Chapter III

Non-Corporate Business Entities

PUTTU GURU PRASAD
INC GUNTUR
Sole Proprietorship (The owner is
called sole proprietor)
 It is a single ownership
business
 It has unlimited
personal liability to
fulfill the requirement
of the business
 The profit as well as
the loss is enjoyed by
the owner and not
shared by any one
 The entity is not taxed
 The capital is
contributed by owners
own risk
Merits and Limitations
Merits
 Low start up cost
 Easy formation
 Better and easier control
over the administration
and the businesses
 Quick decisions
 Filing of taxes is simple
as it is based on the self
employed
Limitations
 Personal and unlimited
liability the major
disadvantage of the SP
 It does not have a strict
and disciplined
standards on the
financial control
 As all the decisions are
taken by single individual
, it may have good and
bad decisions and they
may effect the business
 Raising the capital is
difficult
One Person Company
 This kind of company is recommended by
the Irani Committee
 Once approved, it would form as a single
person economic entity, in order to get an
exemption from the strict procedures for
the establishment of the company.
 It would help the entrepreneurs who are
capable of developing ideas and
participating in the market.
 It can be effective in certain domains like It
industry, service sectors etc.
Features of the OPC
 It may be registered as a private company
with one member and may have a director
 It can have the feature of continuity , if a
person is appointed as a Nominee Director
in case of death and disability of the
original director. This can help the nominee
director to take care of the OPC until the
necessary legal transmission is done to the
legal heirs of the original director.
 The condition is that, it has to have the
word ‘OPC’ suffixed with its name.
Hindu Undivided Family ( HUF)
The HUF business
can be run by the
‘Karta’ ( Manager)
Features of the HUF
 Karta is the sole authority to contract debts for
the purpose of business.
 A person becomes a member of the family by
virtue of his or her birth
 Only the members of HUF who have the lineal
descendents have the status of being a
member
 It is unique system followed from the ancient
Indian social life.
 It is governed by Hindu Law continued…..
 Registration not compulsory for carrying
on the business
 The male members are coparceners
 As it a separate legal entity it is
assessed to tax as a separate person. It
is eligible for all exceptions and
deductions
 The income earned on utilization of the
HUF’s assets and on the investment of
its funds is regarded as the HUF’s
income which is assessed separately and
taxed.
Partnership Firms
 A Partnership firm is governed by the
Indian Partnership Act, 1932
 “A partnership is a relation between persons
who have agreed to share the profits of a
business carried on by all or any of them acting
for all”
 Even though the registration of the firm is not
compulsory, it is more beneficial to have it
registered
 If it fulfils the formalities prescribed under the
Act, the Registrar will record the entry of the
statement in the Register of firms.
 The minimum number of members is two
Effects of Non-Registration
 A partner of the unregistered firm cannot
sue the firm or any partner of the firm in a
civil suit to enforce any right which accrues
through the agreement in the partnership
deed.
 The unregistered firm cannot sue a third
party for any right arising out of a contract.
 But the third party or the outsider is not
barred from suing the unregistered firm.
 It cannot claim a set-off or other
proceedings that are based on the contract.
When does a Non-Registration of
firm cannot effect the firm?
 It does not bar the third party or the outsider
to sue the firm
 It does not effect the firm or partners if they do
not have a place of business in India
 The partners can take action in a criminal
proceedings.
 The partner has a right to sue for dissolution of
the firm for accounts of a dissolved firm or a
share in the property of the dissolved firm
 The official assignee, receiver or the court can
realize the property of an insolvent partner of
an unregistered firm.
 Rights and duties of the Partners

 To take part in the business of the firm

 To be consulted while conducting business
 To access and inspect the copy of any books of
accounts of the firm
 Entitled to equal share, unless agreed
otherwise
 Right to be indemnified for losses during the
court of businesses
 Right to interest on the capital and Right not to
be expelled
 Right to retire from the firm
 In a partnership- at will, every partner has the
right to dissolve the firm by giving a notice to
all the other partners etc….
Duties of the Partner
 To conduct business to the greater advantage
and interest of the firm
 To attend to his duties diligently
 To be just and faithful
 To render true accounts
 Contribute towards the losses sustained by the
firm
 Not to make secret profits
 Not to carry on business that competes with
the partnership business
 Unless agreed not to ask for remuneration
 To indemnify for loss or fraud
Other important provisions
 Insolvency of the partner effects
(dissolution) the existence of the firm, if not
agreed otherwise by partners
 Sharing of profits based on agreed ratio
 The sharing of the work for carrying on the
business is termed as “mutual agency”.
 Any competent party can be a partner, a
minor cannot be a partner, but he can be a
admitted for profits with the consent of all
the partners
Limited Liability Partnership (LLP)
 The idea of LLP emerged through the Naresh
Chandra Committee, and has been maintained
by the Dr.J J Irani Committee.
 It would help the service sector like small and
medium enterprises, professionals such as the
Chartered Accounts, Advocates, Company
Secretaries etc… in order to increase the
efficiency in the global market
 It would be helpful for
 It is expected that the LLP would fill the gap
between a SP and partnership.
 LLP’s are to be governed by Companies Act,
1956.
Features of LLP’s
 It would be a corporate body, registered under
the Companies Act, 1956 ( Registrar of
Companies)
 It should contain a word LLP as last words next
to the name of the LLP.
 It can sue and be sued
 It can hold, acquire, or dispose of the property
and it shall have a common seal
 It shall be regulated by Partnership Law
 Minimum of two partners, the deed shall
govern the relations between the parties inter
se
Other features
 There can be cessation of the partners of LLP
 It has to have a registered office and to be
notified by the ROC
 Inspectors can be appointed by the Central
Government to investigate
 Property of the LLP to be property of the
partners
 The LLP can freely transfer, the economic
interests either in whole or in part
 The partners are liable for the tax individually
on their share of profit or capital gains on the
disposal of LLP’s asset.
 There can be conversion of the public company
or private company to LLP
Co-operative Societies
 A business –oriented organizations or
enterprises owned by an association of
persons are called as Co-operative
Societies
 The members of the society have a
common interest to achieve common goals
 They unite voluntarily to meet economic,
social or cultural needs or aspirations
through a “jointly owned and
democratically-controlled enterprise”
 It is a separate legal entity and enjoys
perpetual succession
 Formation of the co-op societies
 Minimum members 10 ( individuals)
 Minimum members 50 ( Multi state co-op societies)
 Every co-op society stated above is regulated by
State Acts and Multi State Acts respectively.
 The object of the society must be with economic
interest
 Share capital must be at least the minimum
contribution as prescribed by Registrar of co-op
societies.
 Membership and Registration of is the specific Acts
applicable based on the State or the Multi State Act
Advantages and Disadvantages of
Co-op Societies
 Serves social,  It is very democratic
educational needs and and , this reason may
also helps the hinder the business
development and decisions.
efficiency of the  They may not look at
community larger capital returns
 Perpetual existence, on investment
which can stimulate  The members who
community invest larger capital
development even in may not have any
remote areas edge over the smaller
investors
Non- Profit Company
(Sec 25 Companies Act,
1956) NPC
 It is a voluntary association of the
people registered under the
Companies Act, 1956
 It is formed by minimum of three
trustees…..No upper limit of number
of the trustees are provided
 The management is in the form of a
board of directors or managing
committee.
Features of NPC
 Its objective is to promote commerce, art ,
science, religion, charity or any other useful
work to the society
 No dividends will be paid as the profit will be
used for the promoting the objects
 It may be a public ( 7 members) or a private
company
 It is given certain exemptions from the
provisions of law and for concessional rate of
fees etc…
 Registration formalities are similar to that of
the other companies under the Companies Act,
1956
Non- Governmental Organizations
(NGO)
 Organizations that are constantly working
for the upbringing of certain sections of the
society , who are in need of help or support
either economically, socially, educationally
or religiously etc are the NGO’s
 They can be registered as:
Society ( Societies Registration Act, 1860)
Trust ( Through a Trust deed and registered
under the Income Tax laws )
Limited Company ( Sec 25 Company)
NGO as Society
 An NGO, by people coming together for
achieving a common purpose.
 It does not indulge in profit making
 It has to register as a society in the State
level or a district level.
 It has submit necessary documents such as
an affidavit, MOA, rules or regulations,
consent letters of the managing committee,
etc to the concerned authority with
appropriate registration fees.
NGO as a trust

 As a trust it is legal entity set up by people

who come together to set aside some
income or assets for some charitable cause.
 They are independent , out of the
governmental and external control
 They work based on the Trust deed, that
empowers them to work
 Based on the jurisdiction over the region a
trust can be registered with the necessary
formalities.
Insolvency Laws in India
 Insolvent is a person, who cannot or does
not pay his debts in full or committed an
act of insolvency or
 who is adjudged as insolvent by the court,
which has jurisdiction to adjudge the
subject matter
 Persons who are competent to contract can
be declared insolvent
 Default in payment is the reason for filing a
insolvency petition before the court.
Consequences of Insolvency
 The debtor gets protection against the legal
proceedings initiated by the creditors.
 The debtors property will be assigned to the
official assignee or the receiver of the court.
 If discharged by the court, the debtor is at
liberty to start a new life afresh.
 Certain disqualifications are attached to the
person , once he is declared insolvent like
disqualified fro the civil rights ( right to
contract, cannot be appointed as a member of
a elected body, or as a magistrate etc…
 Once the petition is filed, the court will decide
on the vesting of property, realization and
distribution of the assets.