Tag: University of Mumbai BMS Notes

Business Laws refer to the body of legal rules and regulations that govern business activities, commercial transactions, and relationships among individuals, firms, organizations, and the government. These laws provide a framework within which businesses operate and ensure that commercial activities are conducted fairly, ethically, and legally. Business laws help maintain order in the marketplace, protect the rights of parties involved in business transactions, and resolve disputes arising from commercial dealings.

Business laws cover various areas such as contracts, sale of goods, partnership, companies, consumer protection, intellectual property, labor laws, taxation, and competition laws. They are essential for creating a stable business environment and promoting economic growth.

Meaning of Business Laws

Business Laws can be defined as the set of legal principles and regulations that control and regulate business activities and commercial relationships. These laws establish rights, duties, obligations, and liabilities of individuals and organizations engaged in trade, commerce, and industry.

In simple terms, business laws are the rules that guide businesses in their day-to-day operations and ensure compliance with legal standards.

Definitions of Business Laws

1. According to Black’s Law Dictionary

“Business Law is the branch of law that deals with the rights, duties, and conduct of persons and businesses engaged in commerce, trade, and sales.”

2. According to James Stephenson

“Business Law includes all legal rules that regulate commercial and industrial activities and govern business relationships.”

3. According to Wheeler

“Business Law is the body of legal principles that controls business transactions and commercial dealings.”

4. According to Merriam-Webster Dictionary

“Business Law refers to laws involving commercial matters, including trade, sales, contracts, and business organizations.”

5. According to Robert W. Emerson

“Business Law consists of enforceable rules of conduct governing commercial relationships among individuals and organizations.”

6. According to Indian Legal Perspective

“Business Law refers to the collection of laws that regulate the formation, operation, management, and dissolution of business enterprises.”

7. Simple Definition

Business Laws are the rules and regulations made by the government to control and regulate business activities and commercial transactions.

8. Academic Definition

Business Law is the study of legal principles relating to business organizations, commercial transactions, contracts, and regulatory compliance.

Objectives of Business Laws

• To Maintain Legal Order in Business Activities

One of the primary objectives of business laws is to maintain legal order in commercial activities. Businesses engage in numerous transactions involving buyers, sellers, employees, investors, and government authorities. Without proper legal regulations, confusion and disputes may arise frequently. Business laws establish clear rules and standards that guide business operations and define the rights and duties of all parties involved. These laws create a systematic framework for conducting trade and commerce. By maintaining legal order, business laws ensure smooth functioning of markets, reduce uncertainty, and promote stability in the business environment.

• To Protect the Rights of Stakeholders

Business laws aim to protect the interests and rights of various stakeholders, including owners, shareholders, employees, customers, creditors, and suppliers. Every stakeholder has certain legal rights that need protection from unfair practices and exploitation. Business laws provide safeguards against fraud, breach of contract, discrimination, and other harmful activities. They ensure that stakeholders receive fair treatment and appropriate legal remedies when their rights are violated. This protection helps build trust among participants in the business system and encourages healthy business relationships, ultimately contributing to the growth and sustainability of organizations.

• To Ensure Fair and Ethical Business Practices

An important objective of business laws is to promote fairness and ethical behavior in commercial transactions. Businesses are expected to act honestly and responsibly while dealing with customers, employees, competitors, and the public. Business laws prohibit deceptive advertising, unfair competition, corruption, and fraudulent activities. They establish standards of conduct that businesses must follow to maintain integrity and transparency. By ensuring ethical practices, these laws protect consumers and other stakeholders from exploitation. Fair business practices also enhance the reputation of organizations and contribute to the development of a trustworthy and competitive business environment.

• To Facilitate Smooth Commercial Transactions

Business laws provide a legal framework that facilitates smooth and efficient commercial transactions. Contracts, sales, banking operations, insurance agreements, and financial dealings require clear legal guidelines to avoid misunderstandings and disputes. Business laws define the procedures, obligations, and remedies related to such transactions. They help businesses conduct their operations with confidence and legal certainty. When parties know their rights and responsibilities, transactions become more secure and reliable. This objective supports economic activity by reducing risks, improving coordination among parties, and encouraging greater participation in trade and commerce.

• To Prevent and Resolve Business Disputes

Disputes are common in business due to disagreements over contracts, payments, ownership rights, or performance obligations. Business laws aim to prevent such conflicts by establishing clear legal rules and procedures. When disputes do occur, these laws provide mechanisms for resolution through courts, arbitration, mediation, and other legal processes. Effective dispute resolution helps maintain business relationships and prevents prolonged conflicts that may disrupt operations. By offering legal remedies and enforcement mechanisms, business laws ensure justice and accountability. This objective contributes to a stable business environment where parties can confidently engage in commercial activities.

• To Promote Economic Growth and Development

Business laws play a significant role in promoting economic growth and national development. A strong legal framework encourages entrepreneurship, investment, innovation, and industrial expansion. Investors are more willing to invest when laws protect their rights and ensure fair business practices. Business laws create a predictable and secure environment that supports economic activities and market confidence. They also regulate competition, protect property rights, and facilitate efficient resource allocation. By encouraging business expansion and reducing legal uncertainties, business laws contribute to increased employment opportunities, higher productivity, and overall economic prosperity.

• To Protect Consumers and Public Interest

Consumer protection is a major objective of business laws. Consumers often face risks such as defective products, misleading advertisements, unfair pricing, and poor-quality services. Business laws establish regulations that require businesses to provide safe products, accurate information, and fair treatment to customers. These laws empower consumers to seek compensation and legal remedies when their rights are violated. Protecting consumers enhances public confidence in the marketplace and encourages responsible business behavior. Business laws also safeguard public interest by ensuring that commercial activities do not harm society, health, safety, or the environment.

• To Ensure Compliance with Government Regulations

Business laws help ensure that organizations comply with government policies and regulatory requirements. Businesses must follow laws related to taxation, labor standards, environmental protection, competition, and corporate governance. Compliance is essential for maintaining legal legitimacy and avoiding penalties or legal action. Business laws establish obligations that organizations must fulfill while conducting their operations. By enforcing compliance, these laws promote accountability and responsible business conduct. This objective helps governments maintain economic order, collect revenue, protect public welfare, and achieve broader social and economic goals through effective regulation of business activities.

Nature of Business Laws

• Legal in Nature

Business laws are legal in nature because they consist of rules and regulations established and recognized by the government. These laws are enforceable through courts and legal authorities. Any person or organization violating business laws may face penalties, fines, or legal proceedings. The legal nature of business laws ensures that business activities are conducted within a recognized framework. It provides certainty and legitimacy to commercial transactions. By establishing legally binding obligations and rights, business laws help maintain discipline and order in the business environment and protect the interests of all parties involved.

• Regulatory in Nature

Business laws are regulatory in nature as they control and govern various aspects of commercial activities. They regulate the formation, operation, management, and dissolution of business organizations. These laws also oversee contracts, trade practices, labor relations, taxation, and competition. The regulatory nature ensures that businesses operate according to prescribed standards and do not engage in harmful or unethical practices. Through proper regulation, governments can maintain economic stability, protect consumers, and encourage fair competition. This regulation creates a balanced environment where businesses can grow while fulfilling their social and legal responsibilities.

• Dynamic in Nature

Business laws are dynamic because they continuously evolve to meet changing economic, social, technological, and business conditions. As markets expand and new forms of business emerge, legal systems update existing laws and introduce new regulations. For example, laws related to e-commerce, digital transactions, and data protection have developed in response to technological advancements. The dynamic nature of business laws allows them to remain relevant and effective in addressing modern challenges. This adaptability helps businesses operate efficiently in a rapidly changing environment while ensuring that legal protection and regulation remain effective.

• Protective in Nature

Business laws are protective in nature because they safeguard the rights and interests of stakeholders such as consumers, employees, investors, creditors, and business owners. They protect parties from fraud, exploitation, unfair competition, and breach of contractual obligations. Consumer protection laws ensure product safety and fair treatment, while labor laws protect employee welfare. The protective nature of business laws creates trust and confidence in the marketplace. By providing legal remedies and enforcing rights, these laws contribute to a fair business environment where all participants can engage in commercial activities without fear of injustice.

• Commercial in Nature

Business laws are commercial in nature as they primarily deal with trade, commerce, and business transactions. They govern activities such as buying and selling goods, entering contracts, forming partnerships, establishing companies, and conducting financial transactions. These laws are designed specifically to facilitate commercial relationships and economic activities. Their commercial nature helps businesses conduct transactions smoothly and efficiently while minimizing risks and disputes. By addressing the legal aspects of commerce, business laws provide a structured framework that supports market operations, encourages investment, and promotes the growth of trade and industry.

• Rights and Duties Oriented

Business laws are rights and duties oriented because they clearly define the legal rights, obligations, and responsibilities of all parties involved in business activities. They specify what businesses, consumers, employees, and other stakeholders are entitled to receive and what they are required to do. For example, a seller has the right to receive payment and the duty to deliver goods as promised. This nature helps maintain balance and fairness in commercial relationships. By clearly outlining rights and duties, business laws reduce misunderstandings, prevent conflicts, and ensure accountability among business participants.

• Socially Relevant in Nature

Business laws are socially relevant because they consider the welfare of society along with business interests. They ensure that commercial activities contribute positively to economic and social development. Laws related to environmental protection, consumer welfare, employee rights, and corporate social responsibility reflect this social dimension. Businesses are expected not only to earn profits but also to act responsibly toward society. The socially relevant nature of business laws promotes sustainable development and ethical conduct. It helps balance private business objectives with public interest, ensuring that economic growth benefits society as a whole.

• Enforceable in Nature

Business laws are enforceable because compliance with them is mandatory and supported by legal sanctions. Courts, regulatory authorities, and government agencies have the power to enforce these laws and take action against violators. If a party breaches a contract or engages in unlawful business practices, legal remedies such as compensation, injunctions, penalties, or imprisonment may be imposed. The enforceable nature of business laws ensures respect for legal obligations and deters misconduct. This characteristic strengthens confidence in the legal system and promotes fairness, stability, and accountability in business operations.

Sources of Business Laws

• Constitution

The Constitution is the supreme source of business laws in a country. It provides the fundamental legal framework within which all business activities are regulated. The Constitution grants powers to the legislature to enact commercial laws and establishes principles related to trade, commerce, property rights, taxation, and economic activities. In India, constitutional provisions ensure freedom of trade and business while allowing the government to impose reasonable restrictions in the public interest. Since all laws must conform to constitutional principles, the Constitution serves as the foundation upon which the entire structure of business law is built.

• Statutory Laws (Legislation)

Statutory laws are one of the most important sources of business laws. These laws are enacted by Parliament and State Legislatures to regulate various aspects of business and commerce. Examples include the Indian Contract Act, Companies Act, Consumer Protection Act, Partnership Act, and Competition Act. Statutory laws define rights, duties, liabilities, and procedures applicable to businesses. They provide detailed legal rules governing commercial activities and transactions. As business environments evolve, legislatures can amend existing laws or enact new laws to address emerging challenges, making statutory law a dynamic and essential source of business regulation.

• Judicial Decisions (Case Laws)

Judicial decisions are an important source of business laws. Courts interpret statutes and resolve disputes by applying legal principles to specific cases. The decisions of higher courts, especially the Supreme Court and High Courts, become precedents that guide future cases. These precedents help clarify ambiguities in laws and fill gaps where legislation may be silent. Judicial decisions contribute to the development of commercial law by adapting legal principles to changing business conditions. Through case law, courts ensure consistency, fairness, and justice in the application of business regulations and commercial legal principles.

• Customs and Usages

Business customs and usages are traditional practices that have been followed consistently in trade and commerce over a long period. These customs gain legal recognition when they are widely accepted, reasonable, and not contrary to statutory law. In many commercial transactions, customs help determine the rights and obligations of parties where written agreements are absent or unclear. Trade usages often vary across industries and regions but play a significant role in facilitating business operations. By recognizing established customs, business laws accommodate practical commercial practices and ensure smooth functioning of trade activities.

• Common Law

Common law refers to legal principles developed through judicial decisions rather than written legislation. It originated in England and has significantly influenced legal systems in many countries. Common law principles govern various aspects of contracts, agency, negligence, and commercial relationships. Even where statutory provisions exist, courts often rely on common law principles to interpret legal issues. Common law evolves gradually through judicial decisions and adapts to changing business needs. Its flexibility and ability to address new situations make it a valuable source of business law, especially in areas where legislation is limited.

• International Laws and Treaties

International laws, conventions, and treaties are increasingly important sources of business laws in the modern global economy. International trade agreements, investment treaties, and conventions governing intellectual property and commercial transactions influence domestic business regulations. Organizations such as the World Trade Organization establish rules that member countries follow in international trade. These laws facilitate cross-border business activities, reduce trade barriers, and promote uniform commercial standards. As globalization expands, international legal frameworks play a growing role in shaping national business laws and commercial practices.

• Administrative Regulations and Rules

Administrative regulations are rules and guidelines issued by government departments, regulatory authorities, and administrative agencies under powers granted by legislation. These regulations provide detailed procedures for implementing business laws. Regulatory bodies issue rules concerning taxation, environmental protection, securities markets, labor standards, and corporate compliance. Administrative regulations help businesses understand how laws should be applied in practice. They ensure effective enforcement of statutory provisions and address technical matters that legislation may not cover in detail. Therefore, administrative regulations are a significant and practical source of business law.

• Professional and Trade Association Codes

Professional bodies and trade associations often develop codes of conduct, standards, and guidelines that influence business practices. Although these codes may not always have the force of law, they are widely followed within industries and may be recognized by courts or regulators. Such standards promote ethical conduct, professional competence, and fair business practices. They help businesses maintain credibility and comply with industry expectations. In many sectors, adherence to professional codes enhances consumer confidence and supports self-regulation. Consequently, these codes serve as supplementary sources that contribute to the development and application of business laws.

Scope of Business Laws

• Law of Contracts

The Law of Contracts forms a major part of the scope of business laws. It governs agreements made between individuals, firms, and organizations in commercial transactions. Contract law specifies the essential elements of a valid contract, such as offer, acceptance, consideration, capacity, and free consent. It also defines the rights and obligations of contracting parties and provides remedies in case of breach. Since most business activities involve agreements, contract law ensures certainty and trust in commercial dealings. It helps businesses enforce commitments and resolve disputes arising from contractual relationships effectively.

• Sale of Goods Law

The Sale of Goods Law deals with the legal aspects of buying and selling goods. It regulates the rights and duties of buyers and sellers in commercial transactions. The law covers matters such as transfer of ownership, delivery of goods, conditions and warranties, payment obligations, and remedies for breach. This area of business law ensures fairness and transparency in trade transactions. It protects both parties from unfair practices and misunderstandings. By providing clear rules regarding the sale and purchase of goods, it facilitates smooth commercial exchanges and strengthens market confidence.

• Partnership Law

Partnership law is an important component of the scope of business laws. It governs the formation, operation, rights, duties, and dissolution of partnership firms. The law defines the relationship among partners and between partners and third parties. It regulates matters such as profit sharing, management responsibilities, liabilities, and dispute resolution. Partnership law helps maintain harmony and accountability within business organizations. It ensures that partners fulfill their obligations and protects their interests. Through proper legal regulation, partnership law contributes to efficient management and stability of partnership-based business enterprises.

• Company Law

Company law regulates the incorporation, management, administration, and winding up of companies. It provides a legal framework for corporate governance and defines the rights and responsibilities of shareholders, directors, and other stakeholders. This area of business law covers issues such as company formation, share capital, meetings, audits, and compliance requirements. Company law promotes transparency, accountability, and investor protection. It helps businesses operate efficiently while complying with legal standards. Since companies play a significant role in modern economies, company law forms a vital part of the overall scope of business laws.

• Consumer Protection Law

Consumer protection law focuses on safeguarding the interests of consumers in the marketplace. It protects consumers against unfair trade practices, defective products, misleading advertisements, and poor-quality services. The law grants consumers various rights, including the right to safety, information, choice, and redressal. It also establishes consumer dispute resolution mechanisms. By ensuring fair treatment and accountability, consumer protection law promotes trust between businesses and customers. This area of business law encourages ethical business conduct and enhances consumer confidence, which is essential for the growth and sustainability of commercial activities.

• Labour and Employment Laws

Labour and employment laws regulate the relationship between employers and employees. They cover matters such as wages, working conditions, working hours, employee benefits, workplace safety, social security, and dispute resolution. These laws protect workers from exploitation while ensuring that employers fulfill their legal obligations. Labour laws contribute to industrial peace and productivity by establishing fair employment standards. They also address issues related to recruitment, termination, discrimination, and occupational health. As human resources are a critical component of business success, labour and employment laws form an essential part of business law.

• Intellectual Property Laws

Intellectual Property (IP) laws protect creations of the human mind such as inventions, trademarks, copyrights, patents, industrial designs, and trade secrets. These laws grant exclusive rights to creators and innovators, encouraging creativity and technological advancement. Businesses rely on intellectual property protection to safeguard their innovations, brand identity, and competitive advantage. IP laws prevent unauthorized use, copying, or exploitation of intellectual assets. By promoting innovation and rewarding creativity, intellectual property laws contribute significantly to business growth and economic development. Therefore, they occupy an important place within the scope of business laws.

• Taxation and Competition Laws

Taxation and competition laws are essential areas within the scope of business laws. Taxation laws regulate the assessment, collection, and payment of taxes by businesses and individuals. Compliance with tax laws ensures government revenue and economic stability. Competition laws, on the other hand, prevent monopolies, restrictive trade practices, and unfair market dominance. They encourage healthy competition and protect consumer interests. Together, these laws promote fairness, transparency, and efficiency in the marketplace. They help create a balanced economic environment where businesses can compete fairly while fulfilling their legal and financial responsibilities.

Importance of Business Laws

• Ensures Smooth Conduct of Business Activities

Business law may be defined as that branch of law which consists of laws relating to trade, industry and commerce. It is one of the important branches of Civil Law. It is also called as “Commercial Law”.

Scope of Business Law

The scope of Business law is very wide and varied. It includes law relating to contracts, partnership, sale of goods, negotiable instruments, companies, insolvency, insurance, carriage of goods, etc.

Business law is concerned with the study of rights and obligations arising out of Business transactions between Business persons. Business persons are persons who carry on commercial transactions. They may be individuals, partnership concerns or joint stock companies.

Knowledge of Business law is essential to merchants. It helps the merchants to avoid conflicts with the persons with whom he comes into business contacts.

Main sources of Business Law

Indian Business law is based largely upon the English Business law. Prior to the enactment of the various Acts constituting Business law, the personal laws of the parties to suit regulated Business transactions. The rights of Hindus were governed by the Hindu Law and that of Muslims by the Mohammedan Law.

In case of persons other than Hindus and Muslims, the Courts applied the principles of English Law. Further, where laws and usage of Hindus or Muslims were silent on any point, the principles of English Law were applied.

The first efforts to pass an Act constituting Business law in India were made in 1872 by the passing of the Indian Contract Act. From that time a large number of statutes have been enacted concerning matters coming within the purview of Business law. For example, the Sale of Goods Act, 1930, the Partnership Act, 1932, the Companies Act, 1955, etc.

The main sources of Indian Business Law are:

1. English Business Law.
2. Statute Law.
3. Judicial Decisions.
4. Customs and Usage.

1. English Business Law

The English law is the most important source of Indian Business law. Many rules of English law have been incorporated into Indian law through statutes and judicial decisions. The sources of English law are:

• Common Law

This law is known as judge made law. It is based upon customs and practices handed down from generation to generation. It is the oldest unwritten law. The English Courts developed these over centuries.

• Equity

Equity is also unwritten law. It is based upon concepts of justice developed by the judges whose decisions become precedents. It grew as a system of law supplementary to the common law and covered the deficiencies of the common law. Its rules were applied in cases where the rules of common law were considered harsh and oppressive.

The Judicature Acts of 1873 and 1875 abolished the distinction between Common Law and Equity so that they are now applied to all cases.

• Statute Law

Statute law is one, which is laid down in the Acts of Parliament. Hence, it acts as the most superior and powerful source of law. It overrides any rule of common law or Equity.

• Case Law

This is also an important source of the English Business law. It is built upon the decisions of the Judges. It is based on the principle that what has been decided in earlier case is binding in similar future case also unless that there is a change in the circumstances of the case.

• A Lex Mercatoria or Law Merchant

It is also one of the important sources of English Business law. A lex mercatoria or law merchant consists of legal principles based on customs and usage. They developed first as a separate system of law and subsequently became part of the common law.

2. Statute Law

A Bill passed by the parliament and signed by the President becomes a “Statute” or an Act. Most of the Indian laws are embodied in the various Acts passed by the Central as well as State legislators. The Indian Contract Act, 1872, the Sale of Goods Act, 1930, the Companies Act, 1956 are some of the examples of the statute law.

3. Judicial Decisions

Judicial decisions are also called as case laws. They referred to as precedents and are binding on all Courts having jurisdiction lower to that of the Court, which gave the judgement. The Courts in deciding cases involving similar points of law also follow them.

4. Customs and Usage

Customs and usage plays an important role in regulating business transactions. A well-recognized custom or usage can even override the statute law. Most of the business customs and usage have been already codified and given legal sanctions in India. Some of them have been ratified by the decisions of the competent Courts of law.

Principles for Allocation of Expenses:

The following principles should be noted for the purpose:

(a) Expenses relating to direct benefit of a particular department are charged to the department concerned, e.g., cost of special packing materials is charged to the specific department for which it is used.

(b) Expenses relating to the benefit of more than one department but capable of precise allocation are charged to the departments concerned accordingly, i.e., on some equitable basis, e.g., Rent can be charged to the different departments according to floor area occupied.

(c) Expenses relating to the benefit of more than one department not capable of precise allocation are to be allocated on some arbitrary basis, e.g., Managers salary is to be apportioned on the basis of turnover or cost of sales.

Purpose of Allocation of Expenses:

The following list may be followed for the purpose of allocation of expenses among the different departments:

Expenses:

1. Selling Expenses, Selling Commissions, Advertisement, Bad Debts, Carriage Outwards, Packing and Delivery Expenses, Godown Rent, Storage, Discount allowed, Travelling Salesmen’s Salary and Commission, After Sale Service, Sales Managers Salary, Provision for Discount Allowed, Freight Outwards etc.
2. Discount Received, Carriage Inwards Provision for Discount on Creditors.
3. Rent, Rates, Taxes, Repairs to Building, Insurance, Maintenance or Depreciation of Building, Air Conditioning Expenses, etc.
4. Lighting, Electricity Charges. Heating etc. Insurance, Depreciation on Plant and Machinery, Fire.
5. Insurance, Preliminary repairs to assets, Repairs and renewals etc.
6. Group Insurance Premium, Supervisors’ Salary, Workmen Compensation Insurance, Contribution to ESI etc.
7. Canteen Expenses, Medical benefits, Labour and Welfare expenses or expenses relating to labour.
8. Works Manager’s Salary.
9. Power.
10. Insurance of Stock.

Basis of Allocation:

1. Turnover or Sales of each department.
2. Purchase of each department.
3. Floor area occupied or Value of floor space
4. Light Points/Floor Area Occupied Assets value of each department
5. Direct wages of each department
6. Numbers of workers
7. Time spent in each department
8. Horse Power or Horse Power x Hours worked
9. Average stock of each department

Note:

There are certain expenses which cannot be apportioned or allocated among the different departments on a suitable basis, the same should be transferred to General Profit and Loss Account (e.g., Interest on Capital, Debenture Interest, Loss on sale of assets, Interest on loan, General Manager’s Salary etc.).

Types of Costs

There are several types of costs that an organization must define before allocating costs to their specific cost objects. These costs include:

1. Direct costs

Direct costs are costs that can be attributed to a specific product or service, and they do not need to be allocated to the specific cost object. It is because the organization knows what expenses go to the specific departments that generate profits and the costs incurred in producing specific products or services. For example, the salaries paid to factory workers assigned to a specific division is known and does not need to be allocated again to that division.

2. Indirect costs

Indirect costs are costs that are not directly related to a specific cost object like a function, product, or department. They are costs that are needed for the sake of the company’s operations and health. Some common examples of indirect costs include security costs, administration costs, etc. The costs are first identified, pooled, and then allocated to specific cost objects within the organization.

Indirect costs can be divided into fixed and variable costs. Fixed costs are costs that are fixed for a specific product or department. An example of a fixed cost is the remuneration of a project supervisor assigned to a specific division. The other category of indirect cost is variable costs, which vary with the level of output. Indirect costs increase or decrease with changes in the level of output.

3. Overhead costs

Overhead costs are indirect costs that are not part of manufacturing costs. They are not related to the labor or material costs that are incurred in the production of goods or services. They support the production or selling processes of the goods or services. Overhead costs are charged to the expense account, and they must be continually paid regardless of whether the company is selling any good or not.

There is acute shortage of capital. People lack initiative and enterprise. Means of transport are undeveloped. Industry is depressed. The commercial banks help in overcoming these obstacles and promoting economic development. The role of a commercial bank in a developing country is discussed as under.

Financing Industry:

The commercial banks finance the industrial sector in a number of ways. They provide short-term, medium-term and long-term loans to industry. In India they provide short-term loans. Income of the Latin American countries like Guatemala, they advance medium-term loans for one to three years. But in Korea, the commercial banks also advance long-term loans to industry.

In India, the commercial banks undertake short-term and medium-term financing of small scale industries, and also provide hire purchase finance. Besides, they underwrite the shares and debentures of large scale industries. Thus they not only provide finance for industry but also help in developing the capital market which is undeveloped in such countries.

Mobilising Saving for Capital Formation:

The commercial banks help in mobilising savings through network of branch banking. People in developing countries have low incomes but the banks induce them to save by introducing variety of deposit schemes to suit the needs of individual depositors. They also mobilise idle savings of the few rich. By mobilising savings, the banks channelise them into productive investments. Thus they help in the capital formation of a developing country.

Financing Agriculture:

The commercial banks help the large agricultural sector in developing countries in a number of ways. They provide loans to traders in agricultural commodities. They open a network of branches in rural areas to provide agricultural credit. They provide finance directly to agriculturists for the marketing of their produce, for the modernisation and mechanisation of their farms, for providing irrigation facilities, for developing land, etc.

They also provide financial assistance for animal husbandry, dairy farming, sheep breeding, poultry farming, pisciculture and horticulture. The small and marginal farmers and landless agricultural workers, artisans and petty shopkeepers in rural areas are provided financial assistance through the regional rural banks in India. These regional rural banks operate under a commercial bank. Thus the commercial banks meet the credit requirements of all types of rural people.

Financing Trade:

The commercial banks help in financing both internal and external trade. The banks provide loans to retailers and wholesalers to stock goods in which they deal. They also help in the movement of goods from one place to another by providing all types of facilities such as discounting and accepting bills of exchange, providing overdraft facilities, issuing drafts, etc. Moreover, they finance both exports and imports of developing countries by providing foreign exchange facilities to importers and exporters of goods.

Financing Employment Generating Activities:

The commercial banks finance employment generating activities in developing countries. They provide loans for the education of young person’s studying in engineering, medical and other vocational institutes of higher learning. They advance loans to young entrepreneurs, medical and engineering graduates, and other technically trained persons in establishing their own business. Such loan facilities are being provided by a number of commercial banks in India. Thus the banks not only help inhuman capital formation but also in increasing entrepreneurial activities in developing countries.

Financing Consumer Activities:

People in underdeveloped countries being poor and having low incomes do not possess sufficient financial resources to buy durable consumer goods. The commercial banks advance loans to consumers for the purchase of such items as houses, scooters, fans, refrigerators, etc. In this way, they also help in raising the standard of living of the people in developing countries by providing loans for consumptive activities.

Help in Monetary Policy:

The commercial banks help the economic development of a country by faithfully following the monetary policy of the central bank. In fact, the central bank depends upon the commercial banks for the success of its policy of monetary management in keeping with requirements of a developing economy.

Thus the commercial banks contribute much to the growth of a developing economy by granting loans to agriculture, trade and industry, by helping in physical and human capital formation and by following the monetary policy of the country.

According to Sec. 5 of the Banking Regulation Act, 1949, a banking company means the accepting, for the purpose of lending or investment, of deposits of money from the public, repayable on demand or otherwise and withdrawn by Cheque, Draft, Order, or otherwise.

In short, a banking company means and includes any company which carries on the business or which transacts the business of banking in India. Therefore, any company which is engaged in trade or manufacture, which accepts deposits of money from the public for the purpose of financing its business only, shall not be deemed to carry on the business of banking.

No company can use as part of its name any of the words bank, banker or banking other than a banking company and, at the same time, no company can carry on business of banking in India unless and until it uses at least one of such words as part of its name.

Licensing of Banking Companies:

According to Sec. 22, no company shall carry on banking business in India unless it holds a license issued by the Reserve Bank of India.

If the following conditions are satisfied, the Reserve Bank of India may grant a license:

(i) “That the company is or will be in a position to pay its present and future depositors in full as their claims accrue;

(ii) That the affairs of the company are not being or are not likely to be conducted in a manner detrimental to the interests of its present or future depositor;

(iii) That, in the case of a foreign banking company, the carrying on of a banking business by such company in India will be in the public interest, that the Government or law of the country of its origin does not discriminate against Indian banking companies carrying on business in that country, and that it complies with all the requirements of law applicable to it”.

Area of Business of Banking Companies:

Sec. 6 of the Banking Regulation Act, 1949, lays down that the following business may also be carried on by a banking company, in addition to the usual banking business:

(a) Acting as agents for any government or local authority or any other person or persons; the carrying on of agency business of any description including the clearing and forwarding of goods, giving of receipts and discharges and otherwise acting as an attorney on behalf of customers, but excluding the business of a managing agent of a company;

(b) Contracting for public and private loans and negotiating and issuing the same;

(c) Selecting, insuring, guaranteeing, underwriting, participating, in managing and carrying out of any issue, public or private, of state, municipal or other loans or of shares, stock, debentures or debenture stock of any company, corporation or association and of lending of money for the purpose of any such issue;

(d) Carrying on and transacting every kind of guarantee and indemnity business;

(e) Managing, selling and realizing any property which may come into the possession of the company in satisfaction or part satisfaction of any of its claims;

(f) Acquiring or holding and generally dealing with any property, or title or interest in any such property which may form the security or part of the security for any loans or advances or which may be connected with any such security;

(g) Undertaking and executing trusts;

(h) Undertaking the administration of estates as executor, trustee or otherwise;

(i) Establishing and supporting associations, institutions, funds, trusts, and convenience for the benefit of employees, ex-employees, their dependents and the general public;

(j) Acquiring, constructing, maintaining and altering any building or works necessary for the purpose of the banking company;

(k) Selling, improving, managing, developing, exchanging, leasing, mortgaging, disposing-off or turning into account or otherwise dealing with all or any part of the property and rights of the company;

(l) Acquiring and undertaking the whole or any part of the business of any person or company when such business is of a nature enumerated or described in Sec. 6.

(m) Doing such other things as are necessary for the efficient conduct of the above-named business, such as acquisition, construction, alteration etc. of any building or works necessary or convenient for the purpose of the company; and

(n) Any other form’ of business which the Central Government may notify in the Official Gazette.

As such, other types of business are prohibited by a banking company.

Cancellation of License:

The Reserve Bank of India may cancel a license if:

(i) The company ceases to carry on banking business in India;

(ii) The company at any time fails to comply with any of the conditions on which the license was granted; or

(iii) At any time, any of the conditions, on the satisfaction of which the Reserve Bank of India granted the license, has not been fulfilled.

Debit cards offer the convenience of a credit card but work differently. Debit cards draw money directly from your checking account when you make the purchase. They do this by placing a hold on the amount of the purchase. Then the merchant sends in the transaction to their bank, and it is transferred to the merchant’s account. It can take a few days for this to happen, and the hold may drop off before the transaction goes through.

You will have a personal identification number (PIN) to use with your debit card at stores or ATMs. However, you can also use your debit card without a PIN at most merchants. You will sign the receipt like you would with a credit card. Below are some other facts regarding debit cards.

• You won’t pay interest on your purchases.
• Your credit history will be unaffected by debit card spending.
• Paying with debit will take the money from your account pretty much immediately.

How Do Debit Cards Work?

Your debit card is basically like a plastic check: When you make a purchase, it takes the money directly out of your bank account. So, if you try to spend 500 but only have 250 in your account, your transaction will be declined.

Because the money is taken from your account as soon as you swipe, you won’t get a bill and you won’t pay interest. You might, however, face overdraft fees if you spend more money than is in your account.

Debit cards also work as ATM cards, allowing you to take cash directly out of your bank account.

Credit Card

A credit card is a card that allows you to borrow money against a line of credit, otherwise known as the card’s credit limit. You use the card to make basic transactions, which are reflected on your bill; the bank pays the merchant, and later, when you receive your bill, you pay the bank.

You will be charged interest on your purchases. To avoid paying interest, don’t carry a balance over from month to month. Credit cards have high-interest rates, and your credit card balance and payment history can affect your credit score.

Below are other facts about credit cards:

• The bank decides your credit limit based on your credit history.
• Generally, you no longer have to sign for in-person credit card purchases.
• You will owe interest on your purchases if not paid off in 30 days.

How Do Credit Cards Work?

Your credit card, unlike a debit card, is like a loan: When you open a credit card, you’re approved for a certain line of credit.

Also known as a credit limit, a line of credit is how much you can spend before your card is “maxed out” and can no longer be used for purchases. Your credit limit is based on your credit history and income; the stronger those are, the more the financial institution trusts you and the higher your credit limit will be.

Each month, you’ll get a bill for the amount you spent. Though you’re only required to cover the minimum payment (and not the whole balance) by the due date, you’ll pay interest on whatever amount remains. Because credit card interest rates are usually very high, we recommend paying your bill in full each month to avoid interest fees completely.

The Joint Hindu Family Business or the Hindu Undivided Family (HUF) is a unique form of business organization found only in India. Nowhere else in the world is this a legal form of business entity.

The Joint Hindu Family Business or the Hindu Undivided Family (HUF) is a unique type of business entity. It is governed and dictated by the Hindu Law, which is one of the several religious laws prevalent in India.

Any person born into the family (boy or girl) up to the next coming three generations is a part of the HUF. These members are the co-parceners. The head of such a Joint Family Business is the eldest member of the family, the “Karta”. He is the main person responsible for the business and the finances.

Features of a Joint Hindu Undivided Family

1. Formation

To begin a Hindu Undivided Family there must be a minimum of two related family members. There must be some assets, business or ancestral property that they have inherited or will eventually inherit. The formation of a HUF does not require any documentation and admission of new members is by birth.

2. Liability

The liability of all the various co-parceners is only up to their share of the property or business. So they have limited liability. But the Karta being the head of the HUF has unlimited liability.

3. Control

The entire control of the entity lies with the Karta. He may choose to confer with the co-parceners about various decisions, but his decision can be independent. is actions will be final and also legally binding.

4. Continuity

The HUF can be continued perpetually. At the death of the Karta, the next eldest member will become the Karta. However, keep in mind a Hindu Undivided Family can be dissolved if all members mutually agree.

5. Minority

As we saw earlier the members are eligible to be co-parceners by the virtue of their birth into the family. So in this case, even minor members will be a part of the HUF. But they will enjoy only the benefits of the organization.

Advantages of the Joint Hindu Undivided Family

• A Hindu Undivided family is comprised of family members running a business. Like any other organisation, there is scope for disagreements and conflicts. But since the Karta has absolute power and takes all decisions by himself, it will lead to effective management.
• Just like a company, the existence of a HUF is perpetual. The death or retirement of one member of even the Karta will not affect it, and it will continue on.
• Since the co-parceners do not have any effective control over the management of the HUF, and all power lies with the Karta, the liability of the members has also been limited to only their share of the property. This keeps the balance between power and responsibility.
• Also since all members of the HUF are relatives and members of the same family, there is a sense of loyalty and cooperation. The trust among members is also there and leads to overall cooperation.

Disadvantages of the Joint Hindu Undivided Family

• No outside members other than family members can be introduced to the HUF. This makes it very difficult to get additional capital from the market. With limited capital, the chances of expansion are very low. It limits the scope of the business.
• While the Karta has all the power he also has the burden of unlimited liability. This may make him overly cautious and timid in his business dealings. In turn, the business could suffer. Another factor is that he may even be held responsible for the actions of other members.
• Also, the absolute dominance of the Karta overall business and financial decisions make cause conflict among the HUF. His decisions and business acumen may be questioned by other members, and cause issues within the HUF.
• Another issue may be that the Karta may not be the most qualified person to lead the business. The position is given to the senior most family member, whether he is the most qualified or not is not taken into consideration.

Finding and opening a bank account can seem intimidating given the sheer number of options out there. Fortunately, most banks and credit unions follow a straightforward process similar to the one described below. Getting your account open is just a matter of picking a bank, providing certain details, and funding your account. Once the formalities are done, you can start using your account—and save time and money.

Choose a Bank or Credit Union

You might already know where you want to bank even if you don’t know how to open an account there. If not, shop around. Start by finding the best match for your immediate need (a checking account or savings account, for example). As you compare institutions, be mindful of account usage restrictions and fees that can eat into your savings.

There are three basic categories of financial institutions:

Banks, including community banks and big banks: These might be well-known brands in your local community (or nationwide). They offer most of the basic services you need. Local and regional banks tend to have more friendly fee structures, but it may be possible to get fees waived at big banks.

Credit unions: A credit union is a customer-owned financial institution that provides many of the same services and products that banks provide. If you join one of these not-for-profit institutions, you’ll often enjoy competitive rates because they’re not necessarily trying to maximize profits. But that’s not always the case so review fee schedules carefully.

Online banks and credit unions: These institutions operate entirely online. There’s no branch to visit (or pay for), and you’ll handle most service requests yourself. If you’re comfortable with your computer or mobile device and performing basic banking transactions an online bank can help you reduce your fees, earn higher interest rates on savings accounts, and even get free checking.

You don’t have to pick just one type of bank. For example, it’s wise to open an online bank account and keep your brick-and-mortar bank to keep your fees low and maintain the ability to visit a bank in the event of a financial emergency.

Visit the Bank Branch or Website

The easiest way to open an account is to visit the institution’s website. Search for the bank online, or visit the website listed on the bank’s marketing materials (be careful when you type in the web address impostor sites with similar names may exist).

The advantage of opening accounts online is that you can do it at any time, from anywhere. But if you’re only comfortable opening accounts in person, show up at the branch during business hours. Before you leave the house, have the following items ready:

• Your government-issued ID (such as a driver’s license, passport, or military ID)
• Your Social Security Number
• Your physical and mailing address
• An initial deposit (if required)

Pick the Product You Want

Once you settle on the bank where you want to open an account, you’ll generally have a variety of account types and services to choose from, including:

• Checking accounts: Use these for making payments and receiving direct deposits.
• Savings accounts: These accounts allow you to earn interest.
• Money market accounts: These products sometimes earn slightly more interest than savings accounts (while maintaining your access to cash).
• Certificates of deposit (CDs): These products can earn much more than savings accounts but require you to lock up your funds for a certain period.
• Loans: You can take out one of several types of loans (auto, home, personal loans, for example).

Within one of the above categories, a bank may offer multiple products, each with a different name and level of service. Premium accounts that come with more features have correspondingly higher fees (like monthly service fees, ATM fees, and overdraft fees) and higher thresholds to avoid the service fee.

Pick the option that has a mix of features and fees that meet your needs and budget. For example, if you’ll keep a low balance in the account, you may want to open a bank account with no or low fees.

When viewing a bank’s products online, you might have to drill down to the product that is right for you. For example, you might have to click “Open an Account,” and then click “Checking” and peruse the options for free checking. If you open your accounts in person, chat with a banker to find the best account for your needs. Of course, you’ll only want to bank where your money is protected by FDIC insurance (or NCUSIF coverage if you use a credit union).

Provide Your Information

As you open a new bank account, you’ll need to provide sensitive information to the bank. To protect themselves and comply with regulations such as the Patriot Act, banks can’t open an account without verifying your identity.

You’ll need to provide simple details like your name, birthday, and mailing address, as well as identification numbers (in the United States, this is most likely your Social Security Number). You’ll also be asked to present a valid government ID (such as a driver’s license or passport).

If you’re opening a bank account online, you’ll type this information into a text box. If you set up your accounts in person, be prepared to hand your ID to the banker, who will probably photocopy it.

Your Financial History

You don’t need a squeaky clean history for a bank account, but it helps. Many banks check your credit to see if you’ve had problems repaying loans in the past. These credit checks are usually “soft” pulls that do not damage your credit but it’s best to ask, if you’re concerned. You don’t necessarily need good credit to get a bank account, but having bad credit can sometimes lead to denials.

Consent to the Terms

You’ll have to agree to abide by certain rules and accept responsibility for certain activities in your accounts. When you open an account at a bank, you form a relationship based on an important subject: your money. Therefore, you should know what you’re getting into. If you open bank accounts online, you’ll complete this step by clicking the “I Agree” (or similar) button and moving on to the next step.

Under 18?

If you’re under 18 years old, you’ll need somebody over age 18 to open the account with you. You still might be able to use a debit card and online banking, and you can eventually get your own account. But banks need at least one adult on an account to get you started.

Joint Accounts

If you’re opening a joint account of any kind, you’ll need the personal information for all of the account holders and a signature from each of them. It’s best to get everybody together in one place to complete the application.

Although disclosures have improved over time, there are a lot of important details buried in the fine print when opening a bank account. In particular, you’ll want to know about any fees applicable to your account, and when your funds will be available for withdrawal.

In addition to bank agreements, federal law dictates your rights and responsibilities as an account holder. For example, if somebody takes money out of your account fraudulently, you might be protected against losses. However, you may need to report the withdrawal quickly for full protection.

Print, Sign, and Mail (If Required)

If you’re opening a bank account online, you may have to print, sign, and mail a document to the bank before the account is opened. Some banks use electronic disclosure and consent to make the banking relationship legally binding you can do everything online. Others still require a signed document to open an account. Until they receive the documents, your account is not active.

Fund Your Account

If you’re opening a checking or savings account, you’ll often need to make an initial deposit into the account. Sometimes, this is required as part of the opening process, and other times, you can do it after the account is up and running. There are several ways to fund your account:

• Deposit cash: It should be available for spending with your debit card by the next day.
• Deposit a check or money order: The funds should be available within a few business days after you make the deposit.
• Set up direct deposit with your employer: Instead of getting a paycheck, your earnings will be sent directly to your new account.
• Transfer funds electronically: Move money from an external bank account to make your initial deposit.

The term customer of a bank is not defined by law. Ordinarily, a person who has an account in a bank is considered as its customer. Banks open accounts for different types of customers like an individual, partnership firm, Trusts, companies, etc. While opening the accounts the banker has to keep in mind the various legal aspects involved in opening and conducting those accounts and also practices followed in conducting those accounts. Normally, the banks have to deal with following types of customers.

Types of customers

1. Individuals

An individual can be a person holding a bank account for personal use. Such customers must comply with existing regulations and bankers must ensure that they do not open and use bank accounts for illegal purposes. The customer should be properly introduced to the bank. The introduction is necessary for terms of banking practice and also for the purpose of protection.

(i) Minors

A minor is a person who has not completed eighteen years of age. Any contract entered by minor is void and is not enforceable by law. This prevents minor to acquire property, dispose property or enter into any type of agreement. Guardian means a person having the care of the person of a minor or of his property or both person and property. Guardians may be categorised into following three types:

• Natural guardian
• Testamentary Guardian
• Legal Guardian appointed by a court

(ii) Joint account

A joint account is an account which is opened by two or more persons jointly. It’s simply a joint debt such an account is opened by them for the convenience of the operation of the account as well as for the withdrawal of money after the death of any one of them.

(iii) Married Woman

A married woman is competent to enter a valid contract. Therefore banker opens an account in the name of a married woman. In the case of a debt taken by a married woman her husband shall not be liable except in the following circumstances:

• If she borrows money for the necessities of her life
• If she borrows for the necessaries of her household
• If she acts as an agent of her husband.

(iv) Pardanasheen Women

A paid ana sheen woman observes complete seclusion in accordance with the custom of her own community. She does not deal with the person other than the members of her own family. As she remains completely secluded as the presumption in law. The banker should take due precaution in opening an account in the name of a park ana sheen woman. As the identity of such a woman cannot be ascertained, the banker generally refuses to open an account in her name.

(v) Illiterate Person

Illiterate persons cannot sign their names and hence the bankers take their thumb impression as a substitute for signature and a copy of their recent photograph. The application form and photograph should be attested by an approved witness. For withdrawing money he must attend personally and affix his thumb impression in the presence of an official of the bank for identification.

2. Joint Hindu family

Joint Hindu family it’s an undivided family which comprises of all male members descended from a common ancestor. A Joint Hindu Family is a family which consists of more than one member possesses ancestral property & carries on family business. The senior male member is called “Karta” and other male members as “coparceners”. Karta manages the whole business of the family and the liability is unlimited whereas coparceners have limited liability. Coparceners can be appointed as managers. The Karta has the power to mortgage and pledges the property of JHF for raising the loan.

3. Joint stock companies (Limited Liability Companies)

If a company is registered under companies Act has a legal status independent of the shareholders. A company is an artificial person who has a perpetual existence with limited liability and the common seal.

• Memorandum
• Articles of Association
• Certificate of Incorporation
• Resolution passed by the Board to open account
• Name and Designation of person who will operate the account with details of restriction placed on them

These are the essentials documents required to open an account.

4. Unincorporated Associations

Banks open accounts of unincorporated associations and clubs started for purposes of Sports, Recreation, Promotion of Fine Arts, and Education etc. Accounts are opened for reliable and reputed parties. These unincorporated associations have no legal entity. While opening an account in the name of association the bank makes detailed inquiry in the existing rules and regulations governing such associations. All usual formalities for opening the account are adhered by the bank. Bank also obtains the certified copy of the resolution passed by the Governing Body for an opening of the account in the bank and names of the office bearers authorised to open and to operate the account on behalf of the association duly certified by the Chairman are obtained.

5. Societies, Clubs and Associations

A society gets legal entity only when it is incorporated under Company’s Act. Bylaws of the society, clubs and association contain rules, regulations or conduct and activities of the association. While opening account the banks obtain following from the clubs:

• Copy of the bylaws
• Copy of resolution passed by the managing committee regarding opening and conduct of account
• Certificate of registration in original
• A list of the Managing Committee members
• Copies of resolutions for electing them as Committee members duly certified by the Chairman.

Bank keeps a copy of all the above-mentioned documents for its record.

6. Partnership Firms

A partnership is a relationship between persons who have agreed to share the profits of a business carried on by all or any of them acting for all. Since a firm is not a person is not entitled to enter into the partnership with another firm or Hindu undivided family or individual. Therefore banks do not an open account where a firm is a partner of another firm. As per the Indian Partnership Act, the minimum number of partners can be two and maximum twenty. The number of partners is restricted to 10 if the partnership firm carries out business for banking. Minors can be admitted as the partner only to the benefits of the partnership.

7. Trustees

Trusts are created by the settler through executing a Trust Deed. A trust account can be opened after obtaining and scrutinising the trust deed. The Trust account has to be operated by all the trustees jointly unless provided in the trust deed. A cheque favouring the Trust shall not be credited to the personal account of the Trustee. According to the Indian Trusts Act, a ‘trust’ is an obligation annexed to the ownership of property, and arising out of a confidence responded and accepted by the owner or declared and accepted by him for the benefit of another and the owner. The person who responses the confidence is called the author of the trust. The trustee is the person in whom the confidence is responded. The person for whose benefit the trust is formed is called beneficiary.

The customers of banks consist of millions of private individuals, hundreds of thousands of small businesses formed as private limited companies. Some persons like the minors, drunkards, lunatics and insolvent are not competent to enter into valid contracts. Some persons like agents, trustees, executors, etc. who act on behalf of others, have limitations on their powers. Thus requires extra care to ensure that their accounts are conducted in accordance with the provisions. These are the major types of customers that come under banking operations.

Types of Account Holders

Accounts of Individuals

Individuals generally open transaction accounts like Savings accounts or Current accounts. It has already been mentioned that any adult person/individual competent to contract can open any account with any bank after observing usual formalities provided that the bank is satisfied about his identity, respectability and desirability. On many occasions, identity is ascertained by the passports, voter identity cards (ID), certificates of ward commissioners, employer’s certificates, and tax identification numbers (TIN) etc. They are required to furnish passport size photograph and an introduction from an acceptable person. Normally individuals either singly or jointly are allowed to open Savings account.

Joint Accounts

Accounts are allowed to be opened in two or more names (individuals). Documents required are similar to those applicable to the individual accounts. In case of joint accounts, generally ‘Either or Survivorship’ instructions are obtained in hand writing of the account holders concerned under their signatures. In such cases account may be operated by anyone of them. In the event of death of either one, survivor can operate the account. In the absence of instructions otherwise in the ‘Either or Survivorship’ declaration, the balance of the joint, account is payable to the survivor and the legal representatives of the deceased joint account holder if there is no nomination.

Accounts of Sole Proprietorship

The sole proprietorship concerns do not enjoy any legal status. Hence they are treated like individuals by the banks. While opening a new Current account, the owner is required to produce the trade license, certificate from Chamber of Commerce, Tax Identification number (TIN) and Value Added Tax (VAT) registration number as may be applicable or similar other document. In case of savings accounts, documents required are similar to those applicable to individual accounts.

Accounts of Partnership Firms

A partnership account is allowed to be opened by the banks on production of trade license and other documents evidencing the partnership business. If it is registered partnership it is required to produce registration number and partnership deed. If not, a standard partnership letter supplied by the banks is required to be signed by all the partners of the ‘firm’ in their individual capacities. Account may be in the name of the ‘firm’. But legally firm does not have any existence. Hence partners jointly and severally have to bear all the responsibilities.

The partnership deed or partnership letter is thoroughly studied by the banks to ascertain the names and addresses of all the partners and nature of business. The names of the partners authorized to operate the account on behalf of the firm including the authority to draw, endorse and accept bills, mortgage and sell property belonging to the firm etc are also ascertained from the Deed or Letter. Banks also ascertain the position of the firm on retirement or death or insolvency of any of the partners.