Q1. Briefly define contract & Agreement and discuss their kinds?

A Contract is a intended, premeditated, and legally enforceable (binding) agreement between two or
more competent parties that creates an obligation to do or not do particular things. The term "party" can
mean an individual person, company, or corporation. Parties who are competent to enter into a contract .
(Wikipedia)

A contract is "an agreement creating and defining the obligations between two or more parties.
(Sir John William Salmond)

An agreement is enforceable by law made between two or more persons, by which rights are acquired
by one or more to act or forbearance on the part of other. (Sir William Anson)

No matter who the parties are, contracts almost always contain the following essential elements:

A contractual relationship is evidenced by

(1) An offer
(2) Acceptance of the offer
(3) A valid (legal and valuable) consideration

For example:

Mutual agreement by all the parties; All parties have a meeting of the minds on a specific subject. Each
party either promises to perform an act that the party is not legally required to perform, or promises to
abstain from performing an act that it is legally entitled to perform.

Mentally disabled person & Minors: A mentally disabled person could not enter into a contract. Minors
can enter into contracts, but can void them in most cases before they reach majority age.

Definition according to section (2E) of Contract Act 1872: The act defines contract as “An
agreement enforceable by law is a contract”

According to Contract Act 1872 a contract consists of two elements:

I. An Agreement
II. The Agreement must be enforceable by law.

I. Agreement: A legally binding contract enforceable in a court of law. (Wiktionary)

As per section 2(e) of contract Act 1872: " Every promise and every set of promises, forming the
consideration for each other, is an agreement."

Contract Act 1872 sect 2(b) defines Promise as." When the person to whom the proposal is made
signifies his assent thereto the proposal is said to be accepted. A proposal, when accepted, becomes a
promise."

In short, an agreement is the sum total of 'offer' and 'acceptance'.

 II. Enforceability of Agreement by law:

In order to be enforceable by law an agreement must create legal obligations between the parties.
Agreements are usually governed and enforced by the laws of the state where the agreement was made.
Depending upon the subject matter of the agreement (i.e. sale of goods, property lease), a contract may be
governed by one of two types of state law. The majority of contracts (i.e. employment agreements, leases,
general business agreements) are controlled by the state's common law. All contracts are agreements but
all agreements are not contracts.

Q2. Discuss essentials of a valid contract?

The essential elements of a valid contract are as follows.

1. Offer and acceptance.

There must a 'lawful offer' and a 'lawful acceptance' of the offer, thus resulting in an
agreement. The adjective 'lawful' implies that the offer and acceptance must satisfy the
requirements of the contract act in relation thereto.

2. Intention to create legal relations.

There must be an intention among the parties that the agreement should be attached by legal
consequences and create legal obligations.
Agreements of a social or domestic nature do not contemplate legal relations, and as such they
do not give rise to a contract. An agreement to dine at a friend's house in not an agreement
intended to create legal relations and therefore is not a contract. Agreements between husband
and wife also lack the intention to create legal relationship and thus do not result in contracts.
Try to work out the solution in the following cases and then go to the answer.

3. Lawful consideration:
The third essential element of a valid contract is the presence of 'consideration'. Consideration
has been defined as the price paid by one party for the promise of the other. An agreement is
legally enforceable only when each of the parties to it gives something and gets something. The
something given or obtained is the price for the promise and is called 'consideration' subject to
certain exceptions; gratuitous promises are not enforceable at law.
The 'consideration' may be an act (doing something) or forbearance (not doing something) or a
promise to do or not to do something. It may be past, present or future. But only those
considerations are valid which are 'lawful'. The consideration is 'lawful'. unless it is forbidden by
law; or is of such a nature that, if permitted it would defeat The provisions of any law; or is
fraudulent; or involves or implies injury to the person or property of another; or is immoral; or is
opposed to public policy (sec.23).

4. Capacity of parties.
The parties to an agreement must be competent to contract. The contracting parties must be of
the age of majority and of sound mind and must not be disqualified by any law to which they are
subject (sec.11). If any of the parties to the agreement suffers from minority, insanity, absurdity,
 etc. The agreement is not enforceable at law, except in some special cases e.g., in the case of
necessaries supplied to a minor or lunatic, (sec 68).

5. Free consent.
Free consent of all the parties to an agreement is another essential element. This concept has
two aspects.
(1) Consent should be made
(2) It should be free of any pressure or misunderstanding. 'Consent' means that the parties must
have agreed upon the same thing in the same sense (sec. 14).

6. Lawful object.
For the formation of a valid contract it is also necessary that the parties to an agreement must
agree for a lawful object. The object for which the agreement has been entered into must not
be deceptive or illegal or immoral or opposed to public policy or must not imply injury to the
person or the other of the reasons mentioned above the agreement is void. (Sec. 23)

7. Writing and registration.

According to the contract Act, a contract to be valid, must be in writing and registered. For
example, it requires that an agreement to pay a time barred debt must be in writing so that it
can be easily proved in court.

8. Certainty of terms.
Agreements, the meaning of which is not certain or capable of being made certain, are void." In
order to give rise to a valid contract the terms of the agreement must not be vague or uncertain.
It must be possible to ascertain the meaning of the agreement, for otherwise, it cannot be
enforced Illustration. (Sec 29)

9. Possibility of performance.
Yet another essential feature of a valid contract is that it must be capable of performance.
Section 56 lays down that "An agreement to do an act impossible in itself is void". If the act is
impossible in itself, physically or legally, the agreement cannot be enforced at law.

10. Not expressly declared void.

The agreement must not have been expressly declared to be void under the Act. Sections 24-30
specify certain types of agreements that have been expressly declared to be void. For example,
an agreement in restraint of marriage, an agreement in restraint of trade, and an agreement by
way of wager have been expressly declared void under sections 26, 27 and 30 respectively.

Explain different kinds of contracts?

What is "breaching" a contract?

In the business world, disputes can arise over contracts, and one party (or both) may accuse the other of
breaking his or her obligations under the agreement. In legal terms, a party's failure to fulfill an end of the
bargain under a contract is known as "breaching" the contract. When a breach of contract happens (or at
least when a breach is alleged) one or both of the parties may wish to have the contract "enforced" on its
terms, or may try to recover for any financial harm caused by the alleged breach.

How are contracts enforced?

The most common method used to resolve business contract disputes and enforce contracts (if informal
resolution methods fail) is through lawsuits and the court system. If the amount at issue is below a certain
dollar figure (usually $3,000 to $7,500 depending on the state), the parties may be able to use "small
claims" court to resolve the issue.

Courts and formal lawsuits are not the only option for people and businesses involved in contract
disputes. The parties can agree to have a mediator review a contract dispute. The parties are not bound by
a mediator's decision, but may be convinced to avoid a costly court battle by how the mediator rules The
parties can also agree to binding arbitration of a contract dispute. In arbitration, a neutral party listens to
the arguments from both sides and issues a decision that is binding on the parties. This is cheaper and less
time-consuming than a court battle.

When attempting to enforce a contract, an individual or business should always consider the effect any
dispute will have on any long-term business relationship between the parties involved.

Lots of contracts are filled with mind-bending legal gibberish, but there's no reason why this has to be
true. For most contracts, legalese is not essential or even helpful. On the contrary, the agreements you'll
want to put into a written contract are best expressed in simple, everyday English.

Most contracts only need to contain two elements to be legally valid:

All parties must be in agreement (after an offer has been made by one party and accepted by the other).

Something of value must be exchanged -- such as cash, services, or goods (or a promise to exchange such
an item) -- for something else of value.

Does a contract have to be in writing? In a few situations, contracts must be in writing to be valid. State
laws often require written contracts for real estate transactions or agreements that will last for more
than one year. You'll need to check your state's laws to determine exactly which contracts must be in
writing. But even if it's not legally required, it's always a good idea to put business agreements in
writing, because oral contracts can be difficult or impossible to prove.

Let's take a closer look at the two required contract elements: agreement between the parties, and
exchange of things of value.

When Acceptance Occurs

In day-to-day business, the seemingly simple steps of offer and acceptance can become quite
convoluted. For instance, sometimes an offer isn't quickly and unequivocally accepted; the other party
may want to think about it for a while, or try to get a better deal. And before the other party accepts
your offer, you might change your mind and want to withdraw or amend it. Delaying acceptance of an
offer and revoking an offer, as well as making a counteroffer, are common situations that may lead to
confusion and conflict. To minimize the potential for a dispute, here are some general rules you should
understand and follow.

How Long an Offer Stays Open

Unless an offer includes a stated expiration date, it remains open for a "reasonable" time. What's
reasonable, of course, is open to interpretation and will vary depending on the type of business and the
particular fact situation.

To leave no room for doubt as to when the other party must make a decision, the best way to make an
offer is to include an expiration date.

If you want to accept someone else's offer, the best approach is to do it as soon as possible, while
there's no doubt that the offer is still open. Keep in mind that until you accept, the person or company
who made the offer -- called the offeror -- may revoke the offer.

Revoking an Offer

Whoever makes an offer can revoke it as long as it hasn't yet been accepted. This means that if you
make an offer and the other party wants some time to think it through, or makes a counteroffer with
changed terms, you can revoke your original offer. Once the other party accepts, however, you'll have a
binding agreement. Revocation must happen before acceptance

Contracts and the Law

A business contract is one of the most common legal transactions you will be involved in when running a
business. No matter what type of business you run, having an understanding of contract law is a key to
creating sound business agreements that will be legally enforceable in the event that a dispute arises.
Following is a discussion of the law of contracts.

"Contract" Defined

A contract is a legally enforceable agreement between two or more parties that creates an obligation to do
or not do particular things. The term "party" can mean an individual person, company, or corporation.
More on creation of a contract follows below.

At its most basic level, a contract is:

An agreement

That is legally enforceable

Creation of a Contract
In the eyes of the law, a contract arises when there is an offer, acceptance of that offer, and sufficient
"consideration" to make the contract valid:

An offer allows the person or business to whom the offer is made to reasonably expect that the offering
party is willing to be bound by the offer on the terms proposed.  The terms of an offer must be definite
and certain.

An acceptance is a clear expression of the accepting party's agreement to the terms of the offer.

Consideration is a legal term given to the bargained-for exchange between the parties to the contract --
something of some value passing from one party to the other. Each party to the contract will gain some
benefit from the agreement, and will incur some obligation in exchange for that benefit.

Types of Contracts

The law recognizes contracts that arise in a number of different ways:

A bilateral contract is the type of agreement most people think of as a traditional contract -- a mutual
exchange of promises among the parties. In a bilateral contract, each party may be considered as both
making a promise, and being the beneficiary of a promise.

A unilateral contract is one in which the offer requests performance rather than a promise from the person
accepting the offer. A unilateral contract is formed when the requested act is complete. A classic example
of a unilateral contract is a "reward" advertisement, offering payment of money in exchange for
information or the return of something of value.

An express contract is formed by explicit written or spoken language, expressing the agreement and its
terms.

An implied contract is formed by behavior of the parties that clearly shows an intent to enter into an
agreement, even if no obvious offer and/or acceptance were clearly expressed in words or writing.

Failure to Perform Under the Contract: "Breach"

When disputes arise over contracts, one party may accuse another of failing to perform under the terms of
the agreement. Under the law, a party's failure to fulfill an end of the bargain under a contract is known as
"breaching" the contract. When a breach of contract happens (or when a breach is alleged), one or both of
the parties may wish to have the contract "enforced" on its terms, or may try to recover for any financial
harm caused by the alleged breach.

Common Business Contracts

Some of the more common types of business contracts that you may enter into are included in the
following list.

Sales-related Contracts

Bill of Sale
Agreement for the Sale of Goods

Purchase Order

Warranty

Limited Warranty

Security Agreement

Employment-Related Contracts

Employment Agreement

Employee Noncompete Agreement

Independent Contractor Agreement

Consulting Agreement

Distributor Agreement

Sales Representative Agreement

Confidentiality Agreement

Reciprocal Nondisclosure Agreement

Employment Separation Agreement

Leases

Real Property Lease

Equipment Lease

General Business Contracts

Franchise Agreement

Advertising Agency Agreement

Indemnity Agreement

Covenant Not to Sue

Settlement Agreement

Release

Assignment of Contract
Stock Purchase Agreement

Partnership Agreement

Joint Venture Agreement

Agreement to Sell Business

Law of Partnership:
Definition according to Partnership Act of 1932 section 4:
"Partnership is defined as the relation between two or more persons who have agreed to share the
profits and losses according to their ratio of business run by all or any one of them acting for all"

Other Definitions:
A general partnership comprises of two or more general partners who bear joint and several
liabilities for the debts of the partnership enterprise. (partnership law china)
The relation between persons carrying on a business in common with a view of profit.
(Hong Kong Partnerships Ordinance)
A type of unincorporated business organization in which multiple individuals, called general partners,
manage the business and are equally liable for its debts. (Investor words)
Q1. Define Characteristics of Partnership?
Characteristics of Partnership are as follows
(i) Number of partners
At least two persons must joint together to form a partnership. If the business of ordinary nature
than minimum partner is 2 and maximum are 20. While in case of banking business minimum
partners are 2 and maximum number of partners is 10.
(ii) Contractual relation
A partnership is a contractual relationship arising out of an agreement among the partners. A
person does not become a partner out of his status. Since a contract is essential, persons entering
in partnership must be competent to enter into a contract. The agreement among partners may be
oral or in writing. A written agreement or deed is preferred because it helps in resolving some
disputes among partners later on.
(iii) Earning of profit
The agreement must be to share profit/loss of a business.
(iv) Mutual agency

The business of partnership may be carried on by all the partners or by any of them acting for all.
Thus every partner is an agent of other partners and at the same time of the firm. Mutual agency
allows any partner to bind the partnership to a contract as long as the act is within the scope of
the partnership's field of business.

Example:

A partnership whose business it is to build boats would be obligated to honor a contract to build
a sailboat entered into by one of the partners (even if that action exceeded the authority of that
partner) while a partnership of veterinarians would not be bound to the same contract.

(V) Duration of Partnership:

The lifetime of a partnership is limited by the lifetime of each of the partners or at the will of the
partners. So long as the original partners continue to be bound by the partnership agreement, the
partnership lives. However, once a new partner is accepted or a partner withdraws or dies, the
partnership is dissolved.

(VI) Unlimited Liability:

Another characteristic of partnerships is that of unlimited liability. All partners are personally
and collectively liable for all partnership liabilities. If the business suffers losses end the assets of
the partnership are not sufficient to meet its obligations, then the creditors may sue any one or all
of the partners to satisfy the debt. This poses a serious handicap for the individual partners with
large personal assets. He may be compelled to pay the entire debt of the partnership from his
personal assets.
(VII) Capital

Even if the business does not need a lot of assets to start or operate, you still need a lot of money
to open up a business. In general Partnership the capital is supplied by the partners. General
partnerships allow more than one individual to carry the financial burden. This is deal and makes
a business much easier to open.

(Viii) Existence of Business:

A partnership agreement must be to run a lawful business. Any understanding to run an unlawful
business will be illegal hence no partnership.
(IX) Sharing of profits:

An agreement among partners should provide for sharing of profits and losses. The profit is
distributed among the partners according to their contribution or agreement of profit sharing. A
charitable trust cannot be called partnership because there is no sharing of profits. The
employees of a business may also share profits but they are not the partners.

(X) Management

In a partnership business, every partner has a right to take part in its management. The important
business decisions are taken with the consent of all other partners

(XI) Utmost Good Faith:

The very basis of partnership business is good faith and mutual trust. Each and every partner
should act honestly and fairly in the conduct of business. A firm cannot be run if there is
suspicion among partners. Partners must have faith in each other for running the business
smoothly.

(XII) Restriction on Transfer of Interest

No partner can transfer his share to any other person inside or outside partnership without the
prior consent or willingness of all other partners.

Advantages of Partnership
 Capital – Due to the nature of the business, the partners will fund the business with start
up capital. This means that the more partners there are, the more money they can put into
the business, which will allow better flexibility and more potential for growth. It also
means more potential profit, which will be equally shared between the partners.
 Flexibility – A partnership is generally easier to form, manage and run. They are less
strictly regulated than companies, in terms of the laws governing the formation and
because the partners have the only say in the way the business is run (without interference
by shareholders) they are far more flexible in terms of management, as long as all the
partners can agree.
 Shared Responsibility – Partners can share the responsibility of the running of the
business. This will allow them to make the most of their abilities. Rather than splitting the
management and taking an equal share of each business task, they might well split the
work according to their skills. So if one partner is good with figures, they might deal with
the book keeping and accounts, while the other partner might have a flare for sales and
therefore be the main sales person for the business.
  Decision Making – Partners share the decision making and can help each other out when
they need to. More partners means more brains that can be picked for business ideas and
for the solving of problems that the business encounters.
Disadvantages of Partnership
 Disagreements – One of the most obvious disadvantages of partnership is the danger of
disagreements between the partners. Obviously people are likely to have different ideas
on how the business should be run, who should be doing what and what the best interests
of the business are. This can lead to disagreements and disputes which might not only
harm the business, but also the relationship of those involved. This is why it is always
advisable to draft a deed of partnership during the formation period to ensure that
everyone is aware of what procedures will be in place in case of disagreement and what
will happen if the partnership is dissolved.
 Agreement – Because the partnership is jointly run, it is necessary that all the partners
agree with things that are being done. This means that in some circumstances there are
less freedoms with regards to the management of the business. Especially compared to
sole traders. However, there is still more flexibility than with limited companies where
the directors must bow to the will of the members (shareholders).
 Liability – Ordinary Partnerships are subject to unlimited liability, which means that each
of the partners shares the liability and financial risks of the business. Which can be off
putting for some people. This can be countered by the formation of a limited liability
partnership, which benefits from the advantages of limited liability granted to limited
companies, while still taking advantage of the flexibility of the partnership model.
 Taxation – One of the major disadvantages of partnership, taxation laws mean that
partners must pay tax in the same way as sole traders, each submitting a Self Assessment
tax return each year. They are also required to register as self employed with HM
Revenue & Customs. The current laws mean that if the partnership (and the partners)
bring in more than a certain level, then they are subject to greater levels of personal
taxation than they would be in a limited company. This means that in most cases setting
up a limited company would be more beneficial as the taxation laws are more favorable
(see our article on the Advantages and Disadvantages of a Limited Company).
 Profit Sharing – Partners share the profits equally. This can lead to inconsistency where
one or more partners aren’t putting a fair share of effort into the running or management
of the business, but still reaping the rewards.
As you can see, there are several advantages and disadvantages of partnership in terms of a
business undertaking. The two main disadvantages are the levels of taxation and the liability. The
latter being negated by the ability to form a Limited Liability Partnership (a type of body only
available since 2000). The Company Warehouse has a Limited Liability Partnership formation
service that we have been running for a number of years, helping people set up their new
partnerships. Our specialist team have a good working knowledge of the law and the current
advantages of partnership over the other legal forms of business. So they can advise you on the
best choice for your new enterprise.
If you decide that setting up a partnership isn’t for you, don’t forget we are currently running a
limited time offer of FREE Limited Company Formation, there are many benefits of limited
companies so it is worth giving some thought before you decide. Feel free to contact a member
of our team for free on 0800 0828 727 for further guidance.

Kinds of partners:
Active Partner :
A partner who takes active part in the day to day management of the business is cared an active
partner. An active partner (also called working partner) may work in different capacities such as
manager, organizer, adviser, controller of all the affairs of the firm. The active partner is
rewarded as per agreement between the partners.
(b) Sleeping Partner
A sleeping partner is one who contributes capital, shares profits and losses of the firm but takes
no part in the day to day management of the affairs of the firm. A person, who has money to
invest but cannot spare time for the business, may become sleeping partner. A sleeping partner is
liable for the liabilities of the business like other partners.
(2) Special Partners
Special partners are partners whose liability is limited to the extent of their capital contributed in
the firm. They are only found in limited partnership. The special partners cannot take part in the
management of the business of the firm. In Pakistan limited partnership is not recognized.

(3) Other Partners

The other types of partners sometimes found in a firm are as follows.

(a) Secret Partner

A partner who takes active part in the affairs of a business but is not known to the public as a
partner is called Secret partner”. He, like other partners, is liable to the creditors of the firm to an
unlimited extent He shares profits according to the agreement signed.
(b) Nominal Partner
nominal partner lends his name for the goodwill and credit worthiness to the firm. He neither
contributes capital nor takes active part in the management of business. Such partners are called
nominal partners. Nominal partners are liable for the debts of the firm.

(c) Minor Partner

Partnership is a contract and a contract with minor is void. Under Section 30 of Partnership Act,
a minor is not able to enter into a contract and so he cannot become a partner of a firm. He can,
however be admitted to the benefits of a firm with the consent of other members and that too n a
business which is already operating. His liability remains limited to the extent of his share in the
capital. On attaining majority, he has to choose whether he has to continue as a partner or not.
What to Include in Your Partnership Agreement?
Here's a list of the major areas that most partnership agreements cover. You and your partners-to-
be should consider these issues before you put the terms in writing:
 Name of the partnership. One of the first things you must do is agree on a name for
your partnership. You can use your own last names, such as Smith & Wesson, or you can
adopt and register a fictitious business name, such as Westside Home Repairs. If you choose
a fictitious name, you must make sure that the name isn't already in use and then file a
fictitious business name statement with your county clerk. For more information, see Nolo's
article Registering Your Business Name.
 Contributions to the partnership. It's critical that you and your partners work out and
record who's going to contribute cash, property, or services to the business before it opens --
and what ownership percentage each partner will have. Disagreements over contributions
have doomed many promising businesses.
 Allocation of profits, losses, and draws. Will profits and losses be allocated in
proportion to a partner's percentage interest in the business? Will each partner be entitled to a
regular draw (a withdrawal of allocated profits from the business) or will all profits be
distributed at the end of each year? You and your partners may have different financial needs
and different ideas about how the money should be divided up and distributed, so this is an
area to which you should pay particular attention.
 Partners' authority. Without an agreement to the contrary, any partner can bind the
partnership (to a contract or debt, for example) without the consent of the other partners. If
you want one or all of the partners to obtain the others' consent before obligating the
partnership, you must make this clear in your partnership agreement.
 Partnership decision making. Although there's no magic formula or language for
making decisions among partners, you'll head off a lot of trouble if you try to work it out
beforehand. You may, for example, want to require a unanimous vote of all the partners for
every business decision. Or if that leaves you feeling fettered, you can require a unanimous
 vote for major decisions and allow individual partners to make minor decisions on their own.
In that case, your partnership agreement will have to describe what constitutes a major or
minor decision. You should carefully think through issues like these before you and your
partners have to make important decisions.
 Management duties. You might not want to make ironclad rules about every
management detail, but you'd be wise to work out some guidelines in advance. For example,
who will keep the books? Who will deal with customers? Supervise employees? Negotiate
with suppliers? Think through the management needs of your partnership and be sure you've
got everything covered.
 Admitting new partners. Eventually, you may want to expand the business and bring in
new partners. Agreeing on a procedure for admitting new partners will make your lives a lot
easier when this issue comes up.
 Withdrawal or death of a partner. At least as important as the rules for admitting new
partners to the business are the rules for handling the departure of an owner. You should set
up a reasonable buyout scheme in your partnership agreement. To learn more about this
issue, read Nolo's article Plan Ahead for Changes in Partnership Ownership.
 Resolving disputes. If you and your partners become deadlocked on an issue, do you
want to go straight to court? It might benefit everyone involved if your partnership
agreement provides for alternative dispute resolution, such as mediation or arbitration.
Are there special rules for running partnerships?

 Unlike corporations, partnerships are relatively informal business structures. Partnerships

aren't required to hold meetings, prepare minutes, elect officers, or issue stock
certificates. Generally, partners share equally in the management of the partnership and
its profits and losses, and assume equal responsibility for its debts and liabilities. These
and other details are typically described in a partnership agreement.
What is a partnership and how do I create one?

 A partnership is a business owned by two or more people that hasn't filed papers to
become a corporation or a limited liability company (LLC). You don't have to complete
any paperwork to create your partnership -- the arrangement begins as soon as you start a
business with another person.
 Although the law doesn't require it, many partners work out the details of how they will
manage their business in a written partnership agreement. If you don't create a written
agreement, the partnership laws of your state will govern your partnership.
Is a written partnership agreement required for every partnership?

 No law requires partners to create a written partnership agreement, but it's smart to do so.
If you don't make a partnership agreement, you run the risk that the default rules in your
 state's partnership laws will govern your partnership in ways you and your partners won't
like.
 Creating a written partnership agreement will also give you and your partners a chance to
discuss your expectations of each other, define how each of you will participate in the
business, and help you work out any sticky issues before they become major problems.
 You don't have to spend a fortune on lawyer's fees to create a valid agreement -- you and
your partners can easily put together a simple, clear agreement yourselves.
How are partnerships taxed?

 A partnership is not considered separate from its partners for tax purposes. Generally, this
means the partnership itself does not pay any income taxes; instead, partnership income
"passes through" the business to each partner, who then reports his or her share of
business profits or losses on an individual federal tax return. Each partner will need to
estimate the taxes he or she will owe at the end of the year and make four quarterly
estimated tax payments to the IRS. For more on reporting and paying partnership taxes,
Are owners of a partnership personally liable for business debts?
 Legally, a partnership is inseparable from its owners. As a result, each partner (with the
exception of the limited partners in a limited partnership) is personally liable for the entire
amount of any business-related obligations. This means that if you form a partnership,
creditors can come after your personal assets (such as your house or car) to make sure
any partnership debts get paid.
 In addition, you are legally bound to any business transactions made by you or any of
your partners, and you can be held personally liable for those actions. For example, if
your partner takes out an ill-advised high interest loan on behalf of the partnership, you
can be held personally responsible for the debt.
 In contrast, owners of limited liability companies (LLCs) and corporations are not
personally liable for business debts.
What happens if one partner wants to leave the partnership?

 Before you go into business together, you and your partners should decide what will
happen to the partnership when one partner retires, dies, or wants to leave the partnership
for some other reason, such as a divorce or bankruptcy. You might feel like you're being
overly cautious or pessimistic, but it almost always makes sense to include "buy-sell"
provisions in your partnership agreement to deal with these issues. It's the best way to
prevent resentments and serious problems (including messy lawsuits) from cropping up
later on.
What are the differences between a partnership and a limited liability company?
  When two or more people go into business together, they've automatically formed a
partnership; they don't need to file any formal paperwork. By contrast, to form a limited
liability company (LLC), business owners must file formal articles of organization
(sometimes called a certificate of organization) with their state's LLC filing office
(usually the secretary of state or department of corporations) and comply with other state
filing requirements.
 Aside from formation requirements, the main difference between a partnership and an
LLC is that partners are personally liable for any business debts of the partnership --
meaning that creditors of the partnership can go after the partners' personal assets -- while
members (owners) of an LLC are not personally liable for the company's debts and
liabilities.
 There is one similarity between LLCs and partnerships, however. They both offer "pass-
through" taxation, which means that the owners report business income or losses on their
individual tax returns; the partnership or LLC itself does not pay taxes.
What is the difference between a general partnership and a limited partnership?

 Usually, when you hear the term "partnership," it refers to a general partnership -- that is,
one where all partners participate to some extent in the day-to-day management of the
business. Limited partnerships are very different from general partnerships, and are
usually set up by companies that invest money in other businesses or real estate.
 While limited partnerships have at least one general partner who controls the company's
day-to-day operations and is personally liable for business debts, they also have passive
partners called limited partners. Limited partners contribute capital to the business
(investment money) but have minimal control over daily business decisions or operations.
 In return for giving up management power, a limited partner's personal liability is capped
at the amount of his or her investment. In other words, the limited partner's investment
can go toward paying off any partnership debts, but the investor's personal assets cannot
be touched -- this is called "limited liability." However, a limited partner who starts
tinkering with the management of the business can quickly lose limited liability status.
 Doing business as a limited partnership can be at least as costly and complicated as doing
business as a corporation. For instance, complex securities laws often apply to the sale of
limited partnership interests. Consult a lawyer with experience in setting up limited
partnerships if you're interested in creating this type of business.
PARTNERSHIP FORMATION / REGISTRATION
Like most countries in the world, First step for expansion for sole proprietors and sometimes the
first step for businesses is the formation of a partnership in Pakistan. Partnerships may
have small to medium sized business set-ups. Partnerships are normally formed where there is a
desire to have some structural flexibility along with some formality of relationship between
partners.
A partnership may be registered with the Registrar of Firms of an area where the office of the
firm is situated or proposed to be situated. A statement in prescribed form must be delivered to
the relevant Registrar stating:
 Name of the Partnership
 Place or principal place of business of the Partnership firm  
 Names of any other places where the partnership is carrying out its business
 Date when each partner joined the partnership
 Rights and Liabilities of Each Partner to the partnership
 Names in full and permanent addresses of the partners
 Duration of the partnership
 A complete, properly executed partnership deed/Agreement
 The aforestated statement must be signed by all the partners of the partnership for the time being
or any authorized Legal agent (Lawyer / Attorney or other) on their behalf. Furthermore, the
statement must be verified by the persons signing it. Once Registrar of Partnerships is satisfied
that the above mentioned requirements have been complied with the registrar records entry of the
statement in Register of Firms and files the statement.
If you have made your mind and thinking of forming/registering a partnership as this seems the
only plausible option, then look no further for professional advice, contact Masood and Masood
and we will do all the paper work for you.
BENEFITS FOR FORMING A PARTNERSHIP
Reduction of general costs. Business partnering can be cheaper and more flexible than a merger
or acquisition, and can be employed when a merger or acquisition is not feasible.
Business partnerships provide a competitive advantage through the co-operation (the co-opetitive
advantage) and even better opportunities of revenues, occupation and investment in the sector of
application.
Partnership takes a new approach to achieving business objectives. It replaces the traditional
customer-supplier model with a collaborative approach to achieving a shared objective; this may
be to build a hospital, improve an existing service contract or launch an entirely new programme
of work. Essentially, the Partners work together to achieve an agreed common aim whilst each
participant may still retain different reasons for achieving that common aim.
HOW MANY MEMBERS/PARTNERS ARE REQUIRED FOR PARTNERSHIP
REGISTRATION IN PAKISTAN
Any twenty or less persons desiring to carry out a lawful commercial activity or a profession
may form a partnership except in certain cases e.g. where twenty or more persons may form
partnership to undertake practice as lawyers or accountants or any other practice which cannot be
carried out as a limited liability company under the provisions of law. In all other cases where the
number of intended partners increases beyond the figure of twenty a company should be
incorporated.

Registration of a Company in Pakistan

Company Registration in Pakistan - Requirements and Procedure

Registration of a Private Limited Company, Single Member Company, Public Limited

Company in Pakistan

This brief overview explains, in very general terms, the procedure and requirements for
registration of a company in Pakistan. These brief notes are for general guidance only and
should not be taken as a substitute for thorough and professional legal advice.

Types and Forms of Companies which may be Registered in Pakistan

The following types of companies may be registered in Pakistan:

 A private limited company, which may be a single member company

 A public limited company, which may be listed or unlisted
 A foreign company

How to Register a Company?

Companies remain the most favored form of business organizations in

Pakistan especially for medium and large-scale business enterprises. Legal
regime for establishment and regulation of companies in Pakistan is given
in the Companies Ordinance, 1984. Whereas the function of administration
of these companies is vested in the Securities and Exchange Commission
of Pakistan and the Registrar of Companies appointed by the Securities
and Exchange Commission of Pakistan for a Province of Pakistan where
such company is to be registered.

Under the provisions of the Companies Ordinance, 1984 a company is a

corporate body with separate legal entity and a perpetual succession and a
company may be formed by persons associating for any lawful purpose by
subscribing their names to the Memorandum of Association and complying
with other requirements for registration of a company under the provisions
of the Ordinance.

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

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

A trade organization u/s 42 of the Companies Ordinance, 1984

Procedure for Registration of a Company in Pakistan

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

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 Challan 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

Introduction

Company is a legal entity formed by a person or association of persons for lawful business
activities registered under the Companies Ordinance, 1984 (the ‘Ordinance’). The first step
towards incorporation of a company is to seek the “availability of name” for the proposed
company from the concerned registrar of companies. Although, it sounds simple enough, but
there are certain prohibitions and restrictions, the applicant has to look into while choosing a
name for a company. In this regard, it must be ensured that the name chosen for the proposed
company is neither inappropriate, deceptive or designed to exploit or offend the religious
susceptibilities of the people, nor identical or closely resembling with the name of an existing
company. This guide is intended for those persons who are desirous of forming a company and
to help them in understanding the process of choosing an appropriate name for their company
in order to save time and efforts for registering a company.

Guidelines for selection of a name

Section 37 of the Ordinance provides that:

 The proposed name should not be inappropriate, deceptive, or designed to exploit or

offend the religious susceptibilities of the people;
 The proposed company name shall not be identical or have close resemblance. It must
be distinguishable from the names of existing companies, and any name that has
already been reserved by the Registrar for registration of a company.

Following guideline must be kept in mind to avoid applying for identical names:

A name is not distinguishable by differences in punctuation or capital words, or the presence or

absence of articles, conjunctions or prepositions as symbols or words (including “the,” “THE”,
“a,” “A”, “and,” “of,” “in”, “at”, “Al”, “New”, “Modern”).

A word in the plural form will be regarded as being identical to a word in the singular form and
vice versa. For example 'industry' and 'industries' would be regarded as being identical;

Also, names which have close phonic resemblance with the name of existing companies are
not distinguishable.

It is in the interest of promoters of a company to ensure that the name selected for their
company should portray true inculcate of their business and have difference with any other
name on the register. This will reduce the risk of confusion and the following potential
difficulties like:
Objections to the company name.
Confusion with other companies with a poor trading record.
Litigation in civil law.

Important Note Regarding Spellings of Proposed Names

It is pertinent to mention here that the application for availability of name will be considered
only if the spelling of proposed name is according to dictionary. Any deviation in dictionary
spellings will not be accepted and the name will be rejected. e.g., Imerica for America, carachi
for Karachi, etc.
Prior approval of Commission required for certain company names

There are certain words and expressions which if used in a company name may imply
business pre-eminence, a particular status or specific function. These words are generally
allowed on producing sufficient justification by the promoters so as to ensure that public may
not mislead with the name. These include names which contain any words suggesting or
calculated to suggest:

 Patronage of any past or present Pakistani or Foreign Head of State.

 Any connection with the Federal Government or Provincial Government or any

department or authority of any such Government
 .
 Any connection with any corporation setup by or under
 any Federal or Provincial law;

 Patronage of or any connection with any Foreign Government or any International

organization.

 Guideline on prohibitions of certain types of words in a company name, are given

below:

Association

This word may be included in the name of companies to be established on grant of license by
the Commission under section 42 of Ordinance or which are established as a Trade
Organization under Trade Organizations Ordinance, 2007.

Benevolent/ Foundation

These words may be included in the name of companies to be established on grant of license
by the Commission under section 42 of Ordinance.

Society

This word may be included in the name of companies if proper justification is provided

Fund

This word may be allowed in the name of company if the company will function as Non-Banking
Financial Company under the license of Specialized Companies Division of the Commission or
to public sector company on grant of license by the Commission under section 42 of the
Ordinance.

Council

This word may be included in the name of companies to be established on grant of license by
the Commission under section 42 of Ordinance. Moreover, this expression is also allowed to
Sports Association and Professional Bodies.

Chamber of Commerce

This word may be included in the name of entities which are being formed as Trade Bodies
under license under Trade Organization Ordinance, 2007, from Director General Trade
Organization, Ministry of Commerce Government of Pakistan.

Authority/ Register/ Registered/ Co-operative/ Bureau/Division

These words are not allowed

Trust

This word may be included in the name of REITs to be established on grant of license by the
Specialized Companies Division of the Commission.

Assurance/ Assurer/ Insurance/ Insurer/ Re-Assurance/Re-Assurer/ Re-Insurance/ Re-

Insurer

These words may be included in the name of companies involved in Insurance, Assurance, Re-
insurance and Reassurance business. Prior permission of Insurance Division of the
Commission would be required at the time of Incorporation.

Board

This word may be included in the name of companies desirous to engage in the business of
Paper &/or Board or to public sector companies.

Bahria/ Askari/ Fouji/ Fazaiya/ Cadet

This word may be included in the name of companies to be established by the relevant agency.

Banks/Banking Company

These words may be included in the name of companies on the basis of permission from State
Bank of Pakistan under section 8 of the Banking Companies Ordinance, 1962 and section 5(1)
of Microfinance Institutions Ordinance, 2001.

Charter/Chartered

These words may be included in the name of companies having charter from the sovereign
authority of the Federation and the Province.
Exchange/Bourse

These words are only allowed in the name of Stock Exchange, Commodity Exchange and
Exchange Companies subject to NOC from relevant authority.

Familiar Trade Names

These words may be included in the name of companies only if NOC of familiar trade name
user is provided or proper documentary evidence of ownership/use of trade name is furnished
by the applicant.

Famous/ Distinct Personalities

These words may be included in the name of companies if proper justification and approval of
relevant authority is provided.

Federation

This word may be included in the name of Sports Federations licensed under section 42 of
Ordinance or trade bodies under Trade Organizations Ordinance, 2007.

Federal

This word is allowed in the name of company with the approval of the Commission, if the
proposed company has a connection or any patronage with Federal Government.

Group

This word may be included in the name of companies if use of this word implies several
companies under single corporate ownership and applicants have to provide evidence of 10
subsidiary/associate relationship with two or more other Pakistani Companies.

Holding

This word may be included in the name of company which establishes that it qualifies to be a
holding company as defined in Section 3 of the Ordinance i.e. the company has object clause
showing its intention to act as holding company after incorporation.

Institution

This word may be included in the name of the public sector companies

Investment

This word may be included in the name of Non-Banking Finance Companies, REITs and
brokerage houses or any public sector financial institution or investment company.

Investment Finance, Investment Advisory, Leasing, Asset Management, Housing

Finance
This word may be included in the name of Non-Banking Finance Companies.

Name of Company containing country name or nationality other than Pakistan

These names are not allowed unless sufficient justification is provided.

Name of Company containing name of two countries i.e. Pakistan/Pak and any other
foreign company

These words may be included in the name of companies where documentary evidence is
provided in support of the fact that the company is a Joint Venture of two Governments or
companies of two countries.
UNO, World BANK, IMF, Red Cross, Red Crescent

These words are not allowed

Name Search Facility on web-site

For the facilitation of general public and promoters desirous of forming a company, the
Commission has provided a name search facility on eServices portal at

https://eservices.secp.gov.pk/eServices/NameSearch.jsp.

Any person can check the availability of a proposed company name i.e., whether the company
name is available for registration or otherwise by simply searching the desired name through
the facility, before actually applying for a company name.

Application Procedure and Fee

There are two methods for the submission of application for

seeking confirmation of availability of name:-

1. THROUGH ELECTRONIC MODE/ ONLINE:

eServices by Securities and Exchange Commission of Pakistan (the Commission) has enabled
the promoters of a company to seek company name availability online, using the eServices
Portal, without visiting the Company Registration Office (CRO). Application fee for the
availability of name through online is Rs. 200/- only, cheaper than through offline, which is
Rs.500/-.

For this purpose, an applicant has to follow certain steps in order to reserve a desired name for
the proposed company.

The steps are;

Log on to eServices:

The client will connect to, https://eservices.secp.gov.pk/eServices, for signup. Click on

button to open the Form. Fill in the required information and click on sign up
the Form. User will receive an e-mail containing the user activation link. By clicking on the link,
user account will be activated.
Enter Information

A successful logon to eServices by entering user ID and password, and clicking login button,
will make available Company Name Reservation process. User will click on the Company
Name Reservation process. An input page is displayed, wherein the information will be entered
by the user. After clicking the ‘Continue’ button, the process document listing page is displayed,
containing the following links:

a. Update Form(s) Data:

Click link if you want to update the data.

b. View Company Name Reservation Form:

Click link and view the automatically filled eForm based on your input.

c. Fill New Attachment Form:

Click link and an attachment form window will be displayed. Attach document, if any, and click
Save Form Button. Please

d. Fill New Bank Challan Form:

Click link and auto filled bank challan will be displayed. Click Print Form Button. Four copies
will automatically be printed as original copy, bank copy, SECP copy and depositor copy. After
printing, Click Save Form Button. The fee shall be deposited in the Bank branch selected by
the applicant from the designated branches of MCB Bank Limited. The bank shall retain the
SECP and bank copies and return remaining two copies (original and depositor copy) to the
depositor
.
Submit the process:

After saving the Bank Challan, Process document listing page will be displayed. Click on Start
Process link. All the documents will be automatically submitted to the SECP. The 15 process of
the SECP will be initiated as soon as the SECP receives the verification of deposit of fee from
the Bank.

2. MANUAL SUBMISSION OF APPLICATION

For this purpose, application can be made on a plain paper addressed to the registrar
concerned.

The application fee for the availability of name is Rs. 500/- for each proposed name. The fee
can be paid in the designated branches of MCB Bank Limited through Challan Form which is
available “Free of Cost” at the “Facilitation Counters” of the CROs and branches of MCB Bank
Limited.

On acceptance of application (for a company’s name reservation), the name is reserved for a
period of 90 days, further extendable up to the same period on receipt of fresh application.
Confirmation of availability or non-availability of name is instantly sent on the e-mail address (if
provided by the company). Simultaneously, letter is also dispatched on the postal address.
Application against refusal of a name

If application for the availability of a proposed company name is refused by the concerned
registrar for any reason and the applicant feel aggrieved by his decision, he can file an
application for review of the said decision with the Registration Department.

The application for review must be supported by reasons for review of the decision and should
be accompanied by the following documents:

 Deposited bank Challan for application fee of Rs. 500/-

 Copy of decision letter by concerned Registrar.
 Affidavit.

Company Registration Office,

3rd & 4th Floors, Associated House, 7-Egerton Road, Lahore.

Phone: 042- 9200274, Fax 042-9202044

Email: [email protected]

Relevant laws of Pakistan for registration of a company in Pakistan:

 Companies Ordinance, 1984

 Companies (General Provisions and Forms) Rules, 1985
 Single Member Companies Rules, 2003

References:

http://www.investorwords.com

www.articlesbase.com

en.wiktionary.org