Hello everyone, in the previous topic we had suggested you Top 5 Best Books for Financial Education. Today we are going to talk about the Memorandum of Association, Article of Association, and Partnership.

What is a Memorandum of Association?

The Memorandum of Association is the most important document because it defines the objectives of the company. No company can legally undertake activities that are not contained in its Memorandum of Association. As per section 2(56) of The Companies Act, 2013 “memorandum” means the memorandum of association of a company as originally framed or as altered from time to time in pursuance of any previous company law or of this Act.

Clause of Memorandum of Association

The Memorandum of Association contains different clauses, they are explained below-

The Name Clause

This clause contains the name of the company with which name the company will be known, which has already been approved by the Registrar of Companies.

Registered Office Clause

This clause contains the name of the state, in which the registered office of the company is proposed to be situated. The exact address of the registered office is not required at this stage but at the same must be notified to the Registrar within thirty days of the incorporation of the company.

Objects Clause

This clause is probably the most important clause of the memorandum. It defines the purpose for which the company is formed. A company is not legally entitled to undertake an activity, which is beyond the objects stated in this clause. The main objects for which the company is formed are listed in this sub-clause.

It must be observed that an act that is either essential or incidental for the attainment of the main objects of the company is deemed to be valid, although it may not have been stated explicitly.

Liability clause

This clause limits the liability of the members to the amount unpaid on the shares owned by them.

Capital Clause

This clause specifies the maximum capital which the company will be authorized to raise through the issue of shares. The authorized share capital of the proposed company along with its division into the number of shares having a fixed face value is specified in this clause.

Define Articles of Association

Articles of Association are the rules regarding the internal management of a company. These rules are subsidiary to the Memorandum of Association and hence, should not contradict or exceed anything stated in the Memorandum of Association.

According to section 2(5) of The Companies Act, 2013, ‘articles’ means the article of association of a company as originally framed raise through the issue of shares. The authorized share capital of the proposed company along with its division into the number of shares having a fixed face value is specified in this clause.

What is Partnership?

When two or more persons join hands to set up a business and share its profits and losses, they are said to be in partnership. Persons who have entered into a partnership with one another are individually called ‘partners’ and collectively called ‘firms’. A partnership firm has no separate legal objects, apart from the partners constituting it.

Features of partnership

The features of Partnership is given below-

Two or More Persons

In order to form a partnership, there should be at least two persons coming together for a common goal.

In other words, we can say that the minimum number of partners in a firm can be two. There is, however, a limit on their maximum number. The number of partners cannot exceed 100.

Agreement

A partnership is the result of an agreement between two or more persons to do business and share its profits and losses. The agreement becomes the basis of the relationship between the partners. It is not necessary that such agreement is in written form. An oral agreement is equally valid. But in order to avoid disputes, it is preferred that the partners have a written agreement.

Business

The agreement should be to carry on some business. Mere co-ownership of a property does not amount to a partnership. For example, if Shanu and Sneha jointly purchase a plot of land, they will be called the joint owners of the property and not the partners. But if they are in the business of purchase and sale of land for the purpose of making a profit, they will be called partners.

Mutual Agency

The business of a partnership concern may be carried on by all the partners or any of them acting for all. This statement has two important implications. First, every partner is entitled to participate in the conduct of the affairs of its business. Second, that there exists a relationship of mutual agency between all the partners.

Each partner carrying on the business is the principal as well as the agent for all the other partners. They can bind other partners by their acts and also are bound by the acts of other partners with regard to the business of the firm.

The relationship of the mutual agency is so important that one can say that there would be no partnership if the element of mutual agency is absent.

Sharing of Profit

It is also one of the most important elements of the partnership. The agreement between partners must be to share profits and losses of a business. Sharing of profits and losses is important. If some persons join hands for the purpose of some charitable activity, it will not be termed as a partnership.

Liability of Partners

Each partner is liable jointly with all the other partners and also severally to the third party for all the acts of the firm done while they are partners.

Types of Partnership

The types of the partnership are given below-

General Partnership

In General Partnership, both partners equally participate in the day-to-day activities and decision-making prospects of a firm. Both of them are equally responsible for all profits, losses, and debts of the company. If one partner is found guilty for any discrepancy in business, the others will be also held accountable.

Limited Partnership

In Limited Partnership, there are one partner and more than one partner whose liabilities are limited. A limited partner usually takes their share of profit without involving in daily managerial activities and decision-making.

Limited Liability Partnership

In a Limited Liability Partnership, liabilities on partners are limited. They are not responsible for any legal and financial crisis of a firm.

Partnership at Will

This Partnership solely depends on the will of a partner. The partners can break the bond anytime they wish. This type of Partnership is usually created for lawful business which usually lasts for an indefinite time. 

Advantages of Partnership

The advantages of a partnership are as follow-

Easy to form

A simple agreement, either oral or in writing, is sufficient to create a partnership.

Better Decisions

The partners are the owners of the business. Each of them has an equal right to participate in the management of the business. In case of any conflict, they can sit together to solve the problems. Since all partners participate in decision-making, there is less scope for reckless and hasty decisions.

Availability of Large Resources

Since two or more partners join hands to start a partnership business it may be possible to pool more resources.

Protection of Interest of Each Partner

In a partnership firm, every partner has an equal say in decision-making. If any decision goes against the interest of any partner they can prevent the decision from being taken. In extreme cases, a dissenting partner may withdraw from the business and can dissolve it.

Disadvantage of Partnership

The disadvantages of partnership are as follow-

Unlimited Liability

All the partners are jointly as well as separately liable for the debt of the firm to an unlimited extent. Thus, they can share the liability among themselves or anyone can be asked to pay all the debts even from their personal properties.

Lack of Harmony

In a partnership firm, every partner has an equal right to participate in the management. Also, every partner can place their opinion or viewpoint before the management regarding any matter at any time. Because of this sometimes there is a possibility of friction and quarrel among the partners. Differences of opinion may lead to the closure of the business on many occasions.

No Transferability of Share

If you are a partner in any firm you cannot transfer your share of interest to outsiders without the consent of other partners.

Uncertain Life

The partnership firm has no legal entity separate from its partners. It comes to an end with the death, insolvency, incapacity, or the retirement of any partner. Any dissenting member can also give notice at any time for the dissolution of the partnership.

So, that is all for today guys see you in our next blog. If you like our article please doesn’t forget to share with others & follow our Instagram page for your daily dose of Motivation.

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Grooming Urban

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