A 1) What are the ‘advantages’ as well as what are the ‘negatives’ that are inherent in a

typical business of a Sole Proprietorship/Sole Trader?

Sole proprietorship is an unincorporated business that has just one owner who pays personal
income tax on profits earned from the business.
Advantages:
a) You keep all the profits and easier tax setup
b) Complete control as the owner. You are the decision maker and do not approval from
board of directors
c) No need to make decisions based on the wants of shareholders or requirements of
legal partners
d) Setting up cost is very low
e) Maximum privacy as nothing has to be disclosed to the public like in a publicly listed
company
f) It is easy to change legal structure if circumstances change
g) No limit to the number of people that can be hired
Disadvantages:
a) Unlimited liabilities for debts as there is no legal distinction between private and
business assets.
b) Capacity to raise capital is limited
c) All the responsibility for making day-to-day business decision is yours
d) Retaining high-calibre employees might be difficult

A 2) What are the ‘legal formalities’ required to start to start a sole trader business?
Starting a sole proprietorship requires no legal formalities or registration. However, business
licenses as required by State / Central Government and tax registrations must be obtained.
Further, the trademark registration is recommended, in case the name of the business is
unique or brandable.
To start a sole trader business in India, following are the legal requirements:
a) Apply for Business license depending on the type of business (Eg: Food Business
Operator License for businesses handling food)
b) Apply for an AADHAR card and PAN card if the proprietor does not have a PAN
card
c) Keep a name for the sole proprietorship
d) Open a bank account in the name of the business. All transactions of the business will
be through this bank account
e) Proprietor needs to obtain the Registration Certificate under the Shops and
Establishment Act of the state where the business is located
f) Proprietor should register for GST if the business turnover is over 20 lakh.
B 1) What is the definition of ‘Partnership’?
As mentioned in Section 4 of the ‘Indian Partnership Act, 1932’, Partnership is the relation
between persons who have agreed to share the profits of a business carried on by all or any of
them acting for all. Persons who have entered into partnership with one another are called
individually ‘partners’ and collectively a ‘firm’, and the name under which their business is
carried out in called the ‘firm name’.

B 2) What are the ‘Advantages’ as well as what are the ‘Negatives’ that are commonly
found in a ‘Partnership form of Business’?
Advantages of a partnership form of business:
a) Bridging the gap in expertise and knowledge
A good partner may bring knowledge and experience that a single person may be
lacking
b) A prospective partner(s) brings an infusion of cash into the business. The person(s)
may also have more strategic connections than the single owner does. This helps in
attracting potential investors and raise more capital.
c) Having business partner(s) helps to share the financial burden for expenses and capital
expenditures that will be needed to run the business. This helps in more substantial
savings than going ahead with a sole proprietorship
d) Having business partner(s) helps become more productive and provides ease and
flexibility to pursue more business opportunities. Can also help eliminate the
downside of opportunity costs.
e) Sharing the load helps lighten the load and provide a better work/life balance
f) Provide better moral support and somebody to bounce ideas off of
g) Provides a new perspective as one may have blind spots. Can gain a new and different
perspective and outlook to deal with markets, products and services.
Disadvantages of a partnership form of business:
a) A partnership entails the sharing of liabilities, business losses, as well as
responsibility for any debts, even if incurred by other partner(s).
b) In a partnership, control is shared with partner(s) and important decisions are made
jointly, resulting in a loss of autonomy.
c) Conflicts can arise due to difference of opinion or from unequal effort put into the
business.
d) Complications in selling of the business in the future as the partner(s) might not want
to sell.
e) Profits are split between all partners and the share of profits for the proprietor is
reduced
f) A Partnership is not a separate legal entity and all partners are legally liable. If debts
exist, the personal money of all partners is at stake.
g) Higher income tax needs to be paid as compared to business tax.
B 3) In Partnership law, what is the meaning of the expression: ‘Act of Firm’? Explain
‘Act of Firm’ with a practical example
Under Section 2 of ‘The Indian Partnership Act, 1932’, ac ‘act of firm’ means any act or
omission by all the partners, or by any partner or agent of the firm which gives rise to a right
enforceable by or against the firm. All the partners are liable for any action undertaken by the
firm.
Example: One of the partners applying for a loan on behalf of the firm to further expand the
business constitutes as an act of the firm as all partners are liable to repay the loan as and
when they payments are due.

B 4) What are the liabilities of individual partners towards each other as well as
towards the collective liability of the partnership firm?
The liabilities of individual partners towards each other as well as towards the collective
liability of the partnership firm are listed under Sections 25 to 27 under ‘The Indian
Partnership Act, 1932’
a) Section 25: Liability of a partner for acts of the firm – Every partner is liable, jointly
with all the other partners and also severally, for all acts of the firm done while he/she
is a partner.
b) Section 26: Liability of the firm for wrongful acts of a partner – Where, by the
wrongful act or omission of a partner acting in the ordinary course of the business of a
firm, or with the authority of his partners, loss or injury is caused to any third party, or
any penalty is incurred, the firm is liable therefor to the same extent as the partner
c) Section 27: Liability of a firm for misapplication by partners – where –
a. A partner acting within his apparent authority receives money or property
from a third party and misapplies it, or
b. A firm in the course of its business receives money or property from a third
party, and the money or property is misapplied by any of the partners while it
is in the custody of the firm, the firm is liable to make good the loss
B 5) What are the ‘legal options’ that Partnership Act provide an unpaid creditor such
as Mr. Mukul Tanwar to file a case to recover the unpaid balance of the price for the
mini-truck supplied to the firm?
Under the Partnership Act, Mr. Mukul Tanwar (creditor) can initially ask the firm to pay the
debts. If the firm does not pay, he can ask the individual partners to pay as partners are jointly
and severally liable for the firms debts. This implies that the creditor can take action against
any partner and more than one partner at the same time. Upon non payment of unpaid
balance, the creditor can send a legal notice to the firm as a reminder for payment.
If the above-mentioned steps do not work, the creditor can then file a suit for recovery of
money against the firm as a whole or against a particular partner. The property of the firm
shall be applied in the first instance of payment of debts. If there is a surplus of unpaid
balance remaining, then the share of each partner shall be applied in payment of his/her
separate debts.
B 6) In such an event, does Partnership Law allow a creditor like Mr. Mukul Tanwar to
proceed only against a ‘dormant partner’ such as Mr. Shardul Subodh Wavhal?
In the event of unpaid creditor, Mr Mukul Tanwar has the right to sue the firm or any of the
partners, which includes the ‘dormant partner’ Mr. Shardul Subodh Wavhal as all partners are
equally, jointly and severally liable for the firm.
However, the dormant partner’s lawyer can raise a petition for non-joinder of necessary
parties as Mr. Shardul is a dormant partner and has not invested any money in the firm.

C 1) What are the ‘Legal Features/Attributes’ of a company as a distinct business

enterprise?
Section 2(20) of ‘The Companies Act, 2013’ defines a company to mean a company
incorporated under this Act or under any previous company law. The Legal
Features/Attributes/Characteristics of a company are:
a) Incorporated Association
A company must be registered under the Companies Act. A minimum of 7 people are
required for a public company and 2 people for a private company.
b) Legal Entity distinct from its members
Unlike partnership, the company is distinct from the persons who constitute it. It has
rights and subjected to duties which are not the same as those enjoyed or borne by its
members.
c) Artificial Person
The company is a juristic person, but does not possess the body of a natural being. It
only exists in contemplation of law. Since it is an artificial person, it has to depend
upon natural persons, namely the directors, officers, shareholders etc. for getting work
done.
d) Limited Liability
Members of the company are only liable to contribute towards payments of its debt to
a limited extent.
e) Separate Property
In the eye of the law, shareholders are not part owners of the company or its property.
They are given rights to vote, attend meetings, receive dividends etc.
f) Transferability of Shares
Shares are capable of being transferred to any person without the consent of other
members.
g) Perpetual Succession
Since a company is an artificial person, it cannot be incapacitated by illness and does
not have an allotted span of life. The death, insolvency or retirement of its members
does not affect the company. Members may come and go, but the company stays
forever.
h) Common Seal
A company does not have a mind or physical limbs and hence has to work through the
agency of human beings, namely the directors, officers and employees of the
company. A company, may, under its common seal, through general or special power
 of attorney empower any person to execute deeds on its behalf. If a company does not
have a common seal, authorization shall be made by 2 directors or 1 director and the
company secretary.

C 2) What are the ‘Legal Procedures/Steps’ necessary for the Incorporation (formation)
of a Company?
As per Section 33 of ‘The Companies Act, 2013’, a company to get itself registered has to
apply to the Registrar of Companies (ROC) along with certain documents like the
Memorandum of Association (MOA) and the Articles of Association (AOA). Following are
the steps involved in the incorporation of a company:
a) Application for the availability of the name of the company
A person has to make an application in Form 1A along with a prescribed fee stating
the proposed name of the company. The stated name should not be similar or identical
to the name of an already existing company, not constitute an offence under the law or
state in any way that it is associated to the Government.
b) Preparation of documents for Incorporation
Once approval for the name is received, following documents need to be prepared:
a) INC-9 – Declaration by first subscribers and the directors of the company
b) DIR-2 – Declaration from directors along with a copy of identity proof and
residence address
c) Proof of office address
d) Copy of utility bills like electricity bills and water bills not older than 2 months
c) Filing of Information form
The applicant then has to fill up the 3-form “Spice” INC-32 on the Ministry of
Corporate Affairs (MCA). The features are as follows:
a) Maximum limit for subscribers is 7
b) Maximum details for directors are 20
c) Maximum 3 directors are allowed for filing of allotment of DIN
d) Applying for PAN/TAN is compulsory
d) Preparation of Memorandum of Association and Articles of Association
After proper filling of SPICE, the applicant has to download INC-33 (MOA) and
INC-34 (AOA) forms from MCA. MOA and AOA shall be signed by each subscriber
to the memorandum, adding their name, address, description and occupation in the
presence of at least 1 witness.
e) Fill in details of PAN and TAN
It is mandatory to mention the details of PAN and TAN in the Incorporation Form
INC-32
f) Submission of INC – 32, 33, 34 on MCA
Once all 3 forms are ready to upload on the MCA website, the payment for the same
must be made on the MCA website.
g) Certificate of Incorporation (CIN)
The registrar shall act based on all documents and information and issue a certificate
of Incorporation. The Corporate Identification Number (CIN) will be generated with
PAN and TAN.
C 3) What is the meaning and scope of a Company’s constitutional documents: the
‘MOA’ and the ‘AOA’?
Commonly known as the Company Charter, Memorandum of Association (MOA) and
Articles of Association (AOA) define a company’s scope of work and its internal
management. Drafting of these documents is one of the most critical steps in Private Limited
Company registration process. These documents are supreme legal documents forming the
company’s constitution. They are indispensable and the foundation of a company.
Memorandum of Association (MOA), as per ‘The Companies Act, 2013’, covers 6 essential
clauses:
a) Name Clause
The company will have a name of its own to project its identity. The public
company’s name will end with the word Public Limited, and in the case of a private
company, the name of the company will end with the word Private Limited.
b) Situation Clause/Registered Office Clause
This clause mentions the state in which the company has its registered office in.
c) Object Clause
This clause defines the purpose for company formation and is usually not changed.
Drafting this clause is very crucial and is one of the most important clauses.
d) Liability Clause
This clause states the liability of the members of the company. The liability can be
limited or unlimited
e) Capital Clause
This clause specifies the maximum amount of capital a company can raise along with
its distribution into shares. The company can only secure a specified capital amount
mentioned in this clause.
f) Subscription Clause
This clause has the name, address and details of the first subscribers. It is mandatory
for the subscribers of the MOA to have at least 1 share of the company
Articles of Association (AOA) is a secondary document which plays a vital role in defining
the company’s internal workings, their rights, duties and management. The contents are as
follows:
a) Details regarding shares of the company
a. Classes and valuation of the shares
b. Transfer, conversion, Lien and forfeit of shares
c. Rights attached to the shares and rules about the alteration of the capital
d. Rules regarding the minimum subscription and conversion of fully paid shares
into stock
b) Details regarding Director’s rights, duties and their removal
a. Directors appointment, powers, duties, borrowing rights of the Board of
Directors and the procedure to remove them
c) Details regarding holding and conducting meetings
 a. Conducting meetings, maintaining minutes and sending out notices. It also
states rules regarding voting rights and proxy. It mentions accounts, audit,
appointment and remuneration of auditors
d) Process and rules regarding winding up of the company
It is possible to make alterations in the article if that benefits the company. But it
should not be in contradiction with any 3rd party contracts. Such alteration should not
increase the liabilities of its existing members.

C 4) What are the ‘Advantages’ as well as the ‘Disadvantages’ of

Incorporation/formation of company form of business?
A corporation is a business recognized by the state as a legal entity separate from its owners.
Following are the advantages of Incorporation of a company form:
a) Personal liability protection
The company is independent and separate from its members and the members cannot
be held liable for the acts of the company. If the corporation is sued, the shareholders
are not personally responsible for corporate debts or legal obligations.
b) Company has perpetual succession
The company never dies, even if the members cease to exist. The membership of the
company changes from time to time, but it has no effect on the existence of the
company.
c) Can own separate property
Since a company is a separate legal entity, it can hold property in its name and
members cannot claim to be the owner of the company’s property.
d) Capacity to sue
The company has the capacity to sue another entity
e) Easier to raise capital
Raising capital is easier since a corporation can issue shares of stock. This makes it
easier for the business to grow and develop. This is a luxury that other entities do not
have
f) Tax benefits
Certain corporation structures have tax benefits depending on how the income is
distributed. The income can be split between the company and shareholders, hence
allowing income to be taxed at different rates
Following are the disadvantages of incorporation of a company form:
a) Cost
The initial cost of incorporation includes potential attorney and accountant fees and
there are ongoing fees for maintaining a corporation as well
b) Double Taxation
Some types of corporations are taxed double, once on profits and again on the
dividends paid to the shareholders
c) Loss of personal ownership
One person does not retain complete control of the entity, but is governed by a board
of directors
 d) Required structure
A strict and rigid set of rules have to be followed outlined by the state in which one
has filed for incorporation. This includes management of corporation, operational
requirements, accounting practices, create annual reports etc.
e) Ongoing paperwork
Most corporations have to file annual reports, tax returns, accounting records, minutes
of meeting and also apply for required licenses and permits for conducting business
f) Difficulty dissolving
If a certain number of board of members want to dissolve the company, but others
don’t, then dissolution of the company becomes a complicated affair
g) Lengthy application process
Overall process of incorporation a company is often time consuming. Extensive
paperwork must be prepared and filed during the formation and continued existence
of the company
C 5) Would you like to work for a company OR would you like to start one of your
own? While answering – do provide your cogent reasons
Personally, I would follow a combination of the two. I would first work for a company and
then start my own company. Working for a company has the following benefits:
a) Gaining sufficient experience
b) Gaining an understanding of how companies function
c) Gaining an understanding of corporate culture
d) Understanding the legal and financial requirements of how a company works
e) Accumulation of sufficient funds to pump into my own company
I would then start my own company for the following reasons:
a) Complete control as the owner
b) More profits as all the earnings of the company come into my bank account
c) Do not have to make decisions based on the wants of the shareholders
d) Easier to change the structure of the company, based on ongoing circumstances
e) Maximum privacy as nothing has to be disclosed to the public like in a publicly listed
company

C 6) Who are the ‘Two Human Agents’ who will act for and on behalf of the company:
‘Khushboo Kababisthan (KKL)’?
The 2 human agents that act on behalf of the company are:
a) Authorized signatories
The board of directors of KKL will assign authorized signatories who can sign on
behalf of all the board of directors or on behalf of the company as a whole. Generally,
a corporation such as KKL will have 1 or 2 authorized signatories and the details of
such are mentioned in the Articles of Association (AOA)
b) Shareholders
The people who have invested in KKL constitute as the shareholders of the company.
KKL will give most importance to them as they generally own a large portion of the
 company and also constitute most of the profits earned by KKL. Keeping them happy
also ensures continued and growing profits for KKL.

C 7) Explain briefly: How do these ‘Two Human Agents’ take decisions for the
company KKL?
Decisions within a company are either the Director’s responsibility or fall on the
shareholders. Shareholders make the decision as owners and directors make the decision as
the managers of the company.
Director decisions:
Directors make decisions about the day to day running of the company and a large number of
decisions affecting the company may be taken by a decision of the board of directors alone.
The rules regarding this are usually found in the Articles of Association (AOA) and include
all the necessities for meetings and voting. If the directors choose to take a decision by
holding a board meeting rather than by passing a director’s written resolution, there are
certain procedural rules which must be complied with:
a) Call a Board Meeting
When a director calls a board meeting, he/she must give other directors notice of the
meeting before it takes place
b) The Quorum
Quorum is the minimum number of directors who are required by company’s articles
to be present for valid decisions to be taken at that meeting. This ensures that a
minimum number of eligible people are present before any decisions are made, with
the general minimum quorum being 2 directors.
c) Voting
The rules for voting are found in the company’s articles and there may be restrictions
in the company’s articles on directors voting on matter where they have a personal
interest.
d) Chairman
The board of directors may appoint one of them to become the chairman, who has
control of the board meeting and agenda. If there is any dispute, the chairman must
decide and their decision is final. Secondly, the chairman may get a 2nd vote to
dissolve a deadlock in the voting process.
The most significant decisions regarding the company are to be taken by the shareholders as
owners (such as amending the company’s AOA, approving a contract to buy back company
shares etc.) They take decisions in one of 2 ways:
a) By passing a resolution at a shareholder’s general meeting
The directors must pass a board resolution to call a general shareholder meeting for
decisions that require shareholder approval. Shareholders may vote at this meeting
and each shareholder gets one vote. If a deadlock occurs, the resolution will not pass
as there is no simple majority as required by law. Generally, there are 2 types of
resolutions:
a. Ordinary Resolution
Passed if a simple majority (more than 50%) are in favour of it
 b. Special Resolution
Requires at least 75% majority to pass
c. Extraordinary Resolution
Rarely used and preserved for companies who have mentioned this method in
their articles
b) By a shareholder’s written resolution
This is an alternative to general meeting and is circulated to all eligible members. The
remainder of the process is similar to a general meeting.

C 8) Who has the ‘Right to Apply for Patent’ for this new and radical invention of ‘dosa
batter-mixing’ machine – the original inventor & employee: Mr. Gajendra Lodhi OR
the employer company ‘Khushboo Kababisthan Ltd. (KKL)?
A patent is a type of Intellectual Property Right (IPR) permitted for an invention of a
process/product. Generally, an invention by an employee during his/her time employed in a
company is patented by the employer/company. Since the company spends sufficient amount
of time and money on R&D, the employer safeguards their interest by applying the patent
under their name. However, the Patents Act of 1970 is oblivious to the effect of employer-
employee relationship on patents in India. The law considers the inventor to be the ‘first
owner’ of the patent which creates a large risk for the employer.
Hence, when an employee is hired by a company, he/she signs an employment contract which
may specify who the owner of the patent will be in the event of an invention of a patentable
product/process. A pre-invention assignment, which is a mechanism that transfers the right
over any future inventions from party to another, are signed by the employee that bestows all
rights to the employer over any inventions that the employee creates during the completion of
normal duties assigned to him/her.

C 9) Briefly explain – which are the legal methods by which the Company KKL can best
commercialize/leverage the economic gains of the patented invention?
Recent history shows that technology and knowledge are important factors for economic
growth and development. The patent system has evolved from the days of its creation with a
view to promote innovation and encouraging economic development. By offering exclusive
rights for a limited period of time, an inventor, such as KKL, may recover R&D costs and
investments. It also promotes investment to commercialise and market new inventions so that
the general public can enjoy the fruit of innovation. Further, the system is designed to
disseminate knowledge and information to the public through the publication of patent
applications and granted patents.
Since KKL has exclusive rights to the invention, they can maximise their profits from selling
the new machine and also have the right to provide exclusive license to another entity and
gain economically from the license.

C 10) What is the name of the ‘Corporate Offence’ committed by Mr. Aditya Saraf &
Mr. Sharayu Anil Sonkusare?
The corporate offence committed by Mr. Aditya Saraf and Mr. Sharayu Anil Sonkusare is
called Insider Trading. Insider trading, also known as insider dealing, is the malpractice of
selling or buying securities such as equity and bonds by the insiders of a company, which
includes the employees, directors, executives and promoters. Insider trading in India is
prohibited by ‘The Companies Act, 2013’ and ‘The SEBI Act, 1992’. SEBI has formed the
SEBI (Prohibition of Insider Trading) Regulations in 2015 which prescribe the rules of
prohibition and restriction of Insider Trading in India.

C 11) What is the meaning of the ‘Doctrine of Corporate Veil’? Explain

A company is a juristic person different from the persons who constitute it. The Corporate
Veil is a shield that protects the members from the action of the company. In simple terms, if
a company violated any law or incurs any liability, then the members cannot be held liable.
This exists to protect the directors of the company and their personal assets are safe in case
the company has liabilities.
Example: If KKL has not paid a supplier amount of money on time, then the personal funds
of Mr. Onkar Pant (board of director member) are protected and will not be used to pay the
amount due to the supplier.

C 12) What is the meaning of the ‘Doctrine of Lifting the Corporate Veil’? Explain
The chief advantage of incorporation is the separate legal entity of the company. However, it
may happen that the corporate personality of the company is used to commit frauds or
improper or illegal acts. Since an artificial person is not capable of doing anything illegal or
fraudulent, the façade of corporate personality might have to be removed to identify the
persons who are actually guilty. This legal concept is referred to as ‘Doctrine of Lifting the
Corporate Veil’.

C 13) Briefly state. Which are the circumstances when the ‘Corporate Veil is
lifted/pierced’ under the Companies Act, 2013, as well as by the Judiciary?
The circumstances under which the courts may lift the corporate veil may broadly be grouped
under 2 heads:
a) Under Statutory Provisions
If the company violates ‘The Companies Act, 2013’ and the act provides for lifting
the veil for the term, it is termed to be Statutory Lifting. Some of the cases are as
follows:
a. Mis-statements in prospectus
The company, directors, promoters, expert and every other person who
authorised the prospectus shall be liable to compensate the loss or damage to
every person who subscribed for shares on the faith of untrue statement.
b. Failure to return application money
In case of issue of shares by a company to the public, if minimum
subscription, as stated in the prospectus has not been received within 30 days
 of issue prospectus, the application money shall be repaid within a period of
15 days from the closure of the issue. If not repaid, the directors of the
company are liable to repay the money.
c. Misdescription of Name
If an officer of the company signs on behalf of the company, then this person
shall be personally liable to the holder if the name of the company is either not
mentioned or not properly mentioned.
d. For investigation of ownership of company
The central government may appoint one or more inspectors to investigate and
report on the membership of any company for the purpose of determining the
true persons who are financially interested in the company and who control its
policy or materially influence it.
e. Fraudulent conduct
When a company has conducted business with intent to defraud creditors of
the company or any other person, or for any fraudulent purpose, those who are
knowingly parties to such conduct of business may be made personally liable
without any limitation as to liability for any or all debts of the company.
f. Liability for ultra vires act
Directors and other officers of a company will be personally liable for
all those acts which they have done on behalf of a company if the same
are ultra vires the company.
b) Under Judicial Interpretations
If the company violates ‘The Companies Act, 2013’ and the act does not provide for
the lifting of the veil, then the judges can order the lifting of the veil which is known
as Judicial Lifting. Some of the cases are as follows:
a. Protection of revenue
The separate entity of a company may be disregarded where revenue of the
State is at stake.
b. Prevention of fraud or improper conduct
Where the medium of a company has been used for committing fraud or
improper conduct, courts have lifted the veil and looked at the realities of the
situation
c. Determination of the enemy character of a company
Company being an artificial person cannot be an enemy or friend. However,
during war, it may become necessary to lift the corporate veil and see the
persons behind as to whether they are enemies or friends. It is because, though
a company enjoys a distinct entity, its affairs are essentially run by individuals.
d. Formation of subsidiaries to act as an agent
Sometimes, the basis of the formation of a company is to act as an agent or trustee
of its members or of another company. In such cases, the company loses its
individuality in favour of its principal. Also, the principal is liable for the acts of
such a company.