Business Law

Assignment # 3 Submitted by
Humaira Shafiq Student No. 14004

Submitted to
Mr. Muhammad Ali

Business Law
Assignment # 3 Humaira Shafiq Student No. 14004

Partnership
A Partnership is a voluntary association of two or more persons who contribute money, property, time and skill to carry on business for profit and to share the profits of the business.

Characteristics or Features
Legal Entity A partnership has no separate legal entity apart from its members. It means that the partnership and partners are not separate from one another. The rights and liabilities of the firm are considered the rights and liabilities of the partners. If any of the partners dies, retires or becomes insane the partnership comes to an end. Agreement A partnership is a result of an agreement between two or more persons. An agreement may be written or oral. Only the persons who are competent to contract can form a partnership. Number of Partners At least two persons are required top form a partnership. There should be at least two and maximum twenty partners. Existence of Business In order to form a partnership, the partners must agree to a carry on a certain business. If the purpose is something other than business, it cannot be called a partnership. Therefore when there is no business, there is no partnership. Sharing of Profits The agreement between the partners must be to share profits of a business. The profit will be distributed among the partners according to their agreement. If there is no agreement regarding the distribution of profit, it will be equally distributed among the partners. Mutual Agency The business must be carried on by all the partners or any of them acting for all the partners. Each partner acts as an agent of the other partners of the firm. This means that the contract of agency exists among partners.

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Assignment # 3 Humaira Shafiq Student No. 14004 Unlimited Liability The liability of all the partners is unlimited. All the partners are individually and collectively responsible for all the debts of the business. It means that if there is any loss and the business sources are insufficient to satisfy the claims of the creditors, the private assets of the partners can be sold to satisfy the claims of creditors. Capital Generally, the capital for the partnership firm is provided by all the partners. It is not necessary that all the partners contribute equal amounts of capital. Capital is contributed according to the partnership agreement. Utmost Faith A partnership is based on mutual confidence and trust of all the partners. The partners must be fair and honest with one another. They must disclose all facts and provide true accounts relating to the business to each other. Management According to law, every partner can participate in the conduct management of the partnership firm. Usually the management which is divided among the partners according to their experience, ability and knowledge. Control Since a partnership is formed by an agreement, its control depends on the terms of the agreement. Where all the partners take an active part in the conduct of the business, the control remains with all of them and major decisions are taken with the consent of all the partners. Test of Partnership In order to determine the existence of partnership, the following must be proved: 1. 2. 3. 4. 5. There must be an agreement among the persons to be held as partners. The agreement must be for doing some business. The agreement must be to share the profits of the firm. There must be relationship of principal and agent among the partners. There must be an agreement to carry on the business by all or any of them acting for all.

Partners:

Business Law
Assignment # 3 Humaira Shafiq Student No. 14004 Persons who have entered into partnership with one another are called individually partners. Generally a partner is a person who has agreed to share the profits of the firm. Firm: The persons who have entered into a partnership with one another are collectively called a form. Firms name The name under which partners carry on their business is called the firms name. Advantages Easy Formation The partnership can be formed easily because no complicated legal formalities are required for formation. The registration of the form is not compulsory. The cost of formation of partnership is small and process can be completed quickly. Larger Capital There are more persons who can easily collect huge amounts of capital. If the present partners are not in a position to supply the needed capital, the amount can be borrowed. Moreover , the capital can also be increased by admitting new partners. Better Management The partners may perform those duties for which they are more suitable. In case of important matters all the partners can get together and decide. This insures more efficiency and increases profits. High Credit Standing The liability of all the members is also unlimited. It means in case of loss the personal assets of all the partners can be held liable to meet the claims of the creditors, so the financial institutions give loans without fear. More Participation All the partners work hard to make the partnership firm successful. They now that in case of failure of business, they will have to bear the loss. Therefore all partners participate in the business activities. Skilled Employees In case of partnership, the resources of the firm are larger, so the services of educated, experienced and skilled persons can be obtained.

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Assignment # 3 Humaira Shafiq Student No. 14004 Public Relations The partners personally look after the affairs of the business, so they develop good relations with the employees and customers and employees which are beneficial for the firm. Direct contact with customers help to build trust and loyalty. Flexibility A partnership is free from legal restrictions. It is formed by an agreement, so the business can be changed easily. Its objects, membership and capital may be easily adjusted according to changes in the business conditions. Decision Making The interest of minority partner is protected by law. In policy matters all partners must agree. In ordinary affairs, a dissatisfied partner may withdraw his share and dissolve the firm. Thus the minority partner enjoys the right of veto. In fact, the law gives each partner the right to be heard and consulted. Protection of minor partner In partnership, the interest of minor partner is properly protected. A minor partner enjoys special protection in a partnership firm. His liability is limited to the extent of his capital contribution. The protection is beneficial as the death or insanity of partner does not dissolve the firm if in his place his minor successor is taken as a partner. Quick Decision In partnership, quick decisions can be taken regarding business policies which enable a firm to take advantage of changing market conditions. The decisions are to be taken quickly as fewer persons are consulted. Thus the risk of missing out on business opportunities from delay in decision making is lesser in partnership as compared to a company. Sharing of Risk A partnership firm enjoys the advantage of sharing risk. Each partner shares risk according to the terms established in the partnership agreement. The losses suffered by the firm are shared by all partners. Possibility of Expansion A partnership is flexible in its business operations and expansion of business is easy. Firm can expand its business because of its larger resources, favorable credit standing and managerial ability. Business Secrets The success of business depends on secrecy. 5

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Assignment # 3 Humaira Shafiq Student No. 14004

Spirit of co-operation The success of a partnership firm depends on mutual trust, cooperation and confidence. Profits or losses of the firm are shared by the partners.

Types of Partners
1. Partner: A member of partnership or firm; one who has united with others to form a partnership in business. 2. Dormant Partner: Those whose names are not known or do not appear as partners, but who nevertheless are silent partners, and partake of the profits. He is also called as secret partner and silent partner 3. Full or General Partner: A Partner participates fully in the profits, losses and management of the partnership and personally liable for its debts. 4. Junior Partner: Those whose participation in the profits is limited by the agreement and they are not liable for the debts of the partnership beyond their capital contribution. 5. Limited Partner: A partner whose participation in the firm is limited as to both profits and management. 6. Liquidating Partner: A partner who, upon the dissolution or insolvency of the firm, is appointed to settle its accounts, collect assets, adjust claims, and pay debts. 7. Nominal Partner: One whose name appears in connection with the business as a member of the firm, but who has no real interest in it. 8. Ostensible Partner: One whose name appears to the world as such, or who is held out to all persons having dealings with the firm in the character of a partner, whether or not he has any real interest in the firm. 9. Quasi Partner: One who has joined with others in a business which appears to be a partnership but who is not actually a partner, e.g. joint venture. 10. Special Partner: A member of a limited partnership, who furnishes certain funds, and whose liability extends no further than the fund furnished. 11. Surviving Partner: The partner who, on the dissolution of the firm by the death of his copartner, occupies the position of a trustee to settle up its affairs. '"Partnership" is the relation between persons who have agreed to share the profits of a business carried on by all or any of them acting for all. Persons who have entered into partnership with one another are called individually "partners" and collectively "a firm", and the name under which their business is carried on is called the "firm name".

Essential Elements of Partnership

There are four important elements necessary to constitute partnership.1. There must be an association of two or more persons to carry on a business. 6

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Assignment # 3 Humaira Shafiq Student No. 14004 2. There must be an agreement entered into by all the persons concerned. 3. The agreement must be to share the profits of a business. 4. The business must be carried on by all or any of the persons concerned acting for all. Examples: (1) A and B buy 100 bales of cotton, which they agree to sell on their joint account. A and B are partners in respect of such cotton. (2) A and B buy 100 bales of cotton, agreeing to share the cotton between them. A and B are not partners. (3) A and B agree to work together as carpenters. A is to receive all the profits and pay a salary to B; A & B are not partners. (4) A and B enter into a "partnership agreement whereby A is to have no share in either the profits or the loss of the business - A and B are not partners. (5) A and B are joint owners of a ship. This, by itself does not make them partners.

Test of Partnership
Although the right to participate in the profits of a business is a strong test of partnership, yet whether the relationship does or does not exist must depend on the real intention and contract of the parties, the real test as whether such participation in profits constitutes the relationship of principal and agent between the persons taking the profits and those actually carrying on the business.

General Duties of Partners

Partners are bound to carry on the business of the firm to the greatest common advantage, to be just and faithful to each other, and to render true accounts and full information of all things affecting the firm to any partner or his legal representative.

Duties and Liabilities on a Partner:

1. Duty of good faith and common advantage. Duty of good faith and common advantage provides that partners are bound: (a) To carry on the business of the firm to the greatest common advantage; and (b) To be just and faithful to each other. This duty is very widely and generally worded. In practice, it means that all the endeavors of partner must be directed towards securing maximum profit for the firm, thus, where a partner was authorized to sell property of the firm for 6000 pound and he sold it for a much higher price and concealed the excess price, he was held bound to share it with his co-partner. This is a fundamental duty imposed upon partners by the Act, and cannot be excluded by a mutual agreement to the contrary.

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Assignment # 3 Humaira Shafiq Student No. 14004 Likewise, a partner cannot make secret profit at the expense of the firm. In one English case a partner of a firm of sugar refiners was entrusted to buy sugar for the stock (which he had bought earlier at a lower price) at the prevailing market price, making a considerable profit on the transaction. In a suit filed by other partners, it was held that he was bound to account for such profit and that the firm was entitled to that profit. 2. Duty to render true accounts and full information. This duty of a partner is based on the principle of Uberriance fidei (utmost good faith), and calls upon partners to make full and frank disclosures of all facts affecting the affairs of the firm. Thus, when a partner is in possession of vital information about the affairs or assets of the firm, and concealing such information, if he makes a contract with his Co-partners, the contract can be avoided by the co-partners.

Rights of Partners
Subject to contract between the partners: (a) Every partner has a right to take part in the conduct of the business; (b) Every partner is bound to attend diligently to his duties in the conduct of the business; (c) Any difference arising as to ordinary matters connected with the business may be decided by a majority of the partners, and every partners shall have the right to express his opinion before the matter is decided, but no change may be made in the nature of the business without the consent of all the partners; and (d) Every partner has a right to have access to and to inspect and copy any of the books of the firm. (e) Entitlement to interest. Not every amount which on proper accounting was found due to the partner as in excess of his share would get assimilated to or could be treated as advance made by the partner for the purposes of business. Example: Machinery purchased by A and brought by him in partnership business as his further investment and receiving profit in lieu thereof in form of hire. Dissolution of partnership and B purchasing partnership business together with all machinery. A after dissolution of firm and purchase of assets by B cannot claim machinery as his own property.

What is Agency?
Definition: An agent is a person employed to do any act for another or to represent another in dealing with third person, the person for whom such act is done or who is so represented is called Principal. The contract which creates the relationship of principal and agent is called Agency.

Agreement:
The relationship of agency is the result of an agreement between the Principal and the agent. Agency may be created:

Business Law
Assignment # 3 Humaira Shafiq Student No. 14004 (A) By an Express agreement: When such agreement is written or spoken it is express (B) By Implication: When agreement is by conduct, situation or relationship of parties. Implied agency may be (i) By estopple; (ii) By holding; (iii) By necessity (as in emergency, for safety of principal, between husband and wife) (iv) By operation of law. (C) By Ratification: Where acts are done by person on behalf of another but without the knowledge or authority, he may elect to ratify such acts. If he ratifies them, the same effects will follow as if those had been performed. Normally lawful consideration is one of the essential elements to constitute a valid agreement. An agreement enforceable by law is called a contract. All agreements are contract if they are made by free consent of parties, competent to contract, for a lawful consideration and with a lawful object and not expressly declared as void. There are certain distinct points in the case of an agreement agency. As for consideration it is not necessary to create an agency. As for intention to act on behalf of principal, the agent must have intention to act on behalf of the principal.

Duties of an Agent
As for duties of an agent towards his principal, those are: 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. Duty to execute Principals mandate. Duty to follow principals direction or custom Duty to work with reasonable care and diligence Duty to render accounts Duty to communicate in difficulty and get instructions from the principal Duty on termination of agency to take reasonable steps for protection of interests of the Principal. Duty not to deal on his own accounts in the business of agency without obtaining prior permission of the Principal. Duty not to make any secret profit out of his agency. Duty to remit all sums received on his account to the Principal Duty not to delegate authority to another person but to perform the work of agency himself

Rights of an Agent
An agent has the following rights under the law: 1. 2. Right to receive remuneration Right to retain out of the money recovered on account of the principal, all moneys in respect of the remuneration, advances or reasonable expenses incurred by him in conducting the business of agency. According to judicial precedent an agent can retain only such money as is in his possession.

Business Law
Assignment # 3 Humaira Shafiq Student No. 14004 3. 4. 5. 6. 7. Right of lien over goods, papers and other property whether movable or immovable of the principal until the amount dew as commission and expenses has been paid to the agent. Right to be indemnified against the consequences of all lawful acts done by the agent in exercise of authority conferred upon him by the principal. Right to be indemnified against consequences of acts done in good Right to compensation for injury sustained by the agent due to the principal neglects or want of skill. Right to stoppage of goods in transit to the principal like unpaid seller, if he has brought goods with his own money and the principal has become insolvent.

How An Agency Can Be Terminated?

An agency can be terminated in the following ways: 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. By Agreement By Revocation of the Principal By Revocation of the Agent By completion of the business of agency By expiry of the time By death of Principal or Agent By Insanity of Principal or Agent By Insolvency of the Principal Principal and Agent becoming alien enemy Where it is created by illegal contract

Sale of Goods Act

1. buyer means a person who buys or agrees to buy goods; 2. delivery means voluntary transfer of possession from one person to another; 3. goods are said to be in a deliverable state when they are in such state that the buyer would under the contract be bound to take delivery of them; 4. document of title of goods, includes a bill of lading, dockwarrant, warehousekeepers certificate, wharfingers certificate, railway receipt, warrant or order for the delivery of goods and any other document used in ordinary course of business as proof of the possession or control of goods, or authorizing or purporting to authorize, either by endorsement or be delivery, the possessor of the document to transfer or receive goods thereby represented; 5. fault means wrongful act or defaulter; 6. future goods means goods to be manufactured or produced or acquired by the seller after the making of the contract of sale; 7. goods means every kind of movable property other than actionable claims and money and includes electricity, water, gas, stock and shares, 8. growing crops, gross and things attached to or forming part of the land which are agreed to be served before sale or under the contract of sale; 9. a person is said to be insolvent who has ceased to pay his debts in the ordinary course of business, or cannot pay his debts at they become due, whether he has committed an Act of insolvency or not;

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Assignment # 3 Humaira Shafiq Student No. 14004 10. mercantile agent means a mercantile agent having in the customary course of business, as such agent authority either to sell goods, or to consign goods for the purposes of sale, or to buy goods, or to raise money on the security of goods; 11. price means the money consideration for a sale of goods; 12. property means the general property in goods, and not merely a special property; 13. quality of goods includes their state or condition; 14. seller means a person who sell or agrees to sell goods; 15. specific goods means goods identified and agreed upon at the time a contract of sale is made.

Sale and agreement to sell

1. A contract of sale of goods is a contract. Whereby the seller transfers or agrees to transfer the property in goods to the buyer for a price. There may be a contract of sale between one part owner and another. 2. A contract of sale may be absolute or conditional. 3. Where under a contract of sale the property in the goods is transferred from the seller to the buyer, the contract is called a sale, but where the transfer of the property in the goods is to take place at a future time or subject to some condition thereafter to be fulfilled, the contract is called an agreement to sell. 4. An agreement to sell becomes a sale when the time elapses or the conditions are fulfilled subject to which the property in the goods is to be transferred.

Contract of sale
1. A contract of sale is made by an offer to buy or sell goods for a price and the acceptance of such offer. The contracts may provide for the immediate delivery of the goods or immediate payment of the price or both, or for the delivery or payment by installments, or that the delivery or payment or both shall be postponed. 2. Subject to the provisions of any law for the time being in force, a contract of sale may be made in writing or by word of mouth, or partly in writing and partly be word of mouth or may be implied from the conduct of the parties.

Perishing Goods
Where there is a contract for the sale of specific goods, the contract is void if the goods without the knowledge of the seller have at the time when the contract was made, perished or become so damaged as no longer to answer to their description in the contract.

Goods perishing before sale but after agreement to sell

Where there is an agreement to sell specific goods, and subsequently the goods without any fault on the part of the seller or buyer perish or become so damaged as no longer to answer to their description in the agreement before the risk passes to the buyer, the agreement is thereby avoided.

Agreement to sell at valuation

1. Where there is an agreement to sell goods on the terms that the price is to be fixed by the valuation of a third party and such third party cannot or does not make such valuation, the agreement is thereby avoided:

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Assignment # 3 Humaira Shafiq Student No. 14004 2. Provided that, if the goods or any part thereof have been delivered to, and appropriated, by the buyer, he shall pay a reasonable price therefor. 3. Where such third party is prevented from making the valuation by the fault of the seller or buyer, the party not in fault may maintain a suit for damaged against the party in fault.

Negotiable Instruments Act

Characteristics
The characteristics of negotiable instruments are as follows: Freely Transferable

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Assignment # 3 Humaira Shafiq Student No. 14004 The right of ownership in these instruments can be transferred from one person to another easily. If the instrument is payable to bearer, the property in negotiable instrument is transferred to the transferee by delivery. Rights of Holder A holder of negotiable instrument has a right to recover the money from the person liable on the instrument. The holder can get the amount himself or transfer to another person. Better Title A person taking the negotiable instrument in good faith without negligence and for value trusting it bonafide becomes holder in due course. He gets the instrument free from all defects. Promise or Order A negotiable instrument contains an unconditional promise or order to pay. In case of promissory note the debtor promises to pay a certain sum of money to the holder of the instrument. In case of bill of exchange and cheque the creditor orders his debtor to pay a certain sum of money to the holder of the instruments. Certain Amount In negotiable instruments, the promise or order is made for the payment of certain amount. Presumptions Certain presumptions of law apply to all negotiable instruments such as consideration, date, time of acceptance, stamp and holder in due course. Therefore it is not necessary for the party entitled to receive money on the instrument to prove the validity of his claim. In Writing A negotiable instrument must be in writing. An oral promise or order to pay money cannot be called negotiable instrument.

Promissory Note
A promissory note is an instrument in writing containing an unconditional undertaking, signed by the maker, to pay on demand or at a fixed or determinable future time a certain sum of money only to the order of, a certain person, or to the bearer of the i nstrument. The person who promises to pay is called maker or debtor. The person to whom payment is made is called payee or creditor.

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Business Law
Assignment # 3 Humaira Shafiq Student No. 14004

Bill of Exchange
A bill of exchange is an instrument in writing containing an unconditional order, signed by the maker, directing a person to pay on demand or at a fixed determinable future time a certain sum of money only to, or to the order of, a certain person or to the bearer of the instrument. The person who makes the bill is called the drawer. The person who is directed to pay is called the drawee. The person to whom payment is made is payee.

Cheque
A cheque is a bill of exchange drawn on a specified bank and not expressed to be payable otherwise than on demand. The person who draws the cheque is called the drawer. The bank on which the cheque is drawn is called drawee. The person to whom the cheque is made payable is called payee. Types of Cheques The cheque may be divided into following two types: Open Cheque An open cheque is payable at counter of the bank on presentation of the cheque. It has two kinds: Bearer Cheque In bearer cheque the bank does not need to check the authenticity of the holder of the cheque.

Order Cheque

It is also payable at the counter of the bank. It is paid by the bank after being satisfied about the true identity of the holder of the cheque. Crossed Cheque It is not payable at the counter. Its payment is made only through the collecting bank of the customer. The collecting bank credits the proceeds of the cheque to the account of the payee.

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Business Law
Assignment # 3 Humaira Shafiq Student No. 14004

Crossing of a cheque
There are two kinds of crossings:

Types
General Crossing In this case the cheque is crossed generally. Special Crossing Account Payee Crossing

In this type of crossing the words accounts payee or payees account only is added to general or special crossing. Not Negotiable Crossing

A cheque marked with the words not negotiable can be transferred by payee. This provides protection to the holder or drawer of a cheque because even if such cheque goes to wrong hands the true owner will not lose his claim.

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