15-12-2012, 06:07 PM
LEGAL ASPECTS OF ADVANCES
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INDIVIDUALS
As per Section 11 of the Indian Contract Act, 1872, every person is competent to contract who is of the age of majority according to the law to which he is subject, and is of sound mind and not disqualified from contracting by any law to which he is subject.
A person competent to contract can become party to a Negotiable Instrument (NI).
His capacity to incur liability on a NI is co-extensive with his capacity to contract.
While dealing with Individuals, the following 3 important points to be kept in mind:
He should not be a Minor.
He should be of sound mind.
He should not be declared an Insolvent.
Any contract with a Minor is void ab-initio.
A Minor can be taken only for profits of the Firm and not for Losses.
PARTNERSHIP FIRMS
In case of Partnership Firms, the following important factors have to be kept in mind:
Partnership Deed need not be registered as per Law (Partnership Act / Registration Act).
However, we should insist on registration of the Partnership Deed.
Registration should be done with the Registrar of Partnership Firms.
There should be sharing of both profits and losses in the Partnership Deed.
It is essential and mandatory as per Law that a retiring partner gives a public notice at the time of retirement, failing which, he and his estate shall always be liable for acts of the Firm even after his retirement.
Death needs no notice – This is the only exception to the rule requiring issue of a public notice.
Death itself is taken as public notice.
COMPANIES
In case of Public Limited Company, Certificate of Commencement of Business is to be obtained within 6 months.
In case of Private Limited Company, in lieu of Prospectus, a statement on behalf of Prospectus is to be filed.
Company is an artificial person, but a legal persona. It has a different legal entity, different from its BoD, different from its shareholders and different from the promoters.
Obtain Certificate of Incorporation.
In MoA, also look for Objects Clause under:
a) Main Objects b) Ancillary / Other Objects
Whether the project to be financed falls under the Object Clause.
Articles of Association : Board of Directors (BoD) run the Company & they are the mind of the Co, while the MoA is the body of the Company. It details what documents are to be taken and who will execute them, borrowing powers, resolutions to be passed, etc.