Commerce

A contract is an agreement between two or more persons to do or not to do some particular thing, such agreement being enforceable at law. According to section 2 (h) 1872 contract act, It is an agreement enforceable by law

Therefore, is an agreement the object of which is to create an obligation. In other words, It is a combination of two ideas- Agreement and obligation.

Contract = Agreement + Obligation

An agreement creating and defining obligation between the parties

SALMOND

“An agreement as the source of a legal commitment import that one party shall be bound to some performance, which the other shall have a legal right to enforce”.

LEAK

“This undertaking is an agreement enforceable at law made between two or more persons by which rights are acquired by one or more to act or forbearance on the part of the other or others”.

ANSON

Example

If there is an agreement between X and Y, that X will construct a house for Y, and Y will pay rupees 5 Laces to X, the agreement contracts.

The term agreement is wider than the term “Contract”. An agreement may exist without any legal obligation and it covers a variety of transactions that may not be enforceable by law.

All contracts are, therefore, agreements, but all agreements are not necessarily contracts. An agreement can be a contract only when it is enforceable by law.

Difference Between Void & Voidable Contract

Examples

If A delivers goods to B under a mistaken belief that B is C and B sells these goods to D, who is a bonafide purchaser, for value without notice, A can recover the goods from D because D purchased the goods from a man who had himself no title under a void contract.

If however, B obtains the goods from A by a fraudulent or misrepresentation and then sells them to D, a bonafide purchaser, A cannot recover the goods from D until A has avoided the contract with B.

Essentials of Valid Contract

Agreement

There should be an agreement between the two parties i.e. purposer and the acceptor. One makes the proposal and others accept it. The proposal and acceptance must be made in accordance with the rules contained in the contract Act.

Example

X Offers to sell his house to Y for Rs.7 laces Y accepts the offer to purchase the house for Rs.7 laces. This is an acceptance by which agreement may be made between the proposer and acceptor

Creation of Legal Relationship

The intention of the agreement must be to create legal relations between the proposer and the acceptor. The agreement must be capable of performing with terms clear and certain.

Example

X offers to sell his car to Y for Rs.3 laces and Y is ready to purchase it at Rs. 3 laces. There is a contract as it creates a legal relationship between X and Y.

Competent to Contract

Every person is not competent to enter into a binding contract. Under section II, the persons who are not competent to contract are those (i) who have attained the age of majority according to the law by which they are governed. (ii) Who are of sound mind, and (iii) who are not disqualified by any law to which they are subject. Minor has no capacity to contract so his agreement is void. He is not liable to perform what he has promised to do under an agreement.

Free Consent

For the validity of an agreement, it is essential that it must have been made with the free consent of the parties. Under Section 13, two or more persons are said to consent when they agree upon the same thing in the same sense. It is when there is consent that the parties are said to be of the same mind. When one party has a different thing in mind or when each understands the thing in a different way, there is no consent by the promise.

Under section 14, consent is said to be free when it is not caused by (1) Coercion (2) Undue influence (3) Fraud (4) Misrepresentation, or (5) mistake as defined in relevant sections. It is an important essential for the validity of a contract. Where there is consent, but not free consent, there is generally a contract voidable at the option of the party whose consent was not free.

Consideration

Consideration is indispensable for every contract. An agreement is invalid if it has been concluded without any consideration. It is an act i.e. past, present, or future done or to be done at the request of the promisor, by the promise, or any other person. For the validity of an agreement, the consideration must be lawful

Example

X agrees to sell his car to Y for Rs.5 laces. Here X’s promise to sell his car is for Y’s consideration to pay Rs.5 laces. Similarly, Y’s promise to pay Rs.5 laces is for X’s consideration to sell his car to Y

Capability of Performance

The contract must be made for definite, certain, and capable performance terms. An agreement, the meaning of which is not certain and clear or capable of being made certain is void.

Example

• X agrees to sell Y a hundred tons of oil. There is nothing to show what kind of oil was intended to sell. The agreement is void of uncertainty
• X agrees to sell to Y five hundred tons of rice at a price to be fixed by Z. There is no uncertainty to void because the price is capable to stay certain.

Not Expressly Declared Void

In order to make a valid contract, an agreement must not be one of those that are expressly declared by law to be void. The agreement that is expressly declared to be void is as follows:

1. Agreements in restraint of Marriage.
2. Agreement in restraint of trade.
3. Agreements by way of a wager.
4. Agreement to do impossible acts.
5. Agreements in restraint of legal proceedings.

Legal Relationship

An agreement is a contract only when it is made with a lawful object. Under section 23, “Every agreement of which the object or consideration is unlawful is void.”

Example

X, Y, and Z enter into an agreement for the division among them of gains acquired, or to be acquired, by them by fraud, the agreement is void as its object is unlawful

Other Legal Requirements

The agreement must be in writing, attested by the witness, and registered. If so required by any provision of law in force in our country. Some agreements such as:

1. Agreements to the transfer of immovable property
2. Agreement to pay a time-barred debt
3. An agreement to refer disputes to an arbitrator for arbitration is such an agreement that must be reduced to writing and registered before they can be legally enforced.

Lisa C. Townes

Lisa is a passionate travelers. She spends 3 months every year visiting different places worldwide. She has visited almost every famous place in the world. She herself is an affiliate blogger

Holding Company and Trust are two main types of limited partnership and joint stock company. The major differences in both are their structures as well as few other things.

Holding Company: is a company which actually holds shares of other producers and services providers. These companies are not producing goods and services by themselves but they earn a profit this way. Advantages and Disadvantages of holding companies must be considered before setting up.

Trust Company: is a type which administrate things in any company on their behalf. They are not owners – they are just Legally authorized bodies or trustees. Trustor (The owner) gives rights to trustee (Trust company) to invest, estimate, manage and hold things on third party behalf; also known as beneficiary.

Formation

• Its process for formation is very complicated. Consent of the proposed members is necessary for its formation
• A holding company may be formed easily without the consent of its subsidiaries

Management

• It is managed and supervised by the Board of Trustees
• Board of Directors is liable to manage the holding company and its subsidiaries

Objective

• It is formed to create a monopolistic situation in the market. Therefore its objects are illegal and regarded against the welfare of the public
• Its objects are legal. Therefore its activities are not considered against the public interest

Right of Issue

• Trust can issue a trusted certificate to its member’s companies. It has no right to issue any kind of shares certificate
• Holding company can issue the share certificate to its members. It cannot issue trust certificates

Position

• It is a strong form of combination. A member company cannot easily come out of the trust
• It is a comparatively loose form of combination. The holding company can easily give up control of its subsidiaries

Centralized Control

• In the trust, the member companies surrender their shares to the Board of Trustees. Thus they secure the centralized control and become the “Beneficiaries” of the trust agreement. It has pros and cons too.
• Majority of the shares of limited company must be secured by holding company in order to obtain centralized control

Lisa C. Townes

Lisa is a passionate travelers. She spends 3 months every year visiting different places worldwide. She has visited almost every famous place in the world. She herself is an affiliate blogger

The business combination is formed when two or more business undertaking units combine to carry on business together for achieving economic benefits.

It is also originated when a number of different business concerns of the same line combine together under one management with a view to achieving some definite objects of mutual benefits.

At present we find a general tendency to form a cartel, trust, holding companies, pool, and amalgamation, etc at home or abroad for the object of increasing capital volume, specialization, and standardization. Rival firms combine together in order to avoid the heavy cost of the competition.

Forms of Business Combinations

At present we find a general tendency to form a cartel, trust, holding companies, pool, and amalgamation, etc at home or abroad for the object of increasing capital volume, specialization, and standardization. Rival firms combine together in order to avoid the heavy cost of the competition.

These business combination forms have different types; entirely depend upon missions, agreements, benefits of both parties.

Trade Association

It is a voluntary association of traders, merchants, and industrialists who belong to a particular place and who engage in similar nature of business. It is formed for the achievement of common purposes.

For example, Cloth Merchants Association, Leader Traders Association, Iron Merchants Association. A common fund is established in which each member contributes for the protection of their interest.

Objective of Trade Associations

• To Encourage the friendly relation among the members.
• To avoid the competition among the members.
• To promote the interest and welfare of its members.
• To arrange the supply of raw material and labours.

Chamber of Commerce

It is an association of various merchants, industrialists, and businessmen who belong to a particular city or district. It is formed to promote trade, commerce, and industrial activities in the country. Its management is conducted by an elected executive committee.

The government has also the right to appoint some members. Its recommendations are considered very useful in formulating budgets and other trade and commercial policies. These chambers remain in close touch with the Ministry of Commerce.

Objectives of Chamber of Commerce

• To protect the interest of its members.
• To promote the business activities in the country.
• To remove or minimize the effect of trade restrictions.
• To collect the information relating to trade, commerce, industry and shipping.
• To settle the disputes arising among the members inside or outside the business.

Pool

A pool is a device to regulate production, divide the territory of the market, and distribute the profit of its members. Under this system, members do not lose their entity so it is deemed a stable form of combination.

Objectives of Pool

• To avoid competition among its members.
• To regulate the supply of production.
• To control the prices of product.
• To avoid over production.
• To minimize the expenditure on distribution.
• To earn handsome profit of their goods.

Cartel

It is an association .of independent producers and businessmen to design certain arrangements for jointly conducting their marketing functions. A joint selling agency is to be organized for performing marketing functions.

All the participating members agree with the cartel to dispose of their entire product to it. Then the cartel arranges to supply the goods to the market. It is a loose type of combination where the member units enjoy full independence. So they can easily come out of the cartel at any time.

The form of the combination was first introduced in Germany.

Objectives of Cartel

• To achieve economy of large scale distribution.
• To eliminate unnecessary competition.
• To limit the supplies of their product.
• To improve the quality of the product and condition of sale.
• To control the price of their products.

Rings

This is an organization of producers who combine to restrict the output they produce for the purpose of securing some monetary gain. All the members agree with the ring that they would not produce the goods in excess of the quota fixed for them. Defaulters are to be fined by the rings. It is usually organized to exploit the consumers.

Objectives of Rings

• To avoid over production.
• To control the supply of the product.
• To secure monetary gain by controlling price.

Trust

Trust is another kind in which the stockholders transfer a majority of their stock or shares to a Board of Trustees in exchange for trust. certificates This is the combination of several joint-stock companies which is managed by the Board of Trustees who control the shares of stock of its members.

Trust is formed to control the production and distribution. As it enjoys a sound financial position it can achieve the benefits of large-scale production. This is a strong vertical type of combination. Its members cannot easily come out of the trust.

Trust originated in the U.S.A in 1879 but due to its harmful activities for the public, it was declared illegal by the court in 1890.

Objectives of Trust

• To increase capital volume for large scale production.
• To enjoy the benefits of large scale organization.
• To achieve the economies in production and distribution.
• To control the market.
• To regulate the prices and output.

Corner

This is the combination of speculators which is generally organized in the share market. Under this system, entire goods or shares available on the particular market are purchased by the corner with the object of reducing the supply to the minimum.

Thus its members are in a position to achieve monetary gain by affecting prices. But in the modem age, this device cannot be successful due to fast means of transport and communications.

Objectives of Corner

• To establish a temporary monopoly of the market.
• To charge high prices of their goods.
• To control the supply of the particular commodity.

Informal Agreement

This is the form of mutual understanding or agreements among the competing business with the object of controlling the prices of the product and regulating the market. This is the simplest and loose form of combination which is generally based on oral agreement among the rival units.

A member can be expelled from the combination if he fails to abide by any rules and regulations but it may also come to an end if the members are violating rules. This is also known as Gentlemen’s, Agreement.

Objectives of Informal Agreement

• To avoid unnecessary competition among the constituent units.
• To control the prices of the product.
• To improve the condition of the scale.
• To restrict output of the competing members.
• To reduce the cost of marketing the product.

Syndicate

This is the organization of producers and manufacturers who combine to regulate the product and price. This is a loose type of combination in which member units have complete independence in the matter of internal administration of their own units.

It can be formed at a local, national and international level. The following procedure is to be adopted by the syndicate.

• Its members cannot dispose of their product directly in the market, but entire output of its members are purchased by syndicate at agreed prices.
• Syndicate arranges to sell the product of its members in the market at reasonable prices.
• The profit earned by the syndicate is distributed among the members in agreed producers.

Objectives of Syndicate

• To avoid competition among the producers.
• To regulate the output and prices of the product.
• To locate reasonable market for the products of its constituent units.
• To dispose of the output at handsome prices.

Holding Company

A holding company is a device to control the majority of other company’s shares. Under this system, any company may become holding if a sufficient number of shares are purchased by it.

The company whose shares are owned by the holding company is named a subsidiary company. A company may itself be a holding company and at the same time be a subsidiary to another company.

Objectives of Holding Company

• To eliminate competition.
• To obtain the benefit of large scale production.
• To achieve economy in the field of management and production.
• To increase the efficiency of business by modern technique.
• To control market and to avoid over production.
• To enjoy the research results and patent rights of each other.
• To increase the financial stability of the subsidiary company before the general public.

Amalgamation

When two or more joint-stock companies which are already established combine into large one amalgamation comes into existence. New combination companies generally take over all the assets and obligations of the old companies.

Each company of the amalgamation lost its separate entity. For example, if X company and Y company combined together under the new name of X and Y company it is called amalgamation.

Objectives of Amalgamation

• To achieve the economies of large scale production.
• To increase the financial resources.
• To attain the benefit of technical and scientific development.

Merger

When a joint-stock company takes over the entire ownership of one or more than one business unit. It is known as a merger. So two or more firms absorb into one in exchange for stock and shares. In case of a merger, each firm loses ~ its separate entity. For instance, if y company merges with the A company, y company will lose its identity.

Objectives of Merger

• To eliminate competition.
• To secure benefit of large scale production.
• To control market.
• To achieve the economies in management, production and distribution.
• To hire the services of expert and efficient persons.
• To enjoy taxes and other exemption facilities.
• To increase the efficiency of business by adopting technique, improved formula and scientific invention.

Types of Business Combination

Vertical Business Combination

The vertical combination takes place when the various departments of large industrial units combine together under single management. Under this arrangement, constituent units link up all the stages of production i.e. from purchasing raw material to its finishing.

Objectives of Vertical Business Combination

• To regular the supply of raw material
• To achieve economy in the purchasing and other sectors.
• To locate the assured market for their products
• To minimize the cost per unit.
• To eliminate competition.
• To avoid over production.
• To reduce the middle man’s commission.
• To supervise the management and production of effectively.

Horizontal Business Combination

When two or more similar nature business units combine under one management Horizontal combination comes into form. For instance, two or more textile industrial undertakings unite under single management it is called a horizontal combination. It is also known as a parallel combination

Objectives of Horizontal Business Combination

• To achieve benefits of large scale production.
• To avoid competition.
• To obtain economy in management and production.
• To regulate the prices of product.
• To hire the service of outstanding talented persons.
• To increase the efficiency of constituent units.
• To produce the goods at minimum cost.
• To supply the goods at possible lowest prices.
• To secure the market of the product.
• To introduce the improved method of production.
• To avoid over production.

Circular Business Combination

When different natures of industrial business units combine into a single large company under one managing authority it is called a circular combination. It is also named a lateral combination.

For example, if sugar; chemical, and glass industries are combined together under one controlling authority, a circular combination takes place.

Objectives of Circular Business Combination

• To establish the cordial relation among the constituent units.
• To supervise the production and management most effectively.
• To promote the cooperation in financing advertising, research and other overheads.

Diagonal Business Combination

The diagonal combination takes place when two or more business units rendering subsidiary services unite under the main industry. Suppose if repairing and distributing units are combined with the textile industrial units, it is called diagonal combination.

Objectives of Diagonal Business Combination

• To maintain the quality of the product.
• To reduce the cost per unit.
• To achieve the economy in various overheads.
• To promote the efficiency of business

Lisa C. Townes

Lisa is a passionate travelers. She spends 3 months every year visiting different places worldwide. She has visited almost every famous place in the world. She herself is an affiliate blogger

Collective Bargaining Agent is the agent of the workmen in the establishment or, as the case may be industry, in the matter of collective bargaining.

It means the trade union of workmen which is formed for the purpose of regulating the relation between workmen and employers or for imposing restrictive conditions on the conduct of any trade or business

Representation of Collective Bargaining Agent

In case of one trade union

Where there is only one registered trade union in an establishment or a group of establishment and the number of the members of such a trade union is not less than one third of the total number of workers in the establishment an application has been made for the purpose. The Registrar of trade union will certify such a trade union to be a collective bargaining agent.

Incase of more than one Trade Union

Where there are more registered trade union than one in an establishment or a group of establishments, the Registrar shall, upon an application made in this behalf by any union having not less than 1/3 members of total workers employed.

In such establishment or group of establishments or by the employer, or the government hold within fifteen days from making of the application, a secret ballot to determines as to which one of such trade unions shall be the collective bargaining agent form the establishment or group

Rights and Duties of Collective Bargaining Agent

The rights and duties of collective Bargaining Agent in relation to an establishment or group of establishment are given below:-

The Terms of Employment

He undertakes collective bargaining with the employer or employers an matters connected with employment, non–employment, the terms of employment or the conditions of work.

Nomination of Representative

He can nominate representative of workmen on the Board of Trustees of any welfare institution or Provident funds and of the worker’s participation fund.

Representation of Workman

He represents all or any of the workman in any proceedings.

Giving of Notice

The collective bargaining agent can give notice and declare a strike in according with provisions of ordinance.

Nomination of workers

He nominates workers representations on the Management committee which is to be constituted under section 23B to participate in Management.

Nominations of Shop Stewards

He can nominate shop stewards, who is required by section 23A to act as link between labour and management.

Appointment of Auditors

The collective bargaining Agent appoints auditors to audit accounts in case workers doubt the accuracy of the accounts already audited by the Managements auditors.

Lisa C. Townes

Lisa is a passionate travelers. She spends 3 months every year visiting different places worldwide. She has visited almost every famous place in the world. She herself is an affiliate blogger

A prospectus may be defined as any advertisement, notice circular, or other invitation, offering to the public for subscription or purchase of any share or debenture of the company. It is the nature of the contract between the company and the person who buys the shares.

The object of these documents is to convince the public to make an application for shares or debentures in the company. A public company is entitled to subscribe to its shares by means of a prospectus after receiving the certificate of incorporation.

Prospectus or Statement in Lieu of prospectus must be submitted to the registrar’s office before publication. The prospectus may be dated and signed by all the directors or proposed directors or his agents authorized in writing. Every copy issued to the public must, on the face of it state that a copy has been so submitted to the registrar’s office.

Grounds for Issuing Statement in Lie of Prospectus

Do not want to Issue Prospectus

If a company does not want to issue a prospectus to the public for the subscription of the shares, this statement is required to be issued to the public for necessary information.

It must be signed by every person named in it as a director or by his agent authorized in writing: The nature of the information of this document is more or less similar to that given in the prospectus.

A copy of this statement must be filed with the registrar within the prescribed time. This provision does not apply to a private company.

Share Certificate

A share certificate is a document issued under the common seal of the company and it states the extent of the interest of its holder in the company’s capital.

This certificate is usually given free of charge to every member whose name is entered in the register of members. It indicates the name, address, and other particulars of the holder, the number of shares, and the amount paid upon share held by him.

Share Warrant

This document is issued under the common seal of the company in respect of fully paid up shares. It is a negotiable instrument that is transferable by mere delivery. It must be stamped – according to the market value of the shares. It may be issued with- coupons attached by means of which the holder is entitled to claim and dividend.

Common Seal

Every company must have a common seal with its registered name engraved there in legible letters. It acts as the official signature of the company. Regulations governing the use and custody of the seal are laid down in the Articles of Association. It is generally to be used by the authority of the directors.

It is not necessary to use it on all documents. But the seal is required on documents when demanded by the company Ordinance or Articles of Association i.e. debentures, share certificate, or share warrant.

Dividend

A dividend is that portion of the company’s net profit which is distributed among the shareholders in proportion to the number of shares holding. It is first declared at the Board of Directors Meeting which is finally approved by shareholders at the annual general meeting.

Until a dividend is declared, no shareholders can claim any return on the capital he has invested in the: company. It must be paid out of the profits of the company. The directors are empowered to transfer some portion of profits to the reserve funds before recommending a dividend.

Minimum Subscription

It is the minimum amount of shares subscribed by the public before the directors can proceed to the allotment. The amount of minimum subscription fixed by the Memorandum or the Articles and named in the prospectus under the heading i.e., preliminary expenses, underwriting commission, working capital, and repayment of loans.

If no such amount is fixed then the whole of the capital offered for a subscription must be subscribed by the public. This is intended to ensure that the company will not commence the business without adequate capital.

Transmission of Shares

It signifies a change in ownership of the securities through the operation of law in case of death or insolvency of members. The right of the member is automatically transferred to his legal representatives after his death.

Similarly, on becoming bankrupt, a member’s shares may be transferred to a trustee by operation of law. The trustee must, however, prove to the company that he is entitled to deal with bankrupt shares.

Underwriting

The person who takes the risk to purchase a specified number of the shares and debentures of a newly floated company is known as an underwriter. He receives a commission in exchange for his services which is called underwriting commission.

So, the act of sale insurance by a specialized person in consideration of commission is named as underwriting. Sometimes underwritings do not want to take the whole risk, he may transfer a part to sub-underwriter which is arranged by means of a contract.

Contents of the Prospectus

The object of these documents is to convince the public to make an application for shares or debentures in the company. A public company is entitled to subscribe to its shares by means of a prospectus after receiving the certificate of incorporation. Before publication, it must be submitted to the registrar’s office.

The prospectus may be dated and signed by all the directors or proposed directors or his agents authorized in writing. Copies should be submitted to the public and must mention submission to the public.

Every prospectus issued by a public company must contain particulars:

Objectives

The main object for which the company is formed.

Particulars of Founders

• The names, addresses and other particulars of founders.
• Number of founders.
• Their interest in the property and profit of the company.

Share Capital

The different classes of shares, number of each kind value of the share.

Dividend Right

Dividend capital and voting rights various classes of shares.

List of Directors

The names addresses and descriptions of directors or proposed directors.

Share Qualification

The number of shares if it is described in the Articles directors.

Remuneration of Directors

Any provisions in the Articles as to the remuneration of directors.

Minimum Subscription

The minimum subscription on which the directors may allot the shares. The amount payable on application and allotment.

Time of Opening

The lime of the opening of the subscription list.

Preliminary Expenses

The amount of the preliminary expenses commission is so payable in this regard.

Result of the Issue of the Shares

If the company has issued the various types of securities within the preceding two years, the results of the issue are to be given.

Underwriting Commission

The amount of underwriting commission paid within the previous two years in respect of the issue of shares. The names of underwriters of shares must be mentioned.

Property Purchased

The value and other detail of property purchased. The amount has been paid in cash or shares or debentures for such property.

Name of Vendor

The name and addresses of vendors. The amount paid or payable in cash or securities.

Material Contract

Date time and condition of the contract made by founders with different parties.

Interest of Directors

Full particularly in the nature of the interest of each director in all the matters of the company.

Auditor’s report

If the company has already been carrying on the business prior to the issue of prospectus, the auditor’s report must contain i.e. profit and losses, asset and liability, rate of dividend, etc.

Accountant’s Report

By name accountant’s report must also be included in the prospectus if the procedure of the issue of shares is to be applied in the purchase of any business.

Auditors

The name the auditors of the company.

Promoter Benefit

The benefit given to any promoter in terms of money or goods with the two previous years and the consideration given by him.

Preferential treatment

Particulars of .any preferential treatment given to any person to subscribe for any share or debenture of the company.

Duration

Duration for which the business is to be conducted where the period is less than three years.

Restriction

If there is any restriction imposed by the Articles upon the members of the company in respect of proxy, voting attending, and speaking.

Filling of the Prospectus

A statement that a copy has been submitted to the registrar’s office.

Lisa C. Townes

Lisa is a passionate travelers. She spends 3 months every year visiting different places worldwide. She has visited almost every famous place in the world. She herself is an affiliate blogger