\nPoints<\/strong><\/td>\nSole Proprietor<\/strong><\/td>\nOne Person Company (OPC)<\/strong><\/td>\n<\/tr>\n\n| Meaning<\/td>\n | The word \u2018sole\u2019 denotes single and \u2018proprietorship\u2019 signifies ownership. A sole proprietorship is recognized as one of the most common, simplest, and oldest forms of business entity. It is owned and controlled by one person only and the person running it is known by the name of \u2018sole proprietor\u2019 or a \u2018sole trader\u2019.<\/td>\n | One Person Company is a fusion of Sole-Proprietorship and Company form of business. The Companies Act, 2013 brought in the new concept of One Person Company, thereby enabling a person who is carrying on the business in the Sole- Proprietorship firm to enter into a corporate outline with relaxed requirements under the Act.<\/td>\n<\/tr>\n | \n| Registration<\/td>\n | In the case of a sole proprietorship, formal registration is not required.<\/td>\n | A-One Person Company requires registration under the Companies Act, 2013.<\/td>\n<\/tr>\n | \n| Distinct legal entity<\/td>\n | A Sole Proprietorship is not a distinct legal entity from the proprietor.<\/td>\n | A-One Person Company is a distinct legal entity from the business owner.<\/td>\n<\/tr>\n | \n| Liability<\/td>\n | A proprietor of a sole proprietorship has unlimited liability for the debts incurred by him. This means that if the business is in debt, even the personal assets of the proprietor may be used to recover the debt.<\/td>\n | As a Person Company is a separate legal entity, hence the owner has limited liability. This is the most desirable reason why many individuals are opting for an OPC.<\/td>\n<\/tr>\n | \n| Taxation<\/td>\n | In a proprietorship, the tax liability of the proprietorship firm is borne by the proprietor. He can claim a basic exemption under the Income Tax Law. For OPC, the tax liability of the company and the single member is independent.<\/td>\n | OPC is liable to be taxed at 30% as it formed as a private company. No basic exemption is available for OPC.<\/td>\n<\/tr>\n | \n| Succession<\/td>\n | In the case of a sole proprietorship, succession takes place through the execution of a Will.<\/td>\n | In a One Person Company, nominee designated by its member, who shall, in the event of the death of the member, become a member of the company and shall be responsible for the running of the company.<\/td>\n<\/tr>\n | \n| Separate Property<\/td>\n | As there is no distinction between the owner and business in a sole proprietorship, therefore, any creditor of the proprietorship can also claim all the assets of the owner.<\/td>\n | In OPC there is an added advantage as a company is a separate legal entity. Any property purchased by OPC will be the asset of that OPC. The member does not have an insurable interest in the property of the company.<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n Question 3.
\nAnkur has passed out MBA from a premier institution. He wants to become an entrepreneur but he is confused in choosing the form of ownership. Advice Ankur on the aspects which he should consider before deciding the form of ownership. [Dec. 2018 (4 Marks)]
\nAnswer:
\nOne of the first decisions that are faced by entrepreneurs is how the business should be structured. All businesses must adopt some legal configuration that defines the rights and liabilities of participants in the business’s ownership, control, personal liability, life span, and financial structure. This decision will have long-term implications, so one has to select the form of ownership that is right for him\/her.<\/p>\n Thus, while choosing the form of ownership one must consider the following aspect:<\/p>\n \n- His vision regarding the size and nature of the business.<\/li>\n
- The level of control he wishes to have.<\/li>\n
- The level of \u201cstructure\u201d he is willing to deal with.<\/li>\n
- The business vulnerability to litigation.<\/li>\n
- Tax implications of the different organizational structures.<\/li>\n
- Expected profit (or loss) of the business.<\/li>\n
- Whether or not he will need to re-invest earnings into the business.<\/li>\n
- His need for access to cash out of the business for himself.<\/li>\n<\/ul>\n
Question 4.
\nWhat are the various types of partnership firms?
\nAnswer:
\nVarious types of partnership are as follows:
\n1. Partnership at will [Section 7]: Where no provision is made by contract between the partners for the duration of their partnership, or when no provision is made as to whom and how the partnership will come to an end, the partnership is known as partnership-at-will.<\/p>\n The partnership-at-will has no fixed or definite date of termination and, therefore, the death or retirement of a partner does not affect the existence of such partnership.<\/p>\n Dissolution of partnership at will [Section 43]: Partnership-at-will can be dissolved at any time by any of the partners by giving notice in writing to all other partners. The firm is dissolved as from the date mentioned in the notice as the date of dissolution or, if no date is so mentioned, as from the date of the communication of the notice.<\/p>\n 2. Particular Partnership [Section 8]: When two or more persons come together for particular adventures or undertakings it is known as a particular partnership. Where the adventure is complete, such a partnership can be dissolved. When the persons decide to continue the partnership after the completion of the adventure, it becomes a partnership at will.<\/p>\n Example: A and B enter into a joint trading adventure for the sale of sesame seeds grown in both their fields during its harvest season. The partnership comes to an end after the sale.<\/p>\n 3. Partnership for fixed-term: It is a partnership entered into for a fixed duration, after the expiry of which it comes to an end. When the partners carry on the business even after the expiry of the said period, it is said to be a partnership at will.<\/p>\n 4. Sub-partnership: When a partner of a firm agrees to share his own share of profits with an outsider, it is called sub-partnership and such outsider is called a sub-partner. A partner is free to make an agreement of sub-partnership, provided it does not affect the position of other partners with reference to him.<\/p>\n Important points relating to sub-partnership:<\/p>\n \n- A sub-partner is not connected with the firm.<\/li>\n
- A sub-partner has no relationship with other partners.<\/li>\n
- A sub-partner has no right to take part in a firm\u2019s business,<\/li>\n
- A sub-partner cannot examine the firm\u2019s accounts.<\/li>\n
- A sub-partner can claim his agreed share from the partner with whom he enters into a sub-partnership.<\/li>\n<\/ul>\n
Question 5.
\nWrite a short note on Registered partnership. [Dec. 1994 (5 Marks)]
\nAnswer:
\nRegistration of a firm is not mandatory under the Act. Certain privileges are available only to registered firms, thus indirectly making it compulsory to register so as to enjoy those privileges. Registration does not j create a partnership but is only evidence of the existence of a partnership. It is advantageous both to the firm and also to outsiders.<\/p>\n Provision & procedure for registration of partnership [Sections 58 & 59]:
\nTime: Registration of partnership may be effected at any time during the continuance.
\n1. Application form & fee: Application for registration has to be made in the prescribed form along with the prescribed fee.<\/p>\n 2. Documents to be attached: Following documents are required to be attached with the application of registration:<\/p>\n \n- Affidavit<\/li>\n
- Partnership Deed on requisite stamp paper.<\/li>\n
- Proof of place of business or Rental\/Lease Agreement.<\/li>\n
- Other documents are may be required by the Registrar.<\/li>\n<\/ul>\n
3. Signing & verification: Application for registration has to be signed by all the partners, or their agent specially authorized on this behalf.<\/p>\n 4. Registration by Registrar: If Registrar is satisfied that all requirement relating to registration of firm has been fulfilled, he issues a certificate of registration.<\/p>\n 5. The effective date of registration: Registration is effective from the date when Registrar makes entries in the ‘Register of Firms\u2019 and not from the date of presentation of the statement to him.<\/p>\n Question 6.
\nA B & C are partners. They admit D, a minor, to the benefit of the partnership. Within the six months of attaining majority, D gives public notice that he has become a full-fledged partner. But all other partners refuse to take him. Can D become a partner or not? Give reason. [June 1996 (5 Marks)]
\nAnswer:
\nFacts of Case: A, B & C are partners. They admit D, a minor, to the benefit of the partnership. Within the six months of attaining majority, D gives public notice that he has become a full-fledged partner. But all other partners refuse to take him<\/p>\n Provision: As per Section 30 of the Partnership Act, 1932, deals with the exercise of the option by minor on attaining majority. Section 30 provides that at any time within 6 months of his attaining majority, or of his obtaining knowledge that he had been admitted to the benefits of partnership, which-ever date is later, such person may give public notice that he has elected to become or that he has elected not to become a partner in the firm. Conclusion: In the given case, D has given public notice within 6 months of his attaining majority and his contention that he has become a full-fledged partner is correct.<\/p>\n Question 7.
\nA, B & C, who are partners of an unregistered firm, sell washing machines to D for \u20b9 10,000 on a credit basis. After some time, the firm purchases from D a photocopying machine for \u20b9 40,000 on a credit basis. On failure to pay the price, D files a suit against the firm, but the firm insists that the amount of \u20b9 10,000 should be adjusted against the claim in question Will the firm succeed? Give reasons. [Dec. 1997 (3 Marks)]
\nAnswer:
\nFacts of the case: A, B & C, who are partners of an unregistered firm, sell washing machines to D for \u20b9 10,000 on a credit basis. After some time, the firm purchases from D a photocopying machine for \u20b9 40,000 on a credit basis. On failure to pay the price, D files a suit against the firm, but the firm insists that the amount of \u20b9 10,000 should be adjusted against the claim in question.<\/p>\n Provision: As per Section 69 of the Partnership Act, 1932, registration of firms is not compulsory, but an unregistered firm suffers from certain disabilities. An unregistered firm cannot file a suit against a third party to enforce any right arising from a contract. However, a third party can file suit against an unregistered firm.<\/p>\n Further, an unregistered firm cannot claim set-off or another proceeding to enforce a right arising from a contract above \u20b9 100. Conclusion: Hence, the firm will not succeed in claiming set-off as the amount is exceeding \u20b9 100.<\/p>\n Question 8.
\nAnian and Barun are partners carrying on the business of shoemaking. Their firm is not registered. The firm purchases raw material worth \u20b9 20,000 on credit from Chetan. But the firm refuses to pay the price of raw material on the plea of its non-registration. Chetan institutes a suit against the firm to claim the amount due. Will Chetan succeed? Give reasons. [June 2005 (5 Marks)]
\nAnswer:
\nFacts of Case: Aman and Barun are partners carrying on the business of shoemaking. Their firm is not registered. The firm purchases raw material worth \u20b9 20,000 on credit from Chetan. But the firm refuses to pay the price of raw material on the plea of its non-registration. Chetan institutes a suit against the firm to claim the amount due.<\/p>\n Provision: As per Section 69 of the Partnership Act, 1932, registration of T firms is not compulsory, but an unregistered firm suffers from certain disabilities. An unregistered firm cannot file a suit against a third party to enforce any right arising from a contract. However, a third party can file suit against an unregistered firm.<\/p>\n Non-registration of a firm does not affect the right of a third party to file a suit to claim the amount due. The firm cannot take the plea of its non-registration.<\/p>\n Conclusion: Hence, Chetan will succeed.<\/p>\n Question 9.
\nRohit is not a partner in a particular firm. But, he knowingly permits himself to be represented as a partner of that particular firm to Sanjay, who on the faith of such a representation gives credit to the firm. Is Rohit liable as a partner in the firm? [Dec. 2005 (5 Marks)]
\nAnswer:
\nFacts of Case: Rohit is not a partner in a particular firm. But, he knowingly permits himself to be represented as a partner of that particular firm to Sanjay, who on the faith of such a representation gives credit to the firm<\/p>\n Provision: As per Section 28 of the Partnership Act, 1932, if a person represents himself or knowingly permits himself to be represented as a partner of a particular firm, when actually he is not, such person is liable as a partner of the firm.<\/p>\n Thus, a stranger, who represents himself to be a partner in a firm and induces others to give credit to the partnership firm is called a partner by holding out.<\/p>\n Conclusion: Hence, Rohit is liable as a partner by holding out.<\/p>\n Question 10.
\nExplain the position of a minor in a partnership firm. [June 2007 (5 Marks)}
\nAnswer:
\nAs per Section 11 of the Contract Act, 1872, an agreement with or by a minor is void and in-operative ab initio. Minor cannot be a promisor. However, all agreements with minors are not void; if an agreement is for the benefit of minors then it is valid and enforceable.<\/p>\n Minors admitted to the benefits of partnership [Section 30]: If all the partners agree, a minor may be admitted to the benefits of an already existing firm. There must be at least two major partners before a minor is admitted into the benefits of a partnership.<\/p>\n Share of profits & property: Such minor has a right to such share of the property and of the profits of the firm as may be agreed upon.<\/p>\n Inspection & copying of accounts: Minor has a right to access and inspect and copy any of the accounts of the firm.<\/p>\n Liability of minor: Minor\u2019s share is liable for the acts of the firm but the minor is not personally liable for any such act.<\/p>\n Filing of the suit: Minor has the right to file a suit for his share of profits of the firm\u2019s property when he is not given his due share. This right can be exercised only when he decides to sever his connections with the firm.<\/p>\n Election by minor: At any time within 6 months of his attaining majority, or of his obtaining knowledge that he had been admitted to the benefits of partnership, whichever date is later, such person may give public notice that he has elected to become or that he has elected not to become a partner in the firm.<\/p>\n If he fails to give such notice, he shall become a partner in the firm on the expiry of the said 6 months.<\/p>\n Exercise of option by minor on attaining majority:
\nIf minor elects to become a partner: When the minor elects to become a partner of his own volition or by his failure to give public notice within the specified time:<\/p>\n | | | |