Case studies (i)

Forms of Business

1. Rani is a friend of Seema who is a partner in a software firm, Simplex Solutions. On Seema’s
request, Rani accompanies her to a business meeting with Mohan Software and actively
participates in the negotiation process for a business deal and gives the impression that she is
also a partner in Simplex Solutions. Three months credit is extended to Simplex Solutions on the
basis of these negotiations.
On the basis of the given information about Rani, answer the following questions:
a. Will Rani be liable to the lender if Seema does not make payment to him by the due date?
b. Specify and explain Rani’s role in the aforesaid situation.
2. A group of eight people decided to make a company and hence approached Foresight Business
Consultants, a professional unit for seeking appropriate advice. This company helped them in
identifying the different business opportunities and suggested to set up a mobile manufacturing
company. Before converting this business opportunity into a real project, Foresight Business
Consultants made certain arrangements for conducting technical, financial and economic
surveys. For this they took the help of specialists like professional accountants, lawyers and
engineers.
On the basis of the given information above, answer the following questions:
a) What is this group of eight people called as?
b) Identify and explain the functions performed by them in aforesaid situation for the
formation of company.
3. Anuj and Ahmed are partners in a firm. They admit John as a new partner, who is physically
challenged. Anuj asked Ahmed and John to get the firm registered. But Ahmed and John didn’t
agree and said that the registration procedure will involve lot of formalities. If you are Anuj, how
will you convince them to get the firm registered?
4. Lalitha Devi did her post-graduation from Manipur University, Imphal. She had offers to join some
reputed firms in metropolitan cities like Delhi and Mumbai. Instead of joining any of these firms
she decided to do some creative work in Imphal. She observed that a special type of chilli is grown
by the farmers in most of the villages in Imphal. This chilli has a distinct flavour and pickle made
from this chilli has a taste which may be liked by people from the rest of the country. But the
farmers were neither trained for farming of this kind of chilli on a large scale nor was there a
secured market for their produce. Lalitha Devi met 18 like-minded women of the area and
formed an organisation for doing the business of pickle manufacturing. Each of them contributed
₹20,000 each towards its capital and were equally responsible for its management. On one hand
they assured the farmers to purchase their chilli and on the other hand, the organisation, with
the help of local agriculture department arranged for the training of the farmers. They also
employed 10 local unemployed graduate girls for doing the various operations of pickle making.
a. Identify and explain the kind of organisation that was formed by Lalitha Devi.
b. State any two features of kind of organisation identified in para (a).
5. Deepak and Gaurav joined the prestigious law university in Ahmedabad in the year 2010. During
the course of study they became good friends and they both realized that their common interest
lies in the field of corporate law. After completion of their degree they decided to start a firm of
their own, namely ‘Corpo Law Firm’ wherein both of them will be co-owners dividing the profit
and loss. After successfully running the firm for a year, they realized that there are certain rights
which are denied to their firm as it is not registered. Explain the consequences of non-
registration of their firm.
6. Akshay is a shareholder in a company holding 2,000 shares of ₹10 each on which he has already
paid ₹7 per share. What will be his liability in the event of company’s failure to pay debts? Give
reason in support of your answer.
7. Mohan and Radha wanted to start a shop to sell Rajasthani Sweets. They did not know how to
develop the agreement for this purpose. So, they approached a Chartered Accountant who
advised them to prepare a document which may stipulate the terms and conditions of the
agreement.
On the basis of given information, answer the following questions:
a. Name the document about which the chartered accountant advised Mohan and Radha.
b. State any four important items they should be included in the agreement besides the
name, nature and place of business.
8. Ajay is the sole owner of a shoe manufacturing factory. He took loan of ₹20 lakhs from Ace
finance company for the expansion of his business. Because of continuous losses however, he
was not able to repay the loan on time. Assets of the business were not enough for repaying
liabilities in full. As a result, the finance company asked him to repay their loan. He refused to do
so on the ground that the loan was taken by his business and not by him for his personal use. The
company filed a case against him. The court gave decision in favour of the company on the
ground that Ajay was operating as the sole proprietor and a sole proprietor did not have a
separate entity distinct of his own. The court further stated that Ajay had unlimited liability and
held him liable to repay the loan even by selling his personal property, if need be.
Identify and explain two features of the form of business organisation formed by Ajay by
quoting the lines from the case.
9. Harsh, Dinesh and Kunal were partners in a financing firm. Harsh and Kunal had gone for a
meeting in London for analyzing business prospects in that country. In the meanwhile, Dinesh
invested a huge amount in buying shares of a new company by borrowing money from Rajesh.
This turned out to be a bad deal as the share prices soon fell down. When Harsh and Kunal came
back they said they were not liable to pay to Rajesh as they did not take the money.
On the basis of the given information, answer the following questions:
(a) Were Harsh and Kunal right in doing so?
(b) Justify your answer to part (a) above.
Solution:
(a) No, Harsh and Kunal are not right in doing because every partner has authority to actively
participate in business..
(b) In partnership, business can be carried on by all or any one of the partners acting for all. In
other words, every partner is both an agent and a principal. He is an agent of other
partners as he represents them and thereby binds them through his acts. He is a principal as
he too can be bound by the acts of other partners.
10. Saurabh and Gaurav felt that there was an opportunity of business in providing a service of online
grocery stores to working people residing in Mumbai. They analysed the idea in terms of
technical, financial and economic feasibility. Once they found all the aspects to be satisfactory
they decided to start a company called ‘Grocery At Home Private Ltd’. They got the name
registered with the registrar of companies.
On the basis of the given information about Saurabh and Gaurav, answer the following questions:
(a) Identify the step in the formation of company highlighted in above case?
(b) Enumerate three more functions to be performed in the step identified in part (a).