Sunday, April 25, 2010

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.

Wednesday, April 21, 2010

ADVANTAGES AND DISADVANTAGES OF JOINT STOCK COMPANY

geneva tower
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

practices
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.

Tuesday, April 20, 2010

TYPES OF JOINT STOCK COMPANY

comapany
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.




Thursday, April 15, 2010

DIFFERENCE BETWEEN SOLE TRADING AND PARTNERSHIP

open joint stock company
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

Sanan-technology
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.

Wednesday, April 7, 2010

JOINT STOCK 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

logo
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.

Saturday, April 3, 2010

RELATION OF PARTNERS WITH THE THIRD PARTIES

business
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

business plan
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.







Friday, April 2, 2010

RIGHTS AND DUTIES OF PARTNERS

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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.