Legal Forms of

Industrial Ownership

Presented by:
Prof. Simranjeet Kour
APSH Department
MBSCET, Jammu
• Legal structure is one of the owner’s most
important practical decisions.
• Each type of structure has its own benefits
and considerations
• Affected by the business' size, the number of
owners and employees, the industry, and
other variables.
• Each state passes its own business
OWNERSHIP
formation laws, and not all states allow for STRUCTURE
every type of business structure.
• This means that the requirements for
forming a particular type of business vary
from state to state.

Sole Joint Stock

Partnership Company
Proprietorship
CONCEPT
According to Prof. Hynes
Sole Proprietorship is that form of business which has a single owner, who has the total responsibility of the business,
who runs the business and also bears the risk on the failure of business.

• It is the oldest form of business organization.

• It is also known by other names such as Single proprietorship, Individual
Proprietorship, Sole Trade Business etc.
• In fact, in many states it requires no special action.
• Doing freelance or independent work under your own name is usually enough to
form a sole proprietorship.
• Since there usually are no formal steps required to form a sole proprietorship, there
is no cost involved.
• It can include small retail stores, mechanic services, and even inventors or
musicians seeking to sell their products online.
Characteristics

Individual No separate Unlimited Individual

Ownership Entity Liability Motivation

Link between
Individual
Ownership Stability Own Capital
Risk
and Control

No
Limited
Government
Operations
Liability
Advantages

Simple form Owner’s

of Freedom to High Secrecy
Organisation Take Decisions

Easy
Tax Advantage
Dissolution
Disadvantages

Limited Limited
Resources Ability

Limited life of
Unlimited
Enterprise
Liability
form
CONCEPT
According to Indian Partnership Act, 1932 , Section 4
Partnership is “ the relation between persons who have agreed to share the profits of business carried on by all or
any of them acting for all “

According to The Uniform Partnership Act of the USA

Partnership is “ an association of two or more persons to carryon as co-owners a business for profit“

• There must be two or more persons to form a partnership.

• It is the outcome of a contractual relationship among partners.
• The partners contribute capital and/or services.
• The business may be carried on by one or more persons.
• The business is conducted on behalf of all the partners.
• Liability of partners is unlimited.
• The entity is collectively called a “Partnership Firm” and all the individual members
are the “Partners”. So let us look at some important features.
Kinds of Partners

Partner b
Partners
in Estoppel y
Profit Holding or
n al Out Se
m i
No rtner Par cret
tn e
Pa r
Su
ing r b-
Pa
e ep ne rtn
Sl art er
P

Mi artn
Par tive

no e r
P
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ra
Ac

sa
Cont….
ACTIVE PARTNER:
An invested person who is involved in the daily
operations of the partnership. An active partner
helps run the business to enhance his or her
returns and is therefore considered a material
participant. He may act in different capacities
such as manager, organizer, adviser and controller
of all the affairs of the firm.
SLEEPING PARTNER:
One whose name does not appear in the firm,
and who takes no active part in the business, but
who has an interest in the shares of the profits,
and thereby becomes a partner, either absolutely,
or as respects third persons. A person may have
money to invest but he may not be able to devote
time for the business. He is liable for the liabilities
of the business like other partners. He is also
called ‘ Secret Partner’.
NOMINAL PARTNER:
A nominal partner is one who lends his name to the firm.
He does not contribute any capital nor does he shares
profits to the business. He is know as partner to the third
parties. On the strength of his name, the business may
get more credit in the market or may promote his sales.
A nominal Partner is Liable to those third parties who
give credit to the firm on the assumption of that person
being a partner in the firm.
PARTNER IN PROFIT:
He contributes capital and is also liable to third parties
like other partners. He is not allowed to take part in the
management of the business. Such partners are
associated for their money and goodwill.
Cont….
PARTNER BY ESTOPEL:
When a person is not partner but poses himself as
a partner, either by words or in writing or by his
acts. He shall be liable to outsiders who deal with
the firm on the presumption of that person being
a partner in the business even though he is not a
partner and does not contribute anything to the
business.
SECRET PARTNER:
His position lies between active and sleeping
partner. His membership of the firm is kept secret
from outsiders. His liability is unlimited and he is
liable for the losses of the business. He can even
take part in the working of the business.
SUB PARTNER:
A partner may associate anybody else in his share in the
fir. He gives a part of his share to the stranger. The
relationship is not between the sub-partner and the firm
but between him and the partner. The sub-partner is a
non-entity for the partnership. He is not liable for the
debts of the firm.
MINOR AS A PARTNER:
A person who is a minor according to the law to which
he is subject may not be a partner in a firm, but, with the
consent of all the partners for the time being, he may be
admitted to the benefits of partnership.
Partnership Deed or Agreement
 A partnership deed, also known as a partnership agreement, is a document that outlines in
detail the rights and responsibilities of all partners to a business operation.
 It has the force of law and is designed to guide the partners in the conduct of the business.
 It is helpful in preventing disputes and disagreements over the role of each partner in the
business and the benefits which are due to them.
 CONTENT:
• Name of the Business / Choosing a • Death of a Partner
Partnership Firm Name • Valuation of Goodwill
• Location of the Business • Revaluation of Assets and Liabilities
• Name and Address of Partners • Accounts and Audit
• Nature of Firm’s Business • Dissolution of Partnership
• Duration of Partnership • Arbitration in case of disputes
• Partners’ Capitals among partners
• Interest on Capital • Arrangements to be followed in case
• Drawing and Interest rate a partner become insolvent
• Division of Profit/profit sharing ration • Salary, if any payable to the
• Partners’ Salary and Commission partners for managing the firm
• Rights and Duties of Partners • The method of preparing accounts
• Admission and Retirement of Partners and arrangement for audit.
• The operation of banks account.
Kinds of Partnership

• It  is the most common type of partnership. It refers to a relationship in which all
partners contribute to the day-to-day management of the business. Each partner
will have the authority to make business decisions and even legally bind the
General Partnership company in contracts.
• The liabilities, contributions, and responsibilities of the partners are often equal
unless stated otherwise. Typically, a partnership agreement will describe which
partners have certain authorities and responsibilities.

• It is a relationship where one or more partners are not involved in the day-to-
day management of the business. Often, a limited partner, sometimes known
as a “silent partner,” will serve solely as an investor in the business, with the
funds that they contribute being the extent of their liability. However, since the
Limited Partnership limited partner does not have decision-making power in the company,
withdrawing funds – even just the amount they’ve already contributed –
cannot be done without the approval of a general partner.
• Limited partnerships will still have at least one general partner to man the day-
to-day operations of the business.
Characteristics

Two or more Contractual Lawful Sharing of

persons Relation Business profits

Principal- No separate Restriction on

Unlimited
Agent legal transfer of
Liability
Relationship existence shares

Utmost good
faith
Advantages

Greater
More credit-
Easy to form Large resources managerial
standing
talent

More possibility
Promptness in Close
Sharing of risk of growth and
decision-making Supervision
expansion

Saving in
Easy dissolution Managerial
Expenses
Disadvantages

Limited Unlimited
Instability
Resources Liability

Limitation on
Mutual Divided
transfer of
Distrust authority
shares

Burden of
Lack of Public
Implied
Faith
Authority
CONCEPT
The word company is derived from a Latin word `companies` it means a group of persons
who took their need together. In India law relating to companies are contained in “The
Companies Act 1956”
Itis an artificial person being created by the law that has an existence separate and apart from its
owners. It can sue and be sued in its own name.
Characteristics

Artificial Legal Separate Legal

Common Seal
Person Person

Perpetual Transferability
Limited Liability
Existence of Shares

Separation of
Number of Legal
Ownership from
Members Restrictions
Management
Kinds of Company

1. On the Basis of Incorporation 2. On the Basis of Member

1. Chartered company 1. Public Company

 The company which have formed and A public company is a company
incorporated under a special charter granted  -which does not restricts the right to transfer its shares.
by the king or queen. -At least 7 member at the time of Incorporation.
- At least 3 directors.
Eg East India company.
Bank of England. - Min. Capital Required 5,00,000
-At the end Limited or Ltd. used.
2. Statutory company -Can be started after getting the Certificate of commencement of
These are companies which are created by business.
means of a special Act of Parliament or any 2. Private company
state legislature. A private company is a company
Eg RBI, Railway  -which restricts the right to transfer its shares.
-At least 2 member at the time of Incorporation and max. 50.
- At least 2 directors.
3. Registered company
Company formed and registered under - Min. Capital Required 1,00,000
companies Act 1956 is called Registered -At the end Limited or Pvt. Ltd. used.
companies. -Can be started after getting the Certificate of commencement of
Incorporation.
Kinds of Company
3. On the Basis of Liability 4. On the Basis of Nationality

1. Limited company or company limited by share 1. Indian Company

Majority of registered companies will be company A company Incorporated in India under the Companies Act, 1956;
limited by shares. In case of limited companies whether operating in India or Outside.
liability of members will be limited to the amount
unpaid on the shares. 2. Foreign company
2. Company limited by guarantee Company incorporated outside India but has a place of business in
Here liability of each member is limited by the India through its branches or agencies. Such companies have to
memorandum to such amount as he may guarantee furnish some information as required by the Registrar of Companies
by the memorandum to contribute to the assets of in India
the company in the event of its winding up.
Such  companies are formed for the promotion of art
science, culture, sports etc.
3. Unlimited company
A company not having any limit on the liability of its
members is termed as unlimited company.
The members are liable for the debts of the
company at the time of winding up.
Kinds of Company

5. On the Basis of Ownership

1. Government Company
Company in which not less than 51 % of paid up capital is held by the Central
Government.
2. Holding Company
Company having control on other companies is called holding company. It has a say in
the formation of policies of the other company.
3. Subsidiary Company
• If the formation of Board of Directors is controlled by another Company.
• The other Company Controls more than half of the voting rights of this company.
• If it is a of a Company who owns more than half of the maximum value of the shares
in the company.
Formation of Company COMPANY ACT, 1956 (2013)

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