PSIT EC III; PSITCOE III PSIT, Kanpur

CONSTITUTION OF INDIA, LAW & ENGINEERING

(KNC 501)

Module 5
Business Organizations & E-Governance

Sole Traders
 A sole trader is a self-employed person who owns and runs their
own business as an individual.

 A sole trader business doesn‟t have any legal identity separate to

its owner, leading many to say that as a sole trader “you are the
business”.

 The owner makes all the decisions about how the business is
run.

 The owner keeps all the profit, but also suffers all the losses of
the business.

Example of Sole Traders: Grocery Shop, Restaurants, Petrol Station,

Hairdressing service, Garments Retailer etc.

Advantages of Sole Traders:

 Business profits are not shared.

 Business is easy to establish and manage.
 Decision making is speedy.
Dr. JITENDRA KUMAR, Assistant Professor, BSH, PSIT, Kanpur (U.P.)
PSIT EC III; PSITCOE III PSIT, Kanpur

 It offers customers special attention.

 There is no requirement to register the business with
Companies House.
 May give credit to customers.
 May offer a delivery service.

Disadvantages of Sole Traders:

 There are no shareholders to invest capital.

 There are not multiple partners like in a general partnership.
 Debt incurred by the business must borne by the owner.
 Lack of competitiveness.
 Limited managerial Skills.
 Owner bears all the losses.

Partnership Business/Companies
 A Specific kind of legal relationship.

 A business partnership is a way of organizing a company that

is owned and sometimes run by two or more people or entities.

 A business partnership is a legal relationship that is most

often formed by a written agreement between two or more
individuals or companies.

 The partners invest their money in the business, and each

partner benefits from any profits and sustains part of any
losses.

Dr. JITENDRA KUMAR, Assistant Professor, BSH, PSIT, Kanpur (U.P.)

PSIT EC III; PSITCOE III PSIT, Kanpur

 The partnership as a business often must register with all

states where it does business.

1. General Partnership (GP):

 It consists of partners who participate in the day-to-day

operations of the partnership and who have liability as owners
for debts and lawsuits.

2. Limited Partnership (LP):

 It has one or more general partners who manage the business

and retain liability for its decisions and one or more limited
partners who don't participate in the operations of the
business and who don't have liability.

3. Limited liability Partnership (LLP):

 Extends legal protection from liability to all partners, including

general partners.

 An LLP is often formed by partners in the same professional

category, such as accountants, architects, and lawyers.

Dr. JITENDRA KUMAR, Assistant Professor, BSH, PSIT, Kanpur (U.P.)

PSIT EC III; PSITCOE III PSIT, Kanpur

Companies
 A company is a legal entity formed by a group of individuals to
engage in and operate a business.

 It may be organized in various ways for tax and financial

liability purposes depending on the corporate law of its
jurisdiction.

Dr. JITENDRA KUMAR, Assistant Professor, BSH, PSIT, Kanpur (U.P.)

PSIT EC III; PSITCOE III PSIT, Kanpur

The Company Act 2013

 The Companies Act 2013 is the law covering incorporation,
dissolution and the running of companies in India.

 The Act came into force across India on 12th September 2013.

 The entire bill has been divided into 29 chapters.

Major changes in Companies Act 2013

 Companies (1st amendment) Act 2015

 Companies (2nd amendment) Act 2017
 Companies ( 3rd amendment) Act 2019
 Companies (4th amendment) Bill 2020

The Major Highlights of the 2013 Act

 The maximum number of shareholders for a private company

is 200 (the previous cap was at 50).

 The concept of a one-person company.

 Company Law Appellate Tribunal & Company Law Tribunal

 CSR made mandatory

Salient Features of the Companies Act 2013

 It has introduced the concept of „Dormant Companies‟. (Dormant

companies are those that have not engaged in business for two
years consecutively).

 Documents have to be maintained in electronic form.

 It introduced the National Company Law Tribunal.

 It provides for self-regulation concerning disclosures and

transparency rather than having a government-approval based
regime.

Dr. JITENDRA KUMAR, Assistant Professor, BSH, PSIT, Kanpur (U.P.)

PSIT EC III; PSITCOE III PSIT, Kanpur

 All companies should have at least one director who has been a
resident of India for not less than 182 days in the last calendar
year.

 The Act mandates at least 7 days of notice for calling board

meetings.

 In this Act, the duties of a Director have been defined. It has

also defined the duties of „Key Managerial Personnel‟ and
„Promoter‟.

 Norms have been made stringent for accepting deposits from the
public.

Formation of Company

 A Company comes into existence when a group of people come

together with a view of forming an association to exploit the
business opportunities by bringing together; men, material,
money and management.

 The formation of a company is a lengthy process.

Stages of Formation of a Company

1. Promotion Stage:

 It is the first stage in the formation of a company.

Dr. JITENDRA KUMAR, Assistant Professor, BSH, PSIT, Kanpur (U.P.)

PSIT EC III; PSITCOE III PSIT, Kanpur

 Discovery of Business opportunities.

 Detailed Investigation.

 Assembling necessary requirements.

 Financing of proposition.

2. Incorporation (Registration Stage)

 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.

3. Capital Subscription Stage:

 Entering onto an agreement with underwriters.

 Applying to the stock exchange for listing of shares.

 Issue of prospectus inviting public to subscribe.

 Allotting shares.

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‟.

Dr. JITENDRA KUMAR, Assistant Professor, BSH, PSIT, Kanpur (U.P.)

PSIT EC III; PSITCOE III PSIT, Kanpur

Memorandum of Association (MOA):

 Main document of the company.

 It defines its objects.
 Lays down the conditions upon which alone the company
allowed to be formed.
 Charter of the constitution of the company.
 It defines the scope of its activity and also states that
anything beyond it is unauthorized and illegal.
 It specifies the scope of the activities of the company and also
anything beyond which is illegal or unauthorized.
 The memorandum shall be one of the forms given in Tables A,
B, C, D and E in schedule 1 of the Act.

Dr. JITENDRA KUMAR, Assistant Professor, BSH, PSIT, Kanpur (U.P.)

PSIT EC III; PSITCOE III PSIT, Kanpur

Content of MOA:

The following information is mandatory in an MOA:

 Name Clause
 Registered Office Clause
 Object Clause
 Liability Clause
 Capital Clause
 Association Clause

Articles of Association (AOA)

 Articles of Association (AOA) describe the rules and

regulations for the internal management of the company.
 It contains the bye-laws of the company.
 Therefore, the director and other members must perform their
functions as regards the management of the company, its
accounts, and audits in accordance with the AOA.
Content of AOA

The following information is mandatory in an AOA:

 Regulations
 Inclusion of Matter
 Provisions for entrenchment
 Forms of AOA
 Model Articles

Dr. JITENDRA KUMAR, Assistant Professor, BSH, PSIT, Kanpur (U.P.)

PSIT EC III; PSITCOE III PSIT, Kanpur

Exams are the way to prove your intelligence;

I wish you prove yourself better than best,
My best wishes are always with you.
May you get succeed in every field of life, not only in
these exams.

ALL THE BEST

Dr. JITENDRA KUMAR, Assistant Professor, BSH, PSIT, Kanpur (U.P.)