PARTNERSHIP

The partnership doesn't create a separate legal unit; a partnership is just a grouping of individual. Partnership is thus an extension of sole proprietorship.

FEATURES OF PARTNERSHIP FIRMS

1. Two or more persons: There must be at least two persons to form a partnership. The maximum number of persons in a partnership should not exceed 10 in case of banking business and 20 in other types of business. A firm cannot become a partner of another firm though its partners can join any other firm as partners.

2. Agreement: Partnership is the outcome of an agreement between persons. The relation of partnership arises from the formation of a contract.

3. Lawful business: A partnership can be formed only for the purpose of carrying on a business.

4. Sharing of profits: The agreement between the partners must be to share the profits of business.

5. Mutual agency: Partnership business can be carried on by all the partners or by any of them acting on behalf of the others.

6. Utmost good faith: The relations between partners are based upon mutual trust and confidence.

7. Unlimited liability: Every partner is jointly and severally liable to an unlimited extend for the debts of the partnership firm.

8. Restriction on transfer of interest: No partner can transfer his share in the partnership without the prior consent of all other partners.

9. Joint ownership and control: A partnership is owned and controlled jointly by all the partners.

10. Separate entity: A partnership firm has no legal entity separate from the partners.

FORMATION OF PARTNERSHIP FIRM- PARTNERSHIP DEED

A partnership can be formed by two or more persons. Even the registration of partnership is not compulsory. This relationship is based upon mutual trust and good faith. The agreement between the partners is to carry on a lawful business and to share the profits therefrom. In order to avoid disputes, the agreement should be in writing, Though the law does not require the agreement to be in writing. In the absence of such an agreement the rights and duties of partners are determined by the partnership Act 1932.

PARTNERSHIP DEED

It is a document containing the terms and conditions of a partnership. It defines the rights, duties and obligations of partners and governs relations among them in the conduct of business affairs of the firm. It is not a public document. A written agreement is helpful in preventing and resolving disputes among the partners.

A partnership deed usually contains the following clauses:

1. Name of the Firm.

2. Nature of the firm's business

3. The principal place of business

4. Duration of partnership, if any

5. Names and addresses of partners.

REGISTRATION OF PARTNERSHIP

Registration of a partnership firm is not compulsory under law. The Partnership Act 1932 provides that if the partners so desire they may register the firm with the registrar of firms of the state in which the main office of the firm is situated. A firm may be registered at the time of its formation or at any time thereafter.

PROCEDURE FOR REGISTRATION

In order to get a partnership firm registered an application in the prescribed form must be filed with the Registrar of firms. The application should contain the following information:

1. The name of the firm

2. The principle place of business of the firm

3. Names of other places where the firm's business is carried on

4. The date on which each partner joined the firm.

5. Duration of partnership, if any.

TYPES OF PARTNERSHIP

There are four kinds of partnership:

1. General Partnership : In a general partnership, the liability of each partner is unlimited. In India all partnership firms are general partnerships. Each partner of a general partnership is entitled to take active part in the management of the firm, unless otherwise decided by the other partners.

2. Limited Liability Partnership (LLP) : Limited partnership is not allowed in India under the Limited Liability Partnership Act, 2008. The chief characteristics of a limited liability partnership are as follows:

1. A limited liability partnership must be registered under the Act with a minimum of two partners. There is no limit on the maximum number of partners.

2. An LLP is a body corporate having a separate legal entity and perpetual succession.

3. In an LLP the liability of partners is limited to their agreed contributions to the LLP. No partner is liable on account of any unauthorised or independent actions of other partners.

4. An LLP must maintain annual accounts reflecting the true and fair view of its state and affairs.

ADVANTAGES

1. An LLP is a separate legal entity independent of the partners. It is capable of owing and holding property in its own name.

2. It is much more stable than a general partnership because it is not dissolved by the retirement, insolvency, death, etc. of a partner. It enjoys perpetual existence.

3. The Liability of partners in LLP is limited, they have not to take unlimited risk.

4. A body corporate can be a partner in LLP.

5. A partner is not liable for unauthorised acts of other partners.

DISADVANTAGES

1. It cannot raise capital from the public.

2. There is less secrecy of business affairs as it has to fulfil legal requirements.

3. There is less flexibility of operations due to some legal formalities.

3. PARTNERSHIP AT WILL : It is a partnership formed for an indefinite period. The time period or the purpose of the firm is not mentioned at the time of its formation. It can continue for any length of time depending upon the will of the partners. It can be dissolved by any partner by giving a notice to the other partners of his desire to quit the firm.

4. Particular partnership : It is a partnership formed for a specific time period or to achieve a specified objective. It is automatically dissolved on the expiry of the specified period or on the completion of the specific purpose for which it was formed.

TYPES OF PARTNERS

1. Active or working partner : Such a partner contributes capital and also takes active part in the management of the firm.

2. Sleeping or dormant partner : A sleeping or silent partner simply contributes capital. He does not take active part in the management of the firm. He shares in the profits or losses of the firm. His liability for the firm's debts is unlimited. He is not known to the outside world.

3. Secret partner : This type of partner contributes capital and takes active part in the management of the firm's business. He shares in the profits and losses of firm and his liability is unlimited. However, his connection with the firm is not known to the outside world.

4. Limited partner : The liability of such a partner is limited to the extend of his share in the capital and profits of the firm. He is not entitled to take active part in the management of the firm's business.

5. Partners in the profits only : He shares in the profits of the firm but not in the losses. But his liability for the firm's debts is unlimited. Such a partner is associated for his money and goodwill.

6. Nominal or ostensible or quasi partner : Such a partner neither contributes capital nor takes part in the management in the business. He does not share in the profits or losses of the firm. A nominal partner can be of two types :

(a) Partner by estoppel : A person who by his words or conduct represents himself as a partner becomes liable to those who advance money to the firm on the basis of representation.

(b) Partner by holding out : When a person is declared as a partner and he does not deny this even after becoming aware of it, he becomes liable to third parties who lent money or credit to the firm on the basis of such a declaration.

7. Minor as a partner : A  minor is a person who has not completed 18 years of age. A minor cannot become a partner because he is not qualified to enter into a contract.

8. Sub partner : He is a third person with whom a partner agrees to share his profits desired from the firm. He does not take part in the management of the firm. He is not liable for the firm's debts.

RIGHTS AND OBLIGATIONS OF PARTNERS

The rights and obligation of partners are generally laid down in the partnership deed. In case the partnership deed does not specify them, then the partners will have rights and obligations prescribed in the Partnership Act. These are given below :

RIGHTS OF PARTNERS

1. Right to take part in the conduct and management.

2. Right to be consulted and express his opinion.

3. Right to have access to, inspect and copy any books of accounts.

4. Right to an equal share in the profits.

5. Right to receive interest on loans and advances.

DUTIES AND LIABILITIES OF PARTNERS

1. Every partner must act in a just and faithful manner towards each other.

2. Every partner must act within the scope of the authority entrusted to him.

IMPLIED AUTHORITY OF A PARTNER

A partner has the implied authority to do the following acts on behalf of his firm :

1. To buy, sell and pledge goods on behalf of the firm.

2. To raise loans on the security of such assets.

3. To receive payments of debts due to the firm.

4. To engage servants for the firm's business.

However, a partner has no implied authority, unless otherwise expressed in the partnership deed, in the following matters :

1. To submit a dispute relating to the firm to arbitration.

2. To withdraw a suit or proceeding filed on behalf of the firm.

DISSOLUTION OF PARTNERSHIP FIRMS

A partnership firm may be dissolved in any of the following ways :

1. Dissolution by agreement

2. Dissolution by notice

3. Contingent dissolution : A firm may be dissolved on the happening of any of the following contingencies :

1. On the expiry of the term, if it is for a fixed period.

2. On the death of a partner.

3. On the adjudication of a partner as insolvent.

4. Compulsory dissolution : A firm stands automatically dissolved in the following cases :

1. When all partners or all but one partner are declared insolvent.

2. When the business of the firm becomes unlawful due to the happening of an event.

5. Dissolution through Court : Court may order the dissolution of a firm in the following cases :

1. When a partner becomes of unsound mind.

2. When a partner becomes permanently incapable of performing his duties as a partner.

MERITS OF PARTNERSHIP

1. Ease of formation

2. Larger financial resources

3. Combined abilities and judgement

4. Direct motivation

5. Close supervision

6. Flexibility of operations

7. Secrecy

8. Protection of minority interest

9. Cooperation

10. Scope for expansion

DEMERITS OF PARTNERSHIP

1. Limited Resources

2. Unlimited Liability

3. Uncertain Life

4. Conflicts

5. Risk of implied authority

6. Restriction on transfer of interest

7. Reduced public confidence

8. Lack of secrecy

9. Suitability..

TO BE CONTINUED IN INSTAMOJO BOOK

 SOLE PROPRIETORSHIP

Sole proprietorship is a business which is owned, and usually managed by one person.

CHARACTERSTICS OF SOLE TRADER

The main characteristics of sole proprietorship are the following :

1. Single ownership : A single-owner concern is owned and run by only one person. It is he who takes all the risk of business. He provides both financial capital and manages the business himself.

2. No separate identity : The sole proprietor owns every asset of the business and is liable for every debt or loan. Thus, the owner is identified with the business. He has no separate legal status or entity.

3. Seed capital : Initial finance, called seed capital, is provided by the owner himself from his personal sources.

4. Formation : It is fairly easy to start a sole proprietary concern without undergoing any legal formalities.

5. Risk bearing : The sole proprietor has to bear all the risks associated with his business.

6. Unlimited liability : The owner of a sole proprietor form  of enterprise is personally liable for the debts incurred by his firm and this liability is unlimited.

7. Management and control : In the business, management and control are vested in one person.

8. Continuity : The life of a sole tradership firm depends solely upon what happens to its proprietor.

FORMATION OF SOLE TRADER BUSINESS

Sole trader business is started at the initiative of a single individual. He prepares the business plan or the blueprints of his prospective venture and makes arrangement for the necessary finance or seed capital.

OBJECTIVES OF SOLE TRADERING BUSINESS

1. To create self-employment opportunities : Sole trading business gives people an opportunity to create self-employment opportunities by being their own bosses and work with dignity and self-respect by having full-say and complete control over the business as owner-entrepreneur.

2. To fruitfully utilise surplus funds : A person having surplus liquidity may start sole proprietorship business to make productive use of his idle funds.

3. Independent living : Sole trading business offers ample opportunity for a person to make independent living and enjoy the psychic satisfaction and pride of ownership.

4. To serve and please customer : By operating at the grass-root level, a sole trader is involved in direct interaction with his customer.

5. Equity : Sole trading business helps to promote equity or distributive justice by ensuring fair share of income and wealth among a large number of people.

6. Support to large business : Sole proprietorship units supply inputs and provide and ancillary services to big firms as is mostly found in china, Korea and India.

MERITS OF SOLE PROPRIETORSHIP

Sole proprietorship are the easiest kinds of business to start.

A sole proprietorship concerns offers the following advantages to its owner : 

1. Ease of starting and ending the business : The establishment of a sole tradership concern is fairly easy.

2. Being one's one boss : Working for others does not have the same excitement as working for oneself.

3. Pride of ownership : People who own and manage their own business take pride in their work. They deserve all the credit for taking the risks and supplying necessary goods and services.

4. Leaving a legacy : Owners can leave an ongoing business for future generations.

5. Retention of company profit : Owners not only keep the profits earned, but also benefit from the increasing value as the business grows.

6. No special taxes : All the profits of a sole proprietorship are taxed as the personal income of the owner and the owner pays the normal income tax on that company.

7. Flexibility of operations : Since the proprietor is the sole decision-taker and has no need to consult colleagues when policy are required, this type of organisation is extremely flexible and capable of quick and easy adjustment to changes taking place in market conditions.

8. Maintaining secrecy : It is easy to maintain secrecy in business. The affairs of such business are not made publicly known.

9. Operational efficiency : The strength of this type of organisation lies in the direct personal interest of the proprietor in the efficiency of his enterprise.

10. Self-employment : Sole proprietorship gives self-employment opportunities to persons of modest means having necessary professional skills.

DEMERITS OF SOLE PROPRIETORSHIP

1. Unlimited liability : Unlimited liability refers to the responsibility of business owners for all of the debts of the business.

2. Limited financial resources : Another disadvantage of this type of business is the strict limitation on its ability to acquire capital for expansion.

3. Management problems : A business can be efficiently run by professional managers.

4. Huge time commitment : Sole proprietors have little time to do anything else in life due to less overwhelming time commitment for running the business.

5. Few fringe benefits : The sole owner of a firm loses the fringe benefits which often come with working for others.

6. Limited growth : Expansion of a single-owner firm is slow and sporadic.

7. Limited life span : If the sole proprietor dies, become physically unfit, or retires the business ceases to exist.

8. Lack of specialisation : Since the sole trader takes all business decisions without consulting others, there is, at times, excessive pressure on him.

9. Uncertain failure : The future of a sole trader is uncertain.

10. Lack of stability : Finally, sole proprietorship is not a stable form of business for various reasons.

SUTABILITY

The one man control is the best in this world if that man is big enough to manage everything. Therefore, sole proprietorship is suitable form of organisation in the following cases:

(a) Where the market is local.

(b) Where personal attention to the needs and preferences of the customer is essential.

(c) Where fashions change very frequently.

(d) Where small amount of capital is required but personal skills are more important.

(e) Where quick decision and prompt action are necessary.

(f) Where risk involved is negligible.

SOCIAL UTILITY

The sole proprietorship form of business is socially desirable due to following reasons:

(a) It prevents concentration of economic power in few hands through a more equitable distributions of wealth in the society.

(b) It provides opportunity for self employment with limited investment.

(c) It offers employment to a large number of people in society.

(d) It facilitates the growth of cottage and small scale industries.

(e) It facilitates balanced regional development of the country.

EXPANSION OF SOLE PROPRIETORSHIP

1. Employment of paid Assistant- When the sole proprietorship employs a paid assistant, he has the following advantages and disadvantages:

ADVANTAGES

(a) Division of work

(b) No share in profits

(c) Complete control

(d) Secrecy

(e) Easy to dismiss

DISADVANTAGES

(a) Lack of motivation

(b) Lack of responsibility

(c) Problem of capital

(d) Competition

ADMISSION OF A PARTNER

ADVANTAGES

(a) Availability of capital

(b) Division of work

(c) Motivation

(d) Reduced risk

(e) Economy of costs

DISADVANTAGES

(a) Division of profits

(b) Loss of freedom

(c) Lack of secrecy

(d) Difficulty in removing partner

(e) Source of disputes

CAUSES FOR SURVIVAL OF SOLE TRADER

1. Human inertia

2. Personal motivation

3. Desire for independence

4. Nature of market

5. Need for personal attention

6. Nature of manufacturing process

7. ancillary industry

8. Retainer system

 INTRODUCTION TO BUSINESS ORGANISATION

BUSINESS UNDERTAKING

A business undertaking is an organisation which is engaged in some business or commercial activity. It may be owned and controlled by a single individual or by a group of individual or by a group of individuals. It may be based upon an informal agreement or it may be a formal association of persons. Every business undertaking is a separate and distinct unit of business. It has its own  identity and separate ownership. It can be distinguished from other undertakings or on the basis of its ownership, management and control.

CHARACTERSTICS OF BUSINESS ORGANISATION

Features of business organisations are:-

1. Separate identity : Any type of business undertakings has an identity of its own. It has distinct name and it exists as a separate entity with its own assets and liabilities and thus separate accounts.

2. Independent ownership : A business undertaking is owned by private individuals or the government who are which make initial contribution of capital. Thus, every business firm or company has an independent ownership.

3. Independent management : Every business or undertaking has its own independent management depending on the form of organisation, legal status as also nature and size of business or scale of operation.

4. Risk taking : Any type of business undertaken involves risk. Profit is the reward for risk taking and uncertainty bearing. Some risks are no doubt covered through insurance. Others are borne by the owners. Such risks are known as uninsurable risks or uncertainties.

DIFFERENT TYPES OF BUSINESS ORGANISATIONS

Business organisations may be classified in broad three categories :-

1. PRIVATE SECTOR UNDERTAKINGS : These are financed, owned, operated and controlled by private persons. Their main characteristics are the following :-

(a) Private ownership and control : A private sector undertaking is solely owned and completely controlled by either one individual or a group of individuals jointly.

(b) profit motive : The main motive of this organisation is to earn profit.

(c) No state participation : There is no question of participation by the central or state governments int he ownership and control of any private sector undertaking.

(d) Private finance : The seed capital of a private sector undertaking is provided by its owners, i.e. , by a single person in the case of a sole proprietorship or by the  partner in the case of partnership, and by making public issue of shares and debentures  in the case of  a joint stock company.

(e) Independent management : A private sector undertaking is managed by its owners directly or indirectly, i.e., directly by the owners in the case of sole proprietorship and partnership and indirectly by the board of directors who appoint professional managers who are salaried persons. The board members are appointed by the shareholders who, in turn, appoint or heir the managerial staff.

2. PUBLIC SECTOR UNDERTAKINGS : These undertakings are owned either by the central or by state  government. The common characteristics are:-

(a) State ownership : Public undertakings are fully owned by the governments or by any public authority.

(b) Government control : The ultimate control of a public sector undertaking is exercised by the government.

(c) Service motive : The basic objective of a public sector undertaking is to serve the society and promote public welfare with minimum profit.

(d) State financing : The government provides initial capital and funds through appropriations from its budget. The government may also extend loan its own enterprises from the exchequer as and when needed.

(e) Public accountability : Public sector undertakings are accountable to the public for their yearly performance and operational results.

3. JOINT SECTOR UNDERTAKINGS : Joint sector consist of business undertakings wherein the ownership control and management is shared jointly by the central or the state governments and by the private entrepreneurs and occasionally the general public.

The main characteristics of joint sector enterprise are:-

(a) Mixed ownership : The government, private entrepreneurs and the investing public jointly own such enterprise.

(b) Joint management : The management and control of such an enterprise  lies with the nominees or representatives of the government, private investor(s) and the public.

(c) Sharing of capital : The capital is shared by the government, private business persons and the general public in certain proportions as noted above. The basic idea is to pull the huge financial resources and technical know-how of the state private individuals.

4. PUBLIC-PRIVATE PARTNERSHIP : Public-private partnerships are government services or business ventures that are funded and managed through a partnership of government and one or more private-sector companies. There are two main types of public-private partnerships (ppp) :

(a) GOVERNMENT FUNDED : In these ventures, the government provides all or part of the funding, but the management of the organisation will be by a private business that will use private-sector methods and techniques to control it as efficiently as possible.

(b) PRIVATE-SECTOR FUNDED : In these ventures, which often involve large sums of capital investment, the government is relived of the financial burden of finding taxpayers money to pay for the project. Once the assets have been paid for, they are then managed and controlled by a government department.

FORMS OF PRIVATE SECTOR ORGANIZATIONS

A business can take a number of 'legal' forms such as the following :

1. Sole proprietorship : This type of business is owned and controlled by a single person. Its owner may be the only employee, perhaps operating a small convenience store, barber-shop, or speciality shop. Or, the owner may hire several employees to staff a larger business such as a restaurant, an auto service station, or a home construction enterprise. The sole proprietorship is the most common type of business.

2. joint Hindu family firm : The Hindu undivided Family (HUF) is a form of business organisation in which the family is endowed with some property through inheritance and the 'Karta', the head of the family, manages its day-to-day affairs.

3. Partnership : A partnership business owned and controlled by two or more persons who any parties to a particular agreement. Each of them has a financial interest in the firm.

4. Joint stock company : A joint stock company is a business owned by a group of share holders and its capital is divided up into a number of shares.

5. Cooperative society : A cooperative society is a business, owned and controlled by a group of persons called members such as workers' cooperative, farmers' cooperative or even housing cooperative.

CHOICE OF THE FORM OF BUSINESS ORGANIZATION

1. Nature and sphere of activities

2. Need for seed capital

3. Scale of operations

4. Ease of stating a business

5. Area of activity

6. Extent of liability

7. Continuity of business

8. Professionalism in management

9. Types of control of business

10. Secrecy of business