Accounts for partnership firms and LLPs are discussed in this post, which are one of the most important for a banker to understand the main differences between them and their norms to open a bank account. This post is in continuation with my previous post on types of customers for a bank.
Accounts for Partnership Firms:
Partnership is the relation between persons who have agreed to share the profits of a business carried on by all or any of them acting for all.
- A partnership firm should have minimum 2 partners. As per Companies Act 2013, an association of more than 100 persons which is not registered as Company or
Society will be an illegal association. Therefore, maximum number of partners can be 100. (As per Companies Act 1956, maximum number of partners could be 20 for any business other than banking and 10 for banking business).
- Only a person competent to contract can become partner. Minor, insolvent, insane cannot become partners A company and a firm can become partner in another firm.
- HUF can not become partner as per judgement of the Supreme Court because HUF is neither a legal person nor a natural person and can not be liable for action of others.
- Partnership can be oral or in writing. Therefore, banks do not insist on partnership deed while opening accounts of a partnership concern.
- For opening account of a partnership firm, all partners are required to sign Account opening form except minor who is admitted for benefits of firm.
- On the death, insolvency or insanity of a partner, the partnership is dissolved and operations are stopped. The cheques signed by the deceased, insane or insolvent partner will not be paid. If the account is in credit, operations are allowed for winding up of the firm.
Accounts for LLP Firms:
Limited Liability Partnership is governed by Limited Liability Partnership Act 2008. Minimum number of partners is 2 but there is no limit on number of partners. An individual or a body coporate can be a member of an LLP. Liability of partner is limited to the extent of his contribution in the firm. A partner shall not be personally liable.
For opening account of a limited company bank should obtain the following:
- Memorandum of Association: It contains name of the Company, its authorised capital, registered office and liability of shareholders, objects of the company etc.
- Articles of Association: It lays down the internal working of the company like rights and powers of the directors, rules of conducting meetings, borrowing power of directors etc.
- Certificate of incorporation: It is equivalent to birth registration certificate of the company.
- Resolution of Board of Directors which is passed by the Board of Directors authorising opening and operation of the account by named officials of the company.
- While opening account of a limited company, no introduction is required as Certificate of incorporation is sufficient for that purpose. However, KYC norms are required to be applied on all persons authorized to operate the account of company.
- Operational Authority: The operational authority is decided by Board Resolution. Any change in operational authority is also as per Board Resolution. Stop payment of a cheque and revocation of stop payment will be as per operational authority. The directors can not delegate their authority to any other person.
- Winding up of company: Winding up can be (a) voluntary (b) Compulsory by court (c) through court supervision
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