Course Title: Legal Aspects of Business Course Code: LAW670 AGBS - INDORE

AGBS - INDORE

MBA II SEMESTER (2023-25)

LEGAL ASPECTS OF BUSINESS

Dr. Swapnil Moyal

MBA II SEMSTER
Assistant Professor – HR
Batch: 2023-25
AGBS, Indore
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A company is a legal entity which is formed by different individuals to generate profits through their commercial activities.

Definition of a Company : Section 2 (20) of the Companies Act, 2013 defines a company as “a company incorporated under
this Act or under any previous company law.” Important previous company's laws are the company's laws passed in 1850,
1866, 1882, 1913 and 1956.
Thus, a company may be defined as “an incorporated association which is an artificial person created by law, having a
separate entity, with a perpetual succession, a common seal, capital divided into transferable shares and carrying limited
liability.
Characteristics or Features of a Company
Incorporated Association: A company must be registered under the prevalent Companies Act. If the number of members in
an association exceeds 50 and the association is formed for carrying on a business with profit motive, it must be registered
under the Companies Act or any other Indian Law otherwise it becomes an illegal association. For forming a public company,
at least seven persons and for forming
Entreprene a private company, at least two persons are required. For forming one person
urship
© Oxford
company, as a private company, only one
University
person is required.
Press 2011
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Artificial Legal Person : A company is an artificial legal person. It is artificial because it is created by a process other than the
natural birth. It comes into existence through the operation of law. It is a legal person because it exists in the eyes of the
law. It can do a number of things which can be done by a natural person g. a company can enter into a contract, it can
purchase and sell assets, it can be fined, it can file s s it, and so on. It acts through the board of directors elected by the
members.
Separate Legal Entity (Doctrine of Corporate Veil) : A company is a legal person and is different from its members. The
property of the company belongs to the company alone and the members can not claim individually or jointly ownership
rights in the assets of the company during its existence or in its winding up.
A company can file a suit against its members and the members can also file a suit against the company. Further, the
members are not liable for the liabilities of the company. Their liability is limited to the extent of their shareholdings.
Creditors of the company are the creditors of the company alone and they cannot proceed directly against the members of
the company.
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Perpetual Existence: ( A company has perpetual succession and is independent of the life of its members. Its existence is not
affected by the death, lunacy or bankruptcy of its members. Members may come, members may go but a company
continues for ever. A company comes into existence through the operation of law and it can come to an end only through
the operation of la During the) war, all the members of a private company, while attending the general meeting, were killed
by a bomb. But the company continued. Legal representatives of the deceased members became the new members of the
company.
Limited Liability : Liability of the members of the company is limited to the value of the shares subscribed by each of them.
In case of company limited by grantee, the liability of the members of the company is limited to the extent of guarantee
given by them.
Transfer-ability of Shares : The shares of a company are freely transferable in the case of public companies whereas they are
not so in case of private companies)
Common Seal : Every company has its own common seal which is affixed on all the important documents of the company.
The common seal with the name of the company engraved on it, is used as a substitute of its signature.
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Types of Company
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On the basis of members

One person Company: OPC or one person company is a new category of company introduced to encourage
startups and young entrepreneurs wherein a single person can incorporate the entity. It also promotes the
concept of corporatization of the business. It should be noted that it is not the same as a sole proprietorship
firm, in a way that OPC has separate legal existence with limited liability.

Private Company: A private company is one in which two or more persons get the company registered
under the Companies Act. The securities of such a company are not listed on a recognised stock exchange,
and they cannot invite the public to subscribe for the shares/debentures. The members of a private
company are restricted from transferring the shares. The maximum number of members in a private
company is 200.

Public Company: A company which is formed by a minimum number of seven members with a lawful object
is termed as a public company. Its securities are listed on a recognized stock exchange, and its shares are
freely transferable. Further, there is no limit on the maximum number of members in such a company. The
subsidiary of the public company is also considered as a public company.
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On the basis of liability

Company limited by shares: Company limited by shares is one in which memorandum of association of the
company specifies that the liabilities of the shareholders are limited to the amount unpaid on shares which
they own. Hence, the shareholders are liable only to the extent of the amount that is not paid on their
holdings.

Company limited by guarantee: A company in which the liability of members is limited to a definite sum
stated in the memorandum of association of the company. Meaning that the liability of the members
is confined by the MoA to a stipulated sum, as they have guaranteed to contribute to the company’s
assets, in the event of winding up of the company.

Unlimited Company: An unlimited company is a company whose liability does not have any limit. In this
type of company, the liability of the member ends when he/she ceases to be a member of that company.
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Special companies

Government Company: The company whose at least 51% paid up share capital is owned by Central
Government/State Government, or partly by central and partly by the state government. Further, it also
covers a company whose holding company is a government company.

Foreign Company: Any company registered outside the country that has a business place in India or by way
of an agent traditionally or electronically and undertakes business operations in the country in any manner.

Section 8 Company: A company formed for a charitable object, i.e. to encourage commerce, science, sports,
art, research, education, social welfare, environment protection religion, etc. comes under the category of
Section 8 company. These companies are given special license by the Central Government. Further, they use
the money earned as profit for the promotion of the object and thus, dividend to members is not paid.

Public Financial Institution: The companies, which are engaged in financial and investment business and
whose 51% or more paid up share capital is held by Central Government and are established under any act
are termed as public financial institutions. It includes LIC, ICICI, IDFC, IDBI, UTI
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On the basis of the control

Holding Company: A parent company that owns and controls the management and composition of the
Board of Directors of another company (i.e. subsidiary company) is termed as a holding company.

Subsidiary Company: A company whose more than 51% of its total share capital is owned by another
company, i.e. a holding company either itself or together with its subsidiaries, as well as the holding
company also governs the composition of Board of Directors is called the subsidiary company.

Associate Company: A company in which another company possess a considerable influence over the
company, then the latter is called as an associate company. The term considerable influence implies
controls a minimum 20% of total share capital, or business decisions, as per an agreement.
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Company formation is the process of incorporating a business. Upon incorporation, a private

limited company becomes a separate legal entity; an 'individual' that is completely distinct from its owners and
responsible for its own finances, assets and liabilities.

Stage # 1. Promotion Stage:

Promotion is the first stage in the formation of a company. The term ‘Promotion’ refers to the aggregate of
activities designed to bring into being an enterprise to operate a business. It presupposes the technical
processing of a commercial proposition with reference to its potential profitability. The meaning of promotion
and the steps to be taken in promoting a business are discussed in brief here.
Promotion of a company refers to the sum total of the activities of all those who participate in the building of
the enterprise upto the organisation of the company and completion of the plan to exploit the idea. It begins
with the serious consideration given to the ideas on which the business is to be based.

Stage # 2. Incorporation or Registration Stage:

Incorporation or registration is the second stage in the formation of a company. It is the registration that brings a
company into existence. A company is properly constituted only when it is duly registered under the Act and a
Certificate of Incorporation has been obtained from the Registrar of Companies.
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Procedure to Get a Company Registered

In order to get a company registered or incorporated, the following procedure is to be adopted:

(A) Preliminary Activities:

Before a company is incorporated, the promoter has to take decision regarding the following:
1. To decide the name of the company
2. Licence under Industries Development and Regulation Act, 1951

(B) Filing of Document with the Registrar:

1. Memorandum of Association
2. Articles of Association
[Link] of directors
4. Written consent of Directors
[Link] Declaration
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Certificate of Incorporation:
On the registration of memorandum and other documents, the Registrar will issue a certificate known as the
Certificate of Incorporation certifying under his hand that the company is incorporated and, in the case of a
limited company that the company is limited.
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Effects of Incorporation:

The certificate of incorporation is conclusive evidence of the fact that:

(i) The company is properly incorporated and duly registered;

(ii) The terms of the Memorandum and Articles are within the law;
(iii) All requirements of the Act in respect of registration have been complied with;
(iv) A private company can start its business after getting the certificate of incorporation; and
(v) With the issue of certificate, the company takes birth with a separate legal entity.
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Stage # 3. Capital Subscription Stage:

A private company or a public company not having share capital can commence business immediately on
its incorporation. As such ‘capital subscription stage’ and ‘commencement of business stage’ are relevant
only in the case of a public company having a share capital. Such a company has to pass through these
additional two stages before it can commence business.
Under the capital subscription stage comes the task of obtaining the necessary capital for the company.

For this purpose, soon after the incorporation, a meeting of the Board of Directors is convened to deal with
the following business:

1. Appointment of the Secretary. In most cases the appointment of pre-tem secretary (who is appointed at
the promotion stage) is confirmed.
2. Appointment of bankers, auditors, solicitors and brokers etc.
3. Adoption of draft ‘prospectus’ or ‘statement in lieu of prospectus’.
4. Adoption of underwriting contract, if any.
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Besides the mentioned business, the Board also decides as to whether:

(i) a public offer for capital subscription is to be made, and

(ii) Listing of shares at a stock exchange is to be secured.

The company will now proceed to obtain the permission of the Controller of Capital Issue, New Delhi, under
the Capital Issue Control Act, 1947 if a public offer for sale of shares and debentures exceeding Rs. one crore is
to be made during a period of 12 months, unless the issue fulfils the conditions of exemption as laid down in
the Capital Issue (Exemption) Order, 1969.

The Capital Issue Control Act, 1947 however, does not apply to a private company, a banking company, an
insurance company, and a government company provided it does not make an issue of securities to the
general public.
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After the above formalities have been completed, the directors of the company file a copy of the ‘prospectus’
with the Registrar and invite public to subscribe to the shares of the company by putting the ‘prospectus’ in
circulation.
Application for shares are received from the public through the company’s bankers and if the subscribed
capital is at least equal to the minimum subscription amount as disclosed in the prospectus, and other
conditions of a valid allotment are fulfilled, the directors of the company pass a formal resolution of
allotment.

Allotment letters are then posted, return of allotment is filed with the Registrar and share certificates are
issued to the allottees in exchange of the allotment letters. If the subscribed capital is less than the
minimum subscription or the company could not obtain the minimum subscription within 120 days of the
issue of prospectus, all money will be refunded and no allotment can be made.
It may be noted that a public company having a share capital, but not issuing a ‘prospectus’ has to file with
the Registrar ‘a Statement in lieu of Prospectus’ at least three days before the directors proceed to pass the
first allotment resolution.
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Stage # 4. Commencement of Business Stage:

After getting the certificate of incorporation, a private company can start its business. A public company can
start its business only after getting a’ certificate of commencement of business’.

After getting the certificate of incorporation:

i. A public company issues a prospectus of inviting the public to subscribe to its share capital,
ii. A minimum subscription is fixed, and
iii. The company is required to sell a minimum number of shares mentioned in the prospectus.

After making the sale of the required number of shares a certificate is sent to the Registrar stating this fact,
along-with a letter from the banks, that it has received application money for such shares.

The Registrar scrutinizes the documents. If he is satisfied, then issues a certificate known as Certificate of
Commencement of Business. This is the conclusive evidence of the commencement of the business.
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The Memorandum of Association or MOA of a company defines the constitution and the scope of powers
of the company. In simple words, the MOA is the foundation on which the company is built.

Memorandum of Association
A Memorandum of Association (MoA) represents the charter of the company. It is a legal document
prepared during the formation and registration process of a company to define its relationship with
shareholders and it specifies the objectives for which the company has been formed.

The memorandum of association of a company is an important corporate document in India. It is often

simply referred to as the memorandum. In the India, it has to be filed with the Registrar of Companies during
the process of incorporating a company.
It is the document that regulates the company’s external affairs, and complements the articles of
association which cover the company’s internal constitution. It contains the fundamental conditions under
which the company is allowed to operate. Until recently it had to include the “objects clause” which let the
shareholders, creditors and those dealing with the company know what is its permitted range of operation,
although this was usually drafted very broadly. It also shows the company’s Authorised capital. Read some
Entreprene
urship important aspects of same.
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As Memorandum of Association (MOA) is an important documents which outlines the company laws
under which a company will work and function. It has several clauses which defines some pertinent
aspects under provision of The Companies Act, 2013 which are as follows:-

1. Name Clause

2. Situation/ Registered State Clause

3. Object clause

4. Liability clause

5. Capital Clause

6. Subscriber Clause
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i. Name Clause of Memorandum of Association

The name of the company should be stated in this clause. A company name should be which is not identical in any
manner to any existing company also, there are some words which are strictly prohibited to be used in names of
company in any manner. The Word “Private/PVT Limited” should be in end of any private company. And the word
“Limited” should be in the end of every public limited Company.

A section 8 or not for profit company are not required to use the word “Private Limited/ pvt. Limited or Limited” at
the end of their company name.

ii. Situation Clause of Memorandum of Association

In this clause the state name of company’s registered office is mentioned. The Company should intimate the location of
registered office to the registrar within thirty days from the date of incorporation in case the permanent address of
company is not given.

It is one of important aspects as all the correspondence for cm=company will be sent on this. Note that just a few
months also many companies have been strike off/ name has been removed due to non-maintenance of registered
address of company able to receive and acknowledge the letters of company.

Once a company has been registered, it should have a proper registered office until, the company is closed.
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iii. Objects Clause of Memorandum of Association

Every company have specific business which they will run after a company is incorporated. This clause states all the
business which this proposed company will commence after incorporation that to in detail.
Now as per The Companies Act, 2013 only Main objects and other objects which are ancillary to main objects are
covered.

Any business run apart from this can lead to closure of business. Again, there are some business which are required
approval from different authorities like for loan and capital funding, Reserve Bank of India (RBI) is required. For
commencing insurance business approval from Insurance Regulatory and development authority of India (IRDAI).

iv. Liability Clause of Memorandum of Association

This clause states the liability of the members of the company. The Liability can be limited or unlimited which means at
the time of winding up of company, a company with limited liability, members are required to pay amount upto the
value of nominal value of shares taken by them but in case of unlimited members are required to pay without any limit
for the debt or payment which a company is required to pay.
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v. Capital Clause of Memorandum of Association

This clause states the Authorised Capital of the company and total number of shares along with value of per share. This
is the limit a company can raise its capital maximum amount. For example, if company authorised capital is 10 Lakhs and
paid up at the time of incorporation is 1 Lakh, company can raise its capital upto 9 lakhs. But nothing more than 9 lakhs.

There is no limit for amount of authorised capital a company can have in India as per The Companies Act, 2013.

vi. Subscription Clause of Memorandum of Association

It contains the names and addresses of the first subscribers. The subscribers to the Memorandum must take at least one
share.
The minimum number of members is two (2) in case of a private company, seven (7) in case of a public company and one
(1) in case of One Person Company as per The Companies Act, 2013.

The above clause are required to be inserted omission of any of above clause will lead to refusal of company
incorporation by Registrar of Companies.
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Can Memorandum of Association (MOA) be altered/changed?

Yes, as per section 13 of The Companies Act, 2013 Memorandum of Association (MOA) can be altered anytime but there
are certain conditions which have to be complied before alteration.

What provisions/section governs the alteration/changes of Memorandum of Association (MOA)?

Section 13 of The Companies Act, 2013 governs the process and conditions for alteration in Memorandum of Association
(MOA). The following clauses can be changed as per this section-

1. Name Clause
2. Situation Clause
3. Object Clause
4. Capital Clause

However, they are also supported by other section to give effect to respective changes.

Note that Subscription clause can never be altered after the Company’s incorporation.
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What are the forms to be filed for alteration/changes of Memorandum of Association (MOA)?

Different forms are filed to Registrar according the changed MOA clause and all have to be filled within the time
prescribed under the required forms and sections.

The Companies Act, 2013 defines ‘articles’ as the “articles of association of a company originally framed, or as altered
from time to time in pursuance of any previous company laws or of the present.” The Articles of Association of a company
are that which prescribe the rules, regulations and the bye-laws for the internal management of the company, the
conduct of its business, and is a document of paramount significance in the life of a company. The Articles of a company
have often been compared to a rule book of the company’s working, that regulates the management and powers of the
company and its officers. It prescribes several details of the company’s inner workings such as the manner of making
calls, director’s/employees qualifications, powers and duties of auditors, forfeiture of shares etc.
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Articles of association form a document that specifies the regulations for a company's operations and defines the
company's purpose. The document lays out how tasks are to be accomplished within the organization, including
the process for appointing directors and the handling of financial records.

To alter the Article of association of Company By giving Notice of at least 7 days. At the Board meeting, the given
resolutions in respect of alteration in AOA must be passed. Get Approval to Alteration in Article of Association and
recommending the proposal for members' consideration by way of special resolution

Under Companies Act, 1956, it was not mandatory for a public company limited by shares to have its articles, as it could
adopt the entire Table A of its articles; however under Companies Act, 2013, it is mandatory for every company to have
its own articles.

Meaning and purpose of Articles Articles of Association of the company contain rules, regulation and bye-laws for the
general management of the company . It is compulsory to get the articles of associations registered along with
the memorandum of association in case of a private company.
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Share capital is the money a company raises by issuing common or preferred stock. The amount of share capital or equity
financing a company has can change over time with additional public offerings.

The term share capital can mean slightly different things depending on the context. Accountants have a much narrower
definition and their definition rules on the balance sheets of public companies. It means the total amount raised by the
company in sales of shares.

Meaning:
The Joint Stock Company is a big form of business organization. The amount required by the company for its business
activities is raised by the issue of shares. The amount so raised is called ‘Share Capital’ (or capital) of the company. It may
be noted that a company limited by shares will have share capital. A company limited by guarantee or an unlimited
company may not have any share capital. The persons who buy the shares of company are called ‘Shareholders’.
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Types of Share Capital

(i) Authorized, registered or nominal capital:

This is the amount of capital with which the company intends to get itself registered. This is the amount of share capital
which a company is authorized to issue. Nominal capital is divided into shares of a fixed amount. It must be set out in the
memorandum of association. It can be increased or decreased by following the prescribed procedure.

(ii) Issued capital:

It is that part of the nominal capital which is actually issued by the company for public subscription. A company need not
issue the entire authorized capital at once. It goes on raising the capital as and when the need for additional funds is felt.
The difference between the nominal and the issued capital is known as ‘unissued capital’, which can be issued to the public
at a later date. Where the whole of authorized capital is offered to the public, the authorized and issued capital will be the
same. Issued Capital cannot be more than the authorized capital. Issued capital includes the shares allotted to public,
vendors, signatories to memorandum of association etc.

(iii) Subscribed capital:

It is that amount of the nominal value of shares which have actually been taken up by the public. It is that part of the
nominal capital which has actually been taken up by shareholders who have agreed to give consideration in kind or in cash
for shares issued to them. Where shares issued for subscription are wholly subscribed for, issued capital would mean the
same thing as ‘subscribed capital’. That part of issued capital which is not subscribed by the public is called ‘Unsubscribed
Capital’. Subscribed capital cannot be more than issued capital.
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A prospectus is a formal document that is required by and filed with the Securities and Exchange Commission (SEC) that
provides details about an investment offering to the public. A prospectus is filed for offerings of stocks, bonds, and mutual
funds. The document can help investors make more informed investment decisions because it contains a host of relevant
information about the investment security.
How a Prospectus Works
Companies that wish to offer bond or stock for sale to the public must file a prospectus with the Securities and Exchange
Commission as part of the registration process. Companies must file a preliminary and final prospectus, and the SEC has
specific guidelines as to what's listed in the prospectus for various securities.

The preliminary prospectus is the first offering document provided by a security issuer and includes most of the details of
the business and transaction. However, the preliminary prospectus doesn't contain the number of shares to be issued or
price information. Typically, the preliminary prospectus is used to gauge interest in the market for the security being
proposed.
The final prospectus contains the complete details of the investment offering to the public. The final prospectus includes
any finalized background information, as well as the number of shares or certificates to be issued and the offering price.
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A prospectus includes some of the following information:
• A brief summary of the company’s background and financial information
• The name of the company issuing the stock
• The number of shares
• Type of securities being offered
• Whether an offering is public or private
• Names of the company’s principals
• Names of the banks or financial companies performing the underwriting
Types of Prospectus
*Deemed Prospectus *- As per Section 25(1) of the Companies Act, 2013, a document will be deemed to be a prospectus if
the company agrees to allot or offer securities to the public.

Abridged Prospectus - It is defined as the brief summary of the prospectus, which includes all useful and materialistic
information filed before the registrar. As per Section 33(1) of the Companies Act, 2013, an abridged prospectus must be
included with the documents for the purchase of securities issued by a company.

Red Herring Prospectus - It is the prospectus that is required to be filed before the registrar prior to the offer. The
prospectus generally lacks information such as the particular price or quantum of securities being offered.

Shelf Prospectus - It is defined as the prospectus issued by a company, bank or financial institution for more than one class
of securities.
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Issue of Shares is the process in which companies allot new shares to shareholders. Shareholders can be either individuals or
corporates. The company follows the rules prescribed by Companies Act 2013 while issuing the shares. Issue of Prospectus,
Receiving Applications, Allotment of Shares are three basic steps of the procedure of issuing the shares. The process of
creating new shares is known as Allocation or allotment. Let us see the two types of shares of a company and the procedure
for issue of shares that a company must follow.

Preference Shares
A preference share is one which carries two exclusive preferential rights over the other type of shares, i.e., equity shares.
These two special conditions of preference shares are

• A preferential right with respect to the dividends declared by a company. Such dividends can be at a fixed rate on the
nominal value of the shares held by them. So the dividend is first paid to preference shareholders before equity
shareholders.
• Preferential right when it comes to repayment of capital in case of liquidation of the company. This means that the
preference shareholders get paid out earlier than the equity shareholders.

Other than these two rights, preference shares are similar to equity shares. The holders of preference shares can vote in any
matters directly affecting their rights or obligations.

Preference shares can actually be of various types as well. They can be redeemable or irredeemable. They can be participating
(participate in further profits after a dividend is paid out) or non-participating. And they may be cumulative (arrears in
demand will cumulate) or non-cumulative.
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Equity Shares
Equity share is a share that is simply not a preference share. So shares that do not enjoy any preferential rights are thus
equity shares. They only enjoy equity, i.e. ownership in the company.
The dividend given to equity shareholders is not fixed. It is decided by the Board of Directors according to the financial
performance of the company. And if in a given year no dividend can be declared, the shareholders lose the dividend for that
year, it does not cumulate.
Equity shareholders also have proportional voting rights according to the paid-up capital of the company. Essentially it is one
share one vote system. A company cannot issue non-voting equity shares, they are illegal. All equity shares must come with
full voting rights.

When a company wishes to issue shares to the public, there is a procedure and rules that it must follow as prescribed by
the Companies Act 2013. The money to be paid by subscribers can even be collected by the company in installments if it
wishes. Let us take a look at the steps and the procedure of issue of new shares.
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Procedure of Issue of New Shares

1] Issue of Prospectus
Before the issue of shares, comes the issue of the prospectus. The prospectus is like an invitation to the public to subscribe to
shares of the company. A prospectus contains all the information of the company, its financial structure, previous year
balance sheets and profit and Loss statements etc.
It also states the manner in which the capital collected will be spent. When inviting deposits from the public at large it is
compulsory for a company to issue a prospectus or a document in lieu of a prospectus.

2] Receiving Applications
When the prospectus is issued, prospective investors can now apply for shares. They must fill out an application and deposit
the requisite application money in the schedule bank mentioned in the prospectus. The application process can stay open a
maximum of 120 days. If in these 120 days minimum subscription has not been reached, then this issue of shares will be
cancelled. The application money must be refunded to the investors within 130 days since issuing of the prospectus.

3] Allotment of Shares
Once the minimum subscription has been reached, the shares can be allotted. Generally, there is always oversubscription of
shares, so the allotment is done on pro-rata bases. Letters of Allotment are sent to those who have been allotted their
shares. This results in a valid contract between the company and the applicant, who will now be a part owner of the
company.
If any applications were rejected, letters of regret are sent to the applicants. After the allotment, the company can collect the
share capital as it wishes, in one go or in instalments.
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Stock buybacks refer to the repurchasing of shares of stock by the company that issued them. A buyback occurs when the
issuing company pays shareholders the market value per share and re-absorbs that portion of its ownership that was
previously distributed among public and private investors.
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What Is a Debenture?
A debenture is a type of bond or other debt instrument that is unsecured by collateral. Since debentures have no
collateral backing, they must rely on the creditworthiness and reputation of the issuer for support. Both corporations
and governments frequently issue debentures to raise capital or funds.

• A debenture is a type of debt instrument that is not backed by any collateral and usually has a term greater than 10
years.
• Debentures are backed only by the creditworthiness and reputation of the issuer.
• Both corporations and governments frequently issue debentures to raise capital or funds.
• Some debentures can convert to equity shares while others cannot.

Debentures Explained
Similar to most bonds, debentures may pay periodic interest payments called coupon payments. Like other types of
bonds, debentures are documented in an indenture. An indenture is a legal and binding contract between bond issuers
and bondholders. The contract specifies features of a debt offering, such as the maturity date, the timing of interest or
coupon payments, the method of interest calculation, and other features. Corporations and governments can issue
debentures.
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urship
Governments typically issue long-term bonds—those with maturities of longer
© Oxford than 10 years. Considered low-risk
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investments, these government bonds have the backing of the government issuer.
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Corporations also use debentures as long-term loans. However, the debentures of corporations are unsecured.12 Instead,
they have the backing of only the financial viability and creditworthiness of the underlying company. These debt
instruments pay an interest rate and are redeemable or repayable on a fixed date. A company typically makes these
scheduled debt interest payments before they pay stock dividends to shareholders. Debentures are advantageous for
companies since they carry lower interest rates and longer repayment dates as compared to other types of loans and debt
instruments.

Convertible vs. Nonconvertible

Convertible debentures are bonds that can convert into equity shares of the issuing corporation after a specific period.
Convertible debentures are hybrid financial products with the benefits of both debt and equity. Companies use debentures
as fixed-rate loans and pay fixed interest payments. However, the holders of the debenture have the option of holding the
loan until maturity and receive the interest payments or convert the loan into equity shares.

Convertible debentures are attractive to investors that want to convert to equity if they believe the company's stock will
rise in the long term. However, the ability to convert to equity comes at a price since convertible debentures pay a lower
interest rate compared to other fixed-rate investments.

Nonconvertible debentures are traditional debentures that cannot be converted into equity of the issuing corporation. To
compensate for the lack of convertibility investors are rewarded with a higher interest rate when compared to convertible
debentures.
 AGBS - INDORE

Features of a Debenture

When issuing a debenture, first a trust indenture must be drafted. The first trust is an agreement between the issuing
corporation and the trustee that manages the interest of the investors.

Interest Rate
The coupon rate is determined, which is the rate of interest that the company will pay the debenture holder or investor.
This coupon rate can be either fixed or floating. A floating rate might be tied to a benchmark such as the yield of the 10-
year Treasury bond and will change as the benchmark changes.

Credit Rating
The company's credit rating and ultimately the debenture's credit rating impacts the interest rate that investors will
receive. Credit-rating agencies measure the creditworthiness of corporate and government issues. These entities provide
investors with an overview of the risks involved in investing in debt.
Credit rating agencies, such as Standard and Poor's, typically assign letter grades indicating the underlying
creditworthiness. The Standard & Poor’s system uses a scale that ranges from AAA for excellent rating to the lowest
rating of C and D. Any debt instrument receiving a rating of lower than a BB is said to be of speculative-grade. You may
also hear these called junk bonds. It boils down to the underlying issuer being more likely to default on the debt.
 AGBS - INDORE

Maturity Date
For nonconvertible debentures, mentioned above, the date of maturity is also an important feature. This date dictates
when the company must pay back the debenture holders. The company has options on the form the repayment will take.
Most often, it is as redemption from the capital, where the issuer pays a lump sum amount on the maturity of the debt.
Alternatively, the payment may use redemption reserve, where the company pays specific amounts each year until full
repayment at the date of maturity.

Pros
• A debenture pays a regular interest rate or coupon rate return to investors.
• Convertible debentures can be converted to equity shares after a specified period, making them more appealing to
investors.
• In the event of a corporation's bankruptcy, the debenture is paid before common stock shareholders.

Cons
• Fixed-rate debentures may have interest rate risk exposure in environments where the market interest rate is rising.
• Creditworthiness is important when considering the chance of default risk from the underlying issuer's financial
viability.
• Debentures may have inflationary risk if the coupon paid does not keep up with the rate of inflation.
 AGBS - INDORE

A company meeting may be defined as a concurrence or coming together of at least a quorum of members in

order to transact either ordinary or special business of the company.

• Statutory meeting,

• Annual general meeting,

• Extraordinary general meeting,

• Class meetings.
 AGBS - INDORE

Statutory Meeting

Every company limited by shares and every company limited by guarantee and having a share capital shall, within not less
than one month and not more than six months from the date at which the company is entitled to commence a business,
hold a general meeting of the members of the company.
This meeting is called the ‘statutory meeting.’ This is the first meeting of the shareholders of a public company and is held
only once in the lifetime of a company

Statutory report: The Board of directors shall, at least 21 days (based on Companies Act) before the day on which the
meeting is to be held, forward a report, called the ‘statutory report,’ to every member of the company.
Procedure at the meeting;
List of members,
Discussion of matters relating to a formational aspect,
Adjournment.

Objects of the meeting and report;

• To put the members of the company in possession of all the important facts relating to the company.
• To provide the members an opportunity of meeting and discussing the management, methods, and prospects of the
company.
• To approve the modification of the terms of any contract named in the prospectus.
 AGBS - INDORE

Annual General Meeting

Company to hold an annual general meeting every year. Every company shall in each year hold, in addition to any other
meetings, a general meeting as its annual general meeting and shall specify the meeting as such in the notice calling it.

There shall not be more than 15 months between one annual general meeting and the other. But the first annual
general meeting should be held within 18 months from the date of its incorporation.

The Registrar may, for any special reason, extend the time for holding an annual general meeting by a period not
exceeding 3 months. But no extension of time is granted for holding the first annual general meeting.

Every annual general meeting shall be called during business hours on a day that is not a public holiday.

It shall be held either at the registered office of the company or at some other place within the city, town, or village in
which the registered office of the company is situated.

As regards holding of the annual general meeting, no distinction is made between a public company and a private
company.

A general meeting of a company may be called by giving not less than 21 days’ notice in writing.
 AGBS - INDORE

Annual general meeting a statutory requirement: The annual general meeting of a company is a statutory requirement.
It has to be called even where the company did not function during the year.

Canceling or postponing of convened meeting: Where an annual general meeting is convened for a particular date, and
notice is issued to the members, the Board of directors can cancel or postpone the holding of the meeting on that date
provided power is exercised for bona fide and proper reasons.

Canceling of failure to hold an annual general meeting: If a company fails to hold an annual general meeting:
• Any member can apply to the Company Law Board for calling the meeting.
• The company and every officer who is in default shall be punishable with a fine

Powers of Company Law Board to call an annual general meeting: If a company makes the default in holding an annual
general meeting, any member of the company may apply to the Company Law Board for calling such a meeting.

Penalty for default: If a company makes the default is holding a meeting by Company Law or in complying with any
direction of the Company Law Board is calling a meeting, the company, and every officer of the company who is in
default, shall be punishable with fine.
 AGBS - INDORE

Extraordinary General Meeting

A statutory meeting and an annual general meeting of a company are called ordinary meetings.

Any meeting other than these meetings is called an extraordinary general meeting.

It is called for transacting some urgent or special business which cannot be postponed till the next annual general
meeting.

It may be convened-
(1) By the Board of directors on its own or on the requisition of the members; or

(2) (2) by the requisitions themselves on the failure of the Board of directors to call the meeting.

An extraordinary meeting convened by the requisitions Power of Company Law Board to order meeting: If for any
reason it is impracticable for a company to call, hold or conduct an extraordinary general meeting, the Company Law
Board may call an extraordinary meeting.
 AGBS - INDORE

Class Meetings

Under the Companies Act, class meetings of various kinds of shareholders and creditors are required to be held under
different circumstances.
Class meetings of the holders of different classes of shares are to be held if the rights attaching to these shares are to
be varied.

Requisites of a Valid Meeting

A meeting can validly transact any business if the following requirements are satisfied;

• The meeting must be duly convened by proper authority.

• Proper notice must be served in the prescribed manner.
• A quorum must be present.
• A chairperson must preside.
• Minutes of the proceedings must be kept.
 AGBS - INDORE

Quorum

Quorum is the minimum number of members who must be present at a meeting as required by the rules. Any
business transacted at a meeting without a quorum is invalid. The main purpose of having a quorum is to avoid decisions
being taken at a meeting by a small minority which may be found to be unacceptable to the vast majority of members.

The number constituting a quorum at any company meeting is usually laid down in the Articles of Association. In the
absence of any provision in the Articles, the provisions as to quorum laid down in the Companies Act, 1956 (under
Sec.174) will apply. The Articles may provide for a larger quorum, but it cannot provide for a smaller quorum than that
laid down in the Act. Sec.174 of Companies Act provides that the quorum for general meetings of shareholders shall
be five members personally present in case of a public company; and two members personally present for any other
company.
 AGBS - INDORE

Agenda

The word ‘agenda’ literally means ‘things to be done’. It refers to the programme of business to be transacted at a meeting.
Agenda is essential for the systematic transaction of the business of a meeting in the proper order of importance. It is
customary for all organisations to send an agenda along with the notice of a meeting to all members. The business of the
meeting must be conducted in the same order in which the items are placed in the agenda and the order can be varied
only with the consent of the meeting.

Proxy

The term ‘proxy’ is used to refer to the person who is nominated by a shareholder to represent him at a general meeting of
the company. It also refers to the instrument through which such a nominee is named and authorised to attend the
meeting.
 AGBS - INDORE

What is Winding Up or Liquidation of a Company?

The winding up or liquidation of a company is the process by which a company’s assets are collected and sold in order to
pay its debts. Any monies remaining after all debts, expenses and costs have been paid off are distributed amongst the
shareholders of the company. When the winding up has been completed, the company is formally dissolved and it ceases
to exist.

Broadly speaking, a company can be wound up in one of two ways:

• A Court can compulsorily wind up a company.

• The shareholders or the creditors of the company can themselves apply to wind up the company in proceedings
known as “voluntary winding up”

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urship
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 AGBS - INDORE

A) Compulsory Winding Up

Under section 272 of the companies act, the petition for winding up of a company can be initiated. There are certain
grounds upon which a company can be wound up compulsorily by the Court. A company’s inability to pay its debts is a
common ground for presenting an application for compulsory winding up. A company is deemed to be unable to pay its
debts if:

• When the company has passed the special resolution stating that the company be wound up by the Court or Tribunal.
• Has acted against the interest of the sovereignty and integrity of the country.
• The company has defaulted in filing its financial statement or annual returns for five consecutive financial years.
• Tribunal or Court believes that the company is conducting its affairs fraudulently or the formation of the company was
for a fraudulent/unlawful purpose.

The Tribunal or Court is of the opinion that it is just and equitable to wind up the company.
Execution of a judgment obtained by a creditor against a company remains unsatisfied in part or in whole; or
It is proved to the Court’s satisfaction that the company is unable to pay its debts.
 AGBS - INDORE

An application to wind up a company compulsorily may be filed by:

• The company itself;

• Any director of the company;

• A creditor of the company;

• A contributory;

• A liquidator of the company;

• A judicial manager of the company;

• Where the company is carrying on or carried on banking business

• Various Ministers on grounds specified under the law.

 AGBS - INDORE

Procedure for Compulsory Winding Up:

The application for the winding up of a company by the Court in either Form CIR-11 or Form CIR-12 of the Insolvency,
Restructuring and Dissolution (Corporate Insolvency and Restructuring) Rules 2020 must be filed together with a supporting
affidavit.
In addition, the plaintiff or applicant needs to pay a deposit to the Official Receiver before the filing of the
application. ([Link] )

When filing the winding up application, the plaintiff or applicant can nominate a licensed insolvency practitioner to be
appointed as the liquidator if a winding up order is made by the Court.
Before the hearing of the application, the plaintiff or applicant, must obtain and file the written consent of the nominated
licensed insolvency practitioner to be appointed as liquidator.
The winding up application must be served on the company, the Official Receiver and the nominated licensed insolvency
practitioner (if any). An affidavit of service in either Form CIR-13 or Form CIR-14 must be filed at least 5 days before the
hearing of the winding up application.
An advertisement of the winding up application is required to be placed in an English local daily newspaper or in any other
newspaper directed by the Court, as well as in the Government Gazette not less than 7 days before the hearing of the
winding up application.
 AGBS - INDORE

If any person intends to appear at the hearing, a notice of intention to appear in Form CIR-15 must be served on the
applicant.
Any person who wishes to oppose the winding up application may file an affidavit in opposition which must be served on
the applicant at least 5 days before the hearing of the winding up application.
The hearing of the winding up application is usually fixed within 6 weeks from the date of its filing. Hearings are usually
conducted in open court before a High Court Judge each Friday. The Judge may dismiss the winding up application,
adjourn the hearing or make a winding up order or an interim order.

Effects of a Compulsory Winding-Up Order

When a company is wound up compulsorily by the Court, the winding up is deemed to have commenced at the time of
the making of the application for the winding up.

Within 14 days of the winding up order, the directors and the secretary of the company must deliver a statement of the
company’s affairs to the liquidator, who must then file a copy of the statement with the Court. The statement of affairs
contains, amongst others, details of the company’s assets and liabilities and other information required by the Official
Receiver or the liquidator, and enables the liquidator to carry out investigations into the affairs of the company.
 AGBS - INDORE

After the winding up application is filed, the company, its creditors or its shareholders may apply to restrain any pending
proceedings against the company. Once the winding up order is made, no action against the company may be commenced or
continued without the leave of the court. Any disposition of the company’s property and any transfer of its shares after the
commencement of winding up shall be void unless the Court orders otherwise.

The Court Fees payable for the filing of documents in respect of Compulsory Winding Up Proceedings may be found in the
Second Schedule of the Insolvency, Restructuring and Dissolution (Corporate Insolvency and Restructuring) Rules 2020.
B) Voluntary Winding Up
Voluntary winding up of a company takes place by mutual agreement of the members of the company. Voluntary winding up
may take place either by passing of a special resolution or by passing an ordinary resolution by the members as a result of
expiry of its time period as fixed by the Articles of Association or the completion of the project or event for which it was
constituted. The companies have to comply with the following procedure for winding up as provided by the Companies act,
2013-

The company shall conduct a meeting with at least two directors with the agenda to initiate winding up of the company. The
directors shall ensure that the company does not have any third party debts or it will be able to repay its debts in case it’s
wound up.
The company shall issue a written notice in this regard to conduct a general meeting of all the shareholders for passing a
resolution for the same.
The company in the general meeting shall pass an ordinary resolution to wind up the company by simple majority or special
majority of 3/4th members
 AGBS - INDORE

• After passing the resolution, the company shall conduct a meeting of all the creditors. If the majority of creditors are of
the opinion that winding up would be beneficial for the company, the company may proceed with the same.
• Within 10 days of the passing of the resolution, the company shall file a notice of winding up with the registrar of
companies for appointment of an official liquidator.
• Within 14 days of the passing of the resolution, the company shall give a notice regarding winding up of the company
in the official gazette as well as advertise it in the newspaper.
• Within 30 days of the passing of the resolution, the company shall file the certified copies of ordinary or the special
resolution passed in the general meeting as the case may be.
• The company shall wind up the affairs of the company and prepare the liquidators account and get the same audited.
• The company shall again conduct a general meeting in furtherance of the winding up objective.
• In the general meeting, the company shall pass a special resolution for the disposal of books and all necessary
documents.
• With 15 days of the passing of the resolution, the company shall submit the copy of accounts and file an application for
winding up in the tribunal for passing the order for dissolution of the company.
• The tribunal shall, if satisfied with the documents submitted by the company, pass an order within 60 days to effect of
dissolution of the company.
• After the order to this effect has been passed by the tribunal, the official liquidator shall file a copy of the order with
the registrar of companies.
• After receiving the order passed by tribunal, the registrar shall then publish a notice in the official Gazette declaring
that the company is dissolved.
Winding Up subject to the supervision of the Court
 AGBS - INDORE

MCA21 is an e-Governance initiative of Ministry of Corporate Affairs (MCA), Government of India that enables an easy
and secure access of the MCA services to the corporate entities, professionals and citizens of India.
About MCA
The Ministry is primarily concerned with administration of the Companies Act 2013, the Companies Act 1956, the
Limited Liability Partnership Act, 2008 & other allied Acts and rules & regulations framed there-under mainly for
regulating the functioning of the corporate sector in accordance with law

Objective
The MCA21 application is designed to fully automate all processes related to the proactive enforcement and compliance
of the legal requirements under the Companies Act, 1956, New Companies Act, 2013 and Limited Liability Partnership
Act, 2008. This will help the business community to meet their statutory obligations.

Benefits
The MCA21 application offers the following:-
• Enables the business community to register a company and file statutory documents quickly and easily.
• Provides easy access of public documents
• Helps faster and effective resolution of public grievances
• Helps registration and verification of charges easily
Entreprene
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• Ensures proactive and effective compliance with relevant laws and corporate governance
© Oxford
• Enables the MCA employees to deliver best of breed services
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 AGBS - INDORE

Services offered

Obtain Digital Signature Certificate - The Information Technology Act, 2000 has provisions for use of Digital Signatures on
the documents submitted in electronic form in order to ensure the security and authenticity of the documents filed
electronically. This is secure and authentic way to submit a document electronically. As such, all filings done by the
companies/LLPs under MCA21 e-Governance programme are required to be filed using Digital Signatures by the person
authorised to sign the documents.

Apply for Director Identification Number (DIN) - The concept of a Director Identification Number (DIN) has been
introduced for the first time with the insertion of Sections 266A to 266G of Companies (Amendment) Act, 2006. As such, all
the existing and intending Directors have to obtain DIN within the prescribed time-frame as notified.
 AGBS - INDORE

View master details of any company/LLP registered with Registrar of Companies - A facility has been made available
to the general public to view master details of any company/LLP registered with Registrar of Companies. This facility
may be availed by clicking “View Company Master Data”. A similar facility has also been made available in respect of
the 'Register of Charges' for the companies/LLPs by clicking on to the 'View Index of Charges' and for the viewing the
details of the signatories of any company/LLP by clicking on ‘View Signatory Details’

e-Filing for Limited liability partnership (LLP) - In order to carry out e-Filing on LLP, a facility to download the e-form
and fill it in an offline mode is available. Every form has the facility to pre-fill the data available in LLP system. Once the
e-form is filled, it has to be validated using Pre-scrutiny button. The relevant digital signatures have to be affixed and
the form saved. A user has to be connected to the internet to carry out the pre-fill and pre-scrutiny functions. To know
more, click here.
LLP Services for Business User
Registration of a new Company
Raise complaint or concerns with respect to MCA services
Document Related Services
Fee and Payment Services
Investor Service
 AGBS - INDORE

Corporate governance is the combination of rules, processes or laws by which businesses are operated, regulated or
controlled. The term encompasses the internal and external factors that affect the interests of a company’s stakeholders,
including shareholders, customers, suppliers, government regulators and management. The board of directors is responsible
for creating the framework for corporate governance that best aligns business conduct with objectives.
Specific processes that can be outlined in corporate governance include action plans, performance measurement, disclosure
practices, executive compensation decisions, dividend policies, procedures for reconciling conflicts of interest and explicit or
implicit contracts between the company and stakeholders.

MCA21 Projects Objectives

1) For Business
· Enabled to register a company.
· File statutory documents quickly and easily.
2) For Public
· To get easy access to relevant records
· Effective grievances redressal.
3) For Professionals
· To be able to offer efficient services to their client companies.
4) Financial Institutions
· To easily find charges registration and verification
5) Employees
· To ensure proactive and effective compliance of relevant laws and corporate governance
 AGBS - INDORE

What does MCA21 provides you?

• Easy secure access: MCA21 portal provides an easy and secure access to the record of the company which was filed by
the companies and they can access the portal just by entering the login name and password.
• Automated all process of compliance: Know with the introduction of the MCA21 all the filing of the documents starts
from the birth of the company are to be filed online without any physical movement to the office of ROC.
• 24 hours / 7 days from anywhere and any place: MCA21 also provides the service which is available 24 hrs and 7 days
from any place of the country and the person can easily file the documents and it provides hassle free environment.
• No need to visit physical office of ROC
• Complaints can be on e-mode: if there is any complaint which is to be filed than can also be filed in an electronic form
without any paperwork.
 AGBS - INDORE

Key benefits of MCA21

• Incorporation of Companies online
• Simplified and easy mode of filing
• ROC services online
• Better compliance management
• Total transparency
• Building-up a central database
• Inspection of public documents anytime any where
• Timely redressal of investor grievances

Services available under MCA21

The following services will be available under the MCA21 Project:
• Registration and incorporation of new companies
• Filing of Annual Returns and Balance Sheets
• Filing of forms for change of names/address/Director’s details
• Registration and verification of charges
• Inspection of documents
• Applications for various statutory services from MCA
• Investor grievance redressal
 AGBS - INDORE

Principles of corporate governance

While corporate governance structure may vary, most organizations incorporate the following key elements:
All shareholders should be treated equally and fairly. Part of this is making sure shareholders are aware of their rights and
how to exercise them.

Legal, contractual and social obligations to non-shareholder stakeholders must be upheld. This includes always
communicating pertinent information to employees, investors, vendors and members of the community.

The board of directors must maintain a commitment to ensure accountability, fairness, diversity and transparency within
corporate governance. Board members must also possess the adequate skills necessary to review management practices.

Organizations should define a code of conduct for board members and executives, only appointing new individuals if they
meet that standard.

All corporate governance policies and procedures should be transparent or disclosed to relevant stakeholders.
 AGBS - INDORE

That's why many governance experts break it down into four simple words: People, Purpose, Process, and Performance.
These are the Four Ps of Corporate Governance, the guiding philosophies behind why governance exists and how it
operates

The high-profile corporate governance failure scams like the stock market scam, the UTI scam, Ketan Parikh scam, Satyam
scam, which was severely criticized by the shareholders, called for a need to make corporate governance in India
transparent as it greatly affects the development of the country.
To understand the scope of the legal framework and study the amendments, proxy advisory firms analyze the role of
directors and how they are impacted by changes in the amendments. Proxy firms offer analytical data for the shareholders
and corporate advisory services to companies.

The Objectives Of Corporate Governance

Transparency in corporate governance is essential for the growth, profitability and stability of any business. The need for
good corporate governance has intensified due to growing competition amongst businesses in all economic sectors at the
national, as well as international level.
The Indian Companies Act of 2013 introduced some progressive and transparent processes which benefit stakeholders,
directors as well as the management of companies. Investment advisory services and proxy firms provide concise
information to the shareholders about these newly introduced processes and regulations, which aim to improve the
corporate governance in India.
 AGBS - INDORE

Corporate advisory services are offered by advisory firms to efficiently manage the activities of companies to ensure
stability and growth of the business, maintain the reputation and reliability for customers and clients. The top
management that consists of the board of directors is responsible for governance. They must have effective control over
affairs of the company in the interest of the company and minority shareholders. Corporate governance ensures strict and
efficient application of management practices along with legal compliance in the continually changing business scenario in
India.
Corporate governance was guided by Clause 49 of the Listing Agreement before introduction of the Companies Act of
2013. As per the new provision, SEBI has also approved certain amendments in the Listing Agreement so as to improve
the transparency in transactions of listed companies and giving a bigger say to minority stakeholders in influencing the
decisions of management. These amendments have become effective from 1st October 2014.
 AGBS - INDORE

A Few New Provision for Directors and Shareholders

• One or more women directors are recommended for certain classes of companies
• Every company in India must have a resident directory
• The maximum permissible directors cannot exceed 15 in a public limited company. If more directors have to be
appointed, it can be done only with approval of the shareholders after passing a Special Resolution
• The Independent Directors are a newly introduced concept under the Act. A code of conduct is prescribed and so are
other functions and duties
• The Independent directors must attend at least one meeting a year
• Every company must appoint an individual or firm as an auditor. The responsibility of the Audit committee has
increased
• Filing and disclosures with the Registrar of Companies has increased
• Top management recognizes the rights of the shareholders and ensures strong co-operation between the company
and the stakeholders
• Every company has to make accurate disclosure of financial situations, performance, material matter, ownership and
governance
 AGBS - INDORE

Why is Corporate Governance in India Important?

A company that has good corporate governance has a much higher level of confidence amongst the shareholders
associated with that company. Active and independent directors contribute towards a positive outlook of the company in
the financial market, positively influencing share prices. Corporate Governance is one of the important criteria for foreign
institutional investors to decide on which company to invest in.

The corporate practices in India emphasize the functions of audit and finances that have legal, moral and ethical
implications for the business and its impact on the shareholders. The Indian Companies Act of 2013 introduced innovative
measures to appropriately balance legislative and regulatory reforms for the growth of the enterprise and to increase
foreign investment, keeping in mind international practices. The rules and regulations are measures that increase the
involvement of the shareholders in decision making and introduce transparency in corporate governance, which
ultimately safeguards the interest of the society and shareholders.

Corporate governance safeguards not only the management but the interests of the stakeholders as well and fosters the
economic progress of India in the roaring economies of the world.
 AGBS - INDORE

The Indian Partnership Act

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urship
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 AGBS - INDORE

A partnership is the relationship between persons who have agreed to share the profits of a business carried on by all or
any of them acting or all.

In India it is governed by the Indian Partnership Act, 1932, which extends to the whole of India. It came into force on 1st
October 1932.

Meaning

According to Section 4 of the Partnership Act,1932-

“Partnership is the relation between persons who have agreed to share the profits of a business carried on by all or any
one of them acting for all”.

Essential requirements of a partnership

• There must exist an agreement between the partners.
• The motive is to earn the profit and share between the partners.
• The agreement must be to carry out the business jointly or by any of them acting on the behalf of all.
Examples:
A and B buy 100 tons of oil which they agree to sell for their joint account. This forms a partnership and A and B are
considered as partners.
A and B buy 100 tons of oil and agreed to share it among them. It does not form a partnership as they had no intention to
carry out business.
 AGBS - INDORE

Number of members

Any two or more persons may form a partnership. There is no limit imposed on the minimum and the maximum number of

partners under the Partnership Act,1932. According to Companies Act 2013, the maximum number of 100 must not exceed in

case of partnership and minimum is 2 partners.

If in any case, it exceeds the maximum limit then it will amount to the illegal association under Section 464 of Companies

Act,2013. According to Section 11 of Companies Act the maximum number of partner in case of:

Banking purpose-10 persons

Other purposes- 20 persons

 AGBS - INDORE

Agreement

The partnership is an agreement in which two or more person has decided to carry out business and share the profit and
losses equally. To create a legal relationship it is necessary to form a partnership agreement.

The partnership agreement becomes the foundation or the basis on which it is based. It can be either written or oral. The
written agreement is known as a partnership deed. Partnership deed mainly consists of the following details:

1. Name and address of its firm and business

2. Name and address of its partner
3. Capital contributed by each partner
4. Profit and loss sharing ratio
5. Rate of interest on capital, loan, drawings etc
6. Rights, duties and obligation of partners
7. Settlement of accounts on the dissolution of the firm
8. Salaries, commission payable to partners
9. Rules to be followed in case of admission, retirement and death of a partner
10. Mode of settlement on disputes among partner.
11. Any other affecting the rights of the partners
 AGBS - INDORE

Business (Section 12)

The partnership must be created for the purpose of carrying the business which is legal in nature. Co-ownership of property
does not amount to the partnership.

Mutual agency (Section 13)

The business is to be carried by all of them or by any one of them on behalf of all. It gives two assumptions
Each partner is entitled to carry out the business. The mutual agency exists between the partners. Each partner is a
principal as well as an agent for the other partners. He is bound by the acts of other partners as well as can bind others by
his own act.

Sharing of profit
The agreement is to share profit and losses among the partners. The sharing of profit and losses can be according to the
ratio of the capital contributed or equally.
It helps to distribute the burden among the partners in the case when the partnership suffers losses.

Liability of partnership
All the partners are jointly liable for paying the debts of the firm. The liability is unlimited which means that the partner’s
private assets can be disposed of for the purpose of paying the debts of the firm.
 AGBS - INDORE

Types of Partners in the Partnership Act

The types of partners under the Partnership Act, 1932 can be studied under the following heads:

[Link] to objectives

[Link] to tenure

[Link] to nature

[Link] to legality

[Link] the basis of Registration

 AGBS - INDORE

According to Objectives

Partnership at Will
When a partnership is created, it’s upon the discretion of the partners to decide that till when they want the partnership to
exist. Therefore, whenever a partnership is created without determination of a specific time limit, it is known as partnership
at will.
Such partnership is based upon the will of the partners and it can be brought to an end whenever any of the partners serves
a notice depicting intention for the same. This partnership is created to conduct a lawful business for an indefinite period.
Furthermore, the dissolution of a partnership is not pre-decided and it is taken into consideration when the need arises. It’s
upon the partners to decide among themselves the requisite time period of partnership.

Particular Partnership
The main objective behind making a particular partnership is to carry out a specific undertaking. Such a partnership is
created between partners for a project of a temporary contract-based work or a specific business only, this is known as a
particular partnership. In particular partnerships, once the objective of the business partnership is achieved, then
partishership gets dissolved. In simple words, this partnership is formed for undertaking the particular venture and it comes
to an end automatically after the completion of tasks involved in the venture. Nevertheless, the partners have a choice to
continue the partnership by coming to an agreement.

For example: Partnership made for production of a movie or a construction of a building.

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According to Tenure

Partnership for a Fixed Term

In such a type of partnership, the partnership is for a fixed period of time say 5 years, 2 years or any specified duration of
time. The partnership automatically comes to an end after the expiration of the said period.

Flexible Partnership
Partnerships which are neither for a fixed duration of time nor for any particular venture are called flexible partnerships.
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According to Nature

General Partnership
In a general partnership, each partner reserves a right to make decisions about the working and management of the firm. It is pertinent to
note that, the liability of the partner in such a type of partnership is unlimited. It means that if there is any financial error or loss incurred by
one partner, all the other partner’s assets would be taken into consideration in order to pay the liabilities incurred in the form of debts.
If there is absence of an agreement, the provisions of the Indian Partnership Act, 1932 are applicable for general partnerships wherein the
liability of each partner is limited.

Limited Liability Partnership (LLP)

Unlike general partnership, limited liability partnership is a corporate form of business organization. In such a type of partnership, the
liabilities are limited to each partner in accordance with the contribution made by them in the business. Furthermore, the personal property
or assets of the partner cannot be attached to pay back the liability of the firm. It is pertinent to note that this organization is not governed
under Partnership act,1932, but is governed under Limited Liability Partnership Act, 2008.

In a limited liability partnership some or all except one partner have a limited liability in accordance with the extent of capital contributed by
them. It is pertinent to note that, in partnership all the partners cannot have limited liability.
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According to Legality

Legal Partnership
When the partnership is formed in accordance with the provisions of the Indian Contract Act, 1872 and Indian Partnership
Act, 1932, it will be termed as a legal Partnership.
Illegal Partnership
The partnership can become illegal when it violates the provisions of any law of the country or when the requisite number
of partners exceeds beyond the time limit or below the time limit.

On the basis of Registration

The registration of a firm is not mandatory under Partnership Act, 1932. Both Registered firm and unregistered firm are
valid in the eyes of Law.
Unregistered Partnership Firm
An unregistered firm is established when there is execution of agreement between the partners. The partnership firm
which is unregistered allows the partners to carry out business activities as provided in the agreement.
Registered Partnership Firm
In order to register a partnership firm, it must be registered with the Register of Firm (RoF) having the requisite jurisdiction
over the place where the Firm is carrying out its business activities. The application of registration involves the payment of
registration fee to RoF, which varies from state to state in accordance with the state laws. In a partnership, registration of a
firm is preferred due to benefits it offers such as filing a suit in the court.
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Partners

The member of a partnership is called [Link] is not mandatory that all the partners are the same or all the partners
participate in the conduct of the business or share the profit or losses equally. The partners are classified depending on
the nature of work, the extent of liability, etc. There are basically six types of partner:

Active/managing partner: The partner who takes participation in the conduct of the business daily. This partner is also
called an ostensible partner.
Sleeping/Dormant: He does not participate in the conduct of the business but he is bound by the conduct of all the
partners.
Nominal partner: He is a partner to the firm only by his name. In reality, he has no significant or real interest in the firm.
Partner in profit only: The partner who agrees to share the profit but does not suffer losses. He is not liable for any
liabilities in case of dealing with the third party.
Minor partner: A minor cannot be a partner according to the Indian Contract Act, but he can be admitted to get the
benefit of all the partners gives the consent. His will share the profit equally but his liability will be limited in case of loss
of the firm.
Partner by estoppel: it means when the person is not a partner but he has represented himself by conduct, or words to
another person to be the partner then he cannot deny afterwards. Even though he is not a partner but he becomes the
partner by holding out or by estoppel.
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Rights of the Partners

Right to participate in the conduct of business (Section 12(a)): each partner has a right to participate in the conduct of
the business. A partner right to participate in business is curtailed in a case where some of them only participate in the
business affairs of the firm. this right can be curtailed only when the partnership deed states so.
Rights to access and inspect books and accounts (Section 12(d)): This right is also given to the active and dormant
partner. Each partner has a right to access and inspect the book of account of the firm. In case of death of a partner, his
legal heir can inspect the copies of accounts.
Right to be indemnified: The partners have a right to be indemnified for the decision taken in the course of the business.
But such a decision is to be taken in the case of urgency and should be of such nature that the ordinarily prudent person
would take.
Rights to express his opinion (Section 12(c)): Each partner has a right to express his opinion with regard to the business
affairs. They also have the right to participate in the decision-making process.
Rights to get interested on capital or advances: Generally, partners are not entitled to get any interest on the capital that
they invest .but when they agree to give interest, then such interest would be paid from the capital. They are also entitled
to 6%interest on the advances made towards the business of the firm.
Right to share profit and loss: The partners share the profit and losses equally in the absence of any deed. But when there
is a partnership deed prescribing the ratio of profit and losses it will be shared in accordance with the partnership deed.
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Duties of partners

The rights and duties are correlated with each other. When the rights are given to the partners then there must be some
which the partners should perform..the various duties of partners are as follows:
Duty to act diligently (Section 12(b)): It is the duty of the partners to act with due care and diligence because his actions
will affect all other partners. If his wilful act causes a loss or injury to other partners he is entitled to pay compensation to
the affected partners.
Duty to indemnify fraud (Section 10): whenever any fraud is committed by partners then every partner is liable to
indemnify the firm for losses because the firm is liable for the wrongful acts of the partners. If the fraud causes the losses
to other partners he is entitled to indemnify for the loss caused.
Duty to use the firm property exclusively for the purpose of business (Section 15): The partners can use the firm
property for the purpose of the business but not for its personal purpose. The partner must use the property in a lawful
manner. they must not earn a person gains from such property.
Duty to hand over personal gains (Section 16): All the partners should act towards achieving the common goal. they must
not engage in other profession or engage in any competitive business venture. If they earn any personal gains from the
conduct of business then they should hand over to all the partners.
General duties (Section 9): It is the duty of all partners to make all the efforts to achieve a common goal, to render a true
account and provides all the information affecting a firm to partners, or his representative
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How is registration done?

Section 58 explains the procedure of the registration of a partnership firm.

Making an application to Registrar: Any of its partners can send an application along with the prescribed fee and copy of
partnership deed o the registrar of the area in which any place of business is proposed to be situated or is situated. Such a
statement shall be signed by all of its partners. Such a statement should contain:
• Name of the firm
• Principal place of business
• Any other place where the business is carried on
• Duration of partnership firm
• Name and address of all partners of a firm
• The date on which each partner joined the firm

Verification: Each partner who has signed the statements needs to be verified.

The name of the firm shall not contain any name resembling the name of Crown, Emperor, king, Royal, Emperors’, or any
other words implying or expressing the sanction of the government.

Section 59 states that when the Registrar is satisfied that the conditions of Section 58 are complied with then he shall
record an entry of the statement in a register called the Register of Firms, and shall file the statement.
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Non- registration of partnership firm

In India, it is not compulsory to register the partnership and no penalty is being imposed for non-registration but if we talk
about English law it is compulsory to register partnership firm and if it is not registered then the penalty is imposed. Non-
registration leads to a certain disability in accordance with Section 69 of the Act.

Effect of non-registration (Section 69)

• No suit can be initiated in civil court by the firm or other co-partners against the third party
• In case of breach of contract by the third party; the suit cannot be brought in any civil suit. The suit must be filed by the
one whose name is registered as a partner in a register of the firm.
• No partners can claim a relief of set-off.
• Any action which is brought out by the third party against the firm having a value of Rs 100 cannot be set off by the firm
or any of its partners.
• An aggrieved person cannot sue against firms or other partners
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Dissolution of firm ( Section 39 to Section 44)

When the partnership is dissolved by all the partners then it is called a dissolution of a firm. It is necessary to dissolve
the existing relations between the partners in order to dissolve the partnership . The partnership is dissolved either
1)voluntary; or
2)by the order of Court.

● By Agreement (section 40)

● Compulsory dissolution (section 41)
● By the happening of certain events (section 42)
● By the partnership at will( section 43)
● By the court (section 44)

Let us further understand each mode in detail

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By Agreement
- The partnership can be dissolved when all the partners gives their consent to it.
- The partnership which was created for a particular purpose dissolved after the completion of such purpose.

Compulsory Dissolution
Sometimes an events make the partnership as unlawful to carry out his business. In such case the partners has no
option except to dissolve. When a partnership firm carries more than one undertaking out of which one becomes
unlawful then it is not compulsory to dissolve the partnership. It can withdraw from the illegal undertaking and can
continue with other lawful undertaking

On happening of certain contingencies

The partnership is dissolved on the happening of certain contingencies.
Certain contingencies includes:-
- On the expiration of fixed term; when the partnership is created for the fixed term,
- On the death of partner,
- On the completion of project or undertaking; when the partnership was created for the purpose of
completing undertaking or project,
- On the adjudication of partners as a partner.
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By notice of partnership at will

When any partners desire to dissolve partnership he serves a notice to all other partners expressing his intention to dissolve
the partnership. If all the partners gives agrees then the partnership is dissolved.
The partnership is dissolved on the date prescribed in the notice and if no such date is mentioned in the notice then date of
dissolution of firm is the date of communication of notice.

By Order from the Court

The Court may dissolve the partnership on any of the following grounds:-

1) Unsound mind/insanity:-when any partners becomes unsound or insane then a suit is brought by a next friend of a
partner who has become unsound or insane or any other partner.

2) Incapability:- When the partners other than a suing partner become permanent incapable to perform his duties as a
partner.

3) Misconduct:-when the partners other than suing partner is guilty of any act which affect the carrying on a business with
respect to the nature of business
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4) Continuing Breach of Contract:- a partner may continuously, persistently or willfully committing a breach of contract with
regard to
1) Management of affairs of its conduct
2) A reasonable conduct of its business
3) Conduct himself in such a manner that it is not possible for other partners to carry out the business of firm.
In such case the other partners may file a suit in a court and the court may order to dissolve the firm. Following acts are
considered as breach of agreement:-
● Keeping wrong accounts
● Refuse to show the accounts in spite of requests
● Keeping more cash than is actually allowed
● Embezzlement.
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5) Transfer of interest:-when a partner has transfer all his interest to the third party without the consent of other partners
or gives a permission to Court to charge or sell his share for the recovery of arrear of land revenue and sit is filed by any
other partners against such partners the court my dissolve the firm.

6) Perpetual or Continuous losses:- when the business is continuously suffering loss and the court believes that the firm
can not survive in the future due to continuous loss and cannot revive to its original position the court may order to
dissolve the firm.

7) Other grounds:- The court may find other just and equitable grounds for the dissolution of the firm. Such grounds are as
follows:-
Conflict between the partners
Deadlock in the management
Offence committed by any of its partner
Loss of foundation of business.
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Liability of partners in Different Situations

Liabilities of partners after the dissolution of the partnership firm (Section 45)
The partners are liable for the acts of the firm to the third party until public notice is given. A partner who is declared as
insolvent, or who is retired, the estate of a person who dies, or who was not known as a partner at the time of dealing
with the third party will not be liable for the act.
Wind up the Business Post-Dissolution (Section 46)
When the firm is dissolved every partner has a right to apply for the firm’s property in the payment of debts and
liabilities. If there is any surplus it needs to be distributed among the partners.
The partners have mutual obligations and rights until the affairs of the firm is wound up.
Settlement of partnership account (Section 48)

When the partnership has dissolved the accounts of the partners needs to be settled under the usual course of business.
Various modes can be used for the settlement of accounts.
If there is a deficiency in capital or loss is incurred when it is paid out of profit. If profit is not sufficient or no profit is
earned then it is paid out by the capital and by the partners if necessary. The partners contribute to the proportion of the
profit sharing ratio.
The asset of the firm and the capital contributed by the partners to meet up the deficiency in the capital is applied in the
following order:
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Repayment to third parties

The amount which is due to him from the capital
The amount which is due to him on account of capital
And if any amount is left then it is distributed among all the partners in their profit sharing ratio.
Paying Firm Debts and Separate Debts (Section 49)
In a case when there are joint debts from the firm and the separate debts from the partner then joint debts from the
firm is given priority and if any surplus is left then separate debts from the partner is to be paid off.
The property of the individual partners is applied firstly for the payment of separate debts.
Personal Profit Earned After Dissolution of Firm (Section 50 and Section 53)
When the firm is dissolved by the death of the partner and business is carried out by the existing partners or his legal
heirs then they have to account for the personal benefit earned before winding up the partnership.
Section 53 states that if there is no contract the partner can restrain other partners from carrying similar activities, or
using the firm’s name or firm’s property for their own benefit until the winding up process is complete.
Return of Premium on the Premature Dissolution of the firm (Section 51)
When the firm is dissolved before the expiry of a fixed period, then a partner paying a premium can receive a return of
a reasonable part of the premium. Such rules are not applicable in a case when the partnership is dissolved by:
Misconduct of partner paying a premium (Section 52)
Post an agreement in which there is no clause for return of premium.
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A limited liability partnership (LLP) is a partnership in which some or all partners (depending on the jurisdiction) have
limited liabilities. It therefore can exhibit elements of partnerships and corporations. In an LLP, each partner is not
responsible or liable for another partner's misconduct or negligence.
Limited Liability Partnership is yet another form of Business Organization in India but with a bit of difference from other
such forms such as Sole Proprietorship, Partnership, Company etc.
LLP is an incorporated partnership formed & registered under the Limited Liability Partnership Act, 2008, with limited
liability & perpetual succession.

Entreprene
urship
© Oxford
University
Press 2011
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The main features of LLP are:

LLP is a body corporate and a legal entity separate from its partners. The LLP has a perpetual succession.
The Rights & Duties of partners of an LLP and those of the LLP and its partners shall be governed by an agreement between
partners or between the LLP and the partners.
The Liability of the partners is limited to their agreed contribution in the LLP which may be tangible or intangible in nature or
both tangible & intangible in nature.
LLP shall maintain annual accounts reflecting the true and fair view of its state of affairs. A statement of accounts and
solvency shall be field by every LLP with the Registrar every year.
The Central government has the power to investigate the affairs of an LLP, if required, by appointment of a competent
inspector for the purpose;
The Indian Partnership Act, 1932 shall not be applicable to LLP’s.
Every LLP shall have at least two partners and shall also have at least two individuals as Designated Partners, of whom at
least one shall be resident in India.

It offers limited liability, offers tax advantages, can accommodate an unlimited number of partners, and is credible in that
it is registered with the Ministry of Corporate Affairs (MCA). At the same time, it has fewer compliances than a private
limited company and is also significantly cheaper to start and maintain.
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LLP is a rare combination of traditional partnership and a modern limited company and therefore, it offers conclusive
benefits of the both the entities. ... However, like every coin has two sides, LLP registrations too have some disadvantages
and hence in some cases, it cannot be said to be an ideal form of business

Benefits of an LLP
There are numerous benefits to be had from trading through an LLP -
Limited liability protects the member’s personal assets from the liabilities of the business. LLP’s are a separate legal entity
to the members.
Flexibility. The operation of the partnership and distribution of profits is determined by written agreement between the
members. This may allow for greater flexibility in the management of the business.
The LLP is deemed to be a legal person. It can buy, rent, lease, own property, employ staff, enter into contracts, and be held
accountable if necessary.
Corporate ownership. LLP’s can appoint two companies as members of the LLP. In an LTD company at least one director
must be a real person.
Designate and non-designate members. You can operate the LLP with different levels of membership.
Protecting the partnership name. By registering the LLP at Companies House you prevent another partnership or company
from registering the same name.
This is not an exhaustive list but covers some of the key benefits on an LLP.
 AGBS - INDORE

Disadvantages of an LLP
As with all formats of business there will be disadvantages as well as advantages. The following may be considered
disadvantageous in some cases.
Public disclosure is the main disadvantage of an LLP. Financial accounts have to be submitted to Companies House for the
public record. The accounts may declare income of the members which they may not wish to be made public.
Income is personal income and is taxed accordingly. There may be tax advantages in registering as a company, but this will
depend on your personal circumstances.
Profit can not be retained in the same way as a company limited by shares. This means all earned profit is effectively
distributed with no flexibility to hold over profit to a future tax year is advantageous for an LLP.

An LLP must have at least two members. If one member chooses to leave the partnership the LLP may have to be dissolved.
Residential addresses were historically recorded at Companies House. Whilst the use of ‘service addresses’ now allows for
home addresses to be kept out of public view, any address previously supplied to Companies House is still part of the public
record unless you pay for the records to be suppressed. For many businesses this is not a problem. However, there are some
examples where this may not be desired. Consider solicitors and partners of law firms that may not want their home address
so freely available if their work involves sensitive cases.
This is not an exhaustive list but covers some of the key issues that some may feel are:
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Particulars LLP Partnership firm

Registration Act Limited Liability Indian Partnership Act,
Partnership Act, 2008 1932
Registered to Ministry of Corporate Registration of Firms
Affairs
Liability Liability of partners is The partner and the firm
limited to the amount are not considered as
invested in the company separate legal entity. For
this reason, Partners are
personally liable for
the unlimited amount of
liabilities of the
partnership
Number of partners and other A Minimum of 2 and no A Minimum of 2 and a
requirements upper limit for the maximum of 50 partners
maximum number of can be a member of
partners in LLP. And No the partnership firm.
minor can be a partner. Minors can be a partner.

Agreement between partners LLP Agreement governs Partnership Deed governs

the operation, the operation,
management and management and
decision- decision-making
making methodologies methodologies and other
and other activities of the activities of the
LLP. partnership
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Compliance Mandatory to file the No requirement of

annual return to Ministry annual return filing
of Corporate Affairs

Under law Two people can start the firm

Cost of creation The cost of Formation is the Negligible fees

statutory filing fees

Foreign participation Foreign nationals can be partners Foreign participation is not

in LLP allowed in a partnership firm

Ownership of assets The firm has ownership of the The partners have equal
assets of the company ownership on assets

Legal proceedings An LLP is a legal entity that can Only registered partnerships can
sue or be sued sue any partner or any other
person

Tax liability The income of LLP is taxed at a The income of the partnership is
Flat rate of 30% plus education taxed at a Flat rate of 30% plus
cess as applicable. education cess as applicable.
 AGBS - INDORE

Inheritance of entity Transferred as per the regulations Transferred to the legal heir
of the LLP Agreement

The requirement for Designated Each partner should obtain DPIN No such requirement
Partner Identification Number before they are appointed as the
(DPIN) Designated Partner

Digital signature At least one Designated Partner No such requirement

must have Digital signature

Dissolution By agreement, court order, It should be done voluntarily or by

insolvency, mutual consent, etc. order of the National Company
Law Tribunal

Admission of partner As per the regulation of the LLP As per the regulation of the
Agreement Partnership Deed
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To register an Indian LLP, you need to first apply for a Designated Partner Identification Number (DPIN), which can be
done by filing e-Form for acquiring the DIN or DPIN. You would then need to acquire your Digital Signature Certificate
and register the same on the portal. Thereafter, you need to get the LLP name approved by the Ministry. Once the LLP
name is approved, you can register the LLP by filing the incorporation form.

Step 1 : Application for DIN or DPIN

All designated partners of the proposed LLP shall obtain “Designated Partner Identification Number (DPIN)”. You need to
file eForm DIR-3 in order to obtain DIN or DPIN. In case you already have a DIN (Director Identification Number), the
same can be used as a DPIN.

Step 2 : Acquire/ Register DSC

The Information Technology Act, 2000 provides for use of Digital Signatures on the documents submitted in electronic
form in order to ensure the security and authenticity of the documents filed electronically. This is the only secure and
authentic way that a document can be submitted electronically. As such, all filings done by the LLP(s) are required to be
filed with the use of Digital Signatures by the person authorised to sign the documents.
Acquire DSC -A licensed Certifying Authority (CA) issues the digital signature. Certifying Authority (CA) means a person
who has been granted a license to issue a digital signature certificate under Section 24 of the Indian IT-Act 2000.
Register DSC - Role check can be performed only after the signatories have registered their Digital signature certificates
(DSC) with LLP application.
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1Do you want to start an Indian LLP?

2Do you want to convert existing partnership firm into LLP?
Any existing partnership firm that is willing to get converted into LLP will need to apply through Form 17 (Application and
statement for the conversion of a firm into LLP. Form 17 needs to be filed along with Form 2 (Incorporation document and
Subscriber’s statement).
Process
The dissolution process can be divided into 3 parts:-
A. Resolutions and affidavits
The first step for the voluntary dissolution is to pass a resolution of partners and creditors. After that, all of the partners shall
sign an affidavit, bond along with other necessary documents and to file form for striking off an LLP with MCA.
B. Appointment of Liquidator and Liquidation report (not applicable for defunct LLP)
A Liquidator must be appointed by the LLP within 30 days of passing the resolution in consultation with the creditors if any.
The liquidator will carry out all the necessary functions & duties and thereby generate a liquidation report, affecting
dissolution, containing the exact manner in which winding up would be carried out. This report will be sent to the registrar
along with the resolution of acceptance of the liquidation & valuation report.
C. Dissolution by Tribunal
Along with the reports mentioned above, an application will be moved to the tribunal for dissolution. If the tribunal is
satisfied with the process followed for winding up, it will pass the necessary order whereby LLP shall stand dissolved. The
liquidator then will file such order with the registrar.
Lastly, if registrar thinks fit, the registrar would publish the notice of such winding up/strike off of an LLP in its Official Gazette
stating dissolution of the LLP. If it did not receive any objection in 30 days then the registrar will dissolve or strike off an LLP.
 AGBS - INDORE

Designated Partner in LLP

Designated Partners is a concept introduced by the Limited Liability Partnership Act, 2008. Designated Partners are similar
to Directors of a Private Limited Company. A Designated Partner in a LLP when compared to the Director of a Company,
enjoy more rights and priviledges.

Who can be a Designated Partner in LLP?

Designated partners can only be individuals. Among the members of a Limited Liability Partnership, two or more partners
can be designated as a Designated Partner. In all LLP, atleast one of the Designated Partner must be an Indian Resident.

Who can’t be a Designated Partner?

The persons listed below do not qualify to be a designated partner:
An undischarged insolvent.
A person who was declared involvement in the preceding five years.
A person who has withheld payments to his creditors at any point of time in the preceding five years of time, and has not
made a composition with the creditors.
A person who has been imprisoned for any immoral acts, and where the period of the sentence was at-least 6 months.
Minors below the age of 18 years.
However, the Central Government is empowered with the rights to annul the disqualification of a person.
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Designated Partner Identification Number (DPIN)

All Designated Partners in an LLP are required to have a Designated Partner Identification Number (DPIN) or Director
Identification Number (DIN). Though referred by different terms, both Designated Partner Identification Number (DPIN)
or Director Identification Number (DIN) are one and the same and can be used interchangeably. To obtain DPIN, a class
2 digital signature must be obtained for the Designated Partner.
All partners of a LLP are entitled to the role of a Designated Partner. During LLP registration, the incorporation
document must specify certain people as Designated Partners. The LLP Partnership Deed can allow for perusal and
rotation of the role of Designated Partner, ensuring the participation of each and everyone.
Any person can become a Designated Partner in a LLP with the consent of other existing Partners in the LLP.

Documents Required for Becoming Designated Partner

The following documents must be submitted for obtaining DPIN and becoming a Designated Partners in a LLP:
Attested/Certified copy of the proof identity which contains a self-photograph, and particulars of date of birth and name
of the father/husband.
Attested/Certified copy of the residential proof.
If the applicant is a nominee of the body corporate, he/she must attach a copy of resolution/authorization on its letter-
head. Particulars such as the name and address of the individual must be specified.
If the applicant is a foreign national, attachment of a copy of the valid passport would suffice.
 AGBS - INDORE

Duties of a Designated Partner

It is easily understood that a Designated Partner is required to file documents, returns, statements etc, but his/her
functions do not conclude there. We have enlisted some vital ones below:
The Designated Partner is authorized to affix his signature on the Statement of Account and Solvency, the filling of which
is prepared by the LLP.
The LLP must file annual returns with the Registrar within a specified period of 60 days from the date of closure of the
financial year in a prescribed manner. If this isn’t implemented, every Designated Partner will be imposed with a fine
exceeding Rs 10,000.
The Designated Partner may file the returns of documents, if the need arises.
The Designated Partner must extend his/her co-operation to the inspector on inquiry or inspection, by supporting the
authority with the necessary documents, information, signing the notes for examination etc.
A Designated Partner is liable to reimburse expenses on an investigation conducted by the Inspector.

Penalty for Not Having Designated Parnter

It is mandatory for all LLPs to have a minimum of two or more Designated Partners. Failure to comply with the same
could result in a levy of penalty amounting to Rs 10,000 or more. Besides, in an instance where the vacancy due to the
exit of a Designated Partner is not being addressed within a period of 30 days, penalties, similar to the nature described
above, will be levied on the LLP.
Comparison Chart
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BASIS FOR COMPARISON PARTNER DESIGNATED PARTNER

Meaning When two or more persons enter into Designated Partner refers to any partner
partnership business with one another, they who is appointed as such, in the
are individually called as partners. incorporation document, at the time of LLP
registration.
Context General Partnership and Limited Liability Limited Liability Partnership only.
Partnership
Act as Agent Agent as well as Directors
Eligibility Criteria Any person or body corporate can become a Only individuals can be selected or
partner. appointed as a designated partner.
Duties, Rights and Liabilities Partner's duties, rights and liabilities are The duties, rights and liabilities of
stated in Partnership Deed in case of designated partners are stated in the LLP
General Partnership and in LLP Agreement Agreement.
in case of Limited Liability Partnership.

Accountability for regulatory and legal No Yes

compliance
Identification Number No requirement for obtaining an Every designated partner is required to
identification number. obtain a DPIN (Designated Partner
Identification Number
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An LLP protects each partner from debts against the partnership arising from professional malpractice
lawsuits against another partner. ... (A partner who loses a malpractice suit for his own mistakes, however, doesn't
escape liability.
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Consumer Protection Act, 1986

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Table of Contents
• Proposed benefits of the New Act
• Objectives of the New Act
• Comparative Analysis: Consumer protection act, 1986 (Old act) v. Consumer
protection act, 2019 (New act)
• Meditation under the Consumer Protection Act, 2019 (Section 74)
• Liability of product manufacturer under the Consumer Protection Act, 2019
(Section 84)
• Liability of product service provider (Section 85)-
• Liability of product service provider (Section 86)-
• Exceptions to product liability action (Section 87)
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AGBS - INDORE

Consumer Protection Act, 1986 v. Consumer Protection Act, 2019

Consumer Protection Act, 2019 was passed on 9th August 2019. It is a

repealing statute, thereby repealing more than three-decade-old law of
Consumer Protection Act, 1986. It has come with new legislation and rules
which will help consumers to file consumer complaints thereby increasing
efficiency. It also aims to bring about more efficiency in dealing with e filling
and mediation. This will change how consumers seek relief. This Act is truly a
step into the future.
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AGBS - INDORE

Proposed benefits of the New Act

•Definition of the consumer to include e-commerce
• Enhancement of pecuniary jurisdiction
•A complaint can be filed where the consumer is located and not the
opposite party
• Penalties enhanced
•Alternate Dispute Resolution (Mediation)
•E-filing of complaints (Rules to be framed)

Consumer Protection Act, 2019 was passed on 9th August, 2019. It is a repealing
statute, thereby repealing more than three decade old law of Consumer Protection Act,
1986.
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AGBS - INDORE

Objectives of the New Act

•Establishment of the Central Consumer Protection Authority (CCPA)
•Product Liability Option
•Establishment of the Mediation Centre
•Introduce Filling by Video Conferencing
•The imposition of higher penalties.
•E-commerce included within the ambit of Consumer Protection.
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Comparative Analysis: Consumer protection act, 1986 (Old act) v. Consumer

protection act, 2019 (New act)
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AGBS - INDORE

Comparative Analysis: Consumer protection act, 1986 (Old act) v. Consumer

protection act, 2019 (New act)
Course Title: Legal Aspects of Business Course Code: LAW670 AGBS - INDORE

Meditation under the Consumer Protection Act, 2019 (Section 74)

The State Governments shall establish a consumer mediation cell to be attached
to each of District Commissions and State Commissions of state. (Section 74(1))

Central Government shall establish consumer mediation cell to be attached to

the National Commission (Section 74(2))

Holding companies accountable for the default in service or manufacture is the

essence of the Consumer Protection Act. The following is how a product
manufacturer and service provider can be held liable-
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AGBS - INDORE

Liability of product manufacturer under the Consumer Protection Act, 2019

(Section 84)
Product manufacturer will be liable for –
(a) Manufacturing defect in the product
(b) Defective design of the product or
(c) Deviation from manufacturing specifications or
(d) Product not conforming to express warranty or
(e) No adequate instructions of correct usage contained (in order to prevent harm
or warning)
Liability even if he proves that he was not negligent or fraudulent in making
express warranty.(Section 84(2))
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AGBS - INDORE

Liability of product service provider (Section 85)-

Product service provider will be liable if-
(a) Service provided was faulty or imperfect or deficient or inadequate in
quality, nature or manner of performance which is required by or under any
law or pursuant to any contract
(b) Act of omission or commission or negligence or conscious withholding
information which caused harm
(c) No adequate instructions or warnings issued to prevent harm
(d) No conformity with express warranty or terms and conditions of the
contract.
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AGBS - INDORE

Liability of product service provider (Section 86)-

Product seller will be liable if-
(a) Substantial control by him over designing, testing, manufacturing, packaging or
labelling of product causing harm
(b) he altered or modified the product (such alteration or modification being
substantial factor in causing harm)
(c) made express warranty independent of express warranty of manufacturer (and
product failed to conform express warranty by product seller)
(d) product sold by him and identity of manufacturer is now known or if known,
service of notice or process cannot be effected
(e) failed to exercise reasonable care in assembling, inspecting or maintaining
product
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AGBS - INDORE

Exceptions to product liability action (Section 87)

Product seller shall be exempted from liability if at time of harm, product was misused, altered or
modified.
Product manufacturer not to be liable if- (where product liability action is based on failure to
provide adequate warnings or instructions)
(a) Product purchased by the employer to be used at the workplace & warnings or instructions
were provided to the employer.
(b) Product sold as component or material for another product and harm was caused by the end
product
(c) Product was legally meant to be used or dispensed by or under supervision of an expert and
warnings or instructions for such usage were given
(d) Complainant while using the product was under the influence of alcohol or prescription
(excluding drugs prescribed by a medical practitioner)
(f) No liability in case of danger which is obvious or commonly known to the user or
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On July 20th, 2020, the new Consumer Protection Act, 2019 came into force in India, replacing the previous enactment of
1986. The new Act overhauls the administration and settlement of consumer disputes in India. It provides for strict
penalties, including jail terms for adulteration and for misleading advertisements. More importantly, it now prescribes
rules for the sale of goods through e-commerce. The consumer is now truly the king!

Consumer Rights under the Consumer Protection Act, India!

Although businessman is aware of his social responsibilities even then we come across many cases of consumer exploitation.
That is why government of India provided following rights to all the consumers under the Consumer Protection Act.

Salient features of consumer protection act are as follows:

Coverage of Items:
This Act is applicable on all the products and services, until or unless any product or service is especially debarred out of the
scope of this Act by the Central Government

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urship
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Consumer Responsibilities to be followed under Consumer Protection Act!

Various efforts have been made by government and non-government organisations to protect the interest of consumer
but exploitation of consumer will stop only when consumer himself will come forward to safeguard his own interest.
Consumers have to bear some responsibilities which are given below:
1. Consumer must Exercise his Right:
Under Consumer Protection Act the consumer is granted various rights such as right to safety, right to choose, right to be
heard etc. but these rights will be useful only when consumer exercises these rights. The consumer must select the
product according to his preferences, he must file a complaint if he is not satisfied with the quality of product, he must be
aware of his rights and exercise them whenever required.
2. Cautious Consumer: The consumer should not blindly believe on the words of seller. He must insist on getting full
information on the quality, quantity, utility, price etc. of the goods or services.
3. Filing Complaints for the Redressal of Genuine Grievances:
Most of the time consumer ignores the loss he suffers on purchase of defective good or service but this attitude of not
filing complaint encourages the corrupt businessmen to supply low standard or defective goods and services.
The consumer must file a complaint even for a small loss. This awareness among consumers will make the sellers more
conscious to supply quality product. Whenever consumer is filing a complaint it must be genuine. The consumer should
not exaggerate the loss or defects of goods.
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4. Consumer must be Quality-Conscious:

The problems of supply of substandard goods, adulterated products and duplicate products can be solved only when
consumer himself stops compromising the quality of product. While purchasing the goods or services consumer must
look for quality marks such as ISI mark, Agmark, ISO, Wool Mark, etc.
5. Do not be carried away by Advertisements:
The advertisements often exaggerate the qualities or features of product or service. The consumer must compare the
actual use of product with the use shown in advertisement and whenever there is any discrepancy or difference it must
be brought to the notice of sponsor of advertisement and insist to stop showing exaggerated qualities.
6. Insist on Cash Memo:
To file a complaint the consumer needs the evidence of purchase, and cash memo is the evidence or proof that consumer
has paid for the goods or service. A seller is bound to give a cash memo even if buyer does not ask for it. To file a
complaint and get compensation the consumer must ask for cash memo.
7. Form consumer societies which could play an active part in educating consumers and safeguarding their interest.
8. Respect the environment; avoid waste littering and contribution to pollution.
9. Discourage black marketing, hoarding and choose only legal goods and services.
10. Be aware of variety of goods and services available in market
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When you have a grievance about any goods or services that you have availed then you can approach redressal
mechanism that is the consumer forum for redressal of your issue. The corporate entities need to know that any person
or even government or non-government body personally or through a lawyer can file a consumer complaint in case of
any dispute regarding goods or services availed from you. The redressal mechanism is a must.
E.g.- Calculation of interest on loans, defect in any food product or any other material purchased, lesser quantity than
mentioned in the purchased product etc.
With the rise in grievances of consumers and more awareness about the rights of the consumers the Consumer
Protection Act, 1986 came into force. Under the Act a quasi- judicial system was established.
We will try to get an insight into how this system works:
The Consumer Dispute Redressal Forum is a three tier system. The tier redressal system of consumer protection
comprising of National Consumer Redressal Forum (NCRF), State commission and District forums. The jurisdiction of each
consumer forum has been given in The Consumer Protection Act, 1986. An appeal from the decision of the district forum
can be made to the state commission and an appeal against the order of the state commission can be made to the
National Forum. There are timelines given for the appeal as there is in cases of any other nature.
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In addition to the 3 tier redressal system of consumer protection timelines there is also timeline of 21 days to decide
jurisdiction over a particular case.
The principle of Res judicata also applies on this body and hence the same case cannot be entertained in more than one
forum or if there is a case pending before a civil court then the same case cannot be entertained by any consumer forum.

Jurisdiction of the forum will be decided on the basis of pecuniary value of the claim and the place of business of the
Respondent where the cause of action took place. On the issue of jurisdiction, the Supreme Court has held that the
interpretation of branch office (as given in the consumer protection Act) of the Respondent will deemed to be the branch
where the cause of action took place and no other branch. For example, if the Respondent has an office all over India but if
the cause of action arose in Rohtak then the claim/complaint can be filed in the consumer district forum of Rohtak.
Regarding the subject matter jurisdiction the Apex court has ruled that the issues regarding Provident Fund can also be
decided by the Consumer forums hence has considered employees as consumers.

Procedure of filing a complaint:

There is a particular consumer redressal procedure-
The first step is to send a legal notice of the grievance to the Respondent.
Any person can file the complaint on a plain paper after notarizing the document.
The complaint can also be filed through post addressed to the particular consumer redressal forum.
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1. Right to Safety:

According to this right the consumers have the right to be protected against the marketing of goods and services
which are hazardous to life and property, this right is important for safe and secure life. This right includes concern
for consumer’s long term interest as well as for their present requirement.
Sometimes the manufacturing defects in pressure cookers, gas cylinders and other electrical appliances may cause
loss to life, health and property of customers. This right to safety protects the consumer from sale of such hazardous
goods or services.
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2. Right to Information:
According to this right the consumer has the right to get information about the quality, quantity, purity, standard and price of
goods or service so as to protect himself against the abusive and unfair practices. The producer must supply all the relevant
information at a suitable place.
3. Right to Choice:
According to this right every consumer has the right to choose the goods or services of his or her likings. The right to choose
means an assurance of availability, ability and access to a variety of products and services at competitive price and
competitive price means just or fair price.
The producer or supplier or retailer should not force the customer to buy a particular brand only. Consumer should be free to
choose the most suitable product from his point of view.
4. Right to be Heard or Right to Representation:
According to this right the consumer has the right to represent him or to be heard or right to advocate his interest. In case a
consumer has been exploited or has any complaint against the product or service then he has the right to be heard and be
assured that his/her interest would receive due consideration.
This right includes the right to representation in the government and in other policy making bodies. Under this right the
companies must have complaint cells to attend the complaints of customers.
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5. Right to Seek Redressal:

According to this right the consumer has the right to get compensation or seek redressal against unfair trade practices or
any other exploitation. This right assures justice to consumer against exploitation.
The right to redressal includes compensation in the form of money or replacement of goods or repair of defect in the
goods as per the satisfaction of consumer. Various redressal forums are set up by the government at national level and
state level.

6. Right to Consumer Education:

According to this right it is the right of consumer to acquire the knowledge and skills to be informed to customers. It is
easier for literate consumers to know their rights and take actions but this right assures that illiterate consumer can seek
information about the existing acts and agencies are set up for their protection.
The government of India has included consumer education in the school curriculum and in various university courses.
Government is also making use of media to make the consumers aware of their rights and make wise use of their money.
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Here are some of the highlights:

An aggrieved consumer can file complaints about a defect in goods or deficiency in services from where she lives,
instead of the place of business or residence of the seller or service provider. The new law provides for e-filing of
consumer complaint as well.
No fees are required to be paid if the claim is within Rupees 5 lakhs (approximately 3500 USD).
A consumer can conduct her own case via video conferencing. Engaging a lawyer is optional.
A concept of product liability has been introduced by the new law, thereby allowing aggrieved consumers to claim
significant compensation as a relief due to the negligence of the manufacturer or service provider.
A group of aggrieved consumers can join hands and file a class action suit (like in the US) to reduce costs and improve
chances of redressal or settlement.

Producers of spurious goods may be punished with imprisonment.

Misleading advertisements may be punished with imprisonment. Celebrities endorsing a product may not be punished
but can be barred from endorsing if the advertisement is misleading.
E-commerce is now tightly regulated, and e-commerce companies are now expected to disclose all relevant product
information, including country of origin, and respond to the grievance of consumers withing prescribed timelines.
Settlement of consumer disputes through mediation i.e. with the help of a neutral intermediary outside the consumer
court is encouraged under the new law, thus saving time and resources of disputing parties which would otherwise have
been spent on dispute resolution through a formal mechanism.
Consumers now have several protected rights, including the right to safety, information, choice, redressal as well as right
to be heard, to be educated as a consumer, and to a mediated settlement.