Question

In: Finance

   Nana Yaa Dauda resigned from her well paid Facilities Manager job to explore starting her...

   Nana Yaa Dauda resigned from her well paid Facilities Manager job to explore starting her own business. She invited you and 20 other colleagues who all agreed to be part of the partnership to form a general partnership to specialise in events management.

                    i.            Explain one possible legal hurdle with the formation of the partnership.

                  ii.            Suggest and explain one other alternative business module that could be considered.

                iii.            Explain to Nana Yaa Dauda two advantages of the alternative module that you suggested over Partnership.

Solutions

Expert Solution

1.

The formation of a partnership requires a voluntary "association" of persons who "coown" the business and intend to conduct the business for profit. Persons can form a partnership by written or oral agreement, and a partnership agreement often governs the partners' relations to each other and to the partnership.

The Partnership Firm is to be registered with the Registrar of Firm (RoF) having jurisdiction over the Place of Business of the Firm. The registration of Partnership firm involves payment of Government fees to Registrar, varied from state to state according to the State Law.

There are many legal formalities should follow while forming the partnership like -

  • Preparation and Execution of Partnership Deed:

The Partnership Deed shall contain the covenants such as the name and business place of the firm, business activities to be carried on, the contribution and profit sharing ratio of the Partners or any other conditions required.

  • Payment of Stamp Duty and Notary:

The Partnership Deed prepared shall be executed by the payment of stamp duty as applicable in accordance with the respective state law. One may either opt for execution on non-judicial paper or franking i.e. payment of stamp duty from banking channel. Subsequently the deed shall be notarised after providing the signature of all partners along with witnesses to agreement.

  • Registration of Partnership Firm with RoF:

The registration of Partnership Firm is voluntary, however is preferable by the businessmen. The registration procedure prescribed by the respective Government shall be followed with payment of requisite Government Fees and submitting the documents required.

2.

Alternative business module that can be considered is create a company

3. Benefits of Creating a company -

  1. There is limited liability;
  2. The corporation has unlimited life;
  3. Ownership is easily transferred; and
  4. It may be possible to raise large amounts of capital.

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