SAMITTED BY:
SAUDA IMTIAZ, MIAN SHAHB SHAKOOR,
IMRAN ULHAQ, ZOHAIB AHMAD AND HAYAT ALI.
MBA-1ST SEMESTER EVE.
(1.4.5) Unlimited liability. The sole trader is personally liable for debts of the business. The
creditor can lay claim not only on his business assets but also his personal properly such
as car, houses, furniture etc to recover the loan.
(1.4.6) Legal status. In law, the sole trader and his business are considered as one. In
other words, all the assets and liabilities of the business are the personal assets and
liabilities of the proprietor. We can say that the owner and the business exist together. In
other words, the two are considered as one in the eyes of law.
(1.4.7) Relationship with customers. The sole trader tries to keep good relationship with his
customers. The customers are generally personally known to the proprietor and their
orders are higher valued.
(1.4.8) No legal formalities. The sole trader can set up or close the lawful business as and
when he likes. The operation of his business is not governed by any special act or
ordinance.
(1.4.9) Ease of dissolution. The sole trading business is as easy to end or dissolve as is its
formation. The decision of the proprietor alone ends the business.
Sole proprietorship is a form of business enterprise in which an individual owns the
business, assumes all risks and operates the firm for his own personal interest. Sole
proprietor here is the sole owner, manager, controller, financier and risk bearer. He wears
many hats, of financial planning, marketing, development, business strategies, risks, etc.
The individual runs the business alone though he may obtain the assistance of paid
employees. The sole trader ship is very popular with small scale business such as
tailoring, hair dressing, retailers, accounting, legal profession etc., etc. The sole proprietor
form of business ownership is very popular in Pakistan. Its prospects here are also quite
bright.
(2.0). REGISTRATION OF A FIRM
(2.1).Meaning of registration
Partnership is the result of an agreement between persons (minimum 2 p; maximum 20)
who agree to carry on a lawful business with the object of earning profit. The name of the
firm under which the business is carried on may be recorded with the Registrar of
Partnership Firms. The registration is the evidence of the existence of the firm.
(2.2).Is registration of a partnership compulsory?
The Partnership Act of 1932 does not make compulsory for the firms to be the registered
with the Registrar of Partnership Firms. In order to encourage the as business, the
registration of the firms is left entirely to the willingness of the partners of the firms.
However, if a firm wants to avail of the benefits of registration, it can do so by filing a
statement on the prescribed form and depositing the required registration fee.
(2.3).How registration is done?
The whole process of registration is divided in two parts:
(2.3.1) Submission of a statement.
(2.3.2) Certification.
(2.3.1) Submission of application. The application for registration of the firm is submitted to
be the Registrar of Partnership Firms on a prescribed printed form. The statement is to be
singed by all the partners. It contains following particulars about the firm:
(2.3.1.1) The name of the firm.
(2.3.1.2) The place of the firm.
(2.3.1.3) The names of any other places where the firm carries on business.
(2.3.1.4) The partners date of joining the firm.
(2.3.1.5) The name in full and permanent address of the partners.
(2.3.1.6) The duration of the firm.
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(2.3.2) Certification. On receipt of the application for registration, the Registrar examines
the particulars given in the statement. If the Registrar is satisfied with the information
supplied, the Registrar records the name of the firm in a register called the Register of
Firms. The certificate of registration is issued to the partners.
(2.3.3)Changes in contents after Registration
If at any time, a firm wishes to change the name or place or wants to close the branches,
or a change takes place in the constitution of a registered firm, the registrar after-being
satisfied, will make the necessary changes in the record according to the revised
statement.
(2.3.4)Rectification of mistake
If any mistake in the document duly corrected and signed by all the partners 3 is brought to
the notice of the Registrar of Firms, the Registrar will rectify such mistake in the
documents.
(2.3.5)Merits of a registered firm.
A registered firm enjoys the following merits over unregistered firm.
(2.3.5.1). Terms of agreement. The terms of agreement are made clear to each partner in
writing which are mostly drawn by an expert lawyer.
(2.3.5.2). Basic legal document. If an issue arises among the partners in the form \ of
statement, it becomes a basic legal document for decision.
(2.3.5.3). Income tax. If a firm is registered with income tax authority also, the Profit of the
firm is divided among the partners. The tax is charged on the income the partners
individually. In case of unregistered firm, it is the firm which pays the tax. The partners of
the registered firm, therefore, get the privilege of lower assessment.
(2.3.5.4). Benefits to the firm. A registered partnership can file suits against the outsiders.
If can also file suits against the partner.
(2.3.5.5). Benefits to retiring partner. A retiring partner is not held liable for the debts of
the firm after the date of his retirement. The notice of retirement is filed with the Registrar.
This notice is considered a valid evidence of his retirement.
(2.3.5.6)i. Benefits to incoming partner. A new or incoming partner can get complete
information of the registered firm from the Registrar's office. He can decide properly
whether to join the firm as partner or not.
(3.1) PRIVATE LIMITED COMPANY
A private limited company is a company which can be started and registered by two
members. The private company suits the persons who wish to avail of the merits of limited
liability and also keep the business as private as possible. Private limited company is
generally a family affair. Its shareholders are mostly relatives friends or business
associates. The main privileges of a private limited company are as follows.
(3.2).Privileges of a private limited company.
(3.2.1). It can be formed by 2 members but shall not exceed 50.
(3.2.2). There are restrictions on filing the 'prospectus' or 'statement in lieu of prospectus'
with the Registrar.
(3.2.3). It can start business after registration without obtaining 'certificate *o commence
business'.
(3.2.4). It is not required to hold statutory meeting and no compulsion to submit statutory
report.
(3.2.5). It must have at least two directors. The maximum number of directors is stated in
the Articles of Association.
(3.2.6). Directors can receive loan without the approval of the Government.
(3.2.7). For holding a meeting, there should be at least two members to make a quorum.
(3.2.8). There are no restrictions as to the payments to be made to the directors and the
managerial staff.
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(3.2.9). It is not required to send the copies of balance sheet and profit and loss account to
the Registrar.
(3.2.10). It is required to use the words (Private) Limited as the last word of the name.
(3.2.11). It cannot be listed are stock exchange of the country.
(3.3).Merits of a Private Limited Company
The main merits of a private limited company are as under:
(3.3.1). It is a concern frequently of family members who are very well known to each
other. The control is generally in the hands of owners of capital.
(3.3.2). There is greater flexibility in regard to management and conduct of business.
(3.3.3). It is not required to hold a statutory meeting or file a statutory report.
(3.3.4). A private company is not required to have more than two directors.
(3.3.5). All the members of a private company enjoy the facility of limited liability. It has the
merits of a public company and a partnership firm.
(3.3.6). A private company can commence business immediately after its
incorporation.
(3.4).Demerits.
The restrictions imposed under Section 2(25) of the Ordinance are regarded demerits of
private company as compared with a public company. The restrictions or the demerits are
as under:
(3.4.1). It restricts the rights to transfer shares by its articles.
(3.4.2). The number of members in a private company cannot exceed 50 in any case.
(3.4.3). A private company cannot issue prospectus to public nor can file a statement in
lieu of prospectus.
(3.4.4). The shares cannot be quoted on stock exchange.
(3.5). PRIVATE LIMITED COMPANY AND ITS CONVERSION INTO PUBLIC COMPANY
(3.5.1).Definition of a Private Company.
A private company has been defined under Section 2(28) of the Companies Ordinance in
the following words:
(3.5.2).Private Company means a company which by its Articles of Association.
restricts the rights to transfer its shares, if any.
limits the number of its members to 50. (2 to 50)
prohibits any invitation to the public to subscribe for the shares if any or term loans of the
company.
(3.5.3).Conversion of Private company into Public company.
A private company is formed to avail of the merits of limited liability and the facilities of
partnership organization.
According to Companies Ordinance, 1984, there are two ways by which a private company
can become public.
(3.5.4) According to Section 45 of the Companies Ordinance, a private company to
become public shall have to alter its articles. The provisions contained in Section 2(28) i.e.,
(a) restricting the right to transfer its shares (b) limiting the number of its members to 50.
(c) prohibiting any invitation to the public to subscribe for any shares or term loans shall
have to be excluded from the Articles. The date on which the company alters its Articles
ceases to be a private company.
(3.5.5) The members of a private company within 14 days of the alteration of Articles shall
file with the registrar either a prospectus or a statement in lieu of prospectus.
(3.5.6) The number of members should also be increased to at least 7 if it is less than 7
(3.5.7).
In case a default is made in altering the Articles of private company, the
company shall cease to be entitled to the privileges and exceptions conferred on private
companies.
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where the material, labour is to be collected, the market for the goods, the size of the
business, the expected profit etc etc.
(4.5.1.3) Assembling different factors. After carrying out detailed investigations, the
promoters start assembling various business elements. They secure licence, copy right if
necessary, appointment of necessary employees. The financial needs and the demand for
the product are estimated.
(4.5.1.4) Capitalization. A company needs fixed and working capital for establishing and
running a business. The promoters estimate the total amount of capital needed and then
find out the types and sources of raising capital. They Intact banks and underwriters for the
issue of shares, debentures.
(4.5.1.5) Preparation of essential documents. The promoters prepare all the important
documents for the promotion of the company like Memorandum of Association, Articles of
Association and Prospectus.
The promoters, after carrying out the various activities, give the company its physical form.
The company however cannot start business at this stage, |f requires legal entity. For this
the company has to go for registration. The process of registration is called incorporation.
(4.6) Incorporation stage
The second step for establishment of a company is to get the company incorporated or
registered. The promoters have to prepare and file a number of documents with the
Registrar for the incorporation of a company. These
documents are as under:
(4.6.1) The memorandum of association signed by at least seven persons.
(4.6.2) The articles of association signed by at least seven persons.
(4.6.3) Promoters have to file a prospectus or a statement in lieu of prospectus with the
register.
(4.6.4) A list of directors and their willingness to act, duly signed by each of them.
(4.6.5) Notice of the address at which the registered office of the company will be situated.
(4.6.6) Original copies of the receipted challans in respect of payment of duty on share
capital and the prescribed filing fee.
(4.6.7) A statutory declaration by the secretary or a chartered accountant that all the
provisions of the Companies Ordinance with regard to registration have been fulfilled.
(4.6.8) Declaration of qualifying shares. All the directors, whose names are in the list. have
to submit a declaration certificate that they have taken up qualifying shares and have paid
up the money.
The above documents when submitted must be accompanied with requisite filing fee. The
Registrar on receipt of all the documents will scrutinize them. If he is satisfied that the
requirements of law have been fully met with, he will register the company in the Register
of Companies and issue a certificate of Incorporation. The certificate of incorporation is a
proof of the fact that all the requirements of the Companies Ordinance have been complied
with. On obtaining the certificate, the company gets an independent legal entity. It can sue
or be sued in its name, but it cannot start the business.
(4.7) Subscription stage.
A private company can commence business on receipt of certificate of incorporation.
However, a public company has to fulfill another requirement of subscription to obtain the
certificate of commencement of business. The subscription stage is concerned with the
following main steps.
(4.7.1) A prospectus has been issued inviting the public to subscribe for the shares.
(4.7.2) Where no prospectus has been issued, a statement in lieu of prospectus has been
filed with the registrar.
(4.7.3) Commencement stage.
(4.7.4) A declaration to the effect that shares payable In cash have been allotted upto the
amount of the minimum subscription.
(4.7.5) A declaration to the effect that every director has paid in the full amount of the
shares payable in cash.
(4.7.6) A declaration to the effect that no money is liable to be repaid to applicants for
shares or debentures which have been offered for public subscription.
(4.7.7) A statutory declaration by the chief executive or one of the directors and the
secretary that the aforesaid conditions have been complied, with.
The registrar on being fully satisfied that (a) the verified declaration has been filed and (b)
all other requirements of the Ordinance have been complied with, will issue a certificate
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(4.10.13)-Commission, Brokerage and Tax exemptions. This part contains the following
information. (4.10.14) Commission to be paid to the bankers to the issue. (4.10.15)
Brokerage.
(4.10.16) Tax exemption on investment on the shares of the company. (agd) Exemption
from custom duty and sales tax on plant and machinery, if any. (4.10.17).Brief history and
prospects. It includes:
(4.10.18) Brief history of company. (4.10.19) The main objects of the company. (4.10.20)
The location of the plant.
(4.10.21) Information about project, plant and its machinery, raw material, etc. (4.10.22)
Economic justification and marketability of the goods to be produced.
(4.10.23).Financial Information Under financial information, the following particulars are
provided.
(4.10.24) Auditors Report. (4.10.25) Shareholders equity and liabilities. (4.10.26) Auditors
certificate on share capital. (4.10.26) Estimated cost of the project and the means of the
finance.
(4.10.27).Board of Directors
Under this head, the names, addresses, and occupation-of the board of directors is given.
(4.10.28).Interest of Directors This head provides information regarding:
(4.10.29) Interest of directors in dividends and other benefits. (4.10.30) Remuneration to
be paid to the chief executive, directors and the secretary.
(4.10.31).General Information The main information provided under this head are:
(4.10.32) Election of directors. (4.10.33) Powers of directors. (4.10.34) Borrowing powers
of the directors. (4.10.35) Voting rights. (4.10.36) Transfer of shares. (4.10.37) Quorum of
general meeting.
(4.10.38).Miscellaneous The main contents under this head are:
(4.10.39) Place of registered office, factory. (4.10.40) Bankers of the company. (4.10.41)
Bankers to the issue both local and foreigner. (4.10.42) Legal advisor, consultants to the
issue, etc.
(4.10.43).Application and Allotment
The procedure of applying for shares, their scrutiny and allotment of shares is made clear
to the prospective investors in this section.
(4.11). A STATEMENT IN LIEU OF PROSPECTUS
If the promoters of a public company hope to get the subscription of capital from their own
limited circle, there is no need to issue prospectus to the public. The promoters shall have
to file "a statement in lieu of prospectus'.
According to Section 53 of the Companies Ordinance, if a public company is not issuing a
Prospectus on its formation, it then must file a Statement in Lieu of Prospectus with the
Registrar of the Companies. A statement in lieu of prospectus is defined as "a public
document prepared in the Second Schedule of Companies Ordinance by every such public
company which does not issue a prospectus on its formation by filing with the registrar
before allotment or shares of debentures, and signed by every person who is named
therein". A Statement in Lieu of Prospectus gives practically the same information as a
Prospectus and is signed by all the directors or proposed directors. In case, the company
has not filed a Statement in Lieu of Prospectus with the Registrar, it is then not allowed to
allot any of its shares or debentures.
'A statement in lieu of prospectus' contains the following information:(4.11.1). Name of company.
(4.11.2). Statement of capital.
(4.11.3). Description of the business.
(4.11.4). Names, addresses and occupations of directors.
(4.11.5). Estimated initial expenses.
(4.11.6). Names of vendors and details of property.
(4.11.7). Material contracts,
(4.11.7). Director's interests.
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