7. non corporate entities

Question 1

define sole proprietorship

Answer 1

A business owned, managed, and controlled by one individual, who assumes full responsibility for its liabilities and debts.

Question 2

merits of sole proprietorship

Answer 2

Easy formation without legal formalities./ Swift decision-making as the sole proprietor makes all decisions/ sole beneficiary of the profits/ better control / can employ family members and often receive government concessions/ lesser paperwork

Question 3

limitations of sole proprietorship

Answer 3

limitation of mgmt skills/ resources/unlimited liability/ lack of continuity/

Question 4

partnership

Answer 4

A relationship between persons who agree to share the profits of a business carried on by all or any of them

Question 5

document that outlines the terms of a partnership (rights and responsibilities)

Answer 5

partnership deed

Question 6

types of partnership

Answer 6

• Partnership at-will- exists on the will
• Particular partnership- formed for undertaking a particular venture
• Partnership for a fixed duration- for a fixed period of time

Question 7

types of partners

Answer 7

active partner
sleeping partner
nominal partner
partners by holding out

Question 8

active partner

Answer 8

A partner who actively participates in the day-to-day management of the business.

Question 9

sleeping partner

Answer 9

A partner who contributes capital but does not take part in management

Question 10

nominal partner

Answer 10

A partner who lends their name to the firm without having an interest or participating in management.

Question 11

partners by holding out

Answer 11

individuals who represent themselves as partners in a firm through their actions or words, even though they are not actual partners. They can be held liable for the firm’s debts and obligations because their representation misleads third parties into believing they are partners

Question 12

benefits of partnership

Answer 12

pooling of financial resources/ managerial skills/ balanced business decision/ sharing of risks/

Question 13

limitations of partnership

Answer 13

Uncertainty of existence due to changes like retirement or death of partner/ risk of disharmony/

Question 14

Can a minor be a partner in a firm?

Answer 14

No, but a minor can be admitted to the benefits of an existing partnership

Question 15

max and min no of partners

Answer 15

min 2
max 20 partners

Question 16

partnership act is goverened by

Answer 16

indian partnership act 1932

Question 17

benefits that an unregistered partnership wont have

Answer 17

• cannot file suit against firm or other partners
• cannot enforce right arising from a contract in court against 3rd party
• cannot claim set off in a dispute with 3rd party

Question 18

Registration procedure

Answer 18

file an application with ROF–partner need to verify and sign– prescribed fees- duly filled affidavit– copy of partnership deed– proof of ownership of place of business

Question 19

ingredients of partnership deed

Answer 19

• name of the business, the address of its principal place of
  business, name and address of all partners and a short summary of the nature of business the partners
  intend to operate.
• Partnership duration
• Investment
• Accounting
• Duties, powers and obligations of the partners
• Profit/Loss ratio
• Withdrawals
• Admission/ Retirement of a partner
  Details
• Expulsion
• Banking and Partnership Funds
• Borrowings- A written consent of all the partners will be required for taking loans
• Dissolution- methods by which the partnership and business will be
  dissolved
• Arbitration- to avoid expensive litigatio

Question 20

HUF

Answer 20

A distinct form of organization in India created by law, managed by family members, without a separate legal entity. goverened by hindu succession act

Hindus, Buddhists, Jains and Sikhs can form HUFs.

Question 21

karta

Answer 21

Karta is the senior most male member who manages the business and has the final decision-making authority. /unlimited liability

Question 22

perpectual succession

Answer 22

The business continues irrespective of the death, lunacy, or insolvency of any member

Question 23

membership of HUF

Answer 23

members have limited liability
The membership can be acquired only by birth or by marriage to a male person who is
already a member of Joint Hindu Family.
a minor can be a partner in an HUF

Question 24

benefits of HUF

Answer 24

Easy to Start:No legal formalities are required .
* Efficient Management & Control: Mgmt is centralised in the hands of Karta of family.
* Secrecy: karta is in a position to
keep all the affairs to himself and maintains perfect secrecy in all matters.
* Prompt and quick decisions:
* Credit Facilities: The Karta’s personal relationships help in raising credit.
* Expanded loyalty & cooperation
* Freedom regarding Selection of Business:

Question 25

Limitations of HUF

Answer 25

* Limited Resources: mostly dependent on ancestral property. * Unlimited Liability of Karta: * Dominance of Karta: * Limited Managerial Skills: Karta cannot be an expert in all areas of management * Misuse of Power * Limited Membership: restricted to family members exclusively.

Question 26

HUF deed( Creating a HUF Deed is not mandatory. )

Answer 26

A HUF deed is a written formal document on a stamp paper , specifying the name of Karta and Coparceners of HUF. * The name of members and name of HUF is also required to be stated * It also states the capital with which the HUF has been initiated. * A declaration is also provided by each member of family where they declare the name of Karta * a rubber stamp of HUF will also be prepared. * Deed should be notarised.

Question 27

formation of HUF

Answer 27

i. Register the Deed. ii. Obtain PAN.- This is mandatory because all financial transactions must carry PAN. iii. Open bank account.

Question 28

basic exemption limit for HUFs under income tax

Answer 28

2.5 lakh, plus deductions under section 80C up to Rs. 1.5 lakh

Question 29

Mega firms / Multi disciplinary firms

Answer 29

A partnership firm with more than twenty-five partners providing core professional services along with allied services under one roof.

Question 30

Name some professional bodies that can collaborate in forming an MDF.

Answer 30

Chartered Accountants, Cost Accountants, Actuaries, Engineers, Architects, Lawyers, and MBA graduates

Question 31

risks associated with forming an MDF

Answer 31

Lack of understanding/ high infrastructure costs/ dominance of senior partners/ communication gaps/ lack of transparency may lead to disputes

Question 32

benefits of MDF

Answer 32

* Working in a team environment * Good Exposure * Cost effective *Exceptional training and on-boarding * Continuous Learning * Better growth opportunities * global scope and reach * Revenue sharing * Structure & Processes: will be more systematic and the process will be cost effective * reputation & risk-adjusted value

Question 32

MDF partnership

Answer 32

* Working under a Memorandum of Understanding (MOU) for at least one year to ensure compatibility among partner. * partnership agreement should define decision-making processes, duties, responsibilities, revenue sharing, and exit routes.

Question 33

pre requisites for joining MDF

Answer 33

All minds should work together and in unison. Say go to ego. Mutual faith and respect Unanimity must Financial discipline is a must. Founder partners shall be given equal status. One shall not put undue influence on the others . Even the small crack in the above stated pre requisites ruin the things.

Question 34

society

Answer 34

An association of persons united by mutual consent to act jointly for a common purpose, often registered for charitable activities

Question 35

what purposes can societies be formed?

Answer 35

Charitable activities, promotion of science and arts, military orphan funds, political education, libraries, and museums.

Question 36

adv of society

Answer 36

Simple formation process, minimal record-keeping, low compliance costs, limited regulatory interference, tax exemptions

Question 37

limitations to society

Answer 37

Limited appeal for commercial investors, lack of equity investment, risky perception, and restrictions on accepting public deposits

Question 38

requirement for formation of society

Answer 38

* At least seven persons must subscribe to a memorandum of association and file it with the Registrar. * MoA shld contain info such as; Name, objectives, and details of the governing body members. * society can be registered at the state level or district level with the Registrar of Societies.

Question 39

documents required for formation

Answer 39

Consent letters of all the members Authority letter signed by all the members An affidavit sworn by the president or secretary of the society on non-judicial stamp paper A declaration by the members of the managing committee that the funds of the society will be used only for the purpose of furthering the aims and objects of the society A letter requesting registration, signed by founding members. This letter will state the purpose of formation of the society and a requisition indicating that the society is registered under the Act. The signature of all members is mandatory. * A certified copy of the MoA, signed by the founding members, with a duplicate. * A certified copy of the rules and regulations, signed by the founding members, along with a duplicate copy.

Question 40

consequences of not registering

Answer 40

Lack of Legal Status Inability to Sue or Be Sued Limited Access to Benefits Restrictions on Property Ownership Difficulty in Conducting Business Lack of Recognition Accountability Issues Vulnerability to Legal Issues

Question 41

multi state cooperative society

Answer 41

The Multi-State Cooperative Societies (MSCS) Act, 2002, enables the formation of cooperative societies that operate across multiple states in India. * primary (with both individual and institutional members) * federal cooperatives (with only institutional membership)

Question 42

types

Answer 42

Multi State Solar Cooperative Society . Farming Cooperative Society *Credit Cooperative Society * Agriculture Cooperative Society * Real Estate Cooperative Society * Dairy Firm Cooperative Society * Transport Cooperative Society

Question 43

benefits of MSCS

Answer 43

* provides loans at reasonable rates of interest to the poor. * can function pan India * regulatory requirements of filing, is minimum, * MSCS have low compliance costs. * A MSCS belongs to its members, who are at the same time the owners and the customers of their Society.( creates a sense of belonging and ownership )

Question 44

registration

Answer 44

Application Submission: Submit an application in Form-1 to the Central Registrar of Cooperative Societies. Required Documents: * Certificate from a bank indicating credit balance. * Scheme detailing the viability of the society. * Bye-laws (four copies) of the proposed society. * Member List: At least 50 members from each state, with ID proofs. * Resolutions: Certified copies from the proposed society. * No Objection Certificates: Required from relevant State Registrars for certain societies, especially those related to thrift and credit. The Central Registrar must dispose of the application within four months. If not, the application is deemed accepted.

Question 45

trust

Answer 45

A trust involves a person or entity (trustee) holding legal title to property for the benefit of others (beneficiaries). Governed by the Indian Trust Act, 1882, private (specific beneficiaries) or public (benefitting the general public).

Question 46

Who can create a trust?

Answer 46

Any person over 18 years, mentally competent, and certain entities like HUF and companies.

Question 47

trustee

Answer 47

any person who is capable of holding property may be a trustee