Tag: Executive Leadership

Registered Company is a business entity formed and registered under the provisions of the Companies Act, 2013 or its preceding laws in India. It acquires a distinct legal identity upon registration, separate from its owners or members, enabling it to own property, sue, or be sued in its own name. Registered companies can be classified into private, public, and one-person companies, each governed by specific rules. The registration process involves filing the necessary documents, such as the Memorandum of Association (MOA) and Articles of Association (AOA), with the Registrar of Companies (ROC), ensuring compliance with statutory requirements.

Features of Registered Company:

• Separate Legal Entity

A registered company is a separate legal entity from its owners (shareholders) and directors. This means the company can own property, enter into contracts, and incur liabilities in its own name. Shareholders’ liability is limited to their share capital.

• Limited Liability

One of the fundamental features of a registered company is limited liability. In case of debts or legal actions, the shareholders’ liability is limited to the unpaid value of their shares. This protects personal assets of the shareholders, unlike in a partnership where personal assets can be at risk.

• Perpetual Succession

A registered company enjoys perpetual succession, meaning its existence is not affected by the death, insolvency, or transfer of shares by its members. The company continues to exist even if the shareholders change over time, ensuring business continuity.

• Transferability of Shares

In a registered company, the ownership or shareholding is easily transferable. Shares can be bought, sold, or transferred, subject to the rules in the company’s Articles of Association. This feature is particularly common in public companies, where shares are traded on stock exchanges.

• Governance by the Companies Act

A registered company is governed by the Companies Act, 2013 and must adhere to its provisions. It is required to maintain statutory books, conduct annual general meetings (AGMs), and comply with regulatory reporting requirements, including financial statements and audits.

• Ownership Structure

A registered company can have various ownership structures, such as a private company with limited members or a public company with the ability to issue shares to the public. The company’s ownership is defined by the shareholding structure outlined in its Memorandum of Association (MOA).

Formation of Registered Company:

1. Choosing the Type of Company

The first step in forming a registered company is to decide on the type of company to be formed. Common types of companies in India include:

• Private Limited Company: Limited liability, small in number, restricted share transfer.
• Public Limited Company: Large in size, ability to raise funds by issuing shares to the public.
• One Person Company (OPC): A company with only one member.

2. Name Approval

The next step is to select a suitable name for the company. The name must be unique and comply with the naming guidelines under the Companies Act. The proposed name is submitted to the Registrar of Companies (RoC) for approval. The name should reflect the business activity and should not resemble any existing company name. This is done through filing Form INC-1 with the RoC.

3. Drafting the Memorandum and Articles of Association

Once the name is approved, the company must prepare two essential documents:

• Memorandum of Association (MoA): A legal document that defines the scope and objectives of the company, including the company’s powers, objectives, and liabilities.
• Articles of Association (AoA): This document governs the internal management and operation of the company, specifying rules for the company’s governance, including the rights and duties of directors, shareholders, and other members.

Both MoA and AoA must be signed by the first subscribers of the company.

4. Filing with the Registrar of Companies

The next step is to file the required documents with the Registrar of Companies (RoC). These documents include:

• Application for incorporation (Form INC-7 for companies, or Form INC-2 for OPCs)
• MoA and AoA
• Declaration by the company’s director (Form INC-9)
• Proof of office address where the company will operate.
• Identity and address proof of the directors and shareholders.
• Digital Signature Certificate (DSC): Required for the director(s) to sign the documents electronically.

5. Obtaining the Certificate of Incorporation

Once the documents are submitted, the RoC verifies the application. If everything is in order, the RoC issues the Certificate of Incorporation. This certificate is a legal proof that the company has been formally registered and recognized as a separate legal entity. It includes the company’s Corporate Identification Number (CIN), which is used for all official correspondence.

6. Applying for PAN and TAN

• PAN (Permanent Account Number): The company must apply for a PAN, which is necessary for tax purposes.
• TAN (Tax Deduction and Collection Account Number): Required if the company will be deducting taxes at source (TDS) for payments to employees, contractors, etc.

7. Opening a Bank Account

After obtaining the Certificate of Incorporation, the company can open a bank account in its name using the CIN, MoA, and AoA. This account will be used to manage the company’s financial transactions.

8. Compliance with Other Statutory Requirements

After registration, the company must comply with additional statutory requirements, such as:

• Registering under the Goods and Services Tax (GST), if applicable.
• Obtaining licenses and permits specific to the business (such as import-export, health licenses, etc.).
• Hiring an auditor for auditing the company’s financial statements.

Advantages of Registered Company:

• Separate Legal Entity

A registered company is a separate legal entity distinct from its owners and directors. This means the company has its own legal status and can own property, enter contracts, and sue or be sued in its name. The personal assets of shareholders and directors are protected from the company’s liabilities, offering greater security.

• Limited Liability

One of the primary benefits of a registered company is limited liability. Shareholders are liable only up to the value of their unpaid shares, protecting their personal assets in the event of the company’s financial difficulties. This is in stark contrast to unregistered business structures like sole proprietorships and partnerships, where personal assets can be at risk.

• Perpetual Succession

A registered company has perpetual succession, meaning its existence is not affected by changes in ownership, death, or insolvency of its shareholders or directors. The company continues to exist even if the ownership changes, ensuring business continuity. This stability is crucial for long-term growth and investment opportunities.

• Easy Transfer of Ownership

Shares in a registered company can be easily transferred from one person to another, especially in a public company. This transferability of ownership allows shareholders to buy and sell shares, offering liquidity and flexibility. It also facilitates the entry and exit of investors.

• Ability to Raise Capital

Registered companies, particularly public ones, have easier access to capital markets. They can raise funds by issuing shares or bonds to investors. This ability to raise capital enables businesses to finance their growth, innovation, and expansion projects more effectively than unregistered businesses.

• Credibility and Trust

Being a registered company adds credibility to a business. It signals to customers, suppliers, and investors that the company is legitimate and adheres to the legal and regulatory requirements. This can lead to enhanced trust, better business relationships, and easier access to credit.

• Tax Benefits and Incentives

Registered companies enjoy various tax benefits and incentives under the law, such as exemptions, deductions, and special tax rates. These tax advantages can reduce the overall tax burden and improve profitability, which is particularly beneficial for large businesses.

• Access to Government Contracts

A registered company is eligible to bid for government contracts and other large-scale projects. Many government contracts require businesses to be formally registered as companies, which can open doors to lucrative and stable opportunities.

Challenges of Registered Company:

• Compliance with Legal and Regulatory Requirements

A registered company is subject to strict legal and regulatory requirements under the Companies Act, 2013 and other applicable laws. This includes maintaining statutory records, filing annual returns, holding regular board meetings, and ensuring compliance with tax laws. Non-compliance can lead to penalties or even the company being struck off from the registry. Keeping up with these legal obligations requires time, effort, and sometimes expert legal advice.

• High Formation and Operational Costs

The process of registering a company can be expensive due to government fees, legal charges, and other documentation costs. Additionally, maintaining a company incurs ongoing expenses, such as accounting, auditing, and legal fees. For small businesses, these costs can be burdensome, especially when profits are low in the initial years of operation.

• Complex Management Structure

Registered companies, especially public ones, often have a complex management structure involving shareholders, directors, and various officers. This can lead to challenges in decision-making, coordination, and management of operations. Conflicts may arise between stakeholders, and ensuring effective governance requires strong leadership and clear organizational structures.

• Limited Control for Shareholders

In public companies, shareholders typically own the company but may have limited control over its day-to-day operations, which are managed by the board of directors. This separation between ownership and management can create conflicts of interest, where the objectives of the management may not always align with those of the shareholders.

• Liability Risks for Directors

While shareholders enjoy limited liability, the directors of a registered company may face personal liability for breaches of fiduciary duties or violations of company laws. Directors can be held accountable for acts such as mismanagement, fraud, or failure to comply with regulatory obligations, which could result in legal consequences or damage to their professional reputation.

• Difficulty in Raising Capital

Although a registered company can raise capital by issuing shares (especially public companies), it may still face challenges in securing financing, especially during the initial stages. Financial institutions and investors require a solid business plan, proven track record, or collateral, which may be difficult for newly formed or small companies to provide. Additionally, public companies face the challenge of market volatility affecting stock prices.

Statutory Company in India is a corporate entity established by a specific Act of Parliament or a state legislature. These companies are created to serve public purposes, often involving essential services like utilities, finance, or infrastructure development. Their structure, powers, functions, and governance are defined explicitly in the enabling legislation. Statutory companies are not governed by the general provisions of the Companies Act, 2013, but by the Act that created them. Examples include the Reserve Bank of India (RBI), Life Insurance Corporation of India (LIC), and Indian Railways. These companies typically operate with government oversight while retaining functional autonomy.

Features of Statutory Company:

Statutory Companies in India are unique entities established by an act of Parliament or a state legislature to fulfill specific public objectives. They operate under a distinct legal framework, which differentiates them from other types of companies.

• Creation by Legislation

A statutory company is established through a specific legislative act. This act defines its objectives, powers, functions, and governance structure. For example, the Reserve Bank of India (RBI) was created under the RBI Act, 1934, and the Life Insurance Corporation (LIC) under the LIC Act, 1956. The act itself serves as the company’s constitution, providing a robust legal foundation.

• Public Service Objective

The primary purpose of a statutory company is to serve the public interest. These companies often operate in critical sectors such as finance, transportation, energy, and insurance, aiming to promote economic development, provide essential services, or regulate key industries. Their focus on public welfare distinguishes them from profit-driven private companies.

• Government Ownership and Control

Statutory companies are usually fully owned or significantly controlled by the government. The level of control depends on the nature of the company and its objectives. Government-appointed officials typically manage these companies, ensuring alignment with national or state policies.

• Legal Personality

A statutory company is a separate legal entity, meaning it can own property, enter into contracts, sue, or be sued in its own name. Despite being government-controlled, it enjoys operational autonomy to fulfill its objectives efficiently.

• Accountability and Transparency

Statutory companies are subject to strict public accountability. They must adhere to the provisions of their enabling act and often report to the government or Parliament. Regular audits and compliance with legal norms ensure transparency in their operations, maintaining public trust.

• Monopoly or Special Privileges

Many statutory companies are granted monopolistic rights or special privileges to carry out their functions without competition. For example, Indian Railways has exclusive control over rail transport. These rights enable them to focus on service quality and public welfare rather than market competition.

Formation of Statutory Company:

The formation of a statutory company in India is distinct from regular companies as it is established through an act of Parliament or a state legislature. These companies are created to perform specific public services or functions that require government oversight and legal authority.

1. Identification of Purpose and Feasibility Study

The initial step in forming a statutory company involves identifying the public need or specific purpose that the entity will address. A feasibility study is conducted to evaluate the viability of the proposed company, focusing on its objectives, economic impact, and operational structure. This ensures that the company aligns with national or state goals and priorities.

2. Drafting of the Bill

Based on the feasibility study, a draft bill is prepared detailing the purpose, powers, structure, functions, and governance of the proposed statutory company. The bill includes provisions such as capital requirements, management structure, roles and responsibilities of the directors, and reporting mechanisms.

3. Parliamentary or Legislative Approval

The draft bill is introduced in Parliament (for central government companies) or the state legislature (for state-level companies). It undergoes a rigorous legislative process, including debates, discussions, and amendments, to ensure that the company’s formation aligns with public interest. Once approved by both houses of Parliament or the state legislature, the bill is sent to the President or Governor for assent.

4. Enactment of the Law

After receiving assent, the bill becomes an Act, officially creating the statutory company. The Act defines the legal framework, objectives, and operational guidelines for the company. For example, the Reserve Bank of India Act, 1934 and the Life Insurance Corporation Act, 1956 established the RBI and LIC, respectively.

5. Operationalization of the Company

Following the enactment, the government appoints key personnel, allocates initial funding, and ensures that necessary infrastructure is in place. The company begins operations as per the guidelines outlined in the Act, adhering to its defined objectives and public accountability standards.

Advantages of Statutory Company:

• Specialized Purpose and Focus

Statutory companies are established by specific legislative acts to fulfill specialized roles or public service objectives. This focused mandate allows them to concentrate their resources and efforts on critical sectors like finance, infrastructure, health, or utilities. For instance, entities like the Reserve Bank of India and Indian Railways operate with clear and specialized objectives, ensuring better resource allocation and impactful delivery.

• Legal Authority and Stability

A statutory company derives its authority directly from legislation, giving it a strong legal foundation. This ensures stability and legitimacy in its operations. The explicit mention of its objectives, functions, and powers in the enabling act minimizes ambiguities and provides a clear operational framework. The legal backing also protects the organization against arbitrary dissolution or interference.

• Public Accountability and Transparency

Statutory companies are subject to government oversight and public accountability, ensuring transparency in their operations. Regular audits, compliance with legal norms, and parliamentary scrutiny help maintain trust and integrity. This level of accountability ensures that resources are utilized effectively and aligns with the public interest.

• Government Support and Funding

As government-established entities, statutory companies often receive financial backing, making them less vulnerable to market risks or economic fluctuations. This support enables them to undertake large-scale or long-term projects that may not be feasible for private entities, especially in sectors requiring heavy capital investment, such as transportation and energy.

• Monopoly or Exclusive Rights

Statutory companies are often granted monopolistic rights in their respective fields to ensure public service delivery without market competition. For instance, Indian Railways holds exclusive control over the country’s rail transport system. This exclusivity allows the company to focus on service quality and accessibility rather than competing for profits.

• Social and Economic Impact

Statutory companies play a critical role in promoting socio-economic development. They ensure equitable access to essential services, create employment opportunities, and contribute to national infrastructure development. For instance, companies like LIC and State Bank of India support financial inclusion, while Indian Railways connects remote regions, promoting trade and mobility.

Challenges of Statutory Company:

• Bureaucratic Inefficiency

Statutory companies often face bureaucratic hurdles due to their government-linked structure. Decision-making processes can be slow and cumbersome, as approvals often require navigating multiple levels of authority. This inefficiency can hinder the company’s ability to respond quickly to market changes and innovate, ultimately affecting productivity and service delivery.

• Political Interference

Statutory companies are susceptible to political influence, as their leadership and major policy decisions are often tied to government priorities. Political agendas may not always align with the company’s objectives or market demands, leading to inefficiencies or mismanagement. This interference can impact the autonomy and long-term strategy of the organization.

• Limited Financial Flexibility

Since statutory companies rely heavily on government funding or are subject to stringent financial regulations, they often face constraints in raising capital. This dependency can limit their ability to invest in new projects, adopt advanced technologies, or expand operations. Moreover, revenue generation is sometimes secondary to fulfilling public service obligations, further straining financial resources.

• Resistance to Change

Being rooted in legislation, statutory companies can be resistant to change due to rigid operational frameworks and adherence to predefined rules. Implementing reforms or modern practices often requires amending the founding legislation, which is a time-consuming process. This rigidity makes it challenging for such companies to adapt to evolving industry trends or customer needs.

• Public Accountability Pressure

As statutory companies are publicly funded and operate under government oversight, they are under constant scrutiny from various stakeholders, including the public, media, and political entities. This high level of accountability can lead to conservative approaches in decision-making, where risk-taking is minimized, potentially stifling growth and innovation.

• Corruption and Mismanagement Risks

Statutory companies may face issues of corruption, nepotism, or inefficiency, especially when governance mechanisms are weak. The lack of competition and market pressures can result in complacency and mismanagement. These issues can erode public trust and diminish the effectiveness of the organization in fulfilling its objectives.

Different types of banks, such as commercial banks, cooperative banks, rural banks, and private sector banks exist in India. The Reserve Bank of India (RBI) is the governing body for regulating and supervising the banks. Banking Regulation Act, 1949 is an Act that provides a framework for regulating the banks of India. The Act came into force on 16th March 1949. This Act gives RBI the power to control the behaviour of banks. This Act was passed as Banking Companies Act, 1949. It did not apply to Jammu and Kashmir until 1956. This Act monitors the day-to-day operations of the bank. Under this Act, the RBI can licence banks, put ​​regulation over shareholding and voting rights of shareholders, look over the appointment of the boards and management, and lay down the instructions for audits. RBI also plays a role in mergers and liquidation.

Objectives of the Banking Regulation Act, 1949

• To meet the demand of the depositors and provide them security and guarantee.
• To provide provisions that can regulate the business of banking.
• To regulate the opening of branches and changing of locations of existing branches.
• To prescribe minimum requirements for the capital of banks.
• To balance the development of banking institutions.

Provisons

1. Prohibition of Trading (Sec. 8):

According to Sec. 8 of the Banking Regulation Act, a banking company cannot directly or indirectly deal in buying or selling or bartering of goods. But it may, however, buy, sell or barter the transactions relating to bills of exchange received for collection or negotiation.

2. Non-Banking Assets (Sec. 9):

According to Sec. 9 “A banking company cannot hold any immovable property, howsoever acquired, except for its own use, for any period exceeding seven years from the date of acquisition thereof. The company is permitted, within the period of seven years, to deal or trade in any such property for facilitating its disposal”. Of course, the Reserve Bank of India may, in the interest of depositors, extend the period of seven years by any period not exceeding five years.

3. Management (Sec. 10):

Sec. 10 (a) states that not less than 51% of the total number of members of the Board of Directors of a banking company shall consist of persons who have special knowledge or practical experience in one or more of the following fields:

(a) Accountancy;

(b) Agriculture and Rural Economy;

(c) Banking;

(d) Cooperative;

(e) Economics;

(f) Finance;

(g) Law;

(h) Small Scale Industry.

The Section also states that at least not less than two directors should have special knowledge or practical experience relating to agriculture and rural economy and cooperative. Sec. 10(b) (1) further states that every banking company shall have one of its directors as Chairman of its Board of Directors.

4. Minimum Capital and Reserves (Sec. 11):

Sec. 11 (2) of the Banking Regulation Act, 1949, provides that no banking company shall commence or carry on business in India, unless it has minimum paid-up capital and reserve of such aggregate value as is noted below:

(a) Foreign Banking Companies:

In case of banking company incorporated outside India, aggregate value of its paid-up capital and reserve shall not be less than Rs. 15 lakhs and, if it has a place of business in Mumbai or Kolkata or in both, Rs. 20 lakhs.

It must deposit and keep with the R.B.I, either in Cash or in unencumbered approved securities:

(i) The amount as required above, and

(ii) After the expiry of each calendar year, an amount equal to 20% of its profits for the year in respect of its Indian business.

(b) Indian Banking Companies:

In case of an Indian banking company, the sum of its paid-up capital and reserves shall not be less than the amount stated below:

(i) If it has places of business in more than one State, Rs. 5 lakhs, and if any such place of business is in Mumbai or Kolkata or in both, Rs. 10 lakhs.

(ii) If it has all its places of business in one State, none of which is in Mumbai or Kolkata, Rs. 1 lakh in respect of its principal place of business plus Rs. 10,000 in respect of each of its other places of business in the same district in which it has its principal place of business, plus Rs. 25,000 in respect of each place of business elsewhere in the State.

No such banking company shall be required to have paid-up capital and reserves exceeding Rs. 5 lakhs and no such banking company which has only one place of business shall be required to have paid- up capital and reserves exceeding Rs. 50,000.

In case of any such banking company which commences business for the first time after 16th September 1962, the amount of its paid-up capital shall not be less than Rs. 5 lakhs.

(iii) If it has all its places of business in one State, one or more of which are in Mumbai or Kolkata, Rs. 5 lakhs plus Rs. 25,000 in respect of each place of business outside Mumbai or Kolkata? No such banking company shall be required to have paid-up capital and reserve excluding Rs. 10 lakhs.

5. Capital Structure (Sec. 12):

According to Sec. 12, no banking company can carry on business in India, unless it satisfies the following conditions:

(a) Its subscribed capital is not less than half of its authorized capital, and its paid-up capital is not less than half of its subscribed capital.

(b) Its capital consists of ordinary shares only or ordinary or equity shares and such preference shares as may have been issued prior to 1st April 1944. This restriction does not apply to a banking company incorporated before 15th January 1937.

(c) The voting right of any shareholder shall not exceed 5% of the total voting right of all the shareholders of the company.

6. Payment of Commission, Brokerage etc. (Sec. 13):

According to Sec. 13, a banking company is not permitted to pay directly or indirectly by way of commission, brokerage, discount or remuneration on issues of its shares in excess of 2½% of the paid-up value of such shares.

7. Payment of Dividend (Sec. 15):

According to Sec. 15, no banking company shall pay any dividend on its shares until all its capital expenses (including preliminary expenses, organisation expenses, share selling commission, brokerage, amount of losses incurred and other items of expenditure not represented by tangible assets) have been completely written-off.

But Banking Company need not:

(a) Write-off depreciation in the value of its investments in approved securities in any case where such depreciation has not actually been capitalized or otherwise accounted for as a loss;

(b) Write-off depreciation in the value of its investments in shares, debentures or bonds (other than approved securities) in any case where adequate provision for such depreciation has been made to the satisfaction of the auditor;

(c) Write-off bad debts in any case where adequate provision for such debts has been made to the satisfaction of the auditors of the banking company.

Floating Charges:

A floating charge on the undertaking or any property of a banking company can be created only if RBI certifies in writing that it is not detrimental to the interest of depositors Sec. 14A. Similarly, any charge created by a banking company on unpaid capital is invalid Sec. 14.

8. Reserve Fund/Statutory Reserve (Sec. 17):

According to Sec. 17, every banking company incorporated in India shall, before declaring a dividend, transfer a sum equal to 20% of the net profits of each year (as disclosed by its Profit and Loss Account) to a Reserve Fund.

The Central Government may, however, on the recommendation of RBI, exempt it from this requirement for a specified period. The exemption is granted if its existing reserve fund together with Securities Premium Account is not less than its paid-up capital.

If it appropriates any sum from the reserve fund or the securities premium account, it shall, within 21 days from the date of such appropriation, report the fact to the Reserve Bank, explaining the circumstances relating to such appropriation. Moreover, banks are required to transfer 20% of the Net Profit to Statutory Reserve.

9. Cash Reserve (Sec. 18):

Under Sec. 18, every banking company (not being a Scheduled Bank) shall, if Indian, maintain in India, by way of a cash reserve in Cash, with itself or in current account with the Reserve Bank or the State Bank of India or any other bank notified by the Central Government in this behalf, a sum equal to at least 3% of its time and demand liabilities in India.

The Reserve Bank has the power to regulate the percentage also between 3% and 15% (in case of Scheduled Banks). Besides the above, they are to maintain a minimum of 25% of its total time and demand liabilities in cash, gold or unencumbered approved securities. But every banking company’s asset in India should not be less than 75% of its time and demand liabilities in India at the close of last Friday of every quarter.

10. Liquidity Norms or Statutory Liquidity Ratio (SLR) (Sec. 24):

According to Sec. 24 of the Act, in addition to maintaining CRR, banking companies must maintain sufficient liquid assets in the normal course of business. The section states that every banking company has to maintain in cash, gold or unencumbered approved securities, an amount not less than 25% of its demand and time liabilities in India.

This percentage may be changed by the RBI from time to time according to economic circumstances of the country. This is in addition to the average daily balance maintained by a bank.

Again, as per Sec. 24 of the Banking Regulation Act, 1949, every scheduled bank has to maintain 31.5% on domestic liabilities up to the level outstanding on 30.9.1994 and 25% on any increase in such liabilities over and above the said level as on the said date.

But w.e.f. 26.4.1997 fortnight the maintenance of SLR for inter-bank liabilities was exempted. It must be remembered that at the start of the preceding fortnights, SLR must be maintained for outstanding liabilities.

11. Restrictions on Loans and Advances (Sec. 20):

After the Amendment of the Act in 1968, a bank cannot:

(i) Grant loans or advances on the security of its own shares, and

(ii) Grant or agree to grant a loan or advance to or on behalf of:

(a) Any of its directors;

(b) Any firm in which any of its directors is interested as partner, manager or guarantor;

(c) Any company of which any of its directors is a director, manager, employee or guarantor, or in which he holds substantial interest; or

(d) Any individual in respect of whom any of its directors is a partner or guarantor.

Note:

(ii) (c) Does not apply to subsidiaries of the banking company, registered under Sec. 25 of the Companies Act or a Government Company.

12. Accounts and Audit (Sees. 29 to 34A):

The above Sections of the Banking Regulation Act deal with the accounts and audit. Every banking company, incorporated in India, at the end of a financial year expiring after a period of 12 months as the Central Government may by notification in the Official Gazette specify, must prepare a Balance Sheet and a Profit and Loss Account as on the last working day of that year, or, according to the Third Schedule, or, as circumstances permit.

At the same time, every banking company, which is incorporated outside India, is required to prepare a Balance Sheet and also a Profit and Loss Account relating to its branch in India also. We know that Form A of the Third Schedule deals with form of Balance Sheet and Form B of the Third Schedule deals with form of Profit and Loss Account.

It is interesting to note that a revised set of forms have been prescribed for Balance Sheet and Profit and Loss Account of the banking company and RBI has also issued guidelines to follow the revised forms with effect from 31st March 1992.

According to Sec. 30 of the Banking Regulation Act, the Balance Sheet and Profit and Loss Account should be prepared according to Sec. 29, and the same must be audited by a qualified person known as auditor. Every banking company must take previous permission from RBI before appointing, re­appointing or removing any auditor. RBI can also order special audit for public interest of depositors.

Moreover, every banking company must furnish their copies of accounts and Balance Sheet prepared according to Sec. 29 along with the auditor’s report to the RBI and also the Registers of companies within three months from the end of the accounting period.

Tax Law

In terms of business law, taxation refers to taxes charged upon companies in the commercial sector. It is the obligation of all companies (except a few tax-exempted small-time companies) to pay their taxes on time, failure to follow through which will be a violation of corporate tax laws.

Securities Law

Securities refer to assets like shares in the stock market and other sources of capital growth and accumulation. Securities law prohibits businesspersons from conducting fraudulent activities from taking place in the securities market. This is the business law section which penalises securities fraud, such as insider trading. It is, thus, also called Capital Markets Law.

Intellectual property Tax

Intellectual property refers to the intangible products of the working of the human mind or intellect, which are under the sole ownership of a single entity, such as an individual or company. The validation of this ownership is provided by intellectual property law, which incorporates trademarks, patents, trade secrets and copyrights.

Contract Law

A contract is any document which creates a sort of legal obligation between the parties that sign it. Contracts refer to those employee contracts, sale of goods contracts, lease contracts, etc.

Companies Act,2013

With an unprecedented change in the domestic and international economic landscape, India’s Government decided to replace the Companies Act, 1956, with the new legislation. The Companies Act, 2013, endeavors to make the corporate regulations in India more contemporary. In this article, we will focus on the meaning and features of a Company.

The Companies Act, 2013, completely revolutionized India’s corporate laws by introducing several new concepts that did not exist previously. One such game-changer was the introduction of the One Person Company concept. This led to the recognition of an entirely new way of starting businesses that accorded flexibility which a company form of entity can offer, while also providing the protection of limited liability that sole proprietorship or partnerships lacked.

Thus, as we can see, commercial contracts are a very essential part of the business world. Any business during its operation needs to follow all these laws, whether willfully or not. Thus, a person with any venture needs very substantial legal assistance so that any clash in legal matters won’t harm your endeavors.

The Limited Liability Partnership Act, 2008

LLP stands for a Limited Liability Partnership. Limited liability partnership definition is an alternative corporate business form that offers the benefits of limited liability to the partners at low compliance costs. It also allows the partners to organize their internal structure like a traditional partnership. A limited liability partnership is a legal body liable for the full extent of its assets. The liability of the partners, however, is limited. Hence, LLP is a hybrid between a company and a partnership. It is not the same as a limited liability company LLC.

The Indian Partnership Act,1932

The Indian Partnership Act 1932 defines a partnership as a relation between two or more parties to agree to share a business’s profits, either all or only one or more persons acting for them all. A partnership is contractual in nature. As the definition states, a partnership is an association of two or more persons. So a partnership results from a contract or an agreement between two or more persons. A partnership does not arise from the operation of law. Neither can it be inherited. It has to be a voluntary agreement between partners. A partnership agreement can be written or oral. Sometimes such an arrangement is even implied by the continued actions and mutual understanding of the partners.

The Sale of Goods Act,1930

Contracts and agreements regarding the sale of goods and services are governed under the Sale of Goods ACT, 1930. The sale of commodities constitutes one of the essential types of contracts under the law in India. India is one of the largest economies and a great country where and thus has adequate checks and measures to ensure its business and commerce community’s safety and prosperity. Here we shall explain The Sale of Goods Act, 1930, which defines and states terms related to the sale of goods and exchange of commodities.

The Indian Contract Act, 1872

It is the most prominent business law to exist in our country. It came into effect on 1st September 1872 and applied to the whole of India, with the exception of Jammu and Kashmir. It constitutes 266 sections. The Indian Contracts Act,1872 defines the essentials through various judgments in the Indian judiciary. Specific points for valid contracts are Free consent, consideration, competency, eligibility, etc. A valid contract must include at least two parties, or it will be deemed as null and void.

1. The exchange of goods and services are known as …………………………

• Domestic Trade
• International Trade
• Trade
• None of these.

 

2. Which of the following is not considered as factors of production?

• Land
• Labour
• Money
• Capital

 

3. Trade between two countries is known as ………….

• External
• Internal
• Inter-regional
• None of Above

 

4. International Trade is most likely to generate short-term unemployment in:

• Industries in which there are neither imports nor exports
• Import-competing industries
• Industries that sell to domestic and foreign buyers.
• Industries that sell to only foreign buyers

 

5. Free traders maintain that an open economy is advantageous in that it provides all the following except:

• Increased competition for world producers
• A wider selection of products for consumers
• Relatively high wage levels for all domestic workers
• The utilization of the most efficient production methods

 

6. Which of the following is not a benefit of international trade?

• Lower domestic prices
• Development of more efficient methods and new products
• A greater range of consumption choices
• High wage levels for all domestic workers

 

7. Which is not an advantage of international trade:

• Export of surplus production
• Import of defence material
• Dependence on foreign countries
• Availability of cheap raw material

 

8. Trade between two countries can be useful if cost ratios of goods are …………..

• Equal
• Different
• Undetermined
• Decreasing

 

9. Foreign trade creates among countries ………………

• Conflicts
• Cooperation
• Hatred
• Both a. and b.

 

10. All are advantages of foreign trade except ………….

• People get foreign exchange
• Cheaper goods
• Nations compete
• Optimum utilization of countries’ resources

 

Q.2. Fill in the blanks.

1. International Trade means trade between …………………. (Provinces/ Countries/ Regions)
2. Two countries can give from foreign trade if ………… are different. (Effect/ Tariff/ Cost)
3. ………….. encourages trade between two countries. (Different tax system/Reduced tariffs/ National currencies)
4. Drawback of protection system is ……… (Consumers have to pay higher prices/ Producers get higher profits/ Quality of goods may be affected/ All above)
5. ………….. is a drawback of free trade. (Prices of local goods rise/ Govt. looses incomes from custom duties/National resources are underutilized)
6. International trade is possible primarily through specialization in production of …… goods. (All/ One/ Few)
7. A country that does not trade with other countries is called …… country. (Developed/ Closed/ Independent)
8. Policy of Protection in trade ……… (Facilitates trade/ Protects foreign producers/ Protects local producers/ Protects exporters)
9. The largest item of Indian import list is ……….. (Consumer goods/ Machinery/ Petroleum/ Computers)
10. Trade between two states in an economy is known as …… (External/ Internal/None)

 

SET 2

Q.1. Multiple Choice Questions.

1. Who among the following enunciated the concept of single factoral terms of trade?

• Jacob Viner
• G.S.Donens
• Taussig
• J.S.Mill

 

2. ‘Infant industry argument’ in international trade is given in support of:

• Granting Protection
• Free trade
• Encouragement to export oriented small and tiny industries
• None of the above

 

3. Terms of trade that relate to the Real Ratio of international exchange between commodities is called:

• Real cost terms of trade
• Commodity terms of trade
• Income terms of trade
• Utility terms of trade

 

4. The main advantage in specialization results from:

• Economies of large-scale production
• The specializing country behaving as monopoly.
• Smaller Production runs resulting in lower unit costs.
• High wages paid to foreign workers.

 

5. Net export equals ……

• Export * Import
• Export + Import
• Export – Import
• Exports of service only

 

6. A tariff ………………….

• Increase the volume of trade
• Reduces the volume of trade
• Has no effect on volume of trade
• Both a. and c.

 

7. Terms of Trade of developing countries are generally unfavourable because …….

• They export primary goods
• They import value added goods
• They export few goods
• Both a. and b.

 

8. Terms of Trade a country show ……………

• Ratio of goods exported and imported
• Ratio of import duties
• Ratio of prices of exports and imports
• Both a. and c.

 

9. Terms of trade between two countries refer to a ratio of …..

• Export prices to import prices
• Currency values
• Export to import
• Balance of trade to Balance of payments

 

10. Rich countries have deficit in their balance of payments ……..

• Sometimes
• Never
• Alternate years
• Always

 

Q.2. Fill in the blanks.

1. BOP means balance of Receipts and payments of …… (all banks/ State bank/ Foreign exchange by a country/ Government)
2. Favourable trade means exports are ……. than imports. (More/ Less/ Neutral)
3. Net barter terms of trade is also known as …. Terms of trade.(Commodity/ Income/Utility)
4. ….. is not a factor affecting TOT. (Reciprocal demand/ Size of demand/ Price of demand)
5. If tariff is higher, then the imports will …… (Increase/ Decrease/ Same as before)
6. ……. has given the concept of reciprocal demand. (Mills/ Adam/ Ricardo)
7. ……… is the curve, which expresses the total demand for one good (imports) in terms of the total supply of another good (exports). (Offer/ Official / Corporate)
8. Balance of payment is prepared by an economy ……. (Yearly/ Monthly/ Weekly)
9. …….. kinds of accounts are included in BOP. (2/ 3/4)
10. …….is not a type of disequilibrium in BOP. (Cyclical/ Seasonal/ Frictional/ Disguised)

 

SET 3

Q.1. Multiple Choice Questions.

1. The first classical theory of International Trade is given by …………………..

• Keynes
• Adam Smith
• Friedman
• Heckscher-Ohlin

 

2. In classical theory of International Trade, the exchange of goods and services takes on the basis of ………….. system?

• Barter
• Money
• Labour
• capital

 

3. If capital is available in large proportion and labour is less, then that economy is known as ……………..

• Capital Intensive
• Labour Intensive
• Both a. and b
• None of above

 

4. In Heckscher Ohlin theory, what is assumed to be same across the countries?

• Transportation cost
• Technology
• Labour
• capital

 

5. Opportunity cost is also known as ……………………

• Next Best alternative
• Transformation cost
• Both a. and b
• None of above.

 

6. Factor proportions theory is also known as the

• comparative advantage theory
• laissez faire theorem.
• HeckscherOhlin theorem
• product cycle model.

 

7. Trade between two countries can be useful if cost ratios of goods are:

• Equal
• Different
• Undetermined
• Decreasing

 

8. According to Hecksher and Ohlin basic cause of international trade is:

• Difference in factor endowments
• Difference in markets
• Difference in political systems
• Difference in ideology

 

9. The theory explaining trade between two countries is called:

• Comparative disadvantage theory
• Comparative cost theory
• Comparative trade theory
• None of the above

 

10. David Ricardo presented the theory of international trade called:

• Theory of absolute advantage
• Theory of comparative advantage
• Theory of equal advantage.
• Theory of total advantage

 

Q.2. True or False.

1. Absolute advantage theory is given by Adam Smith.

True

2. Ricardo has supplemented Absolute advantage theory.

 True

3. Heckscher and Ohlin have given comparative cost advantage theory of International Trade.

False

4. Multilateral trade means one country comes into trade with more than one country.

True

5. Opportunity cost means unforgiving cost.

False

6. Modern theory of International Trade is given by Ricardo.

False

7. 2×2×2 model of International Trade is known by Heckscher Ohlin model.

True

8. Transformation cost is also known as opportunity cost.

True

9. Gravity model of trade was first used by Jan Tinbergen.

True

10. Adam Smith advocated free trade and specialized.

True

 

Set 4

Multiple Choice Questions.

1. GATT was made in the year ………………..

• 1945
• 1947
• 1950
• 1951

 

2. The new world Trade organization WTO., which replaced the GATT came into effect from____

• 1ST January 1991
• 1st January 1995
• 1st April 1994
• 1st May 1995

 

2. 5 banks of BRICS nations have agreed to establish credit lines in ….. currencies.

• Legal
• Plastic
• Crypto currency
• National

 

3. Where was the 11th meeting of BRICS Trade Ministers held from 13 Nov 2019 – 14 Nov 2019?

• Shanghai
• Beijing
• Tokyo
• Brasilia

 

4. What is the name of the SAARC satellite to be launched on May 5, 2017?

• South Asia Satellite
• South Asian Association Satellite
• South East Asia satellite
• SAARC satellite

 

5. Full form of SAFTA is ……………………..

• South Asia Free Trade Agreement
• South Asia Foreign Trade Agreement
• South Asia Framework Trade Agreement
• Both a and b

6. Which of the following commitments has not been made by India to WTO?

• Reduction in tariffs
• Increase in quantitative restrictions
• Increase in qualitative restrictions
• Trade related Intellectual Property Rights

 

7. The European Union was formally established on …..

• November, 1993
• April, 1995
• January, 1997
• May, 1996

 

8. SAARC was established in …..

• 1980
• 1985
• 1990
• 1995

 

9. NAFTA came into effect in …..

• 1990
• 1994
• 1998
• 2004

10. The dominant member state of OPEC is ……………..

• Iran
• Iraq
• Kuwait
• Saudi Arabia

 

Q.2. Fill in the blanks.

1. Headquarter of WTO is in ………….. Geneva/USA/Germany.
2. Before WTO, ……………… was working instead of that. GATY/ GATR/ GATT.
3. …………….. round negotiations initiated the establishment of WTO. Uruguay/ Urdun/ Urbuny .
4. India had joined WTO in the year …………. (1995/ 1996/ 1997)
5. In …………….. , SAARC was established. (1985/ 1986/ 1987)
6. The first SAARC summit was organized at …….. (Dhaka/ Kathmandu/ Nepal)
7. ……..is not a country in SAFTA. (India/ Nepal/ Pakistan/ USA)
8. ……… countries are member of OECD. (34/ 35/ 36)
9. ………… is not a country under OECD. (Norway/ Canada/ China)
10. ………….. are the member states of European Union. (28/ 29/30)