Business Laws Model Test Paper - 3 (Answers) | Mock Tests & Past Year Papers for CA Foundation PDF Download

 Page 1


ANSWERS OF MODEL TEST PAPER 3 
FOUNDATION COURSE 
PAPER 2: BUSINESS LAWS 
1. (a) (i)  As per Section 51 of the Indian Contract Act, 1872, when a contract
consists of reciprocal promises to be simultaneously performed, no 
promisor needs to perform his promise unless the promisee is ready and 
willing to perform his reciprocal promise. Such promises constitute 
concurrent conditions and the performance of one of the promise is 
conditional on the performance of the other. If one of the promises is not 
performed, the other too need not be performed. 
Referring to the above provisions, in the given case, Mr. S is not bound 
to deliver goods to Mr. R since payment was not made by him at the 
time of delivery of goods.  
(ii) Promise to pay time-barred debts - Section 25 (3): Where a promise
in writing signed by the person making it or by his authorised agent, is
made to pay a debt barred by limitation it is valid without consideration
[Section 25(3)].
In the given case, the loan given by Mr. Y to Mr. G has become time
barred. Thereafter, Mr. G agreed to make payment of full amount to
Mr. Y.
Referring to above provisions of the Indian Contract Act, 1872 contract
entered between parties post time barred debt is valid so, Mr. G is
bound to pay the agreed amount to Mr. Y provided the above
mentioned conditions of section 25 (3) are fulfilled.
(iii) Where there is a breach of contract for supply of a unique item, mere
monetary damages may not be an adequate remedy for the other party.
In such a case, the court may give order for specific performance and
direct the party in breach to carry out his promise according to the terms
of contract. Here, in this case, the court may direct A to supply the item
to B because the refusal to supply the agreed unique item cannot be
compensated through money.
(b) (i)  Section 2(92) of Companies Act, 2013, provides that an unlimited
company means a company not having any limit on the liability of its 
members. The liability of each member extends to the whole amount of 
the company’s debts and liabilities, but he will be entitled to claim 
contribution from other members. In case the company has share capital, 
the Articles of Association must state the amount of share capital and the 
amount of each share. So long as the company is a going concern the 
liability on the shares is the only liability which can be enforced by the 
company. The creditors can institute proceedings for winding up of the 
company for their claims. The official liquidator may call the members for 
their contribution towards the liabilities and debts of the company, which 
can be unlimited. 
On the basis of above, it can be said that Mr. Samuel cannot directly 
claim his dues against the company from Mr. Innocent, the shareholder 
of the company even the company is an unlimited company. 
660
Page 2


ANSWERS OF MODEL TEST PAPER 3 
FOUNDATION COURSE 
PAPER 2: BUSINESS LAWS 
1. (a) (i)  As per Section 51 of the Indian Contract Act, 1872, when a contract
consists of reciprocal promises to be simultaneously performed, no 
promisor needs to perform his promise unless the promisee is ready and 
willing to perform his reciprocal promise. Such promises constitute 
concurrent conditions and the performance of one of the promise is 
conditional on the performance of the other. If one of the promises is not 
performed, the other too need not be performed. 
Referring to the above provisions, in the given case, Mr. S is not bound 
to deliver goods to Mr. R since payment was not made by him at the 
time of delivery of goods.  
(ii) Promise to pay time-barred debts - Section 25 (3): Where a promise
in writing signed by the person making it or by his authorised agent, is
made to pay a debt barred by limitation it is valid without consideration
[Section 25(3)].
In the given case, the loan given by Mr. Y to Mr. G has become time
barred. Thereafter, Mr. G agreed to make payment of full amount to
Mr. Y.
Referring to above provisions of the Indian Contract Act, 1872 contract
entered between parties post time barred debt is valid so, Mr. G is
bound to pay the agreed amount to Mr. Y provided the above
mentioned conditions of section 25 (3) are fulfilled.
(iii) Where there is a breach of contract for supply of a unique item, mere
monetary damages may not be an adequate remedy for the other party.
In such a case, the court may give order for specific performance and
direct the party in breach to carry out his promise according to the terms
of contract. Here, in this case, the court may direct A to supply the item
to B because the refusal to supply the agreed unique item cannot be
compensated through money.
(b) (i)  Section 2(92) of Companies Act, 2013, provides that an unlimited
company means a company not having any limit on the liability of its 
members. The liability of each member extends to the whole amount of 
the company’s debts and liabilities, but he will be entitled to claim 
contribution from other members. In case the company has share capital, 
the Articles of Association must state the amount of share capital and the 
amount of each share. So long as the company is a going concern the 
liability on the shares is the only liability which can be enforced by the 
company. The creditors can institute proceedings for winding up of the 
company for their claims. The official liquidator may call the members for 
their contribution towards the liabilities and debts of the company, which 
can be unlimited. 
On the basis of above, it can be said that Mr. Samuel cannot directly 
claim his dues against the company from Mr. Innocent, the shareholder 
of the company even the company is an unlimited company. 
660
Mr. Innocent is liable upto his share capital. His unlimited liability will 
arise when official liquidator calls the members for their contribution 
towards the liabilities and debts of the company at the time of winding 
up of company. 
(ii) A company registered under Section 8 of the Companies Act, 2013 is
prohibited from the payment of any dividends to its members.
Hence in the given case, the contention of the members to distribute
dividend from the profits earned is wrong.
Also, Section 8 company is allowed to call a general meeting by giving
14 days instead of 21 days.
(c) (i)  Mode of determining existence of partnership (Section 6 of the
Indian Partnership Act, 1932): In determining whether a group of 
persons is or is not a firm, or whether a person is or not a partner in a firm, 
regard shall be had to the real relation between the parties, as shown by 
all relevant facts taken together.  
For determining the existence of partnership, it must be proved. 
1. There was an agreement between all the persons concerned
2. The agreement was to share the profits of a business and
3. the business was carried on by all or any of them acting for all.
1. Agreement: Partnership is created by agreement and not by status
(Section 5). The relation of partnership arises from contract and not
from status; and in particular, the members of a Hindu Undivided
family carrying on a family business as such are not partners in such
business.
2. Sharing of Profit: Sharing of profit is an essential element to
constitute a partnership. But, it is only a prima facie evidence and not
conclusive evidence, in that regard. The sharing of profits or of gross
returns accruing from property by persons holding joint or common
interest in the property would not by itself make such persons
partners. Although the right to participate in profits is a strong test of
partnership, and there may be cases where, upon a simple
participation in profits, there is a partnership, yet whether the relation
does or does not exist must depend upon the whole contract between
the parties.
3. Agency: Existence of Mutual Agency which is the cardinal principle
of partnership law, is very much helpful in reaching a conclusion in
this regard. Each partner carrying on the business is the principal as
well as an agent of other partners. So, the act of one partner done on
behalf of firm, binds all the partners. If the elements of mutual agency
relationship exist between the parties constituting a group formed with
a view to earn profits by running a business, a partnership may be
deemed to exist.
661
Page 3


ANSWERS OF MODEL TEST PAPER 3 
FOUNDATION COURSE 
PAPER 2: BUSINESS LAWS 
1. (a) (i)  As per Section 51 of the Indian Contract Act, 1872, when a contract
consists of reciprocal promises to be simultaneously performed, no 
promisor needs to perform his promise unless the promisee is ready and 
willing to perform his reciprocal promise. Such promises constitute 
concurrent conditions and the performance of one of the promise is 
conditional on the performance of the other. If one of the promises is not 
performed, the other too need not be performed. 
Referring to the above provisions, in the given case, Mr. S is not bound 
to deliver goods to Mr. R since payment was not made by him at the 
time of delivery of goods.  
(ii) Promise to pay time-barred debts - Section 25 (3): Where a promise
in writing signed by the person making it or by his authorised agent, is
made to pay a debt barred by limitation it is valid without consideration
[Section 25(3)].
In the given case, the loan given by Mr. Y to Mr. G has become time
barred. Thereafter, Mr. G agreed to make payment of full amount to
Mr. Y.
Referring to above provisions of the Indian Contract Act, 1872 contract
entered between parties post time barred debt is valid so, Mr. G is
bound to pay the agreed amount to Mr. Y provided the above
mentioned conditions of section 25 (3) are fulfilled.
(iii) Where there is a breach of contract for supply of a unique item, mere
monetary damages may not be an adequate remedy for the other party.
In such a case, the court may give order for specific performance and
direct the party in breach to carry out his promise according to the terms
of contract. Here, in this case, the court may direct A to supply the item
to B because the refusal to supply the agreed unique item cannot be
compensated through money.
(b) (i)  Section 2(92) of Companies Act, 2013, provides that an unlimited
company means a company not having any limit on the liability of its 
members. The liability of each member extends to the whole amount of 
the company’s debts and liabilities, but he will be entitled to claim 
contribution from other members. In case the company has share capital, 
the Articles of Association must state the amount of share capital and the 
amount of each share. So long as the company is a going concern the 
liability on the shares is the only liability which can be enforced by the 
company. The creditors can institute proceedings for winding up of the 
company for their claims. The official liquidator may call the members for 
their contribution towards the liabilities and debts of the company, which 
can be unlimited. 
On the basis of above, it can be said that Mr. Samuel cannot directly 
claim his dues against the company from Mr. Innocent, the shareholder 
of the company even the company is an unlimited company. 
660
Mr. Innocent is liable upto his share capital. His unlimited liability will 
arise when official liquidator calls the members for their contribution 
towards the liabilities and debts of the company at the time of winding 
up of company. 
(ii) A company registered under Section 8 of the Companies Act, 2013 is
prohibited from the payment of any dividends to its members.
Hence in the given case, the contention of the members to distribute
dividend from the profits earned is wrong.
Also, Section 8 company is allowed to call a general meeting by giving
14 days instead of 21 days.
(c) (i)  Mode of determining existence of partnership (Section 6 of the
Indian Partnership Act, 1932): In determining whether a group of 
persons is or is not a firm, or whether a person is or not a partner in a firm, 
regard shall be had to the real relation between the parties, as shown by 
all relevant facts taken together.  
For determining the existence of partnership, it must be proved. 
1. There was an agreement between all the persons concerned
2. The agreement was to share the profits of a business and
3. the business was carried on by all or any of them acting for all.
1. Agreement: Partnership is created by agreement and not by status
(Section 5). The relation of partnership arises from contract and not
from status; and in particular, the members of a Hindu Undivided
family carrying on a family business as such are not partners in such
business.
2. Sharing of Profit: Sharing of profit is an essential element to
constitute a partnership. But, it is only a prima facie evidence and not
conclusive evidence, in that regard. The sharing of profits or of gross
returns accruing from property by persons holding joint or common
interest in the property would not by itself make such persons
partners. Although the right to participate in profits is a strong test of
partnership, and there may be cases where, upon a simple
participation in profits, there is a partnership, yet whether the relation
does or does not exist must depend upon the whole contract between
the parties.
3. Agency: Existence of Mutual Agency which is the cardinal principle
of partnership law, is very much helpful in reaching a conclusion in
this regard. Each partner carrying on the business is the principal as
well as an agent of other partners. So, the act of one partner done on
behalf of firm, binds all the partners. If the elements of mutual agency
relationship exist between the parties constituting a group formed with
a view to earn profits by running a business, a partnership may be
deemed to exist.
661
(ii) Personal Profit earned by Partners (Section 16 of the Indian
Partnership Act, 1932)
According to section 16, subject to contract between the partners:
(a) If a partner derives any profit for himself from any transaction of the
firm, or from the use of the property or business connection of the firm
or the firm name, he shall account for that profit and pay it to the firm;
(b) If a partner carries on any business of the same nature and competing
with that of the firm, he shall account for and pay to the firm all profits
made by him in that business.
2. (a) 1.  According to section 44 of the Sale of Goods Act, 1930, when the seller
is ready and willing to deliver the goods and requests the buyer to take 
delivery, and the buyer does not within a reasonable time after such 
request take delivery of the goods, he is liable to the seller for any loss 
occasioned by his neglect or refusal to take delivery and also for a 
reasonable charge for the care and custody of the goods.  
Risk of loss of goods prima facie follows the passing of property in 
goods. Goods remain at the seller's risk unless the property there in is 
transferred to the buyer, but after transfer of property therein to the 
buyer, the goods are at the buyer's risk whether delivery has been 
made or not.   
In the given case, since Mr. G has already intimated Mr. H, that he 
wanted to store some other goods and thus Mr. H should take the 
delivery of goods kept in the godown of Mr. G, the loss of goods 
damaged should be borne by Mr. H. 
2. If the price of the goods would not have settled in cash and some
amount would have been pending then Mr. G will be treated as an
unpaid seller and he can enforce the following rights against the goods
as well as against the buyer personally:
(a) Where under a contract of sale, the property in the goods has passed
to the buyer and the buyer wrongfully neglects or refuses to pay for
the goods according to the terms of the contract, the seller may sue
him for the price of the goods. [Section 55(1) of the Sales of Goods
Act, 1930]
(b) Where under a contract of sale the price is payable on a day certain
irrespective of delivery and the buyer wrongfully neglects or refuses
to pay such price, the seller may sue him for the price although the
property in the goods has not passed and the goods have not been
appropriated to the contract. [Section 55(2) of the Sales of Goods Act,
1930].
(b) One Person Company (OPC) [Section 2(62) of the Companies Act,
2013]: The Act defines one person company (OPC) as a company which
has only one person as a member.
Rules regarding its membership:
? Only one person as member.
662
Page 4


ANSWERS OF MODEL TEST PAPER 3 
FOUNDATION COURSE 
PAPER 2: BUSINESS LAWS 
1. (a) (i)  As per Section 51 of the Indian Contract Act, 1872, when a contract
consists of reciprocal promises to be simultaneously performed, no 
promisor needs to perform his promise unless the promisee is ready and 
willing to perform his reciprocal promise. Such promises constitute 
concurrent conditions and the performance of one of the promise is 
conditional on the performance of the other. If one of the promises is not 
performed, the other too need not be performed. 
Referring to the above provisions, in the given case, Mr. S is not bound 
to deliver goods to Mr. R since payment was not made by him at the 
time of delivery of goods.  
(ii) Promise to pay time-barred debts - Section 25 (3): Where a promise
in writing signed by the person making it or by his authorised agent, is
made to pay a debt barred by limitation it is valid without consideration
[Section 25(3)].
In the given case, the loan given by Mr. Y to Mr. G has become time
barred. Thereafter, Mr. G agreed to make payment of full amount to
Mr. Y.
Referring to above provisions of the Indian Contract Act, 1872 contract
entered between parties post time barred debt is valid so, Mr. G is
bound to pay the agreed amount to Mr. Y provided the above
mentioned conditions of section 25 (3) are fulfilled.
(iii) Where there is a breach of contract for supply of a unique item, mere
monetary damages may not be an adequate remedy for the other party.
In such a case, the court may give order for specific performance and
direct the party in breach to carry out his promise according to the terms
of contract. Here, in this case, the court may direct A to supply the item
to B because the refusal to supply the agreed unique item cannot be
compensated through money.
(b) (i)  Section 2(92) of Companies Act, 2013, provides that an unlimited
company means a company not having any limit on the liability of its 
members. The liability of each member extends to the whole amount of 
the company’s debts and liabilities, but he will be entitled to claim 
contribution from other members. In case the company has share capital, 
the Articles of Association must state the amount of share capital and the 
amount of each share. So long as the company is a going concern the 
liability on the shares is the only liability which can be enforced by the 
company. The creditors can institute proceedings for winding up of the 
company for their claims. The official liquidator may call the members for 
their contribution towards the liabilities and debts of the company, which 
can be unlimited. 
On the basis of above, it can be said that Mr. Samuel cannot directly 
claim his dues against the company from Mr. Innocent, the shareholder 
of the company even the company is an unlimited company. 
660
Mr. Innocent is liable upto his share capital. His unlimited liability will 
arise when official liquidator calls the members for their contribution 
towards the liabilities and debts of the company at the time of winding 
up of company. 
(ii) A company registered under Section 8 of the Companies Act, 2013 is
prohibited from the payment of any dividends to its members.
Hence in the given case, the contention of the members to distribute
dividend from the profits earned is wrong.
Also, Section 8 company is allowed to call a general meeting by giving
14 days instead of 21 days.
(c) (i)  Mode of determining existence of partnership (Section 6 of the
Indian Partnership Act, 1932): In determining whether a group of 
persons is or is not a firm, or whether a person is or not a partner in a firm, 
regard shall be had to the real relation between the parties, as shown by 
all relevant facts taken together.  
For determining the existence of partnership, it must be proved. 
1. There was an agreement between all the persons concerned
2. The agreement was to share the profits of a business and
3. the business was carried on by all or any of them acting for all.
1. Agreement: Partnership is created by agreement and not by status
(Section 5). The relation of partnership arises from contract and not
from status; and in particular, the members of a Hindu Undivided
family carrying on a family business as such are not partners in such
business.
2. Sharing of Profit: Sharing of profit is an essential element to
constitute a partnership. But, it is only a prima facie evidence and not
conclusive evidence, in that regard. The sharing of profits or of gross
returns accruing from property by persons holding joint or common
interest in the property would not by itself make such persons
partners. Although the right to participate in profits is a strong test of
partnership, and there may be cases where, upon a simple
participation in profits, there is a partnership, yet whether the relation
does or does not exist must depend upon the whole contract between
the parties.
3. Agency: Existence of Mutual Agency which is the cardinal principle
of partnership law, is very much helpful in reaching a conclusion in
this regard. Each partner carrying on the business is the principal as
well as an agent of other partners. So, the act of one partner done on
behalf of firm, binds all the partners. If the elements of mutual agency
relationship exist between the parties constituting a group formed with
a view to earn profits by running a business, a partnership may be
deemed to exist.
661
(ii) Personal Profit earned by Partners (Section 16 of the Indian
Partnership Act, 1932)
According to section 16, subject to contract between the partners:
(a) If a partner derives any profit for himself from any transaction of the
firm, or from the use of the property or business connection of the firm
or the firm name, he shall account for that profit and pay it to the firm;
(b) If a partner carries on any business of the same nature and competing
with that of the firm, he shall account for and pay to the firm all profits
made by him in that business.
2. (a) 1.  According to section 44 of the Sale of Goods Act, 1930, when the seller
is ready and willing to deliver the goods and requests the buyer to take 
delivery, and the buyer does not within a reasonable time after such 
request take delivery of the goods, he is liable to the seller for any loss 
occasioned by his neglect or refusal to take delivery and also for a 
reasonable charge for the care and custody of the goods.  
Risk of loss of goods prima facie follows the passing of property in 
goods. Goods remain at the seller's risk unless the property there in is 
transferred to the buyer, but after transfer of property therein to the 
buyer, the goods are at the buyer's risk whether delivery has been 
made or not.   
In the given case, since Mr. G has already intimated Mr. H, that he 
wanted to store some other goods and thus Mr. H should take the 
delivery of goods kept in the godown of Mr. G, the loss of goods 
damaged should be borne by Mr. H. 
2. If the price of the goods would not have settled in cash and some
amount would have been pending then Mr. G will be treated as an
unpaid seller and he can enforce the following rights against the goods
as well as against the buyer personally:
(a) Where under a contract of sale, the property in the goods has passed
to the buyer and the buyer wrongfully neglects or refuses to pay for
the goods according to the terms of the contract, the seller may sue
him for the price of the goods. [Section 55(1) of the Sales of Goods
Act, 1930]
(b) Where under a contract of sale the price is payable on a day certain
irrespective of delivery and the buyer wrongfully neglects or refuses
to pay such price, the seller may sue him for the price although the
property in the goods has not passed and the goods have not been
appropriated to the contract. [Section 55(2) of the Sales of Goods Act,
1930].
(b) One Person Company (OPC) [Section 2(62) of the Companies Act,
2013]: The Act defines one person company (OPC) as a company which
has only one person as a member.
Rules regarding its membership:
? Only one person as member.
662
? The memorandum of OPC shall indicate the name of the other person,
who shall, in the event of the subscriber’s death or his incapacity to
contract, become the member of the company.
? The other person whose name is given in the memorandum shall give
his prior written consent in prescribed form and the same shall be filed
with Registrar of companies at the time of incorporation of the
company along with its e-memorandum and e-articles.
? Such other person may be given the right to withdraw his consent.
? The member of OPC may at any time change the name of such other
person by giving notice to the company and the company shall intimate
the same to the Registrar.
? Any such change in the name of the person shall not be deemed to be
an alteration of the memorandum.
? Only a natural person who is an Indian citizen whether resident in India
or otherwise and has stayed in India for a period of not less than 120
days during the immediately preceding financial year-
? shall be eligible to incorporate a OPC;
? shall be a nominee for the sole member of a OPC.
? No person shall be eligible to incorporate more than one OPC or
become nominee in more than one such company.
? No minor shall become member or nominee of the OPC or can hold
share with beneficial interest.
OPC cannot be incorporated or converted into a company under section 8 
of the Act. Though it may be converted to private or public companies in 
certain cases.  
(c) Distinction between LLP and Limited Liability Company: The points of
distinction between a LLP and Limited Liability Company are tabulated as
follows:
Basis LLP Limited Liability 
Company 
1. Regulating Act The LLP Act, 2008. The Companies Act, 
2013. 
2. Members/Partners The persons who 
contribute to LLP 
are known as 
partners of the LLP. 
The persons who invest 
the money in the shares 
are known as members 
of the company. 
3. Internal 
governance 
structure 
The internal 
governance 
structure of a LLP is 
governed by 
contract agreement 
The internal governance 
structure of a company 
is regulated by statute 
(i.e., Companies Act, 
2013). 
663
Page 5


ANSWERS OF MODEL TEST PAPER 3 
FOUNDATION COURSE 
PAPER 2: BUSINESS LAWS 
1. (a) (i)  As per Section 51 of the Indian Contract Act, 1872, when a contract
consists of reciprocal promises to be simultaneously performed, no 
promisor needs to perform his promise unless the promisee is ready and 
willing to perform his reciprocal promise. Such promises constitute 
concurrent conditions and the performance of one of the promise is 
conditional on the performance of the other. If one of the promises is not 
performed, the other too need not be performed. 
Referring to the above provisions, in the given case, Mr. S is not bound 
to deliver goods to Mr. R since payment was not made by him at the 
time of delivery of goods.  
(ii) Promise to pay time-barred debts - Section 25 (3): Where a promise
in writing signed by the person making it or by his authorised agent, is
made to pay a debt barred by limitation it is valid without consideration
[Section 25(3)].
In the given case, the loan given by Mr. Y to Mr. G has become time
barred. Thereafter, Mr. G agreed to make payment of full amount to
Mr. Y.
Referring to above provisions of the Indian Contract Act, 1872 contract
entered between parties post time barred debt is valid so, Mr. G is
bound to pay the agreed amount to Mr. Y provided the above
mentioned conditions of section 25 (3) are fulfilled.
(iii) Where there is a breach of contract for supply of a unique item, mere
monetary damages may not be an adequate remedy for the other party.
In such a case, the court may give order for specific performance and
direct the party in breach to carry out his promise according to the terms
of contract. Here, in this case, the court may direct A to supply the item
to B because the refusal to supply the agreed unique item cannot be
compensated through money.
(b) (i)  Section 2(92) of Companies Act, 2013, provides that an unlimited
company means a company not having any limit on the liability of its 
members. The liability of each member extends to the whole amount of 
the company’s debts and liabilities, but he will be entitled to claim 
contribution from other members. In case the company has share capital, 
the Articles of Association must state the amount of share capital and the 
amount of each share. So long as the company is a going concern the 
liability on the shares is the only liability which can be enforced by the 
company. The creditors can institute proceedings for winding up of the 
company for their claims. The official liquidator may call the members for 
their contribution towards the liabilities and debts of the company, which 
can be unlimited. 
On the basis of above, it can be said that Mr. Samuel cannot directly 
claim his dues against the company from Mr. Innocent, the shareholder 
of the company even the company is an unlimited company. 
660
Mr. Innocent is liable upto his share capital. His unlimited liability will 
arise when official liquidator calls the members for their contribution 
towards the liabilities and debts of the company at the time of winding 
up of company. 
(ii) A company registered under Section 8 of the Companies Act, 2013 is
prohibited from the payment of any dividends to its members.
Hence in the given case, the contention of the members to distribute
dividend from the profits earned is wrong.
Also, Section 8 company is allowed to call a general meeting by giving
14 days instead of 21 days.
(c) (i)  Mode of determining existence of partnership (Section 6 of the
Indian Partnership Act, 1932): In determining whether a group of 
persons is or is not a firm, or whether a person is or not a partner in a firm, 
regard shall be had to the real relation between the parties, as shown by 
all relevant facts taken together.  
For determining the existence of partnership, it must be proved. 
1. There was an agreement between all the persons concerned
2. The agreement was to share the profits of a business and
3. the business was carried on by all or any of them acting for all.
1. Agreement: Partnership is created by agreement and not by status
(Section 5). The relation of partnership arises from contract and not
from status; and in particular, the members of a Hindu Undivided
family carrying on a family business as such are not partners in such
business.
2. Sharing of Profit: Sharing of profit is an essential element to
constitute a partnership. But, it is only a prima facie evidence and not
conclusive evidence, in that regard. The sharing of profits or of gross
returns accruing from property by persons holding joint or common
interest in the property would not by itself make such persons
partners. Although the right to participate in profits is a strong test of
partnership, and there may be cases where, upon a simple
participation in profits, there is a partnership, yet whether the relation
does or does not exist must depend upon the whole contract between
the parties.
3. Agency: Existence of Mutual Agency which is the cardinal principle
of partnership law, is very much helpful in reaching a conclusion in
this regard. Each partner carrying on the business is the principal as
well as an agent of other partners. So, the act of one partner done on
behalf of firm, binds all the partners. If the elements of mutual agency
relationship exist between the parties constituting a group formed with
a view to earn profits by running a business, a partnership may be
deemed to exist.
661
(ii) Personal Profit earned by Partners (Section 16 of the Indian
Partnership Act, 1932)
According to section 16, subject to contract between the partners:
(a) If a partner derives any profit for himself from any transaction of the
firm, or from the use of the property or business connection of the firm
or the firm name, he shall account for that profit and pay it to the firm;
(b) If a partner carries on any business of the same nature and competing
with that of the firm, he shall account for and pay to the firm all profits
made by him in that business.
2. (a) 1.  According to section 44 of the Sale of Goods Act, 1930, when the seller
is ready and willing to deliver the goods and requests the buyer to take 
delivery, and the buyer does not within a reasonable time after such 
request take delivery of the goods, he is liable to the seller for any loss 
occasioned by his neglect or refusal to take delivery and also for a 
reasonable charge for the care and custody of the goods.  
Risk of loss of goods prima facie follows the passing of property in 
goods. Goods remain at the seller's risk unless the property there in is 
transferred to the buyer, but after transfer of property therein to the 
buyer, the goods are at the buyer's risk whether delivery has been 
made or not.   
In the given case, since Mr. G has already intimated Mr. H, that he 
wanted to store some other goods and thus Mr. H should take the 
delivery of goods kept in the godown of Mr. G, the loss of goods 
damaged should be borne by Mr. H. 
2. If the price of the goods would not have settled in cash and some
amount would have been pending then Mr. G will be treated as an
unpaid seller and he can enforce the following rights against the goods
as well as against the buyer personally:
(a) Where under a contract of sale, the property in the goods has passed
to the buyer and the buyer wrongfully neglects or refuses to pay for
the goods according to the terms of the contract, the seller may sue
him for the price of the goods. [Section 55(1) of the Sales of Goods
Act, 1930]
(b) Where under a contract of sale the price is payable on a day certain
irrespective of delivery and the buyer wrongfully neglects or refuses
to pay such price, the seller may sue him for the price although the
property in the goods has not passed and the goods have not been
appropriated to the contract. [Section 55(2) of the Sales of Goods Act,
1930].
(b) One Person Company (OPC) [Section 2(62) of the Companies Act,
2013]: The Act defines one person company (OPC) as a company which
has only one person as a member.
Rules regarding its membership:
? Only one person as member.
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? The memorandum of OPC shall indicate the name of the other person,
who shall, in the event of the subscriber’s death or his incapacity to
contract, become the member of the company.
? The other person whose name is given in the memorandum shall give
his prior written consent in prescribed form and the same shall be filed
with Registrar of companies at the time of incorporation of the
company along with its e-memorandum and e-articles.
? Such other person may be given the right to withdraw his consent.
? The member of OPC may at any time change the name of such other
person by giving notice to the company and the company shall intimate
the same to the Registrar.
? Any such change in the name of the person shall not be deemed to be
an alteration of the memorandum.
? Only a natural person who is an Indian citizen whether resident in India
or otherwise and has stayed in India for a period of not less than 120
days during the immediately preceding financial year-
? shall be eligible to incorporate a OPC;
? shall be a nominee for the sole member of a OPC.
? No person shall be eligible to incorporate more than one OPC or
become nominee in more than one such company.
? No minor shall become member or nominee of the OPC or can hold
share with beneficial interest.
OPC cannot be incorporated or converted into a company under section 8 
of the Act. Though it may be converted to private or public companies in 
certain cases.  
(c) Distinction between LLP and Limited Liability Company: The points of
distinction between a LLP and Limited Liability Company are tabulated as
follows:
Basis LLP Limited Liability 
Company 
1. Regulating Act The LLP Act, 2008. The Companies Act, 
2013. 
2. Members/Partners The persons who 
contribute to LLP 
are known as 
partners of the LLP. 
The persons who invest 
the money in the shares 
are known as members 
of the company. 
3. Internal 
governance 
structure 
The internal 
governance 
structure of a LLP is 
governed by 
contract agreement 
The internal governance 
structure of a company 
is regulated by statute 
(i.e., Companies Act, 
2013). 
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between the 
partners. 
4. Name Name of the LLP to 
contain the word 
“Limited Liability 
partnership” or 
“LLP” as suffix. 
Name of the public 
company to contain the 
word “limited” and Pvt. 
Co. to contain the word 
“Private limited” as 
suffix. 
5. No. of members/ 
partners 
Minimum – 2 
members 
Maximum – No such 
limit on the 
members in the Act. 
The members of the 
LLP can be 
individuals/or body 
corporate through 
the nominees. 
Private company:  
Minimum – 2 members  
Maximum 200 members 
Public company: 
Minimum – 7 members 
Maximum – No such 
limit on the members.   
Members can be 
organizations, trusts, 
another business form 
or individuals. 
6. Liability of 
members/partners 
Liability of the 
partners is limited to 
the extent of agreed 
contribution except 
in case of willful 
fraud. 
Liability of a member is 
limited to the amount 
unpaid on the shares 
held by them. 
7. Management The business of the 
company is 
managed by the 
partners including 
the designated 
partners authorized 
in the agreement. 
The affairs of the 
company are managed 
by board of directors 
elected by the 
shareholders. 
8. Minimum number 
of directors/ 
designated 
partners 
Minimum 2 
designated 
partners. 
Pvt. Co. – 2 directors 
Public co. – 3 directors 
3. (a) (i)  Rights of outgoing partner to carry on competing business (Section
36 of the Indian Partnership Act, 1932) 
(1) An outgoing partner may carry on business competing with that of
the firm and he may advertise such business, but subject to
contract to the contrary, he may not,-
(a) use the firm name,
(b) represent himself as carrying on the business of the firm or
(c) solicit the custom of persons who were dealing with the firm
before he ceased to be a partner.
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