Types of

Organization
Types of Organizations/Ownership Structure

Proprietorship/Sole Proprietorship

Partnership firm

Company

Co-operative
 PROPRIETORSHIP/SOLE PROPRIETORSHIP

Proprietary establishments are the most common

form of privately owned and managed business
ventures. The sole proprietor invests own and
borrowed funds and uses own skills and abilities in
the management of affairs of his/her firm. In case a
proprietor decides to withdraw from all business
activities and in the event of there being none to
succeed him/her, more often the business is sold to
someone or closed.

* One man Ownership

* No separate Business entity
* No separation between ownership and
management
* Unlimited liability
INDIAN PARTNERSHIP
ACT, 1932
 INDIAN PARTNERSHIP ACT, 1932
The law of partnership is one of the specific
contracts contained in the Indian partnership act
which was come into existence on 1st Oct, 1932.

According to sec (4) of Indian partnership act,

“partnership is the relation between the
persons who have agreed to share the profits
of the business carried on by all or any of
them acting for all”.

The person who has entered into the partnership

agreement with one another is individually called
partners and collectivity of a firm.
 ESSENTIAL ELEMENTS OF PARTNERSHIP

Association of two or more persons: There

should be at least two competent parties to
form a partnership. Hence any person who is not
a minor, of sound mind and is not disqualified by
law can be a partner.

Partnership act does not say

anything about the maximum no of partners but
sec11 of the companies act fixes the maximum no.
at 10 or according on banking business and 20 for
carrying on any other business. If the no. of
partners exceeds this limit the partnership
becomes an illegal association.
CONT…
Agreement: There must be an agreement to form a
partnership. This agreement may be express or
implied. Partnership is created by contract and not
arises by operation of law. If one of the partners is
expired, his son or daughter will not
automatically become partners unless there is an
agreement between them to carry on the business
as a partner.

Business: A partnership can be formed only for

the purpose of carrying on some business. Where
there is no business to be done there can be no
question of partnership. The business to be carried
on by the firm must be legal.
CONT…
Sharing of profits: The sharing of profits is an
essential feature of partnership. Profits must be
distributed among the partners in an agreed
ratio. The partners may agree to share profits in
any manner they like. They may share it equally
or in any other proportion.

Mutual agency: The business of partnership

may be carried on by all the partners or any of
them acting for all. In a firm each partner is a
representative of the other partners. Each of the
partners is an agent as he can bind the other
partners by his act and he is a principal in the
sense that he is bound by the act of the other
partners.
CONT…
Restriction on the transfer of shares: No
partners can sell or transfer his share to the third
party without the consent of all the partners.

Extent of liability: Liability of each partner for

the firm is unlimited. The creditors have the
right to recover the firm debt from the private
property of any or all the partners.

No separate entity: Partnership is an association

of person who are individually called as partners
and collectively called firm. Legally a partnership
firm is not a separate entity from the partners.
DURATION OF PARTNERSHIP
At the time of partnership agreement partners may fix
the duration of the partnership or may not. The
duration may be decided as:
Partnership for a fixed term: It is a partnership
created for a fixed period of time. When the fixed
period is over, partnership comes to an end.

Partnership at will: According to sec 7 of the act

where no provision has been agreed for the duration
of the partnership, it is called partnership at will. A
partnership at will may be dissolved by any
partner by giving notice in writing to all the
partners of his intention to dissolve the firm.

Particular partnership: When a partnership is

formed for a specific venture, the partnership is
called particular partnership. It comes to an end on
TYPES OF PARTNERS
Active partner: A partner who is actively
engaged in the conduct of business is known as
an active partner. He is also called a working
partner and his liabilities are unlimited.

Sleeping partner: Sleeping partner is one who

contributes share, profits and losses of the firm
but does not participate in the working of the
business. He is also liable for the liabilities of
the firm.

Nominal partner: A nominal partner is one who

does not contribute any capital or share in profit
but lends his name to the business is called
nominal partner. He is also liable to the third
CONT…
Partner in profit only: A partner sharing a profit of
business without bearing the losses is called partners
in profits only. He contributes capital and is also
liable to the third party but is not allowed to take
part in the management of the firm.

Minor as a partner: A minor cannot become the

partner in the partnership firm because he cannot
enter into the contract but he may be admitted to the
benefits of partnership as per the consent of all the
partners.

Incoming partner: A person who is admitted as a

partner in an existing partnership is called as
incoming partner. He is not liable to the creditors for
anything that has happened before he joined the
CONT…
Outgoing partner: Partner leaving the existing
firm is called an outgoing partner or retiring
partner. An outgoing partner is liable for the
debts incurred before retirement.

Partner by estoppel or holding out: When a

person is not a partner but he pretend to be
partner by words spoken or written or by his
conduct is called partner by estoppel or holding
out.

He shall be liable for the third party who deals

with the firm on the supposition that he is a
partner even though he is not a partner.
 MINOR AS A PARTNER
A minor cannot become a partner in the
partnership because according to Indian
contract act he is incapable of entering into the
contract of partnership but he may be admitted
to the benefits of partnership with the consent of
all the partners.

The position of minor partner is studied under

two heads:

Position before majority:

a) Every minor has a right of share in the profits
and property of the business as agreed by the
members.
b) He has the right to inspect the books of accounts.
CONT…
Position after majority:
On attaining majority the minor has to declare within
six months whether he shall continue in the firm or
leave it. If he fails to declare, he becomes partner in
the firm at the end of six months.
1) When he elects to be a partner:
He becomes personally liable to all the third parties
for all the act of the firm since he has admitted to the
benefits of partnership.
His share in the profits of the firm is the share to
which he has entitled as a minor.
2) When he elects not to become a partner:
His right and duties continue to be as a minor up to
the date of notice.
He is not liable for any act of the firm done after the
date of public notice.
He has a right to sue the partners if his share of
profits is denied.
ADVANTAGES OF PARTNERSHIP
Easy formation: Like sole proprietorship
partnership form of organization can be formed
without legal formalities because registration is
not compulsory and the agreement may be
written or oral.

Sharing of risk: In partnership the losses are

shared by all the partners, whereas in case of sole
traders, he bears it alone.

Large resources: Partnership firm enjoys large

resources as compared to sole proprietorship.

Flexibility: The partnership business is

CONT…
Maintenance of secrecy: The partnership
business is less secretive but it doesn’t have to get
it accounts audited and published as is necessary
for joint stock companies.

Direct relationship between reward and work:

In partnership there is direct relation between
reward and work and this enables the partners
to put more labor and earn more profit.

Easy dissolution: The partnership business can

be easily dissolved on the death, insolvency of
partners. There are no legal formalities involved
in the dissolution.
DISADVANTAGE OF PARTNERSHIP

Lack of harmony: In partnership firm there is

mostly disharmony among partners which results
in lack of management.

Limited resources: Maximum no of partners is

20 in a partnership firm so it limits the amounts of
capital raised.

Instability: One major disadvantage is that the

firm can come to abrupt and on death, lunacy and
insolvency of partners. It can also be closed by the
order of law or if a partner expresses his desire to
dissolve the partnership.
CONT…
Lack of public faith: There is lack of public faith
in this form of organization as it has no legal
formalities and people do not get exact position
of business because accounts in this form of
organization is not published.

Restriction of transfer of interest: In

partnership, if a partner wants to transfer his
interest to the third party, he will have to seek
the consent of all the partners.

Liability after retirement: A partner is liable

after his retirement also. He is liable to all the
PARTNERSHIP
DPartnership
EED isthe result of an agreement which
may be in writing or formed verbally. But it is
desirable to have the partnership agreement
in writing to avoid future disputes.

The deed is required to be duly stamped as per

the Indian Stamp Act, 1889 and duly signed by
all the partners.

The agreement between the partners is written in

a partnership deed. The agreement should be
signed by all the partners. Partnership deed is
not a public document like M.O.A
(Memorandum of association).
CONTENTS OF PARTNERSHIP DEED
Name of the firm.
Name and addresses of all the partners.
Nature and place of the business.
Term or duration of partnership.
Amount of capital to be contributed by each partner.
The drawings that can be made by each partner.
The interest to be allowed on capital, and charges on
drawings.
Rights of partners.
Duties of partners.
Remuneration of partners.
Ratio in which the profits and losses are to be shared.
The procedure of admission and retirement of a
partner.
Settlement of amount in case of retirement, death of
partners or dissolution of the firm.
REGISTRATION OF PARTNERSHIP

Sec 57 deals with appointment of registrar of

firms. The state govt. is empowered to
appoint registrar of firms for carrying out the
purposes of act and lays down the areas
within which they shall exercise their
powers and perform their duties.
PROCEDURE FOR REGISTRATION
Sec 58&59 deal with the procedure for the
registration of the firm. An application in the
prescribed fees is to be filled with the registrar of
the area in which any where place of the business
of the firm is situated or proposed to be situated.
The application shall state the following:

The name of the firm.

The place of the business of the firm.
The name of any other place where the firm carries
on business.
The date when each partner join the firm.
The name in full and the permanent addresses of
all the partners.
The duration of the firm.
CONT…

The application shall be signed and

verified by each partner or his agent
specifically authorized for this purpose in
the manner prescribed by law.

When the registrar is satisfied that the

provision of sec58 have been compiled with,
he shall make an entry of the application
in the register of firms and shall file the
same.
DISSOLUTION OF PARTNERSHIP FIRM

Dissolution of the firm means dissolution of

partnership between all the partners of the firm.
It means the business of the firm is discontinued.

Dissolution of partnership involves only change in

the relation of the partners. The firm still
continues even after the dissolution of
partnership because this may happen on
admission, retirement or death of the partner.
 MODES OF DISSOLUTION OF FIRM
1) Dissolution without the order of the court (sec 43):
Dissolution of the firm without the order of court may
take place in the following ways:

a) Dissolution by agreement (sec40): A firm may be

dissolved with the consent of all the partners with the
contract between the partners. The contract for the
dissolution of firm may be express or implied.

b) Compulsory dissolution (sec 41): A firm is

compulsory dissolved in the following circumstances:
If all the partners or one partner of the firm are
declared insolvent.
If some events takes place which makes it unlawful for
the business of the firm to be carried on.
 CONT…
c) Dissolution on the happening of certain
contingencies (sec 42): A firm is dissolved on the
following four contingencies:

On the expiry of the fixed term.

On completion of the venture or undertaking.
On the death of a partner.
On the insolvency of the partner.

d) Dissolution by notice (sec 43): Where the

partnership is at will, the firm may be dissolved
by any partner giving notice in writing to all the
other partners of his intention to dissolve the
firm.
 CONT…
2) Dissolution by court (sec. 44): According to sec
44 of the Indian partnership act, dissolution by
court may take place on the following grounds:

a) Insanity: The court may dissolve the firm where a

partner has become of unsound mind. The firm
may dissolve on the petition of any of the partner
or by the next friend of insane partner.

b) Permanent incapacity: When a partner has

become permanently incapable of performing
duties, any other partner may apply for
dissolution in the court. The incapacity must be of
a permanent nature such as physical disablement,
illness etc.
 CONT…
c) Misconduct: The court may order the dissolution
of firm on account of misconduct of any partner
other than the one filling a suit for dissolution.

d) Persistent breach of agreement: When a

partner willfully or persistently commits breach
of the partnership agreement relating to the
affairs of the firm or conduct of the business, the
court may at instance of any of the other partner
dissolve the firm.

e) Business working at loss: Where the business of

the firm cannot be carried on except at a loss, the
court may order dissolution of the firm.