Firms under VARIOUS TYPES OF CUSTOMERS :
The concept of ‘Firm’ indicates either a sole proprietary firm or a partner- ship firm. A sole proprietary firm is wholly owned by a single person, whereas a partnership firm has two or more partners. The sole-proprietary firm’s account can be opened in the owner’s name or in the firm’s name. A partnership is defined under section 4 of the Indian Partnership Act, 1932, as the relationship between persons who have agreed to share the profits of business carried on by all or any of them acting for all. It can be created by an oral as well as written agreement among the partners. The Partner- ship Act does not provide for the compulsory registration of a firm. While an unregistered firm cannot sue others for any cause relating to the firm’s business, it can be sued by the outsiders irrespective of its registration. In view of the features of a partnership firm, bankers have to ensure that the following requirements are complied with while opening its account:
– The account is opened in the name of the firm and the account opening form is signed by all the partners of the firm.
– Partnership deed executed by all the partners (whether registered or not) is recorded in the bank’s books, with suitable notes on ledger heading, along with relevant clauses that affect the operation of the account.
– Partnership letter signed by all the partners is obtained to ensure their several and joint liabilities. The letter governs the operation of the account and is to be adhered to accordingly.
The following precautions should be taken in the conduct of a partnership account:
– The account has to be signed ‘for and on behalf of the firm’ by all the authorized partners and not in an individual name.
– A cheque payable to the firm cannot be endorsed by a partner in his name and credited to his personal account.
– In case the firm is to furnish a guarantee to the bank, all the partners have to sign the document.
– If a partner (who has furnished his individual property as a security for the loan granted to the firm) dies, no further borrowings would be permitted in the account until an alternative for the deceased partner is arranged for, as the rule in Clayton’s case operates.