consuming process.

5. Secrecy : The secrets of the business are in the knowledge of all the partners.

6. Risk : All the partners share risk.

7. Management : All partners have equal rights and all of them can participate in the management.

8. Desire for Work : There is less desire for work because a partner may think that other partners will share the benefit of his work too.

DISADVANTAGE OF PARTNERSHIP FIRM

The disadvantages of partnership firm are as given below:
(1) Uncertain Existence : The partnership firm suffers from the uncertain existence because it can be dissolved at the time of death of insolvency of partner. Thus, the life, of the firm is dependent on the life of the partners. In the same way a business may terminate due to dishonesty of a partner or conflict among partners.

(2) Unlimited Liability : The liability of partners is unlimited. The partners are jointly and separately liable for the debts of the firm. So they try to avoid risks and restrict the expansion and growth of the business.

(3) Difficulty in Prompt Decisions : All important decisions are taken by the consent of all partners. So decisions making process becomes time consuming and loss of business opportunities due to delay in decision making. Usually in business, the spontaneous decisions can only enable the firm to enjoy higher profits, which is not possible in partnership.

(4) Danger of Disputes : Many persons are owners of a partnership firm. Every partner wants to show his importance. Misunderstanding and jealous tendencies are the common weaknesses of the human beings. So there is always a danger dispute among them which may lead business to an end.

(5) Difficulty on Transfer of Shares : A partner cannot transfer his or leave the firm shares without the consent of all other partners. The consent of all other partners is compulsory. So people do not want to invest money in a partnership business.

(6) Risk of Implied Authority ; A dishonest or incompetent partner may lead the firm in difficulties. The other partners will have to meet the obligations incurred by the partner. The provision of implied authority may create problems for the business.

(7) Lack of Public Confidence : The public does not have much confidence in a partnership business. This is because affairs of a partnership business are not open to public scrutiny. Its accounts are not required to be published. There is no much governmental control over the operations of a partnership.

(8) Limited Resources : Modern business needs large amount of capital. But in partnership the resources are limited to the personal funds of the partners. Borrowing capacity of partners is also limited. Even though the capital is more in partnership than in case of sole trading, but still is not sufficient for the smooth conduct and operation of large-scale business.

ADVANTAGE OF PARTNERSHIP FIRM

Partnership firm is an association of persons who have agreed to carry on business with a view to make profit. The advantages of partnership firm are given below:

(1) Easy to form and Dissolve : A simple agreement among partners is sufficient to register a partnership. No other formal documents and legal formalities are required. It is equally easy and inexpensive to dissolve a partnership.

(2) More Resources : Partnership is a combination of several persons. So more capitals can be collected and advantages of large scale business may be obtained. More partners can be added if capital needs are large.


(3) Harmonization of Different Abilities : In partnership firm, there is a harmonization of different abilities of different partners. The talent, expertise and knowledge of partners in different fields can be used for the welfare of the business. So, there is more chance for the advancement of business.

(4) Credit Facility : The ability of partners being unlimited they will be able to borrow more capital. As compared to sole trading concern, partnership has more credit worthiness. More securities can be provided by a partnership firm to the finance institutions and other creditors.


(5) Appropriate Decisions : In partners decisions are taken by consensus of all partners. So they take appropriate decisions and there is less chance of incorrectness. Fear of unlimited liability encourages caution and care, thus, puts a brake on hasty and reckless decisions.

(6) More Inspiration : There is more inspiration to work because partners think that the result of their hard work will be rewarded in the form of more profits to them.

(7) Close Supervision : The partners themselves look after the business, so they avoid wastage. They have direct access to employees and can encourage them for more production.

(8) Secrecy : The business affairs and accounts of the partnership do not require publicity by law as in companies. So, partners can keep business secrets within themselves.

(9) Flexible : In partnership firm, there can be any change in managerial set-up, capital, and scale of production. These changes can be made by the mutual agreement between partners. Thus, it enjoys flexibility.

(10) Protection of Minority Interests : Every partner has a right to participate in the management of the business. All important decisions are taken by the consent of all partners. In event of disagreement minority may even Veto a resolution. Hence, it protects the interest of minor partners.

(11) Reduced Risk : The losses incurred by the firm will be shared by all partners. So loss of each partner will be less in comparison to sole trading concern.

B. CHARACTERISTICS OF PATNERSHIP FIRM

The discussion of various definitions of partnership leads to the following characteristics :

(1) Association of Two or More Persons : Partnership is the outcome of a contract, so there must be two or more persons to enter into a contract. An association of two or more persons to enter into a contract. An association of two of more persons will become a partnership only when it is meant to do some business. If the purpose is social service it will not be a partnership. In partnership act, the maximum number of partners is not mentioned.

(2) Agreement : The partnership is set up by an agreement between partners. In the absence of agreement partnership cannot be established. There must be a written agreement which helps to settle the disputes if they occur later.

(3) Principal-Agent Relationship : The business must be carried on by all or one or more acting on behalf of all partners. So every partner is an agent of the firm as well as of the other members. Whether participating in management or not, every partners will be liable for action of each of the other partners in the ordinary course of business. Thus, every partner has a double role—as and agent and principal, at the same time.

(4) Sharing Profit and Loss : The purpose of partnership should be to earn profits and there must be an agreement to share profit and loss. Profit and loss sharing ratio depends on the mutual contract among partners. But if a work is done for charity purposes, it cannot be called partnership.

(5) Unlimited Liability : In partnership, partners have joint and several unlimited liability. So in the first instance, they have to share the loss jointly in profit sharing ratio. But if any or more partners are unable to contribute to their shares of deficiency, the remaining partners have to pay for their shares also.

(6) No Free Transfer of Share : A partner is not permitted to sell or transfer his share to an outsider without the consent of all partners. Partnership share is not a freely transferable asset.

(7) No Legal Status : The partners and the firm are not legally separate. Partnership is purely personal organization it has no separate legal personality.

(8) Registration : The registration of partnership is compulsory unless the firm is registered, it cannot be partnership.

(9) Stability : A partnership is established on the basis of the mutual contract among partners. So, the stability of a partnership is dependent on its contract. If a partner retires or dies, the contract is terminated.

PARTNERSHIP FIRM

A. MEANING OF PARTNERSHIP FIRM

Sole trading concern has limited capital, limited managerial skill, and cannot carry on business on a large scale. So persons generally combine to have enough resources and skill for doing business on a bigger scale. When two of more persons agree to carry on business for their mutual advantage such a business is termed as ' Partnership'. A partnership firm consists of two or more persons who have joined capital and or service to carry on a lawful business with a view to gain profit.

According to Dr.J.A.Shubin :" Two or more individuals may form a partnership by making a written or oral agreement that they will jointly assume full responsibility for the conduct of a business". In other words of Prof. Haney : "Partnership is the relation between persons competent to make contract who agree to carry on a lawful business in common with a view of private gain".

In Nepal formation and management of partnership is governed by the provisions of “Partnership Act, 2020”. Clause 3 of Partnership Act defines partnership as : “Partnership means any business registered in the books of Nepal Government where some persons keeping one name sharing the profit with the agreement to participate all partners for each partner or a partner for all partners in the business”.

In conclusion, we can define partnership firm as an associate of persons who have come together with a view to carryon business in common with a view to make profit. This relation of partnership exists out of contract. Persons who have entered into this relationship or partnership are individually known as ‘partners’ and collectively as ‘firm’. The business is carried on in a particular name called the ‘firm’s name’.

The above definitions clearly bring out the following essential elements, which constitute a partnership firm as a form of business organization:
1. There must be at least two or more persons to form partnership.
2. They carry business with one specific name.
3. There must be agreement between persons desirous of forming partnership.
4. Profit or loss is shared according to the agreement.
5. The business must be managed by all or one or more of them acting for all.
6. The partnership firm should be registered in the books of Nepal Government.

E. REGISTRATION AND RENEWAL OF SOLE TRADING CONCERN IN NEPAL

In Nepal, any person desiring to conduct Sole Trading Concern should be registered under "Private firm Registration Act, 2014". According to the Act, "Private firm means any firm or company concluded by one person privately or any name doing business in industry; business of export imports trade". Hence, the act incorporates all one person's private firm, which conducts industry or business.

According to the “Private Firm Registration Act, 2014” , clause 3, “After the commencement of this Act, no one can operate private firm without registering under this act”. Hence in Nepal, registration of Sole Trading Concern is compulsory. It is illegal to conduct any business without registration. If sole trading is related to commerce, then it should be registered in Department of Commerce and if it is related to industry, then it should be registered in Department of Industry of the Government.

Procedure of Registration

In Nepal “Sole Trading Concern” is registered under the “Private Firm Registration Act, 2014”. At present following procedure is applied for registration:

(1) To Apply an Application : The person wishing to register private firm should apply in the prescribed form in the concerned department. The application form contains the following particulars:
a. Name of the private firm
b. Address of the private firm
c. Objectives of the firm and object of transactions and statement of work
d. Name and address of the owner including the names of his father and grandfather
e. Other particular as prescribed by Government.

The application form should be attested by one gazetted Government officer. An application fee of Rs.5, attested citizenship, and registration fees must accompany the application.

(2) To Deposit Registration Fees : Registration fee must be deposited in Nepal Rastra Bank and the voucher of it should be enclosed in the application. The amount of registration fees depends upon the amount of capital invested in the business. The registration fees will be in accordance with the notice published by the Government on Nepal Gazette. The registration fees according to capital invested are as follows:

a. Capital up to Rs.20,000 -Rs.60
b. Capital from Rs.20,001up to Rs.50,000 -Rs.120
c. Capital from Rs.50,001up to Rs.1,00,000 -Rs.300
d. Capital from Rs.1,00,001up to Rs.3,00,000 -Rs.1,170
e. Capital from Rs.3,00,001up to Rs.5,00,000 -Rs.1,950
f. Capital from Rs.5,00,001up to Rs.10,00,000 -Rs.3,950
g. Capital from Rs.10,00,001up to Rs.50,00,000 -Rs.850
h. Capital more than Rs.50,00,001 -Rs.7,850



(3) To Receive the Certificate of Registration : When the concerned department receives the application for registration authorized officer of the concerned department will examine and scrutinize the particulars of the application. If the concerned department is satisfied with the application, the firm will be registered. Then the Department will issue the “Certificate of Registration”. This certificate is the evidence if legal reorganization.

Procedure of Renewal

All the registered firms should be renewal each year. For renewal application for renewal with renewal fee should be submitted to the concerned department. A renewal fee of the private firm is charged according to capital. The current rates of renewal fees are as follows:
a. Capital up to Rs.50,000 - Rs.35
b. Capital from Rs.50,001 up to Rs.1,00,000 - Rs.50
c. Capital from Rs.1,00,001 up to Rs.3,00,000 - Rs.70
d. Capital from Rs.3,00,001 up to Rs.5,00,000 - Rs.100
e. Capital more than Rs.5,00,001 - Rs.160

The renewal of private firm must be done within 35 days of new fiscal year. If the firm is not renewed within the prescribed time a fine of Rs.35 will be charged up to the last date of Aswin and after that fine of Rs.150 will be charged. If the firm is not renewed Government can prohibit the export-import transactions and bank account of that firm through notice.

Effect of Non-Registration

In case private firm is operated without registration then concerned department will charge a fine of Rs.5 up to Rs.50. If the same crime is committed up to 3 times the additional fine of Rs.10 will be imposed each time in the original fine. If he does fourth time, he can never register private firm under his name. Similarly the concerned department can fine private firm from Rs.25 to Rs.50 if the firm fails to notify the changed that take place within the prescribed time which are required by act or if false statement is submitted. If the firm is not registered of renewed according to Act, Government can prohibit the export import transactions and bank account of that firm through notice.

Disadvantage of Sole Trading Concern

The disadvantage of sole trading concern are as follows :

(1) Limited Capital : The capital of one proprietor is usually small. It is limited to his personal savings and borrowing on personal security. Hence, he cannot undertake further expansion and development lack of excess capital and fails to enjoy the internal and external economics of scale.

(2) Limited Management Ability : In the present competitive world complexities of managerial jobs are increasing everyday. One man cannot be expert in each and every function of the business. For lack of resources he may not be able to use the services of experts. So limited managerial ability will hinder the growth of the firm.

(3) Unlimited Liability : The unlimited liability of sole proprietorship is a great disadvantage. A loss in business may deprive the proprietor of his assets too. So big business firms requiring more economic risk are not established under this organization.

(4) Uncertain Life : The success of this type of business depends on the personal capacity of proprietor. In case of his death business may be discontinued. The successors may not have the same degree of self-reliance and ability. Thus, there is no continuous existence of the firm.

(5) Dull and Monotonous Work : The proprietor has the sole right on profit of the business. So he tries to work more to earn more profit. Consequently the work becomes dull and monotonous. His health is badly affected and he is deprived of pleasant social relations and cordial family life.

(6) No Large Economics and Specialization : A small scale business cannot economies in purchases, production and marketing. Similarly the benefit of specialization of service of experts cannot be obtained.

(7) Loss in Absence : A sole trading has to suffer from the long illness of the proprietor. In his absence business comes to a standstill. This can lead to heavy losses. Employees may not be efficient or they may not take sincere interest.

(8) Possibility of Wrong Decision : In sole trading a businessman alone makes all the decisions. Hence, decisions may not be always right and wise. When a considerable number of people are involved in decision making process a wise and mature decision is possible.

Advantages of Sole Trading Concern

The advantages of Sole trading concern are as follows:

(1) Easy of Establish : Sole trading concern can be established very quickly and easily. Anybody who wants to start a business can do so, whenever, he likes. In Nepal, only nominal legal formality of registration is necessary.

(2) Easy to Dissolve : Dissolution of sole trading concern equally simple. There are no legal formalities in this regard. Proprietor can dissolve business whenever he likes to do so.

(3) Effective Control : In this form of business organization proprietor is responsible for all types of activities. He controls all functions and takes decisions at appropriate time. So, the business is controlled in an effective way. He controls all functions and takes decisions at appropriate time. So, the business is controlled in an effective way.

(4) Direct Motivation : The direct relationship between effort and reward serves as a powerful incentive to the proprietor to manage the concern efficiently. The proprietor being entitled to the entire profits of the concern tries to maximize profits by utilizing his talents and activities in the best possible way.

(5) Personal Supervision : The proprietor is able to supervise every work of the business himself. This helps to build up a close and cordial relationship with the employees. He can take personal interest in his customers and he can meet their individual and typical needs easily and adequately. It ensures effectively and economy in the operation.

(6) Benefit of Unlimited Liability : The proprietor can obtain loan on his personal credit. The liability being unlimited, the creditors feel secure in extending credit.

(7) Prompt Decision : The owner has full control over his business. So he is able to take decision promptly without consulting anybody. If more than one person is involved in decision making then delay is bound to occur.

(8) Secrecy : The proprietor can maintain business secrets. There is no legal regulation regarding the disclosure of business information. So he can maintain secrecy from his competitors. Secrecy is very vital for business success.

(9) Flexible : Sole trader enjoys the maximum flexibility in his business. If any change in business is required, he does no have to consult any one and can make the change without delay. No legal formalities are required for making changes in operations. This gives flexibility to this type of business.

(10) Social Importance : From social viewpoint sole trading concern is important because: (a) It is a means for earning livelihood independently. (b) It avoids concentrating wealth in few hands. (c) It brings competition among sole proprietors, so they provide goods in cheaper rates to the society. (d) Qualities like self-reliance, self-confidence, tact and initiative are developed in this organization.