Module 1:
Laws Governing Business
Structures
Dr. Bharat Chillakuri
February 16, 2021
Course Outline
Session Topic Instructor
1 Laws Governing Business Structures Dr. Bharat Chillakuri
2 Legal procedures for starting a business Dr. Bharat Chillakuri
3 Direct Tax Anindita Chatterjee
4 Indirect Tax Anindita Chatterjee
5 Foreign Trade Policy Anindita Chatterjee
6 Foreign Exchange Management Act (FEMA) Anindita Chatterjee
Quiz I – 20 marks
7 Alternative Dispute Settlement Dr. Thomas Kurma
8 Laws governing commercial contracts Dr. Thomas Kurma
9 Consumer protection Laws Dr. Thomas Kurma
10 Laws governing intellectual property Dr. Thomas Kurma
11 Companies Act 2013 Dr. Bharat Chillakuri
Quiz II – 20 marks
12 Project presentations Dr. Bharat Chillakuri
13 Project presentations Dr. Bharat Chillakuri
Evaluation Components
Sr. No Components Marks
1 Quiz I 20 marks
2 Quiz II 20 marks
3 Group Presentations 10 marks
4 Group project submission 10 marks
5 Final Exam 40 marks
Total 100 marks
Learning Outcomes
1. Discuss essential features of a company
2. Understand types of business ownership – Sole proprietorship, One
person company, partnership, joint stock company, public limited, and
private limited companies, trusts
3. Registration of the firm, and the effects of non-registration
What is Company
• Section 3 (1) (i) of the Act defines: “A company means a
company formed and registered under the companies act.”
• That is, a company is an association of persons united for a
common object.
• It is a form of business organization where the funds of a large
number of investors are managed by a few persons for the
purpose of earning profits which are shared by all the investors.
A company is a legal entity which is formed by different individuals
to generate profits through their commercial activities.
Essential Features of a Company
• Registration: Compulsory
• Separate legal entity: Distinct person
• Perpetual succession
• Artificial person: But not a Citizen
• Transferable shares
• Limited liability
• Common seal: Separate and independent
legal existence
• Separate property: Can dispose property in its
name.
• Capacity to sue and be sued.
Types of Business Ownership
Entrepreneurs need to understand the
advantages and disadvantages of various
forms of business ownership so they can
choose the most appropriate form for their
business.
1. Sole Proprietorship
2. One Person company
3. Partnership
4. Joint Stock Company
5. Cooperative Organization
6. Public Sector
Sole Proprietorship
The easiest and sole proprietorship
most popular form of a business that is
business ownership owned and operated
is the sole by one person
proprietorship.
• Coca-Cola, Apple, Hewlett-Packards, Amazon,
Google, Mattel and Walt Disney in the U.S.
• Flipkart, Snapdeal started a business as sole
proprietorship companies in India.
Advantages of Sole Proprietorship
1. Easy to establish as it does not require to complete any legal formality.
2. Simplicity of organization.
3. The expenses in starting the business are minimal.
4. Owner is free to make all decisions.
5. This type of ownership is simple, easy to operate and extremely
flexible.
6. The owner enjoys all the profits
7. There is a great deal of personal motivation and incentive to succeed.
8. Minimum legal restrictions are associated with this form of ownership.
9. Owner can keep secrecy as regards the raw materials used, method of
manufacture, etc.
10. Single ownership associates with it the great ease with which the
business can be discontinued.
Disadvantages of Sole Proprietorship
1. The owner is liable for all obligations and debts of the business.
2. The business may not be successful if the owner has limited money,
lacks ability and necessary experience to run the business.
3. Because of relatively unstable nature of the business, it is difficult to
raise capital for expanding the business.
4. If the business fails, creditors can take the personal property as well as
the business property of the (single) owner to settle their claims. This
means single ownership involves unlimited liability for debts and losses.
5. There is limited opportunity for employees as regards monetary
rewards (e.g., profit sharing, bonuses, etc.) and promotions.
6. Generally, single ownership firm has limited life, i.e., the firm may
cease to exist with the death of the proprietor. This is the cause of
unstable nature of the firm.
Applications of Single Ownership
1. For retail trades, service concerns and small engineering firms which
require relatively small capital to start with and to run.
2. For those businesses which do not involve high risks of failure.
3. When the business can be taken care by one person.
One Person Company
One Person Company (OPC) allows a single person to run a company
limited by shares while a Sole Proprietorship means an entity which is run
and owned by one individual and where there is no distinction between the
owner and the business.
• Registration is mandatory with Ministry of Corporate Affairs (MCA).
• The number of directors – minimum 1 and maximum 15
Can one person company convert to public company or private company?
Yes, when the paid-up share capital is more than 50 lakhs
Can a private company convert into one person company?
Yes, when the paid-up share capital is more than 50 lakhs or the
annual turnover is two crores or less.
Partnerships
A partnership draws on skills, A partnership is a formal
knowledge, and financial arrangement by two or
resources or more than one more parties to
person. manage and operate a
business and share its
profits.
Examples: Maruti Suzuki
BMW & Louis Vuitton.
Contract of Partnership (1932)
A partnership agreement is a contract between
partners in a partnership which sets out the terms
and conditions of the relationship between the
partners, including: Percentages of ownership and
distribution of profits and losses.
Essential Elements of Partnership
1. Association of two or more persons
2. There must be an agreement
3. Members should agree to carry on business
4. With the object of sharing profits
5. Mutual Agency
Registration of Partnership Firm
Registration of the partnership firm is not compulsory, but it
should be registered with the Registrar of Firms soon after its
formation. Because an unregistered firm cannot sue outsiders
although outsiders can sue the firm.
Procedure of Registration
1. The name of the firm.
2. The principal place of the business of the firm.
3. The names and addresses of the partners.
4. The names of the places where the firm has its branches.
5. Date of the commencement of the business of the firm.
6. Dates on which the various partners joined the partnership firm.
7. The duration of the partnership firm
Effects of Non-Registration
1. The firm cannot file a suit against the third party.
2. No partner can file a suit against other partners of the firm.
3. The firm cannot file a suit against any partner.
4. A partner cannot file a suit to enforce a right arising from the
contract or conferred by the Partnership Act against the firm.
5. Third parties can file a suit against the firm to enforce their
rights.
Dissolution of the Firm
The dissolution of partnership between all the partners of a firm is
called “dissolution of the firm”
Modes of Dissolution
1. By Agreement
2. By Notice
3. Certain Contingencies
4. Compulsory Dissolution
5. Dissolution by the court
Firm Registration
A partnership deed, also known as a partnership agreement, is a document
that outlines in detail the rights and responsibilities of all parties to a
business operation. It has the force of law and is designed to guide the
partners in the conduct of the business.
1. Rights of Partners
2. Incoming and Outgoing Partners
3. Liability of an Incoming Partner
4. Retirement of a Partner
5. Expulsion of a Partner
6. Insolvency Partner
7. Death of a Partner
Types of partnership
General Partnership: General partnership differs from single
ownership in that the actions of any partner not only affect
himself/herself but they affect other partners also. As the
partnership grows or personnel changes occur, additional partners
can be had with the consent of all old partners.
Limited Partnership: Limited partnership is an association of one or
more general partners who manage the business and one or more
limited partners whose liability is limited to the capital they have
invested in the business.
Types of partners
Managing partner
Sleeping/Dormant partner
Partner in profits only
Partnership by estoppel
Outgoing partner
Secret partner
Limited partner
Minor partner
Joint Stock Company
A joint stock company is an Association of individuals, called
shareholders, who join together for profit and agree to supply capital
divided into shares that are transferable for carrying on a specific
business
A joint stock company consists of more than twenty persons for
carrying any business other than the banking business.
These persons give a name to the company, mention the purpose for
which it is formed, and state the nature and the amount of capital (shares)
to be issued, etc., and submit the proposal to the Registrar of Companies.
As the registrar issues a certificate in this connection, the company starts
operating. The managing body of a joint stock company is Board of
Directors elected by the shareholders.
Examples: Reliance Industries Ltd., Ambuja cement Ltd. Jindal Steel &
Power Ltd., Tata Motors
Public Limited Company
In Public limited company, the capital is collected from the public by
issuing shares having small face value (ex: 50, 20, 10)
The number of shareholders should not be less than seven, but there is
no limit to their maximum number.
A public company has to issue a prospectus to the public.
Examples: Bharat Petroleum Corporation Ltd (BPCL), Coal India Ltd,
Punjab National Bank
Private Limited Company
A private limited company is a company privately held for small
businesses. This type of business entity limits owner liability to their
shareholdings, the number of shareholders to 200, and restricts
shareholders from publicly trading shares.
Prerequisites
1. The number of members must be between 2-200.
2. There must be at least two directors and two shareholders.
3. The name of the company with the last word “private limited”
Cooperative Organization (Societies)
Form of private ownership which contains features of large
partnership as well as some features of the corporation.
Members pay fees or buy shares of the cooperative, and profits are
periodically redistributed to them
In a cooperative, there are shareholders, a board of directors and the
elected officers similar to the corporation
Cooperative organization is a kind of voluntary, democratic
ownership formed by some motivated individuals for obtaining
necessities of everyday life at rates less than those of the market.
Examples: Amul, 1946 - owned by 36 lakh milk producers in Gujarat
Trust (Indian Trust Act 1882)
Trust is an agreement between parties, whereby one party holds the
ownership of property for the benefit of another party.
There are two types of trusts – Private and Public trusts
Public trust – if the beneficiaries are large public; created for the
benefit of society
Private trust – beneficiaries are a specific group, ex: employees of a
company – Infosys Trust
