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Official Dispute Resolution & Recovery Agency for ,

KNOWING NATURE OF BUSINESS ENTITY YOUR DEBTOR IS

The recovery / collection risks vary according to type of business entity that you are doing business with. Often as an attorney involved in debt recoveries It is very import to know exactly what type of business entity you are doing business with. There are basically, the following form of business organizations exists in India

Sole Proprietorship

A sole proprietorship refers to an individual who operates a business, and is generally the simplest way to set up business. The sole proprietor is subject to unlimited liability - this means that the sole proprietor is fully responsible for all debts and obligations related to his or her business. A creditor with a claim against a sole proprietor would normally have a right against all of the sole proprietor's assets, both business and personal.

Since a sole proprietorship firm is not a juristic person, a suit can be brought in the name of the proprietor and not in the name of the firm. Registration of sole proprietor firm, unlike partnership, is not applicable in India. Sole proprietorship concerns have no independent identity.

Partnership

A sole proprietorship refers to an individual who operates a business, and is generally the simplest way to set up business. The sole proprietor is subject to unlimited liability - this means that the sole proprietor is fully responsible for all debts and obligations related to his or her business. A creditor with a claim against a sole proprietor would normally have a right against all of the sole proprietor's assets, both business and personal.

A partnership refers to an agreement in which two or more persons combine resources to carry on business with a view to making a profit. Partners share in the profits of the partnership according to the terms of the agreement.

In a partnership, all the partners share the management of the business, and each partner is personally liable for all the debts and obligations of the business. Thus, each partner is responsible for and must assume the consequences of the actions of the other partner(s).

The Indian partnership act, 1932 governs the partnership in India. Two or more persons can form a partnership for the purpose of doing business. The partnership is not necessarily created by an agreement or a contract executed in writing. There can be partnership by oral agreement or the agreement may be inferred form the conduct of the parties.

A partner is an agent of the firm for the purpose of business. Registration of partnership is not necessary. However, the non registration of partnership has the following effects:

According to Section 69-
  • 1No suit to enforce a right arising from a contract or conferred by this Act shall be instituted in any court by or on behalf of any person suing as a partner in a firm against the firm or any person alleged to be or to have been a partner in the firm unless the firm is registered and the person suing is or has been shown in the Register of Firmsas a partner in the firm.
  • 2No suit to enforce a right arising form a contract shall be instituted in any Court by or an behalf of a firm against any third party unless the firm is refistered and the persons suing are or have been shown in the Register of Firms as partners in the firm.
  • 3The provisions of sub-sections (1) & (2) shall apply also to a claim of set-off or other proceeding to enforce a right arising form a contract, but shall not affect:
    • the enforcement of any right to sue for the dissolution of a firm or for accounts of dissolved firm, or any right or power to realise the property of a dissolved firm
    • the powers of an official assignee, receiver or Court under the Presidency-Towns Insolvency Act, 1909 (3 of 1909) or the Provincial Insolvency Act, 1920 (5 of 1920) to realise the property of an insolvent partner.
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Company

The Companies Act, 1956 governs the company form of Business organization. There are 5 type of Companies that can be registered under the companies act :

  • 1Public Limited Companies
  • 2Private Limited Companies
  • 3Companies limited by guarantee
  • 4Companies with unlimited liability
  • 5Government Companies

A company is a "person" created by law that is capable of indefinite life and is separate from its shareholders or members. It owns property in its own name, acquires rights, obligations and liabilities, enters into contracts and agreements, and has the capacity to sue or be sued, as would a natural person.

A company is formed by minimum 2 persons in case of Private limited Companies & 7 persons in case of Public Limited Company, to carry on business for profit. The company does not cease operations upon the death of share holders and principals.

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