ABDUL SHAKOOR MUGHAL, GUJRANWALA

Question #1

Discuss how firms are setup, what are the essential elements of partnership and what are
the ways to dissolve a firm? Explain with examples.

We can set up a firm as follows

Although it is easier to set up a firm than most other forms of business, there are still a few legal criteria
that need to be satisfied in order to set up a firm. It is recommend that to set up a firm draw up a deed of
partnership firm in order to protect themselves (and the other partners) in times of un-resolvable dispute
among them or dissolution of the firm business.

Setting up a firm can be carried out by any person of over 18 years of age. There must be at least two
partners, but it is also possible for a company to be a partner in a firm business.

Partnership

According to partnership act 1932 “partnership is the relation between persons who have agreed
to share the profit of a business carried on by all or any or them acting for all”.

Features or Characteristics:
Following are the important features of partnership:
1. Agreement:
Agreement is the important feature of partnership, because a partnership cannot be
formed without agreement. Agreement may be written or oral, but for the settlement of
disputes in future it must be in writing.
2. Number of Partners:
For the formation of partnership, it is necessary that there should be at least two persons.
In ordinary business the maximum numbers of partners must not exceed than twenty and
in case of banking business not more than ten
3. Registration:
Registration of partnership is not compulsory by law but mostly firms get their
registration for the attainments of various advantages.
4. usiness:
B

The object of the partnership is to carry on any type of manufacturing or trading business.
But the business of partnership must be under the law of state.
5. Entity:
Partnership is an independent form of business from its member, so it has no separate
legal entity.
6. Profit & Loss Sharing:
The purpose of formation of partnership is to earn profit. This profit is distributed among
the partners according to their agreed ratio. In case of loss each partner will sustain loss.
7. Participation in Management:
The partnership business may conducted by all the partners or any of them on the behalf
of others. Its mean that every partner has a right to participate in the management of the
business by law

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8. Unlimited Liabilities:
The liabilities of the partners in partnership is unlimited. Its mean that in case of loss the
private properties of the partners are also liable to pay the debts or loss of the business
9. Share in Capital:
In partnership every partner contributes his share in the capital of the business, but it is
not necessary that all the partners should contribute equal amount of capital. Some person
contributes their skill and experience and become the partner of the business.
10. No Audit Requirement:
There is no audit requirement in case of partnership.
11. Dissolution of Partnership:
The life of partnership business is very limited, because the partnership is dissolved in
case of retirement, death, insane or insolvency of any partner.
DISSOLUTION OF PARTNERSHIP FIRM

According to section 39 of partnership act 1932 dissolution of partnership between all the
partners of the firm is called “Dissolution of the Firm”.

Explanation:
When one or more partners set aside from partnership due to death, retirement, insane or
insolvency, but the others continue the business in partnership, it is called dissolution of
partnership. If one partner is set aside from partnership due to death, retirement or insolvency
and the other partners do not continue the business in partnership, it is called dissolution of firm.
So its mean that dissolution of firm include dissolution of partnership.

Illustration:
Suppose X, Y and Z was partners in a firm. If X dies, insolvent or retire fro firm the “Partnership
firm” as well as “Partnership” will dissolve. But if it is decided in “Partnership Agreement” that
due to death, retirement or insolvency of partner, firm may not dissolve, then, the partnership
will dissolve but the firm carry on its business under the same name.

Modes or Ways of Dissolution of Firm:

There are five different ways of dissolution of a firm.

1. Dissolution by Agreement

If all the partners are agrees to dissolve the firm and they do a contract to dissolve it then
the firm may dissolve.
2. Compulsory Dissolution

The following are the circumstances of compulsory dissolution of partnership firm.

i. By Insolvency of Partner
If any partner declare insolvent the firm may dissolve.

ii. By Unlawful Business

If due to happening of any event the business of the firm become unlawful or
against the public interest, then the firm may dissolve.

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3. Contingent Dissolution
Contingent dissolution may be due to the following reasons:
i. Expiry of Period
If a partnership is formed for a fixed period, then the firm may dissolved by the
expiry of such fixed period.
ii. Death of Partner
A firm may be dissolve due to the death of any partner
iii. Insolvency of Partner
By the insolvency of a partner, firm may dissolve.
iv. Completion of Job
If a partnership formed for the completion of any particular job, then after the
completion of such job, firm may dissolve.
v. Retirement of a Partner
Due to retirement of any partner from partnership, the firm may dissolve.
vi. Insolvency of Partnership
Due to insolvency of partnership, the firm may dissolve.
4. Dissolution by Notice

In case of partnership at will a firm may dissolve by any partner by any partner serving a
14 days notice in writing to all the existing partner of his intention to dissolve the firm.

5. Dissolution by Court

In following circumstances the court may dissolve the partnership.

i. Breach of Agreement
If any partner willfully commits a breach of contract in matter of partnership
business, then the firm may dissolve.
ii. Continuous Loss
If the firm continuously suffers a loss and there is no expectation of profit in
future then a firm may be dissolved by the court.
iii. Transfer of Interest
The court may also dissolve the firm if any partner transfers his share or interest
to others without the consent of existing partners.
iv. Misconduct of Partner
Court may also dissolve the firm due to misconduct of any partner.
v. Incapability of Partner
Due to some reason if any partner is not capable to perform his duties, the firm
may dissolve by the court.
vi. Other Legal Grounds

The court may dissolve the firm by any other legal grounds, which he deemed
necessary.

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Question # 2

Discuss with the example how companies can be registered with the Securities and
Exchange Commission of Pakistan (SECP).

Answer:

The procedure of registration of a Private Limited Company, Single Member Company, Pubic
Limited Company in Pakistan is as follows:
The Companies Ordinance, 1984 provides three different types of companies:
 A company limited by shares
 A company limited by guarantee
 An unlimited liability company

Further, under the Companies Ordinance, 1984 two types of limited liability companies are
provided namely, a) a private limited company and b) a public limited company (which may be
listed or unlisted). Any one or more persons associated for any lawful purpose by subscribing
their name(s) to the Memorandum of Association and complying with other registration specific
requirements of the Companies Ordinance, 1984 may incorporate a private limited company.
Provided that where a company has only one subscriber to the Memorandum of Association then
such a company is called a Single Member Company, however, a Single Member Company
remains a private limited company for all intents and purposes of the Ordinance. Whereas any
three or more persons so associated may form a public limited company. A company limited by
shares whether a private company or a public company is the most common vehicle for carrying
out a business enterprise in Pakistan.

Prior approval of the relevant Ministries/Departments is required to be obtained before

incorporation of the following companies:
 A banking company
 A non-banking finance company
 A security service providing company
 A corporate brokerage house
 A money exchange company
 An Association not for profit u/s42 of the Companies Ordinance, 1984

Following are the requirements for registration of a company in Pakistan:

Step No. 1 for Registration of a Company in Pakistan

Availability of Name

The first step with regard to incorporation of a company is to seek availability of the proposed
name for the company from the Registrar. For this purpose, an application is to be made and a
fee of Rs.200 is required to be paid for seeking availability certificate.

Step No. 2 for Registration of a Company in Pakistan

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Filing of documents required for registration of a private limited company in Pakistan

The following documents are required to be filed with the registrar concerned for registration of
a private limited company in Pakistan:

 Copy of national identity card or passport, in case of foreigner, of each subscriber and
witness to the memorandum and article of association.
 Memorandum and articles of association - Four printed copies of Memorandum and
Articles of Association duly signed by each subscriber in the presence of one witness.
 Form 1 - Declaration of compliance with the pre-requisites for formation of the company.
 Registration/filing fee - A copy of the original paid Chelan in the authorized branches of
Habib Bank Limited or a Bank Draft/ Pay Order drawn in favor of the Securities and
Exchange Commission of Pakistan of the prescribed amount.
 Authorization by sponsors - The authorization of sponsors in favor of a person to make
good the deficiencies, if any, in memorandum and articles of association as may be
pointed out by the registrar concerned and to collect the certificate of incorporation

Documents required for registration of a Single Member Company in Pakistan

Any person may form a single member company and would file with the registrar at the time of
incorporation a nomination in prescribed form indicating at least two individuals to act as
nominee director and alternate nominee director, of the company in the event of his death. All
requirements for incorporation of a private limited company shall mutatis mutandis apply to a
single member company.

Question # 3

a) Highlight and briefly discuss the salient features of various kinds of contracts?
b) How do you evaluate performance of the contract between two companies?

Answer (a):

Definition of Contract
“Any agreement which is enforceable at law is called Contract”

There are various types of contracts in business law depending upon various legal transactions
like transfer of property, sale of goods, etc.

Kinds of Contracts and their brief features

Express Contracts

In this type of contract, the parties to the contract state the terms and conditions either by word of
mouth or in writing, at the time of forming the contract. A definite written or oral proposal of the
contract is accepted by an offeree in a way that explicitly defines legal consent to the terms of the
contract.

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Implied Contracts
Contracts implied in fact and contracts implied in law are both a part of implied contracts. But a
real implied contract consists of certain obligations that arise from a mutual agreement and
intention of promise, which is not expressed verbally. An implied contract cannot be labelled
as implied in law because such a contract lacks the requirements of a true contract.
Executed Contracts
An executed contract is termed as an agreement in which no other transaction is left out to be
executed by either party. This definition could be incorrect to a certain extent, since completion
of work will mean that the contract has ended. But in case of executed contracts, there exists
some act/transaction or an obligation that has to be performed at some point of time in the future
according to the contractual terms.
Void and Voidable Contracts
A void contract implies that the involved parties are not liable to any legal obligations or rights,
meaning that the parties are not legally bound with reference to that contract. In fact, a void
contract means a contract has ceased to exist and that there is no contract existing between the
two parties. 
A voidable contract, on the other hand, is an agreement between any two or more parties, that
has a legal binding. A voidable contract can be treated as never been legally bound on a party
that has been a victim of fraudulent execution or if that party was suffering from any legal
disability. Also, a contract is not void unless and until any of the involved parties, choose to treat
it as a void contract by confronting its implementation.

Answer (b):

Performance of contract
Performance of contract means that the parties fulfill, accomplish or perform their respective
obligations, failing which the defaulting party will be liable for breach of the contract and also
pay for damages to loss suffered by the other party due to the non performance of the contract.
After the performance of contract all the obligations of contracting parties comes to an end.
Timely performance of contracts
Where times is the essence of contract and time is fixed for performance of the contract then the
contract must be performed within that period of time.
So where the time is the essence of contract and the party default to perform on time the contract
is voidable on the defaulting is bound to pay damages to other party as to male good the loss, due
to non performance of the contract in time.
General Rules regarding the timely performance of the contract:
Timely performance is the essence of contract. Sec 46-50 of Contract Act prescribes the rules for
the performance of a contract when time and place has not been mentioned in the contract. These
rules are as follows:

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When time is not mentioned
According to sec 46 of the contract act” where the time for the performance of contract is not
mentioned in the contract then the promiser will perfrome the contract with in the reasonable
time.
When time is mentioned:
When time is mentioned in a contract then promisor must perform the contract on that specified
day during the working hours, and without any formal application from the part of promisee to
perform the contract.
Place of Performance:
According to sec 47 of contract act” the promisor must perform the contract at the place which is
specifically mentioned in the contract.
When no Place of Performance is mentioned:
Where place of performance is not mentioned the promisor must apply to the promisee to
appoint a place.

Question # 4

a) Discuss the various provisions related to the right of unpaid seller against the goods.
b) Explain the principal of holding out?

Answer (a):

Unpaid Seller
The seller of goods is deemed to be an unpaid seller within the meaning of the act

(a) When the whole of the price has not been paid or tendered.

(b) When a bill of exchange or other negotiable instrument has been received as conditional payment, and the
condition on which it was received has been broken by reason of the dishonor of the instrument, the
insolvency of the buyer

Rights of unpaid seller are as follows:

When the property in goods has passed to the buyer:

Subject to the provisions of this act, notwithstanding that the property in the goods may have
passed to the buyer, the unpaid seller of the goods, as such, has

(a) A lien on the goods or right to retain them for the price while he is in possession of them;

(b) In case of the insolvency of the buyer, a right of stopping the goods in transit after he has
parted with the possession of them;

(c) A right of resale as limited by this act;

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(d) A right to rescind the sale as limited by this act.

Where the property in goods has not passed to the buyer:

Where the property in goods has not passed to the buyer the unpaid seller has, in addition to his
other remedies, a right of withholding delivery similar to and coextensive with his rights of lien
and stoppage "in transit" where the property has passed to the buyer.

Answer (b):

Principal of holding out

Agency of holding out is occur owing to some prior positive act on the part of the principal. It
means that principal is bound by the act of the agent if on an earlier occasion he has given other
persons to believe that such act are done with his authority. Later on the agent can do similar acts
even with out previous permission of principal. The principal is not bound of any act done by the
agent who is beyond his authority.

Illustration
X appoints Y to purchase certain goods from the market on regular basis. After a week, there is
no need to purchase further goods, but Y acting upon earlier order continue his purchase.
Although agent Y is beyond his authority but Principal X is bound to pay the cost of order.

Question # 5

Discuss the following, taking examples of any organization:

(a) Differentiate between Guarantee Company and Unlimited Company

(b) Differentiate between Public Limited Company and Private Limited Company
(c) Debentures
(d) Annual Return

Answer (a):

Companies limited by guarantee are private limited companies where the liability of the
members is limited.   A guarantee company does not have a share capital, but has members who
are guarantors instead of shareholders.

Private firm (such as a sole proprietorship or general partnership) whose owner(s), partners, or
stockholders accept personal and unlimited liability for its debts and obligations in return for
avoiding double taxation of a limited company.

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Answer (b):

Both private limited and public limited companies are part of the private sector of the economy.
Although both the types of companies raise capital through selling shares, a private limited
company cannot quote its shares on the stock exchange while a public limited company can. A
private limited. Company can sell its shares to friends and family and reselling of shares only
takes place once all the shareholders agree. For a private limited company, the shares can be
bought or sold through the stock exchange without consulting other owners.
Also there are more legal requirements to be fulfilled for the formation of a private limited
company as compared to the formation of a private limited Company such as the issuance of a
prospectus.

Answer (c):

Debentures are Debt Instruments issued for a long term by governments and big institutions for
raising funds. The Debenture has some resemblances to bonds but the securitization terms and
conditions are different for Debentures compared to a bond.

A Debenture is commonly considered as insecure because there is no pledge or lien on particular

assets. Nevertheless, a Debenture is secured by all the assets which are otherwise not pledged

Answer (d):

The return on investment provides over a period of time, expressed as a time-weighted annual
percentage. Sources of returns can include dividends, returns of capital and capital appreciation.
The rate of annual return is measured against the initial amount of the investment.

Annual return is the de facto method for comparing the performance of investments with
liquidity, which includes stocks, bonds, funds, commodities and some types of derivatives.
Different asset classes are considered to have different strata of annual returns.

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