Q1 (a) Describe in detail Memorandum of Association and Articles of Association highlighting the

main points of difference between them.

The memorandum of association and articles of association are the two charter documents, for the
setting up of the company and its operations thereon. ‘Memorandum of Association‘ abbreviated as
MOA, is the root document of the company, which contains all the basic details about the company.
On the other hand, ‘Articles of Association‘ shortly known as AOA, is a document containing all the
rules and regulations designed by the company.

While the MOA sets out the company’s constitution, and so it is the cornerstone on which the
company is built. Conversely, AOA comprises bye-laws that govern the company’s internal affairs,
management, and conduct. Both MOA and AOA, require registration, with the registrar of
companies (ROC), when the company goes for incorporation.

BASIS FOR COMPARISON MEMORANDUM OF ASSOCIATION ARTICLES OF ASSOCIATION

Meaning Memorandum of Association is a document Articles of Association is a document
that contains all the fundamental containing all the rules and regulations
information which are required for the that governs the company.
incorporation of the company
Type of Information Powers and objects of the company. Rules of the company.
contained
Status It is subordinate to the Companies Act. It is subordinate to the memorandum.
Retrospective Effect The memorandum of association of the The articles of association can be
company cannot be amended amended retrospectively.
retrospectively.
Major contents A memorandum must contain six clauses. A memorandum must contain six clauses.

Definition of Memorandum of Association

Memorandum of Association (MOA) is the supreme public document that contains all the
information that is required for the company at the time of incorporation. It can also be said that a
company cannot be incorporated without a memorandum. At the time of registration of the
company, it needs to be registered with the ROC (Registrar of Companies). It contains the objects,
powers, and scope of the company, beyond which a company is not allowed to work, i.e. it limits the
range of activities of the company.

Memorandum of Association

Clauses of Memorandum of Association

• Name Clause – Any company cannot register with a name that CG may think unfit and also
with a name that too nearly resembles the name of any other company.
• Situation Clause – Every company must specify the name of the state in which the registered
office of the company is located.
• Object Clause – Main objects and auxiliary objects of the company.
• Liability Clause – Details regarding the liabilities of the members of the company.
• Capital Clause – The total capital of the company.
• Subscription Clause – Details of subscribers, shares taken by them, witnesses, etc.
Definition of Articles of Association

Articles of Association (AOA) is the secondary document, which defines the rules and regulations
made by the company for its administration and day-to-day management. In addition to this, the
articles contain the rights, responsibilities, powers, and duties of members and directors of the
company. It also includes information about the accounts and audits of the company.

Every company must have its own articles. However, a public company limited by shares can adopt
Table F instead of Articles of Association. It comprises all the necessary details regarding the internal
affairs and the management of the company. It is prepared for the persons inside the company, i.e.
members, employees, directors, etc. The governance of the company is done according to the rules
prescribed in it. The companies can frame their articles of association as per their requirement and
choice.

Key Differences Between Memorandum of Association and Articles of Association

The major differences between memorandum of association and articles of association are given as
under:

• A Memorandum of Association is a document that contains all the conditions which are
required for the registration of the company. Articles of Association is a document that
contains the rules and regulations for the administration of the company.
• Memorandum of Association is subsidiary to the Companies Act, whereas Articles of
Association is subsidiary to both Memorandum of Association as well as the Act.
• In any contradiction between the Memorandum and Articles regarding any clause, the
Memorandum of Association will prevail over the Articles of Association.
• Memorandum of Association contains information about the powers and objects of the
company. Conversely, Articles of Association contain information about the rules and
regulations of the company.

Conclusion

Memorandum and Articles are the two very important documents of the company, which are to be
maintained by them as they guide the company on various matters. They also help in the proper
management and functioning of the company throughout its life. That is why every company is
required to have its own memorandum and articles.

Q1 (b) What are the different types of companies and discuss in detail the process of winding-up
of a company.

What Is Winding Up?

Winding up is the process of dissolving a company. While winding up, a company ceases to do
business as usual. Its sole purpose is to sell off stock, pay off creditors, and distribute any remaining
assets to partners or shareholders. The term is used primarily in Great Britain, where it is
synonymous with liquidation, which is the process of converting assets to cash.

How Winding Up Works

Winding up a business is a legal process regulated by corporate laws as well as a company's articles
of association or partnership agreement. Winding up can be compulsory or voluntary and can apply
to publicly and privately held companies.
Compulsory Winding Up

A company can be legally forced to wind up by a court order. In such cases, the company is ordered
to appoint a liquidator to manage the sale of assets and distribution of the proceeds to creditors.

The court order is often triggered by a suit brought by the company's creditors. They are often the
first to realize that a company is insolvent because their bills have remained unpaid. In other cases,
the winding-up is the final conclusion of a bankruptcy proceeding, which can involve creditors trying
to recoup money owed by the company. In any case, a company may not have sufficient assets to
satisfy all of its debtors entirely, and the creditors will face an economic loss.

Voluntary Winding Up

A company's shareholders or partners may trigger a voluntary winding up, usually by the passage of
a resolution. If the company is insolvent, the shareholders may trigger a winding-up to avoid
bankruptcy and, in some cases, personal liability for the company's debts. Even if it is solvent, the
shareholders may feel their objectives have been met, and it is time to cease operations and
distribute company assets.

In other cases, market situations may paint a bleak outlook for the business. If the stakeholders
decide the company will face insurmountable challenges, they may call for a resolution to wind up
the business. A subsidiary also may be wound up, usually because of its diminishing prospects or its
inadequate contribution to the parent company's bottom line or profit.

Winding up is when a business liquidates and permanently ceases operations while bankruptcy can
allow a company to start again.

Winding up vs. Bankruptcy

Winding up a business is not the same as bankruptcy, though it is usually an end result of
bankruptcy. Bankruptcy is a legal proceeding that involves creditors attempting to gain access to a
company's assets so that they can be liquidated to pay off debts. Although there are various types of
bankruptcy, the proceedings can help a company emerge as a new entity that is debt-free and
usually smaller.

Conversely, once the winding-up process has begun, a company can no longer pursue business as
usual. The only action they may attempt is to complete the liquidation and distribution of its assets.
At the end of the process, the company will be dissolved and will cease to exist.

Real-World Examples of Winding Up

For example, Payless, the shoe retailer, filed for bankruptcy in April 2017, almost two years before
the business finally ceased operations. Under court supervision, the company shut down about 700
stores and repaid about $435 million in debt. Four months later, the court allowed it to emerge from
bankruptcy. It continued to operate until March 2019, when it abruptly shut down its remaining
2,500 stores and filed again for bankruptcy. In February 2019, the discount shoe store chain closed
its remaining stores, effectively beginning the winding-up process.

Q2 (a) Explain the meaning and essential elements of Indian Partnership Act 1932.
Persons who have entered into partnership with one another to carry on a business are individually
called “Partners“; collectively called as a “Partnership Firm”; and the name under which their
business is carried on is called the “Firm Name”

A partnership firm is not a separate legal entity distinct from its members. It is merely a collective
name given to the individuals composing it. Hence, unlike a company which has a separate legal
entity distinct from its members, a firm cannot possess property or employ servants, neither it can
be a debtor or a creditor. It cannot sue or be sued by others.

It is relevant to state that for the purposes of levy of taxes, a partnership firm is an entity quite
distinct from the partners composing it and is assessable separately. But for all other laws, they are
treated as the same because a partnership firm does not have a separate legal entity of its own.

Thus as per the above definition, there are 5 elements which constitute of a partnership namely:

(1) There must be a contract;

(2) between two or more persons;

(3) who agree to carry on a business;

(4) with the object of sharing profits and

(5) the business must be carried on by all or any of them acting for all.

5 Essential Elements of a Partnership Firm

All of 5 elements mentioned above must co-exist in order to constitute a partnership. If any of these
is not present, there cannot be a partnership. These 5 essential elements of a partnership firm are
explained below in detail.

1. Contract for Partnership

Partnership is the result of a contract. It does not arise from status, operation of law or inheritance.
Thus, at the time of death of the father, who was a partner in the partnership firm, the son can claim
share in the partnership property but cannot become a partner unless he enters into a contract for
the same with other persons concerned.

Similarly, the members of a HUF carrying on a family business cannot be called partners for their
relation arises not from any contract but from status. Thus, a “contract” is the very foundation of
partnership.

2. Maximum No. of Partners in a Partnership is 20

Since partnership is the result of a contract, at least two people are necessary to constitute a
partnership. The Indian Partnership Act, 1932 does not mention anything about the maximum no. of
partners in a partnership firm but as per the Companies Act, a partnership consisting of more than
10 persons for a banking business and more than 20 persons for any other business would be
considered as illegal. Hence, these should be regarded as the maximum limits to the number of
partners in a partnership firm.

3. Carrying on of Business in a Partnership

The third essential element of a partnership is that the parties must have agreed to carry on a
business. The term “business” is used in its widest sense and includes every trade, occupation or
profession. Therefore, if the purpose us to carry on some charitable work, it will not be a
partnership.

Similarly, if a number of persons agree to share the income of a certain property or to divide the
goods purchased in bulk amongst them, there is no partnership and such persons cannot be called
partners because in neither case they are carrying on a business.

Thus, where A and B jointly purchased a tea shop and incurred additional expenses for purchasing
pottery and utensils for the job, contributing the money in equal proportions and then leased out
the shop on rent which was shared equally by them , it was held that they are only co-owners and
not partners as they never carried on any business.

4. Sharing of Profits

This essential element provides that the agreement to carry on business must be with the object of
sharing profits amongst all the partners. Thus, there would be no partnership where the business is
carried on with a philanthropic motive and not for making a profit or where only one of the persons
is entitled to the whole of the profits of the business. The partners may however, agree to share the
profits in any ratio they like.

However. it must be noted that although a partner may not share in the losses of a business, yet his
liability towards the outsiders shall be unlimited. In case the partners intent to limit their liability
towards the outsiders, a new concept of partnership i.e. Limited Liability Partnerships have been
introduced in India. In a Limited Liability Partnership, the liability of the partners towards the
outiders is limited.

5. Mutual Agency in a Partnership

The fifth element in the definition of partnership provides that the business must be carried on by all
the partners or any (one or more) of them acting for them all, i.e. there must be a mutual agency.

Thus, every partner, is both an agent and principal for himself and other partners, i.e. he can bind by
his acts the other persons and can be bound by the acts of other partners. The importance of the
element of mutual agency lies in the fact that it enables every partner to carry on the business on
behalf of others.

Q2 (b) Elaborate upon rights and duties of partners.

Rights and Duties of Partners in a Partnership Firm

The mutual relations between the partners of a firm comes into existence through an agreement
between the said partners. This gives rise to mutual right and duties to every partner involved in the
firm’s business. Section 9 to 17 of the Indian Partnership Act of 1932 lays down the provisions
governing the mutual relations of all the partners. These relations are governed by an existing
contract among them which may be implied or expressed by the course of dealing. The agreement
may vary depending on the consent of all the partners. In this article, we look at the various rights
and duties fo partners in a partnership firm in detail.

Rights of a Partner

The following are the rights of a partner in a partnership firm.

Section 12(a): Right to take part in the conduct of the Business

All the partners of a partnership firm have the right to take part in the business conducted by the
firm as a partnership business is a business of the partners, and their management powers are
generally coextensive. If the management power of a particular partner is interfered with and the
individual has been wrongfully precluded from participating, the Court of Law can intervene under
such circumstances. The Court can, and will, restrain the other partner from doing so by injunction.
Other remedies are a suit for dissolution, a suit for accounts without seeking dissolution and so on
for a partner who has been wrongfully deprived of the right to participate in the management.

The previously mentioned provisions of the law will be applicable unless there is no existing contract
to the contrary among the partners. It is common to find a term in partnership agreements that
gives only a limited power of management to a specific partner or a term that the control of the
partnership will remain vested with one or more partners to the exclusion of others. In such a case,
the Court of Law would generally be unwilling to interpose with the management with such partner
(s), unless it is proven that something was done illegally or in the breach of trust among the
partners.

Section 12(c): Right to be consulted

When a difference of any sorts arises between the partners of a firm concerning the business of the
firm, it shall be decided by the views of the majority among the partners. Every partner in the firm
shall have the right to express his opinion before the decision is made. However, there can be no
changes like the business of the firm without the consent of all the partners involved. As a routine
matter, the opinion of the majority of the partners will prevail. Although, the majority rule would not
apply when there is a change like the firm itself. In such situations, the unanimous consent of the
partners is required.

Section 12(d): Right of access to books

Every partner of the firm, regardless of being an active or a sleeping partner, is entitled to have
access to any of the books of the partnership firm. The partner has the right to inspect and take a
copy of the same if required. However, this right must be exercised bonafide.

Section 13(a): Right to remuneration

No partner of the firm is entitled to receive any remuneration along with his share in the profits of
the business by the firm as a result of taking part in the business of the firm. Although, this rule may
always vary by an express agreement, or by a course of dealings, in which case the partner will be
entitled to remuneration. Thus, a partner may claim remuneration even in the absence of a contract,
when such remuneration is payable under the continued usage of the firm. In simpler words, where
it is customary to pay remuneration to a partner for conducting the business of the partnership firm,
the partner may claim it even in the absence of a contract for the payment of the same.

It is common for partners to agree that a managing partner will receive over and above his share,
salary or commission for the trouble that he will take while conducting the business of the firm.

Section 13(b): Right to share profits

Partners are entitled to share all the profits earned in the business equally. Similarly, the losses
sustained by the partnership firm is also equally contributed. The amount of a partner’s share must
be ascertained by inquiring whether there is an agreement in that behalf among the partners. If
there is no agreement, then it can be presumed that the share of profit is equal and the burden of
proving that the shares are unequal, will lie on the party alleging the same.

The is no relation between the proportion in which the partners shall share the profits and the
percentage in which they have contributed to the capital of the partnership firm.

Section 13(c): Interest on capital

If a partner subscribes interest on capital is payable to the partner under the partnership deed, then
the interest will be payable out of the profits only in such a case. In a general rule, the interest on a
capital subscribes by partners is not permitted unless there is an agreement or a usage to that
effect. The underlying principle in this provision of law is that with concern to the capital brought by
a partner in the business, the partner is not a creditor of the firm but an adventurer.