WHAT IS A FIRM?
FIRM
The firm is a constituent element of an industry. Firms of different sizes , location, ownership, efficiency constitute an industry. The immediate environment of a firm is limited to the industry to which it belongs.
Firms come under organization and falls in to the sub-classification Non-corporate enterprise. The non corporate Enterprise is divided in to
1) Partnership firm and
2) Joint Hindu family Firm
Definition:
According to section 4 of the Indian partnership Act 1932 “ Partnership is the relation between persons who have agreed to share the profits of a business carried on by all or any one of them acting for all “
Essential Characteristics of Partnership Firm
1.Agreement : Partnership is the result of an agreement between 2 or more persons. It may be oral or write. It must satisfy all the requirements of a valid contract.
2.Bussiness : The ultimate aim of the agreement is to do lawful business or profession. An illegal activity is not treated as partnership
3.Profit motive : The very objective of bussiness is to earn profit and agreement should be for sharing profit and losses incurred in bussiness.A charitable or educational institution may not be classified as partnership as it involves no profit sharing.
4.Management: Each partner in the firm has right to take active part in management of the affairs of bussiness.
5.Implied Agency :Since the act of one partner binds the other partners and also the firm , every partner is an implied agent of other partners of the firm.
6.Unlimited liability: Each partner in the firm is liable for debts and obligations. If the property of firm is not enough to meet the claims of creditors , the private property of the partners can be attached to satisfy their claims.
7.Utmost Good faith : The succesful functioing of bussiness enterprise depends on basis of partnership , mutual trust and confidence between the partners.
Merits of Partnership
1.Ease of formation
2.Large financial rsource
3.Flexibility of operations.
4.Division of labour
5.Prompt decision making
6.Balanced Approach
7.Easy Borrowing
8. Easy dissolution.
9.Tax Advantage.
Kinds of Partners
1.Working or Active partners
2.Sleeping partner
3.Nominal Partner
4.Partner by Estoppel
5.Limited partner
6.Secret Partner
7.Sub-partner
8.Partner by Holding out
9.Minor partners.
Joint Hindu Family Firm
A joint family firm is a form of organization peculiar to India. The joint Family firm is owned by the members of a Hindu undivided family who are called co-parceners. Under
Hindu law a business is a separate inheritable asset. After the death of a hindu , his heirs are entitled to the bussiness like any other property.
Hindu law of inheritance are of 2 types:
1) The Dayabhaga system ( prevails in W.Bengal,Assam etc)
2) The Mitakshara system ( All parts of India Except W.B & Assam)
Merits of Joint Hindu Family Firm
1) Continuity : It enjoys stability in existence
2) Assured shares to all members
3) Training to young members
4) Unrestricted membership
5) Unity in management
6) Division of labor
7) Limited liability
8) Better credit
Demerits of Joint Hindu family Firm
1) Limited capital
2) Lack of incentives
3) Lack of stability
4) Misuse of powers.
The firm is a constituent element of an industry. Firms of different sizes , location, ownership, efficiency constitute an industry. The immediate environment of a firm is limited to the industry to which it belongs.
Firms come under organization and falls in to the sub-classification Non-corporate enterprise. The non corporate Enterprise is divided in to
1) Partnership firm and
2) Joint Hindu family Firm
Definition:
According to section 4 of the Indian partnership Act 1932 “ Partnership is the relation between persons who have agreed to share the profits of a business carried on by all or any one of them acting for all “
Essential Characteristics of Partnership Firm
1.Agreement : Partnership is the result of an agreement between 2 or more persons. It may be oral or write. It must satisfy all the requirements of a valid contract.
2.Bussiness : The ultimate aim of the agreement is to do lawful business or profession. An illegal activity is not treated as partnership
3.Profit motive : The very objective of bussiness is to earn profit and agreement should be for sharing profit and losses incurred in bussiness.A charitable or educational institution may not be classified as partnership as it involves no profit sharing.
4.Management: Each partner in the firm has right to take active part in management of the affairs of bussiness.
5.Implied Agency :Since the act of one partner binds the other partners and also the firm , every partner is an implied agent of other partners of the firm.
6.Unlimited liability: Each partner in the firm is liable for debts and obligations. If the property of firm is not enough to meet the claims of creditors , the private property of the partners can be attached to satisfy their claims.
7.Utmost Good faith : The succesful functioing of bussiness enterprise depends on basis of partnership , mutual trust and confidence between the partners.
Merits of Partnership
1.Ease of formation
2.Large financial rsource
3.Flexibility of operations.
4.Division of labour
5.Prompt decision making
6.Balanced Approach
7.Easy Borrowing
8. Easy dissolution.
9.Tax Advantage.
Kinds of Partners
1.Working or Active partners
2.Sleeping partner
3.Nominal Partner
4.Partner by Estoppel
5.Limited partner
6.Secret Partner
7.Sub-partner
8.Partner by Holding out
9.Minor partners.
Joint Hindu Family Firm
A joint family firm is a form of organization peculiar to India. The joint Family firm is owned by the members of a Hindu undivided family who are called co-parceners. Under
Hindu law a business is a separate inheritable asset. After the death of a hindu , his heirs are entitled to the bussiness like any other property.
Hindu law of inheritance are of 2 types:
1) The Dayabhaga system ( prevails in W.Bengal,Assam etc)
2) The Mitakshara system ( All parts of India Except W.B & Assam)
Merits of Joint Hindu Family Firm
1) Continuity : It enjoys stability in existence
2) Assured shares to all members
3) Training to young members
4) Unrestricted membership
5) Unity in management
6) Division of labor
7) Limited liability
8) Better credit
Demerits of Joint Hindu family Firm
1) Limited capital
2) Lack of incentives
3) Lack of stability
4) Misuse of powers.
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