Contract act Flashcards
(85 cards)
What are the types of business organization?
- Sole Proprietorship
- Partnership Firm
- Hindu Undivided Family (HUF)
- Limited Liability Partnership (LLP)
- Co-operative Society
- Section 8 Company
- One Person Company
- Private Company
- Public Company
These categories cover various legal structures for businesses, each with unique characteristics and regulations.
What is a sole proprietorship?
A form of business owned, managed, and controlled by one person with no legal formalities required for creation other than appropriate licensing.
It is the simplest business structure and does not require extensive legal procedures.
What is the liability of a sole proprietor?
Unlimited liability, meaning the owner is personally liable for all debts of the business.
This can discourage risk-taking and is suitable primarily for small businesses.
What are the merits of sole proprietorship?
- Easy formation
- Swift decisions
- Sole beneficiary of profits
- Benefits of small-scale operations
- Inexpensive management
- Confidentiality
- Lesser paperwork
- Simple tax calculations
- Lower business fees
These benefits make sole proprietorships attractive for small business owners.
What are the limitations of sole proprietorship?
- Limitation of management skills
- Limitation of resources
- Unlimited liability
- Lack of continuity
- Selling the business is a challenge
- Risk in decision-making
- No economies of scale
These limitations can hinder business growth and sustainability.
What is required for the formation of a sole proprietorship?
A sole proprietor does not require a deed or agreement; however, registration may be needed under various local laws.
Examples of such laws include Shops and Commercial Establishments Act and GST registration.
What defines a partnership firm?
A partnership firm is formed when two or more people pool funds to start a business, governed by the Indian Partnership Act, 1932.
The primary aim is to earn profit, and a partnership deed outlines the terms.
What is the maximum number of partners in a partnership firm?
50 partners.
This is according to the regulations set forth by the Indian Partnership Act.
What is the definition of partnership?
The relation between persons who have agreed to share the profits of a business carried on by all or any one of them acting for all.
This emphasizes the collaborative nature of partnerships.
What are the features of partnership?
- Existence of an agreement
- Engagement in business
- Sharing of profits and losses
- Agency relationship
- Unlimited liability
- Common management
- Restriction on transferability of share
- Registration
- Duration
These features define how partnerships operate and their legal standing.
What are the limitations of partnership?
- Uncertainty of existence
- Unlimited liability
- Risks of disharmony
- Difficulty in withdrawal or blocking of capital
- Lack of institutional confidence
- Lack of public trust
- Lack of control
- Difficulties of expansion
These limitations can affect the operational efficiency and sustainability of partnership firms.
What are the types of partnership?
- Partnership at-will
- Particular partnership
- Partnership for a fixed duration
Each type specifies different conditions regarding the duration and purpose of the partnership.
What are active partners?
Partners who take an active part in the conduct of the day-to-day business of the firm.
They are responsible for carrying out business activities on behalf of the other partners.
What are sleeping or dormant partners?
Partners who do not take active part in management but contribute capital and share in profits and losses.
They are bound by the activities of the active partners.
What are nominal partners?
Partners who do not have an interest in the business but lend their name to the firm and share in profits.
They may have a pecuniary interest or may merely lend prestige to the firm.
What is a partner by holding out?
A person who represents himself as a partner and is liable to third parties, regardless of actual partnership status.
This concept ensures accountability in business dealings.
Can a minor be a partner in a partnership firm?
No, but a minor can be admitted to the benefits of an existing partnership with the consent of all partners.
This means they can share profits but have limited liability.
What are the merits of partnership?
- Ease in formation
- Pooling of financial resources
These advantages make partnerships appealing for collective business ventures.
What is the age limit for a minor to enter into a valid partnership agreement?
18 years.
Under which section of the Indian Partnership Act can a minor be admitted to the benefits of an existing partnership?
Section 30.
What is one major advantage of forming a partnership?
Ease in formation.
How does a partnership benefit in terms of financial resources?
Pooling of financial resources.
What advantage does pooling of managerial skills provide in a partnership?
Greater efficiency in business operations.
What is a key feature of decision-making in a partnership?
Balanced business decisions.
