Forms of Business

Organizations Comparison
By

Dr Naresh Chugh
S.No Feature Sole Prop. Partnership Corp. H.U.F.
Easy
1 Formation Easy (Deed) Difficult Restr.
Easy
2 Closure Easy (Deed) Difficult Restr.
3 Continuity no no yes no
4 Personal Interest yes yes (less) no yes
5 Personal Touch yes yes (less) no yes
6 Contact with Cust. maximum lesser least max.
7 Secrecy total partial no partial
8 Profit /Loss Sharing No partial yes no
9 Decision Qly poor okay good poor
10 Decision time least lesser Max. less
11 Flexibility total partial no total

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12 Admn. Exp. least more maximum less
13 Liability unlimited unlimited limited unlim.

14 Finance least lesser maximum less

15 Taxation single double double single
16 Risk of Business v.high high least high
17 Social life poor okay good poor
18 Legal Status single separate separate single
19 Employee relation best okay poor good
20 Management line line scalar line

No
21 Div. of labour division partial Div. complex no div.
22 Size of business small wholesale largest small

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 Types of Partners
ƒ Active Partners
ƒ Dormant / Sleeping Partner
ƒ Nominal Partner
ƒ Secret Partner
ƒ Profit Partner
ƒ Sub Partner
ƒ Partner by Estoppel
ƒ Minor Partner

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 Partnership deed
ƒ Name and Address of Partners
ƒ Nature of business
ƒ Duration
ƒ Contribution
ƒ Sharing of Profit
ƒ Operation and Responsibility
ƒ Drawings, Salary & Expenses
ƒ Accounting, Financial and Bank Commitments
ƒ Withdrawal, Dissolution and Arbitration
ƒ Right to transfer share and Nomination
ƒ Continuity

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ƒ FORMATION OF A JOINT STOCK COMPANY
ƒ The Formation of a joint stock company is a legal
process and has to be completed under the rules
and regulations of the Companies Act 1956. There
are two stages in the formation of a company viz.
ƒ 1) Promotion
ƒ 2) Incorporation
– The steps beyond incorporation is to attract large
investor base and increase the shareholding.
ƒ The additional steps are
– 3) Inviting public for subscription.
– 4) Allotment of shares to the public.
– 5) Commencement of Business.
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ƒ PROMOTION

– The various stages of promotion are

– 1) Discovery of an idea and primary
investigation.
– 2) Detailed Investigation
– 3) Verification
– 4) Assembling
– 5) Financing

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ƒ INCORPORATION
ƒ The incorporation of a company involves many
steps.
ƒ 1) Seeking of availability of Name
ƒ The Promoter has to apply to the Registrar of the
Companies in the state in a specified form 1A,
under rule 4A of the Companies General rules
1956. The promoter has to furnish the following
details
ƒ a) Name and full address of the Promoter.
ƒ b) Proposed Name of the Company.
ƒ c) In case the above name is not available
alternatively three more names in the order of
preferences.

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ƒ d) Name and addresses of the Prospective
directors (minimum two)
ƒ e) Main Objective of the Company proposed
ƒ f) Particulars of the names and addresses of
existing companies in any of the same group of
individuals or management.
ƒ g) Proposed Authorised capital.
ƒ h) Any applications previously submitted.
ƒ i) Stature of the Proposed Company : whether
public or private.
ƒ j) Justification of the Proposed Name.
ƒ k) Remittance of a fee of Rs 500.00
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2) Acceptance of the Name

– The promoter then has to specify in writing

to the registrar for acceptance of the available
name which is then held in the name of the
proposed for a period of 60 days to facilitate the
promoter to file an Article and Memorandum of
Association.

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ƒ 3) Memorandum of Association
It is a duly signed , dated and
stamped document of the company specifying
– a) The Name of the Company
– b) The state of Registration: eg. Maharshtra
– c) i) The Principle Objective of the company
ii) The Secondary objectives to attain the principle
objective
iii) Other objectives if any
– d) The Proposed Capital to be raised
– e) Limiting of Liability
– f) The Names of the Directors along with their
addresses and proposed share capital duly signed as
accepting in presence of a witness. The minimum no. of
directors is two for a private limited company and seven
for a public limited company. Each director has to
promise to undertake at least one share each in their
name, they are also called as founder directors.
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4) The Articles of Association
ƒ These are also similarly signed and declared as
a document of the company. If it does not prepare its
own then it is deemed to have adopted the model
Articles given in Table 'A' of the Companies Act.
– 1) It includes the Interpretation of all the words and their
meanings.
– 2) They also contain the meaning of the words "Private"
or "Public".
– 3) The share capital of the company.
– 4) The powers vested with the Board of directors.
– 5) The First Directors of the company.
– 6) General Authority for the company.
– 7) Borrowing Powers.
– 8) Note on General meetings.
– 9) Seal of the company.
– 10) Clause of Secrecy.
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ƒ 5) Written Consent
ƒ All the persons desirous of forming the company and subscribing to the
memorandum and articles of association have to give a
written consent for formation of the company, along with the minimum
numbers of shares subscribed by them.
ƒ 6) Notice of Address
ƒ The Address for the operations of the company should be informed in
writing within four weeks of formation of the company.
ƒ 7) Statutory Declaration
ƒ A declaration by a COMPANY SECRETARY or a SOLICITOR
or a CHARTERED ACCOUNTANT has to be signed
giving the statement that all the provisions of the Companies Act are
complied with.

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