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Account of Special Customers

Chapter 10 By Sir. Javed Kareem

Partnership Account 

Partnership is the relationship between persons who have agreed to share the profits of the business carried on by all of them acting for all. Partnership can be created by an oral agreement or by a written agreement. Persons who have entered into partnership are individually called Partners and their collective group is called a firm. Every firm should be registered with the Registrar of Firms. The partner has no authority to open a firm s account on behalf of the firm in his own name. therefore banker open a firm s account in the firms name and get account opening from signed by all the partners and names of those who are authorized to operate on the account in the name of the firm.

Operation of Firm s Account
Every partner in a firm has an implied power to bind his coco-partners by drawing and endorsing of cheques.  Every partner has an implied authority to counter mend payments of any cheque drawn on the firm s account and banker is bound to comply with the instruction issued by that partner.  A partnership letter duly signed by all the partners in their personal capacity is also obtained, wherein all the partners assume the liability of the firm to the bank as joint and several. 

Borrowing by a Partnership Firm  

A partner in a trading firm has the authority to borrow for the partnership firm and bind his partners for such borrowing in the ordinary course of business and it necessary he should have power to pledge partnership property as a security for advance. The bank would obtain the signature for all the partners on any deposit, letter, charge and security documents.

Admission of New partner 

incoming partner does not liable to the creditors of the firm for anything done before he becomes a partner.  A fresh mandate or partnership letter duly signed by all the partners should be obtained to cover the future operation of the account.

Retirement of the Partner  

When bank receive the notice of retirement he will make necessary change in his record. If the account is credit the remaining partners are to carry on the firm s business for the purpose of winding it up. Where the account is overdrawn and the banker wishes to retain the several liabilities of the remaining partners the operation of the account should be stopped to retain the liability.

Bankruptcy of a Partner   

If there is no agreement to the contrary, a partnership is dissolved as soon as a partner is adjudicated insolvent or bankrupt. The solvent partners are to empower to continue the business for the purpose of winding it up; but they would be accountable to the official assignee for the insolvent s share in the firm. Bankers should not pay the cheques signed by the insolvent partner before the order of his adjudication of petition without the approval of the solvent partners.

Death of a Partner  

The death of the partner dissolves the firm and the deceased s personal representatives have no right to act on his behalf. They can claim the deceased partner s share in the assets of the firm. The banker action depends on the state of the account, if the account has credit balance the operation on the account should not be stopped and if the account has debit balance the account should be stopped to fix the liability on the estate of the deceased partner.

Insolvency of the Firm 

operation of the account is stopped when the firm is insolvent and the personal account of each and every partner also become inoperative.  The debit of each estate is payout of the asset of each estate, or every surplus or private estate is applied towards the settlement of the creditors of the firm.

Joint Stock Company 

1. 2. 3.

An association of individuals for the purpose of profit, possessing common capital contributed by the members constituting it, such capital divided into shares and which are transferable by the owner. The joint stock company is three types: Unlimited Companies Limited Companies Companies limited By Guaranties

Unlimited Companies 

liability of each member is unlimited

Limited Companies 

liability of members is limited to the account due on the shares held by them

Companies limited By Guaranties 

members undertake to contribute a fixed amount of money to pay the debts in the event of company being wound up. The capital of such company is not divided into shares.

Formation of Joint Stock Company 

Companies  Statutory Companies  Registered Companies  Limited Companies

Chartered Companies 

companies are incorporated under the Royal Charter and have very wide power. For example, the east india company.

Statutory Companies 

companies are incorporated under a special act of Parliament or the Companies Act does not govern Assembly Such companies. For example State bank of Pakistan.

Registered Companies 

companies are formed under the companies Act.

Limited Companies 

companies either Private Limited or Public Limited. A private Limited Company Is a company where the right to transfer the shares of its members is restricted and public subscription in maximum number is 50. the public limited company has to register as a joint stock company.

Opening of an Account 

bank must ask to submit the certified copies of the following documents.

Resolution of the Board of Directors
The resolution specifying the following:  The name of the banker.  The name of the parsons authorized to operate the accounts  An undertaking that as and when the resection will be revoked or the directors be changed, the bank would be informed immediately. The chairmen of the meeting should sign the resolution.

Memorandum and Article of Association  


It sets out the objective for which a joint company is formed. The articles of association contain rules and regulations for the internal management of the company. Generally they: General power of the company vested in the Directors. Election, rotation and retirement of Directors. Procedure for the calling of the meetings and passing of resolutions. Methods and principles of declaration of dividends. Assessment of profit and loss account.

Certificate of Incorporation 

is a conclusive evidence (issued by the Registrar of Joint Stock Companies) that all the requirements of the law in regard to the formation and registration of the company have been duly complied with.

Certificate of Commencement of Business 

the company has fulfilled all the requirements for the commencement of business with regard to the subscription of shares by the public as well as Directors the Registrar issue the Certificate of Commencement of Business.

Balance Sheet 

is a statement of the financial affairs of the Company and the banker can draw his own conclusions about the company from the study of the latest balance sheet compared with previous ones.

Powers to Borrow 

trading company has an implied power to borrow money for the purpose of its business.  If company borrows beyond its power the borrowing is ultra virus and void.  The banker examines the provision on the borrowing power and should not advance beyond the power.

Operation of the Account 

account of the company is opened on the resolution of the Board of directors which nominates the persons authorized to operate upon the account.  The banker must take the specimen signatures of the authorized persons and allow the operations on the account.

Winding up of the Business
A company terminates its career by being wound up. Winding up may be:  Winding up by the court due to the Company s inability to pay its debts.  Voluntary winding which includes the merger of the company.  Winding-up under supervision of the court the Windingbanker should stop the operation on the account on receipt of winding-up and arrange to adjust windingall the outstanding loans and advances.

Accounts of clubs, societies and association 

These are non-trading organization and formed for the promotion of nonculture, science, education and charitable purposes etc. When the account of such institution is to be taken the banker must be taken the following: The resolution of the Governing Body/Managing Committee authorizing the opening of the account with the bank. Certified copy of the by laws or rules and regulations. The account opening form dully signed by the authorized person(s) who would operate on the account. An undertaking signed by all the authorized persons on behalf of the institution that when any charge take place the banker would be informed.

Agent s Account 

Agent is a person who has power to act for or on behalf of another person called his Principal .  The agent can open and operate a bank account if authorized by his principal under power of attorney.  These powers of attorney should be stamped.

Opening of and Operation on Account  


The banker must examine the clause in it relation to opening and operation of account and borrowing power. He should keep a certificate copy on his record. The banker should allow the opening and operation on the account in accordance with the power of attorney. The principal may cancel the power of attorney any time and it is cancelled automatically when the principal becomes declared insolvent or is dead.

Trust Account
A trust is an obligation annexed to the ownership of property and arising out of a confidence proposed in and accepted by him for the benefit of another, or of another and the owner. A trust can be created only for a lawful purpose and has following constituents:  The person who declares the confidence and is called the Author of the Trust.  The person who accepts the confidence is called the Trustee.  The person who benefits from the confidence is called the beneficiary.  The subject matter of the trust is called Trust Property or Trust money.  The instrument by which a Trust is declared is called the Instrument of Trust.

Creation of a Trust 

person who is competent to contract may create a Trust, which must be for a property transferable to the beneficiary.

Opening and Operation of the Account 

account should be opened in the name of trust and all the trustees should be sign the account opening form. If the account is opened in the name of trustees, it should not be treated as a Joint Account.  The banker should examine the instrument of Trust and a copy of it should be kept on record.

Borrowing by the Trustee
The banker must consider the following:  Whether the trustees have power to borrow money.  Whether they have power to give security for proposed advance.  The trustees generally have no power to borrow and pledge the trust property, they cannot five security.  When the trust deed empowers the trustees to borrow, the banker has to ensure that the borrowing is for the purpose mentioned in the deed and he has offered that security as prescribed in the Trust deed.

Death of the Trustee   

When an authority to deal with the trust property is given to several trustees and one of them disclaims or dies, the authority may be exercised by the continuing trustees. If there is one trustee the operation on the account should be stopped till the new trustee is appointed. The appointment of the new trustee should be in writing, duly signed by the person making it. The official trustee may be appointed with his consent and by the order of the court.

Insolvency of Trustee  

Bankruptcy or insolvency of a trustee does not terminate his appointment as trustee but the court can remove such a trustee, so that he may not misappropriate the Trust fund. If court remove the trustee, a new one will be appointed to continue the operation on the account and all cheques etc, signed by the removed trustee should be returned unpaid.

Executor s and Administrator s Account 

An Executor: An executor is a person to whom the execution of a will is entrusted by the testator. He has to carry out all the directors contained in the testator s will. The testator may appointed any person, including a minor or a married women however for minor, an administrator is appointed to act as the executor during his minority. An Administrator: 

An administrator is a person appointed by a court of law to look after the estate of a person who died without leaving a will or the person he appointed are incapable of acting as executors.

The Will 

will may be drawn in any such language or expression that the wording expresses the intentions of the testator clearly.  A will may be oral or in written and may not be signed or witnesed.

Probate or Letter of Administration
It is a certified copy of a will issued under the seal of the court. An application fro the letter of administration should be filed along with the following:  The date and time of the testator s death.  Statement mentioning that the enclosed is his last will.  Statement mentioning that the enclosed will or testament was duly executed.  Details of the estate.  Declaration that the executor name in the list.

Opening and Operation of Account   

The executor and administrator can open an account with the banker after the death of the testator. In case the account is opened in the name of administrator the valid letter of Administration should be seen before opening an account and an attested copy of his letter should be kept on record with the account opening form. If there are more then one executors or administrators, all of them should sign on the account opening form.

Death of Executor of Administrator   

When one or more of the executors and administrators die/s, the authority is vested in the survivor or survivors. If the dead were the sole executor or administrator, a fresh letter of Administration must be applied for. If the account is credit the opening if the account should not be stopped and if the account is debit the banker should the operation on the account.

Account of Local Bodies 

are autonomous institutions formed under the Local Bodies Act, such as Municipal Corporation or Municipal Committees.  They are governed by their own managing Committees comprising generally of elected members.

Opening and Operation of Account 

opening form should be signed by the authorized persons who should mention clear instructions regarding the operation on the account; and specimen signature should be taken from the person authorized to operate the account.