Account of Special

Customers
Chapter 10
By
Sir. Javed Kareem
 Partnership Account
 Partnership is the relationship between persons who have agreed to
share the profits of the business carried on by all of them acting for
all.
 Partnership can be created by an oral agreement or by a written
agreement.
 Persons who have entered into partnership are individually called
“Partners” and their collective group is called a firm.
 Every firm should be registered with the Registrar of Firms.
 The partner has no authority to open a firm’s account on behalf of
the firm in his own name. therefore banker open a firm’s account in
the firms name and get account opening from signed by all the
partners and names of those who are authorized to operate on the
account in the name of the firm.
 Operation of Firm’s Account
 Every partner in a firm has an implied power to bind his
co-partners by drawing and endorsing of cheques.
 Every partner has an implied authority to counter mend
payments of any cheque drawn on the firm’s account
and banker is bound to comply with the instruction
issued by that partner.
 A partnership letter duly signed by all the partners in
their personal capacity is also obtained, wherein all the
partners assume the liability of the firm to the bank as
joint and several.
 Borrowing by a Partnership Firm
 A partner in a trading firm has the authority to
borrow for the partnership firm and bind his
partners for such borrowing in the ordinary
course of business and it necessary he should
have power to pledge partnership property as a
security for advance.
 The bank would obtain the signature for all the
partners on any deposit, letter, charge and
security documents.
 Admission of New partner
 An incoming partner does not liable to the
creditors of the firm for anything done
before he becomes a partner.
 A fresh mandate or partnership letter duly
signed by all the partners should be
obtained to cover the future operation of
the account.
 Retirement of the Partner
 When bank receive the notice of retirement he
will make necessary change in his record. If the
account is credit the remaining partners are to
carry on the firm’s business for the purpose of
winding it up.
 Where the account is overdrawn and the banker
wishes to retain the several liabilities of the
remaining partners the operation of the account
should be stopped to retain the liability.
 Bankruptcy of a Partner
 If there is no agreement to the contrary, a
partnership is dissolved as soon as a partner is
adjudicated insolvent or bankrupt.
 The solvent partners are to empower to
continue the business for the purpose of winding
it up; but they would be accountable to the
official assignee for the insolvent’s share in the
firm.
 Bankers should not pay the cheques signed by
the insolvent partner before the order of his
adjudication of petition without the approval of
the solvent partners.
 Death of a Partner
 The death of the partner dissolves the firm and
the deceased’s personal representatives have no
right to act on his behalf.
 They can claim the deceased partner’s share in
the assets of the firm.
 The banker action depends on the state of the
account, if the account has credit balance the
operation on the account should not be stopped
and if the account has debit balance the account
should be stopped to fix the liability on the
estate of the deceased partner.
 Insolvency of the Firm
 The operation of the account is stopped
when the firm is insolvent and the
personal account of each and every
partner also become inoperative.
 The debit of each estate is payout of the
asset of each estate, or every surplus or
private estate is applied towards the
settlement of the creditors of the firm.
 Joint Stock Company
 An association of individuals for the purpose of
profit, possessing common capital contributed
by the members constituting it, such capital
divided into shares and which are transferable
by the owner. The joint stock company is three
types:
1. Unlimited Companies
2. Limited Companies
3. Companies limited By Guaranties
 Unlimited Companies
 The liability of each member is unlimited
 Limited Companies
 The liability of members is limited to the
account due on the shares held by them
Companies limited By Guaranties
 The members undertake to contribute a
fixed amount of money to pay the debts in
the event of company being wound up.
The capital of such company is not divided
into shares.
 Formation of Joint Stock Company
 Chartered Companies
 Statutory Companies
 Registered Companies
 Limited Companies
 Chartered Companies
 These companies are incorporated under
the Royal Charter and have very wide
power. For example, the east india
company.
 Statutory Companies
 These companies are incorporated under a
special act of Parliament or the Companies
Act does not govern Assembly Such
companies. For example State bank of
Pakistan.
 Registered Companies
 These companies are formed under the
companies Act.
 Limited Companies
 These companies either Private Limited or
Public Limited. A private Limited Company
Is a company where the right to transfer
the shares of its members is restricted and
public subscription in maximum number is
50. the public limited company has to
register as a joint stock company.
 Opening of an Account
 The bank must ask to submit the certified
copies of the following documents.
 Resolution of the Board of Directors
The resolution specifying the following:
 The name of the banker.
 The name of the parsons authorized to
operate the accounts
 An undertaking that as and when the
resection will be revoked or the directors
be changed, the bank would be informed
immediately. The chairmen of the meeting
should sign the resolution.
 Memorandum and Article of
Association
 It sets out the objective for which a joint company is
formed. The articles of association contain rules and
regulations for the internal management of the
company. Generally they:
 General power of the company vested in the Directors.
 Election, rotation and retirement of Directors.
 Procedure for the calling of the meetings and passing of
resolutions.
 Methods and principles of declaration of dividends.
 Assessment of profit and loss account.
 Certificate of Incorporation
 It is a conclusive evidence (issued by the
Registrar of Joint Stock Companies) that
all the requirements of the law in regard
to the formation and registration of the
company have been duly complied with.
 Certificate of Commencement of
Business
 When the company has fulfilled all the
requirements for the commencement of
business with regard to the subscription of
shares by the public as well as Directors
the Registrar issue the Certificate of
Commencement of Business.
 Balance Sheet
 It is a statement of the financial affairs of
the Company and the banker can draw his
own conclusions about the company from
the study of the latest balance sheet
compared with previous ones.
 Powers to Borrow
 Every trading company has an implied
power to borrow money for the purpose of
its business.
 If company borrows beyond its power the
borrowing is ultra virus and void.
 The banker examines the provision on the
borrowing power and should not advance
beyond the power.
 Operation of the Account
 The account of the company is opened on
the resolution of the Board of directors
which nominates the persons authorized
to operate upon the account.
 The banker must take the specimen
signatures of the authorized persons and
allow the operations on the account.
 Winding up of the Business
A company terminates its career by being wound
up. Winding up may be:
 Winding up by the court due to the Company’s
inability to pay its debts.
 Voluntary winding which includes the merger of
the company.
 Winding-up under supervision of the court the
banker should stop the operation on the account
on receipt of winding-up and arrange to adjust
all the outstanding loans and advances.
 Accounts of clubs, societies and
association
 These are non-trading organization and formed for the promotion of
culture, science, education and charitable purposes etc.
 When the account of such institution is to be taken the banker must
be taken the following:
 The resolution of the Governing Body/Managing Committee
authorizing the opening of the account with the bank.
 Certified copy of the by laws or rules and regulations.
 The account opening form dully signed by the authorized person(s)
who would operate on the account.
 An undertaking signed by all the authorized persons on behalf of
the institution that when any charge take place the banker would be
informed.
 Agent’s Account
 An “Agent” is a person who has power to
act for or on behalf of another person
called his “Principal”.
 The agent can open and operate a bank
account if authorized by his principal
under power of attorney.
 These powers of attorney should be
stamped.
 Opening of and Operation on
Account
 The banker must examine the clause in it
relation to opening and operation of account and
borrowing power.
 He should keep a certificate copy on his record.
 The banker should allow the opening and
operation on the account in accordance with the
power of attorney.
 The principal may cancel the power of attorney
any time and it is cancelled automatically when
the principal becomes declared insolvent or is
dead.
 Trust Account
A trust is an obligation annexed to the ownership of property and
arising out of a confidence proposed in and accepted by him for the
benefit of another, or of another and the owner. A trust can be
created only for a lawful purpose and has following constituents:
 The person who declares the confidence and is called the Author of
the Trust.
 The person who accepts the confidence is called the Trustee.
 The person who benefits from the confidence is called the
beneficiary.
 The subject matter of the trust is called Trust Property or Trust
money.
 The instrument by which a Trust is declared is called the Instrument
of Trust.
 Creation of a Trust
 Any person who is competent to contract
may create a Trust, which must be for a
property transferable to the beneficiary.
 Opening and Operation of the
Account
 The account should be opened in the
name of trust and all the trustees should
be sign the account opening form. If the
account is opened in the name of trustees,
it should not be treated as a Joint
Account.
 The banker should examine the
instrument of Trust and a copy of it should
be kept on record.
 Borrowing by the Trustee
The banker must consider the following:
 Whether the trustees have power to borrow money.
 Whether they have power to give security for proposed
advance.
 The trustees generally have no power to borrow and
pledge the trust property, they cannot five security.
 When the trust deed empowers the trustees to borrow,
the banker has to ensure that the borrowing is for the
purpose mentioned in the deed and he has offered that
security as prescribed in the Trust deed.
 Death of the Trustee
 When an authority to deal with the trust
property is given to several trustees and one of
them disclaims or dies, the authority may be
exercised by the continuing trustees.
 If there is one trustee the operation on the
account should be stopped till the new trustee is
appointed.
 The appointment of the new trustee should be in
writing, duly signed by the person making it.
The official trustee may be appointed with his
consent and by the order of the court.
 Insolvency of Trustee
 Bankruptcy or insolvency of a trustee does not
terminate his appointment as trustee but the
court can remove such a trustee, so that he may
not misappropriate the Trust fund.
 If court remove the trustee, a new one will be
appointed to continue the operation on the
account and all cheques etc, signed by the
removed trustee should be returned unpaid.
 Executor’s and Administrator’s
Account
 An Executor:

 An executor is a person to whom the execution of a will is

entrusted by the testator.
 He has to carry out all the directors contained in the testator’s will.
 The testator may appointed any person, including a minor or a
married women however for minor, an administrator is appointed to
act as the executor during his minority.

• An Administrator:

 An administrator is a person appointed by a court of law to look

after the estate of a person who died without leaving a will or the
person he appointed are incapable of acting as executors.
 The Will
 A will may be drawn in any such language
or expression that the wording expresses
the intentions of the testator clearly.
 A will may be oral or in written and may
not be signed or witnesed.
 Probate or Letter of Administration
It is a certified copy of a will issued under the seal
of the court. An application fro the letter of
administration should be filed along with the
following:
 The date and time of the testator’s death.
 Statement mentioning that the enclosed is his
last will.
 Statement mentioning that the enclosed will or
testament was duly executed.
 Details of the estate.
 Declaration that the executor name in the list.
 Opening and Operation of Account
 The executor and administrator can open an
account with the banker after the death of the
testator.
 In case the account is opened in the name of
administrator the valid letter of Administration
should be seen before opening an account and
an attested copy of his letter should be kept on
record with the account opening form.
 If there are more then one executors or
administrators, all of them should sign on the
account opening form.
 Death of Executor of Administrator
 When one or more of the executors and
administrators die/s, the authority is vested in
the survivor or survivors.
 If the dead were the sole executor or
administrator, a fresh letter of Administration
must be applied for.
 If the account is credit the opening if the
account should not be stopped and if the
account is debit the banker should the operation
on the account.
 Account of Local Bodies
 These are autonomous institutions formed
under the Local Bodies Act, such as
Municipal Corporation or Municipal
Committees.
 They are governed by their own managing
Committees comprising generally of
elected members.
 Opening and Operation of Account
 Account opening form should be signed by
the authorized persons who should
mention clear instructions regarding the
operation on the account; and specimen
signature should be taken from the person
authorized to operate the account.