MGT-211'S IST ASSIGNMENT

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DUE DATE 12 APRIL 2012,PLZZZZZZ DISCUSS HERE

[Zahid-ul-Hassan]

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SEMESTER SPRING 2012

Introduction to Business (MGT211)

Due Date: 12 April, 2012                                                       Marks: 20

 

Assignment:

 

Mr. Aleem and Mr. Ali are lifelong friends living in same locality since their childhood. Recently, they have decided to enter into a new business venture but they have not yet decided upon the nature/kind of business. Aleem had Rs. 550,000/- which he wanted to invest but he had no desire to take active part in managing routine matters/affairs of the business while Ali was a handyman and always enjoyed designing of readymade garments for men as a hobby. Luckily, a running garments business was available for sale for sum of Rs. 1,500,000/- and they agreed to buy the business. Ali has Rs. 250,000/- as an initial investment and the remaining amount of Rs. 700,000/- was to be borrowed from a local bank in order to acquire the business. They eventually purchased the business and registered under the name “AL-Noor Garments”. As Aleem would not take part in the affairs of business so Ali will be having full control over the operations of the business but the profit/loss will be shared equally.

 

Requirements:

 

Question #1:-                                                                                      (06 Marks)

 

Would the status of Ali be different from Aleem? Briefly explain in the context of

types of partners.

 

Answer:-

 

They are using limited type of partnership as both have the limited liabilities. Where as

the status of partnership is not equal because Mr aleem investing almost the double of the

investment 550000 as compare to Mr Ali 250000 as well as he is playing the role of

Active partner whereas Mr ali is performing the role of Sleeping partner. So the division

of the Profit and loss will be different generally. But if they both have any agreement for

equal sharing of profit and loss than their status is equal.

 

Question # 2:-                                                                                                  (14 Marks)

 

Being a business consultant you are required to suggest key points to be added in partnership deed for Al-Noor Garments so that any future conflicts can be avoided.

 

Answer:

 

Partnership or operating agreements for law firms are critical because they can prevent or diffuse future problems. Addressing potential issues in advance when they aren't present and applicable to one partner will likely lead to a fairer solution to these issues since the partners are aware that they can be on either side of the issue. The following areas represent selected key issues that are frequently faced by law firms and their partners. These issues and suggestions apply equally to law firms organized as Limited Liability

Partnerships, regular partnerships, or law corporations.

 

One of the most important issues that should be included in all law firm partnership agreements is management and control, which includes operational issues, hiring and firing, authority to enter into contracts, and votes required for removal of partners or admission of new partners. For example, what percentage vote of the partnership is required to expel a partner? Are different classes of partners created, and if so, are there different requirements for expelling a "founding" partner as opposed to a lateral or

"homegrown" partner? These and many other questions need to be discussed and resolved by the partners of the firm, preferably with the assistance of an experienced neutral facilitator.

 

Another important issue is how profits and losses of the practice will be allocated among the partners. Compensation formulas can be fully discretionary or subjective, or fully objective and formula driven, or a blend of the two. A key consideration in establishing these formulas is determining what types of behavior and actions they are designed to motivate and reward. For example, a formula based solely on an individual's billings and collections discourages delegation and training of associates. This type of compensation structure may inhibit growth but may be appropriate for a law firm desiring to remain small. On the other hand, formulas that reward originations and delegation to and supervision of associates may motivate partners to develop and grow the law firm.

 

Unfortunately, many law firm relationships aren't forever. Partners leave to go to other firms or set up their own firms. This can be devastating to a firm that provides retirement benefits or buyout payments to withdrawing partners, particularly those who take clients and/or staff with them. While covenants not to compete may not be acceptable to the partners, many partnership agreements provide that retirement and buyout payments are reduced by either a fraction or multiple of business taken by the partner to soften the

blow to the firm. Similarly, the agreement may prohibit the solicitation of the firm's employees by a departing partner.

 

Many law firms don't have the appropriate partnership agreement because the partners claim that they are all friends and would be able to congenially work out their differences. Unfortunately, when partners leave, congeniality usually leaves with them. Another reason no agreement exists is that partners don't want to face this issue when they open a firm. After all, who wants to discuss divorce during the marriage

ceremony? However, it's much easier to discuss, address, and resolve these issues in the abstract than to address them in a crisis or stressful situation when immediate responses are required. Not only are the above issues prevalent in law firms, they also apply to your clients as well and point out the need for partnership/shareholder/buy-sell agreements for clients.

 

Extra Details:-

 

A limited partnership includes both general partners and limited partners. A limited partner does not participate in the day-to-day management of the partnership and his/her liability is limited. In many cases, the limited partners are merely investors who do not with to participate in the partnership other than to provide an investment.

 

Sleeping partners invest money in the business and share in its profits, but do not take part in running it. Like general partners, they are fully liable for the partnership's debts.

[+ M.Tariq Malik]

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Question no 1:                                                                                                    (06 Marks)

Would the status of Ali be different from Aleem? Briefly explain in the context of types of partners.

 

ANSWER:

Note:

Under Section (4) of the Partnership Act 1932,

Ali is an Active and Managing partner in the context of types of partners.

As it is agreed between Ali and Aleem that Ali shall manage the business of the AL-NOOR GARMENTS on behalf of Aleem. This management might be made due to the reason that Ali was a handyman and always enjoyed designing of readymade garments for men as a hobby. So Ali as a partner in the partnership business will commonly know as a Managing partner.

It may be noticed that other partner Aleem not taking part in management and other affairs of business is not absolved from the liability of the business towards third party.

As Ali will be having full control over the operations of the business but the profit/loss will also be shared equally among Ali and Aleem.

 

 

 

Question no 2 (14 Marks)

Being a business consultant you are required to suggest key points to be added in partnership deed for

Al-Noor Garments so that any future conflicts can be avoided.

 

Answer:

In order to avoid the future conflicts, there are some key points to be added in partnership deed for

Al-Noor Garments,

KEY POINTS:

Partnership being a fiduciary relationship, it is the responsibility of each partner to be just and to exercise utmost good faith and fairness in his dealings with his co-partner and business..

A partner must render true, proper and correct accounts of the partnership business.

Every partner is an agent of other partner and as such is bound to communicate full information to them.

One partner must not take advantages of other partner.

Every partner must indemnify the business for any loss caused by his fraud in the conduct of business. Every partner who is guilty of willful neglect in the conduct of the business and the business suffers loss then such guilty partner must be bound to compensate the business.

Ratio of sharing profit and losses must be described and shown in partnership agreement. In the absence of agreement, each partner should pay the loss equally

Salary commission or other remunerations must be determined by the partners in agreement.

In the absence of an agreement to the contrary, every partner is bound to hold and use the partnership property exclusively for the business and for the common benefits of the partners. 

The property belongs to all the partners, so a partner cannot directly and indirectly use the property for private purpose for his own advantages.

Partners are free to carry on their own business along with partnership business but that business must not create the competition with partnership business.

Every partner is bound to perform his duties within the scope of the actual authority upon him.

Every partner has a right to be consulted and heard in all matters affecting the partnership business.  

A partner has a right to collect the debts of the firm and to issue the receipts.

Partners must fulfill their duties to avoid the future conflicts. Liabilities of the partnership business must be paid by the partners to the 3^rd parties at time.

Rights of the partners must be given to them as specified in agreement.

Both the partners must be agreed upon all the aspects of the partnership agreement. 

Freedom is a place of excellence.

Every partner must achieve:

Trust - a critical component to any relationship. Without trust, there is
nothing.

Alignment, when forces come together behind a single purpose, even if
partners  do not agree with each other, they must  be ‘aligned’; move together
toward a common interest.

Action, “there is only one way to learn, it’s through action. Everything you
need to know you have learned through your experience.”

Freedom is a place of excellence. 

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MGT211 Assignment#1 Solution Spring 2012 

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