Introduction to

The Legal Environment of Business,

LEB. Session. 1

Appreciate the importance of Legal environment of Business.

Understand the nature, purpose and significance of law.
Describe the various forms of business organizations and their differences
     
NATURE
   

       
POLITICAL ECONOMIC SOCIO-CULTURAL
       

    Logistics Competitors Demand / Supply    

           

DEMOGRAPHIC Suppliers Consumers GOVERNMENT

FIRM
   

       
   

    Legal Public Technology    

       
LEGAL INTERNATIONAL TECHNOLOGICAL
       

   
ECOLOGY
     
 LAW : DEFINITION

Austin:
“A Law is a rule of conduct imposed and enforced by the sovereign”.
Woodrow Wilson:
“That position of the established habit and thought of mankind which has
gained distinct and formal recognition in the shape of uniform rules backed by
the authority and power of the government”.  
Salmond :
“Law is the body of principles recognized and applied by the state in the
administration of Justice”.
Law includes all the rules and principles which regulate our relations with
other individuals and with the State.
 NATURE OF LAW

1) A DICTATE OF REASON:
Given by supporters of the natural theory of law.
2) A COMMAND OF THE SOVEREIGN:
Supported by followers of analytical School of Law
3) THE PRACTICE OF COURT:
Supported by followers of legal realism
/
OBJECTIVES OF BUSINESS LAW
• IGNORANTIA JURIS NON EXCUSAT (Ignorance of Law is of no excuse)
• To understand the legal frame work.
• To know the mutual rights and liabilities of the parties in the business
transactions.
• To know and adopt the uniform code of conduct of business.
• Prevention is better than cure.
• To maintain harmonious, informed business relations
• To build a better society
FUNCTIONS & PURPOSE OF LAW
1. To deliver Justice
2. To provide equality and uniformity
3. To maintain impartiality
4. To maintain Law and Order
5. To maintain social control
6. To resolve conflicts
7. To bring orderly change through law and social reform
FORMS OF BUSINESS ORGANIZATIONS
• Sole Proprietorship
• The Partnership
• Private Limited Company
• Public Limited Company
• Limited Liability Partnership (LLP)
• One Person Company (OPC)
• Co-operative firms
• Joint Hindu family Business
 BASIS FOR PROPRIETORSHIP JOINT HINDU FAMILY FIRM
COMPARISON
Meaning It is a commercial organization which is owned & It is a commercial organization. The ancestral
managed by a single person business is conducted by joint Hindu family
Membership Not more than single owner No limit on membership.
( Up to Generations)
Ownership Business assets and properties are owned by the All the family members are joint owners
proprietor
Liability The liability of sole trade is unlimited Karta’s liability is unlimited.
Liability of the members is limited to their
share in the joint Hindu family property
Financial Resources Financial resources are available Fund are more than that of a proprietor

Stability Lack of stability since the existence of sole trading Comparatively more stable since after the
concern depends upon the survival of the sole death of Karta, the next senior family
trader member will take over and continues
business activities

Profit and losses All profit and losses are concerned belong to sole The profit and losses are shared by all the
trader born by him co-parceners
COMPARISON SOLE PROPRIETORSHIP PARTNERSHIP
Meaning A type of business organization, in which only A business form in which two or more
one person is the owner as well as operator of persons agree to carry on business and
the business, is known as Sole Proprietorship. share profits & losses is known as
Partnership.
Governing Act No specific statute Indian Partnership Act, 1932
Owner Known as sole trader or sole proprietor. Individually known as partners and
collectively known as firm.
Incorporation Not required Voluntary
Members Minimum & Maximum = Only ONE Minimum = 2 Maximum = 100
Liability Borne by the proprietor only. Shared by the partners.
Decision making Quick Delay
Duration Uncertain Depends on desire and capacity of partners.
Profit & Loss Proprietor is responsible for profits & losses. Shared in agreed ratio
Business secrets are not open to any person Business secrets are open to each and every
Secrecy
except the proprietor. partner.
Scope for raising capital is comparatively
Finance Scope for raising capital is limited.
high.
BASIS PARTNERSHIP LIMITED LIABILITY PARTNERSHIP (LLP)
Meaning Partnership refers to an arrangement wherein Limited Liability Partnership is a form of business
two or more person agree to carry on a operation which combines the features of a partnership
business and share profits & losses mutually. and a body corporate.
Governed By Indian Partnership Act, 1932 Limited Liability Partnership Act, 2008
Registration Optional Mandatory
Charter document Partnership deed LLP Agreement
Liability Unlimited Limited to capital contribution, except in case of fraud.
Contractual capacity It cannot enter into contract in its name. It can sue and be sued in its name.
Legal Status Partners are collectively known as firm, so It has a separate legal status.
there is no separate legal entity.
Name of firm Any name Name containing LLP as suffix
Maximum partners 100 partners No limit
Property Cannot be held in the name of firm. Can be held in the name of the LLP.
Perpetual Succession No Yes
Audit of accounts Not mandatory Mandatory, only if turnover and capital contribution
overreaches 40 lakhs and 25 lakhs respectively.
Relationship Partners are agents of firm and other partners Partners are agents of LLP only.
BASIS FOR COMPARISON
Meaning
Governing Act
How it is created?
Registration
Minimum number of persons
Maximum number of persons
Audit
Management of the concern
Liability
Contractual capacity
Minimum capital
Use of word limited
Certificate to Commence Business
Winding up / Dissolution
Separate legal entity
Mutual agency
PARTNERSHIP FIRM COMPANY
Two or more persons agree to carry on a A company is an association of persons who invests
business and share the profits & losses money towards a common stock, for carrying on a
mutually, it is known as a Partnership firm. business and shares the profits & losses of the business.
Indian Partnership Act, 1932 Indian Companies Act, 2013
Partnership firm is created by mutual The company is created by incorporation under the
agreement between the partners. Companies Act.
Voluntary Obligatory
Two 2 in private company and 7 in case of public Co.
100 partners Private Co: 200 ; Public company : Unlimited
Not Mandatory Mandatory
Partners themselves Board of Directors
Unlimited Limited
Firm cannot enter contracts in its name. A company can sue and be sued in its own name.
No such requirement. @ No such requirement.
No such requirement. Must use 'limited' or 'private limited'
Not Required Required
No Legal formalities Legal formalities are to be complied with.
No Yes
Yes No
BASIS FOR COMPARISON PUBLIC COMPANY PRIVATE COMPANY
Meaning Owned and traded publicly. Owned and traded privately.
Minimum members 7 2
Maximum members Unlimited 200
Minimum Directors 3 2
Minimum paid up capital No such stipulation No such stipulation
Suffix Limited Private Limited
Certificate to commence business Required Not required
Issue of prospectus / Statement in lieu of Obligatory Not required
prospectus
Public subscription Allowed Not allowed
Transfer of shares Unrestricted Restricted
QUORUM AT: PUBLIC COMPANY
i) 5 members must present in person if the number of members as on the date of meeting is not more than one
thousand;
ii) 15 members must present in person if the number of members as on the date of meeting is more than one
thousand but up to five thousand;
iii) 30 members must present in person if the number of members as on the date of meeting exceeds five thousand;

QUORUM AT: PRIVATE COMPANY 2 members must be present in person.