Law & Society

When buying a car you should always receive an auto bill of sale with the vehicles details on it, and signed by the seller. This is proof that the vehicle was legally sold to you, and the title has been transferred to you. It's also important for the seller to keep a copy of the bill of sale because it has the agreed upon purchase price of the vehicle. Having one will prevent any disputes later on.

Every state that I’m familiar with in the U.S. requires an auto bill of sale form to register and tag a new vehicle you've purchased. Since some states require additional information, it's a good to seek out a state specific fill able form if you plan to prepare it yourself without a lawyer. These forms are easy to find and fill out, so a lawyer is not necessary.

Once you've found a fill able bill of sale form online for your state then all you need to do is fill in some information. This information includes the vehicle identification number (VIN), the purchase price of the vehicle sold, the full name of both the buyer and the seller, the address of both the buyer and seller, and then it needs to be signed by the seller. Depending on the state you live in there may also be a line on the form for the buyer to sign also.

Documenting the purchase/sale of a vehicle is vitally important in this day in age. That’s why it’s standardized everywhere now. It's the only way to give your vehicle purchase protection under the law in an organized way. Thankfully, we have kept them simple enough so that anyone can create a bill of sale without the aid of a lawyer. Car lots across the U.S. keep stacks of these forms around and create lots of them daily, but I bet you've never seen a lawyer around the lot. That's because a lawyer isn't necessary, don't even think of wasting your money paying some one to prepare one for you.

Verbal agreements tend to never work out. Putting the terms of the partnership in writing is the smartest thing you can do to protect your business. Spelling out the rights and responsibilities in a written partnership agreement will better equip you to settle conflicts if they arise. You'd be surprised how minor misunderstandings can erupt into full-blown fights. Also, when you don't have a written agreement saying otherwise, your state's laws will control many aspects of your business.

Having a partnership agreement helps your business in many different ways. It clearly defines each partner’s role and it will structure the relationship in a way that suits the business. In the agreement you can define how you and your partners will share profits or losses, what will happen if a partner leaves the business, and other guidelines you or your partners think are important.

One area all partnership agreements cover is the name of the partnership. You can either use your own last names, such as the famous business partnership Smith & Wesson, or use a made up name like North side Technicians. If you do choose to make up a name then you must make sure the name isn't already in use then file a fictitious business name statement with your county clerk.

The second area most business partnership agreements cover is the contributions to the partnership. It's important that you and your partners write out and agree to whose going to contribute cash, property, or services to the business. Also, agree to each partner's ownership percentage. Partnerships who don't outline these terms tend to fall apart when disagreements over who has to do what occur.

The third area most partnerships agreements cover is the allocation of profits, loses, and draws. This tends to be a critical area in determining the success of a business partnership. How will profits and losses be allocated? Will they be allocated based on each partner's percentage of ownership in the business? How will profits be distributed and when? This is an area where each partner should pay particularly close attention to the terms their agreeing to.

Disclaimer: This article has been written for information and interest purposes only. The information contained within this article is the opinion of the author only, and should not be construed as legal advice or used to make legal decisions. Consult an attorney in your area if you’re seeking legal advice.

Merger is a tool used by companies for the purpose of expanding their operations often aiming at an increase of their long term profitability. Usually mergers occur in a consensual (occurring by mutual consent) setting. The dictionary meaning of Mergers is “to combine commercial or industrial firms” or “to lose identity by being absorbed in something else”.

However the Companies Act, 1956 does not define the term ‘Merger’ or ‘Amalgamation’. It deals with schemes of merger/ acquisition which are given in s.390-394 ‘A’, 395,396 and 396 ‘A’.

In common parlance, the terminologies“Amalgamation” or “merger” would mean the two business entities joining together to make totally new business entity or to allow one business entity to survive absorbing the other one. Amalgamation or merger is also a method of reconstruction. In amalgamation, two or more companies are fused into one by merger or by one taking over the other.[1] When two companies are merged and are so joined as to form third company or one is absorbed into other or blended with another, the amalgamating company loses its identity. There may be amalgamation either by transfer of two or more undertakings to a new company or by the transfer of one or more undertakings to an existing company. An amalgamation may be defined as an arrangement where by the assets of the two companies which has as its share holders all, or substantially all the share holders of the two companies.[2]

But they differ in this regard that amalgamation is a used where two or more companies are there but merger is when one company is blended with another.

Classifications of mergers

Horizontal mergers take place where the two merging companies produce similar product in the same industry. A horizontal merger is when two companies competing in the same market merge or join together. This type of merger can either have a very large effect or little to no effect on the market.

When two extremely small companies combine, or horizontally merge, the results of the merger are less noticeable. These smaller horizontal mergers are very common. If a small local drug store were to horizontally merge with another local drugstore, the effect of this merger on the drugstore market would be minimal. In a large horizontal merger, however, the resulting ripple effects can be felt throughout the market sector and sometimes throughout the whole economy. [3]

Witness the recent attempt by Staples, Inc., one "superstore" retailer of office supplies, to acquire Office Depot, another giant retailer of office supplies. In many areas of the country, the merger would have reduced the number of superstore competitors, often leaving Staples as the only superstore in the area. Evidence from the companies’ pricing data showed that Staples would have been able to keep prices up to 13 percent higher after the merger than without the merger. The FTC blocked the merger, saving consumers an estimated $1.1 billion over five years.[4]

Vertical mergers occur when two firms, each working at different stages in the production of the same good, combine.

Vertical mergers involve firms in a buyer-seller relationship -- a manufacturer merging with a supplier of component products, or a manufacturer merging with a distributor of its products. A vertical merger can harm competition by making it difficult for competitors to gain access to an important component product or to an important channel of distribution. This is called a "vertical foreclosure" or "bottleneck" problem.

Take the merger of Time Warner, Inc., producers of HBO and other video programming, and Turner Corp., producers of CNN, TBS, and other programming. The FTC was concerned that Time Warner could refuse to sell popular video programming to competitors of cable TV companies owned or affiliated with Time Warner or Turner -- or offer to sell the programming at discriminatory rates. That would allow Time Warner-Tuner affiliate cable companies to maintain monopolies against competitors like Direct Broadcast Satellite and new wireless cable technologies. What’s more, the Time Warner-Turner affiliates could hurt competition in the production of video programming by refusing to carry programming produced by competitors of both Time Warner and Turner. The FTC allowed the merger, but prohibited discriminatory access terms at both levels to prevent anticompetitive effects.[5]

Vertical mergers can further be classified into (a) Forward Integration and (b) Backward Integration. A recent example of the latter is Reliance purchasing FLAG Telecom Group. Reliance Gateway, a wholly-owned subsidiary of Reliance Infocomm, has signed an amalgamation agreement with Flag Telecom Group for this acquisition.[6]

Congeneric mergers occur where two merging firms are in the same general industry, but they have no mutual buyer/customer or supplier relationship, such as a merger between a bank and a leasing company. Example: Prudential's acquisition of Bache & Company.

Conglomerate mergers take place when the two firms operate in different industries. It is the merger of two companies that have no related products or markets. In short, they have no common business ties. Such merger moves for diversification of risk constitutes the rationale.

The completion of a merger does not ensure the success of the resulting organization; indeed, many mergers (in some industries, the majority) result in a net loss of value due to problems. For the merger not to be considered a failure, it must increase shareholder value faster than if the companies were separate, or prevent the deterioration of shareholder value more than if the companies were separate.[7]

Reconstruction: A corporate reconstruction can be divided as an exercise inyo internal reconstruction and external reconstruction. The exercise of corporate restructuring is as much legal exercise as it is a business exercise. They are also referred as internal arrangements and external arrangements.

(A) Internal Reconstruction:- requires the corporate to make variations in the rights of the shareholders (as dealt by ss.106, 107) or reorganizing by buy-back or reducing the share capital (s.390(b)), at that given point of time.

(B) External Reconstruction: - includes merger, amalgamation, de-mergers and provisions u/s.394 (b).

The procedure for the amalgamation of two companies has to be viewed from the Transferor and Transferee Company.

Steps to be followed by Transferee[8] Company is:

1. Memorandum Of Association (M/A):-The Memorandum of Association must provide the power to amalgamate in its objects clause. It M/A is silent, amendment in M/A must take place.

2. Board Meeting:-A Board Meeting shall be convened to consider and pass the following requisite resolutions:
- approve the draft scheme of amalgamation;
- to authorize filing of application to the court for directions to convene a general meeting;
- to file a petition for confirmation of scheme by the High Court.

Through an application under s.391/ 394 of Companies Act, 1956 can be made by the member or creditor of a company, the court may not be able to sanction the scheme which is not approved by the company by a Board or members resolution.[9]

Directors who are given the necessary powers by the AoA may present a petition on behalf of the company without first obtaining the approval of the company in general meeting.

3. Application to the Court:-An application shall be made to the court for directions to convene a general meeting by way of Judge's summons supported by an affidavit. The proposed scheme of amalgamation must be attached to such affidavit.

The summons should be accompanied by: A certified copy of the M&A of both companies A certified true copy of the latest audited B/S and P&L A/c of transferee company

Person entitled to apply:- (i) U/s.391 & 394, members of the company have right to apply to court (ii) A successor to a share of a deceased member has in the normal course, locus standi to maintain an application u/s.391, 395.(iii) An application can also be made by the transferee of shares.[10] (iv)The creditor also have right to apply to court. (v) The liquidator is also empowered to make an application to the court.

4. Copy To Regional Director:-A copy of application made to concerned H.C. shall also be sent to the R.D. of the region. Although, such notice is supposed to be sent by the H.C., usually the company sends it without waiting for the H.C. to send it.

5. Order Of High Court:-On hearing of the summons, the H.C. shall pass the necessary orders which shall include: (a) Time and place of the meeting, (b) Chairman of the meeting, (c) Fixing the quorum, (d) Procedure to be followed in the meeting for voting by the proxy, (e) Advertisement of notice of the meeting, (f) Time limit for the chairman to submit the report to the court regarding the result of the meeting.

Where the court observes that any of the following circumstances exist in the case of the merger it may not order a meeting when shareholders are few in number; or where the membership is restricted to a single family, HUF or close relatives; or where shareholding pattern of transferor and transferee companies is identical.

6. Notice Of The Meeting:-The notice of the meeting shall be sent to the creditors and/or all the shareholders individually (including preference shareholders) by the chairman so appointed by registered post enclosing: (a) A statement setting forth the following: - Terms of amalgamation and its effects - Any material interests of the director, MDs or Manager, in any capacity - Effect of the arrangement on those interests. (b) A copy of the proposed scheme of amalgamation (c) A form of proxy, (d) Attendance slip, (e) Notice of the resolution for authorizing issue of shares to persons other than existing shareholders

Computation: The notice that is required to be given u/s.393 of the Act for the meeting of the members/creditors shall be by 21 clear days notice.[11]

7. Advertisement Of Notice Of Meeting:-The notice of the meeting shall be advertised in an English and Hindi Newspapers as the court may direct by giving not less than 21 clear days notice before the date fixed for the meeting.[12] However in some instances, the 21 days period can be condoned if reasons are found jusiticiable.[13]

8. Notice To Stock Exchange:- In case of the listed company, 3 copies of the notice of the general meeting along with enclosures shall be sent to the Stock Exchange where the company is listed.

9. Filing Of Affidavit For The Compliance:- An affidavit not les than 7 days before the meeting shall be filed by the Chairman of the meeting with the Court showing that the directions regarding the issue of notices and advertisement have been duly complied with.

10. General Meeting:-The General Meeting shall be held to pass the following resolutions: (a) Approving the scheme of amalgamation by ¾th majority e.g. if a meeting is attended by say 100 members holding 100 shares, the scheme shall be deemed to have been approved only when it is supported by atleast 51 members holding together 750 shares amounts themselves; (b) Special Resolution authorizing allotment of shares to persons other than existing shareholders or an ordinary resolution be passed subject to getting Central Government's approval for the allotment as per the provisions of Section 81(1A) of the Companies Act, 1956, (c) The resolution to empower directors to dispose of the shares not taken up by the dissenting shareholders at their discretion., (d) An ordinary/special resolution shall be passed to increase the Authorized share capital, if the proposed issue of shares exceeds the present authorized capital. The decision of the meeting shall be ascertained only by taking a poll on resolutions.

11. Reporting Of Result Of The Meeting:-The Chairman of the meeting shall report the result of the meeting to the court within the time fixed by the judge or within 7 days, as the case may be. A copy of proceedings of the meeting shall also be sent to the concerned Stock Exchange.

12. Formalities With ROC:- The following documents shall be filed with ROC along-with the requisite filing fees: (i)Form No. 23 of Companies General Rules & Forms + copy of Special Resolution, (ii)Resolution approving the scheme of amalgamation, (iii) Special resolution passed for the issue of shares to persons other than existing shareholders.

13. Petition:-For approval of the scheme of amalgamation, a petition shall be made to the H.C. within 7 days of the filing of report by the chairman.

If the Regd. Offices of the companies are in same state - then both the companies may move jointly to the High Court. If the Regd. Offices of the companies are in different states - then each company shall move the petition in respective High Court for directions. However in a recent judgment of Jaipur Polypin Ltd. v. Rajasthan Spinning & Weaving Mills, it was held that when the two companies are at different places, then no need to file an application at two different places.

14. Sanction of The Scheme:- The Court shall sanction the scheme on being satisfied that: (i) The whole scheme is annexed to the notice for convening meeting. (This provision is mandatory in nature)

(ii) The scheme should have been approved by the company by means of ¾th majority of the members present.

(iii)The scheme should be genuine and bona fide and should not be against the interests of the creditors, the company and the public interest.

After satisfying itself, the court shall pass orders in the requisite form. The requirement of law is permission or approval of court to the scheme. The application made by the company is to seek court’s approval to the company scheme of amalgamation and not merely ordering a meeting. The court may order a meeting of members too. The court must consider all aspects of the matter so as to arrive at a finding that the scheme is fair, just and reasonable and does not contravene public policy or any statutory provision.

While interpreting s.394 r/w s.391, we find that the Tribunal’s power of ordering amalgamation/reconstruction is limited by two provisos of s.394: Firstly, Tribunal has to await the receipt of report from the Registrar of Companies about the manner in which affairs of the Company are conducted. Secondly, when the transferor company is proposed to be dissolved without winding up, the Tribunal shall await.

15. Stamp Duty A scheme sanctioned by the court is an instrument liable to stamp duty.

16. Filing With ROC The following documents shall be filed with ROC within 30 days of order: " A certified true copy of Court's Order " Form No. 21” of Companies General Rules & Forms

17. Copy of Order to be annexed A copy of court's order shall be annexed to every copy of the Memorandum of Association issued after the certified copy of the order has been filed with as aforesaid.

18. Allotment of shares A Board Resolution shall be passed for the allotment of shares to the shareholders in exchange of shares held in the transferor-company and to fix the record date for this purpose.

Steps To Be Followed By Transferor Company:-

The procedure as given above shall be followed by the transferor company. The only exception is that - there is no need for the transferor company to pass a special resolution for offering shares to the persons other than the existing shareholders and to file Form No. 23 of the Companies General Rules and Forms with the Registrar of Companies.

Conclusion

Mergers and acquisitions have gained importance in recent times. Business consolidation by large industrial houses, consolidation of business by multinationals operating in India, increasing competition amongst domestic companies and competition against imports have all combined to spur mergers and acquisitions activities in India.

2006 will be remembered in India’s corporate history as a year when Indian companies covered a lot of new ground. They went shopping across the globe and acquired a number of strategically significant companies. This comprised 60 per cent of the total mergers and acquisitions (M&A) activity in India in 2006. And almost 99 per cent of acquisitions were made with cash payments.

- Concept of Associations and Foundations-

According to Associations and Foundation Law an association is a voluntary union of persons founded to achieve the goal specified in the articles of association, which shall not have a profit-making nature. A foundation, also a fund, is an aggregate of property that has been set aside for the achievement of a goal specified by the founder, which shall not have a profit-making nature. NGO obtain the status of a legal person at the moment when it is entered into the Register of Associations and Foundations.

An association and a foundation are liable to the extent of all its own property. An association is not liable for the obligations of a member. A member is not liable for the obligations of an association. A foundation is not liable for the obligations of a founder. A founder is not liable for the obligations of a foundation.

The name of an association and a foundation shall not be contrary to regulatory enactments and good morals, i.e., the name of a military body or the name of such organisation or group which has been recognised as criminal or anti-constitutional, for example, "Hitler, The Nazi etc." shall not be included therein, it shall not create a positive attitude toward violence, and similar.

The name of a foundation shall contain the word "foundation" or "fund". The name shall differ clearly and distinctly from other names of associations and foundations already registered or under application for registration in the Register of Associations and Foundations. Only the letters of the Latin alphabet shall be used in the name of associations and foundations in Latvia. Misleading information regarding the purpose of activities, type of activities and legal form shall not be included in a name. The name of an association or a foundation shall not coincide with the names of State or local government authorities (institutions), as well as contain misleading information that the association or foundation is endowed with a public power.

Rights to Perform Economic Activity-

An association and a foundation have the right to perform economic activity in the form of complementary activity, which pertains to the maintenance and utilisation of its own property, as well as to perform other economic activity to achieve the goals of the association or foundation. The income of an association or of a foundation may be utilised only for the achievement of the goal specified in the articles of association. Profit obtained from economic activity of an association or a foundation may not be divided among the members of an association or the founders of a foundation. If a person receives remuneration (consideration) for activity in an association or a foundation this remuneration (consideration) shall be determined in accordance with the scope of the duties of the respective person and the financial situation of the association or foundation. An association and a foundation, in order to achieve the goals laid down in the articles of association, have the right to perform activities which are not in contradiction with law, especially to distribute freely information regarding its own activities, to establish its own publications and other mass media, to organise meetings, street processions and pickets, as well as to perform other public activities.

An association and a foundation may apply to State and local government authorities in matters related to the goals of the activities of the respective association or foundation, as well as to maintain the rights of its members or interests protected by law in a court.

Founding of an Association-

Natural persons and legal persons may be founders of an association, as well as partnerships with legal capacity. The number of founders may not be less than two. In order to found an association, the founders shall take a decision regarding the founding of the association. The following information shall be indicated in a decision regarding the founding of an association:

1) the name of the association;

2) the objectives of the association;

3) the given name, surname and personal identity number of the founders, but for a legal person and partnership - the name, registration number and legal address;

4) the rights and obligations of the founders if the founders have agreed on such;

5) an authorisation (if such was given) for certain founders to sign the articles of association and an application to the Register authority; and

6) other information that the founders deem necessary. After the taking of the decision regarding the founding of an association the founders shall approve the articles of association of the association, elect an executive body of the association (hereinafter - the executive board), which may be collegial or single-member and other bodies if such have been provided for in the articles of association. A decision regarding the founding of an association shall be prepared in writing and it shall be signed by the all of the founders of the association. His or her authorised person who has participated in the taking of the decision may sign the decision on behalf of a founder. The authorisation in writing shall be attached to the decision. The articles of association of an association shall be prepared in writing. The articles of association shall specify - the name of the association, the objective of the association, the period of activity of the association (if an association is being founded for a certain period of time), preconditions for the entering into and removal from membership, the rights and duties of members, the procedures by which the rights and duties of a territorial or another division (if such are established) may be laid down, the procedures for the calling of a meeting of members and the taking of decisions, the name of the executive body, the quantitative structure thereof, prescribing the rights of the members of the executive body to represent the association individually or collectively and the structure, procedures for election, competence, procedures for the taking of decisions and terms of office of audit institutions of economic and financial activity or the procedures for the appointing and terms of office of a certified auditor. The founders shall submit to the Register authority an application for the entering of the association into the Register. A founder who has acted on behalf of an association before the entering of the association into the Register shall be liable for any obligations arising from this action. If several founders have acted on behalf of an association to be established, they shall be jointly liable. If a founder has not had the right to act on behalf of the association, any obligations arising from such action shall be transferred to the association if the meeting of members definitively approves these obligations.

An association shall consist at least of two members, if the articles of association do not prescribe a greater number of members. The founders obtain the status of a member of the association upon the entering of the association into the Register. The executive board shall take a decision regarding the admission of a member into the association, if it is not otherwise provided for in the articles of association. If the executive board or other body (except for a meeting of members), under the competence of which is the admission of members, takes a decision regarding the refusal to admit a member, the person wishing to become a member has the right to demand a review of the matter in accordance with the procedures prescribed in the articles of association. Obligations for members are deemable only in accordance with procedures provided for in the articles of association. A member may withdraw from an association at anytime by submitting a notification in writing to the executive board of the association if it is not stipulated in the articles of association that such notification is submittable to another administrative body.

- Administrative Bodies of an Association- The administrative bodies of an association are the members' meeting (general assembly) and the executive board. Other administrative bodies may be provided for in the articles of association, determining the procedures for the establishment and the competence thereof. The members' meeting is the supreme body of an association. All members of an association have the right to participate in a members' meeting. A member may participate in a members' meeting also with the intermediation of a representative, if it is not otherwise provided for in the articles of association of the association. An authorisation to participate and vote at a members' meeting shall be issued in writing. The competence of a members' meeting shall include - the making of amendments to the articles of association, the election and recall of the executive board and audit institutions, if such rights are not granted to another administrative body in the articles of association, he taking of a decision regarding the termination, continuation or reorganisation of the activities of the association and other matters which under the Associations and Foundation Law or the articles of association are in the competence of a members' meeting.

-Basis for Termination of Activities of an Association- The activities of an association shall be terminated:

1) by decision of a meeting of the members;

2) upon commencing bankruptcy procedures of the association;

3) upon the diminishing of the number of members to a single member or to another number laid down in the articles of association;

4) upon expiration of the term laid down in the articles of association (if the association was established for a specific period of time);

5) by the adjudication of a court;

6) on another basis specified in the articles of association.

The decision of a meeting of members regarding the termination of activities of an association is taken if more than one-half of the members present vote in favour thereof, unless a higher voting majority is provided for in the articles of association. If the number of members diminishes to a single member or to another number laid down in the articles of association, as well as if the period of time specified in the articles of association for which an association has been established expires, the executive board of the association shall take a decision regarding the termination of the activities of the association.

-Reorganisation of Associations- An association may be reorganised by way of a merger or a division. Only associations may participate in the process of reorganisation. It may be provided for in the articles of association that reorganisation is or is not allowed under certain preconditions.

An association may be merged with another association through the course of incorporation or merger. An incorporation is a process by which an association (the association to be incorporated) transfers all of its property to another association (the acquiring association). A merger is a process by which two or more associations (the associations to be incorporated) transfer all of their property to an newly established association (the acquiring association). In the case of a merger the association to be incorporated ceases to exist without undergoing liquidation proceedings and obligations of the association to be incorporated transfer to the acquiring association. Members of the association to be incorporated become members of the acquiring association. If two or more already existing associations participate in a process of reorganisation, they shall enter into a reorganisation agreement. The agreement shall be entered into in writing.

-Founding of Foundations- A foundation may be established by one or several persons. If a foundation has several founders, they shall implement their founders' rights only jointly. Persons who have granted property to a foundation after the making of the entry thereof into the Register shall not be considered to be founders. The status of a founder is not inheritable and it cannot be transferred to third persons.

A foundation shall be established on the basis of a person's decision regarding the founding of the foundation or a last will and testament. In establishing a foundation for the purposes of general good and charity on the basis of a will (testamentary foundation), the provisions of the Latvian Civil Law. The executor, heir or trustee of a will shall exercise the rights of a founder, manage the property transferred to the foundation to be established, as well as perform other activities until the appointment of the members of the executive board. The articles of association of a foundation shall specify:

1) the name of the foundation;

2) the goal of the foundation;

3) the procedures by which property is transferable to a foundation;

4) the procedures for the use of the resources of the foundation;

5) the period of activity of the foundation (if a foundation is being established for a specified period of time);

6) the procedures for distribution of the property of the foundation in case of liquidation of the foundation;

7) the procedures for the appointment and dismissal of members of the executive board and the term of office thereof;

8) the procedures for the appointment and dismissal of members of other administrative bodies (if such are provided for) and the term of office thereof;

9) the structure, procedures for election, competence, procedures for the taking of decisions and terms of office of the economic and financial activities audit institution, or the procedures for the appointment and terms of office of a sworn auditor; and

10) procedures for the making of amendments to the articles of association.

The range of beneficiaries may be prescribed in the articles of association. In case of doubt a person to whom monies from the property of a foundation may be disbursed in accordance with the articles of association of the foundation is considered as a beneficiary. A foundation may not grant monies, provide guarantees, issue promissory notes to or otherwise finance founders, members of the executive board and other administrative bodies (if such have been established), as well as other persons who have a similar economic interest, especially spouses, relatives and brothers-in-law, sisters-in-law, counting kinship up to the second degree and affinity up to the first degree.

The administrative body of a foundation is the executive board. The formation of other administrative bodies may be provided for in the articles of association, prescribing the procedures for the establishment and the competence thereof, as well as the granting of management competence to other entities or bodies thereof (hereinafter - other administrative bodies). The executive board shall consist of at least three executive board members. If in accordance with the articles of association of a foundation another administrative body has been established and is acting, which consists of at least three members and the tasks of which include the supervision of the activities of the executive board, a single member may be in the composition of the executive board. If the interests of a foundation conflict with the interests of any executive board member or member of other administrative body, a spouse, a relative or brother-in-law, sister-in-law thereof, counting kinship up to the second degree and affinity up to the first degree, the matter shall be decided at the meeting of the body in which the member of the interested administrative body does not have the right to participate in a discussion of the matters, as well as he or she does not have a right to vote, and it shall be written into the minutes of the meeting of the administrative body. The member of the administrative body has a duty to notify regarding these interests before the meeting begins. The member of the administrative body has a duty to notify the administrative body regarding these interests also after the meeting of the body.

The activities of a foundation shall be terminated:

1) by the adjudication of a court,

2) upon expiry of the time period (if a foundation has been established for a specified period of time),

3) upon commencing bankruptcy procedures of the foundation,

--- (The activity of political parties, religious organisations, trade unions, professional organisations and those associations which are autonomous entities of public law, as well as public foundations (funds) shall be regulated by other laws.)

Contents:
1. Introduction
2. Company formation & trading structure
3. The Sole trader (Self-Employed)
4. Partnership (Self-Employed)
5. Partnership Agreement
6. Limited liability partnerships (LLPs)
7. Private limited company
8. Single member companies
9. Type of share
10. Shareholders' agreement
11. Private company limited by guarantee
12. Private unlimited company
13. Public limited company (plc)
14. Community Interest Companies (CICS)
15. Listed companies
Source

1. Introduction-

The United Kingdom has enjoyed a system of company registration since 1844. In these days, company registration matters are dealt with in law, by the Companies Act 1985 and the updating legislation contained in the Companies Act 1989. Companies’ Acts have been around for the last 150 years, and are designed to set the framework in which companies with limited liability must work. The Companies Act 2006 received Royal Assent on 8th November 2006 and effectively replaced existing company legislation by re-writing, updating and modernizing company law.

Business today is often a multi-national activity. British companies may carry on activities in other states and companies from other jurisdictions may carry on business in the United Kingdom.

English law provides two main types of organization for those who wish to associate in order to carry on business for gain: partnerships and companies.

Public companies are permitted to invite the general public to subscribe for the shares, whereas private companies are not. The shares of a public company may be officially listed for trading on a recognized investment exchange for example, the London Stock Exchange. The shares of a private company may not.

The term “Company” implies an association of a number of people for some common object or objects.

2. Company formation & trading structure-

When starting a business, it important to select the most appropriate trading structure. There are four main trading structures available:
Sole trader (Self-Employed)
Partnership (Self-Employed)
Limited liability partnerships (LLPs)
Private limited company (Ltd)
Public limited company (plc) (including “listed companies”).

3. The Sole trader (Self-Employed)-

The sole trader is the amoeba of the business organization world. As the name suggests, the sole trader operates alone and, as such, is the simplest form of trading structure. The liability of the sole trader is total. This means all financial risks are taken by that person and all that person's assets are included in that risk. Legally there is no distinction between the sole trader’s personal and business assets and so if the business goes badly the creditors can go after his/her home, car or other assets in satisfaction of business debt. The risk to the sole trader of doing business is large but there is no need for a formal organizational structure. Without insurance you could lose everything.

Accountability and regulation – there is very little regulation and official accountability associated with sole trader status. Because they are not registered with Companies House, sole traders are not required to file annual accounts or reports (other than for the payment of income tax).

4. Partnership (Self-Employed) -

Partnership is the relation which between person carrying on a business in common with a view of profit” (s. 1(1) of the Partnership Act 1890 (PA 1890)), there must be at least two persons, and “business” includes any “trade, profession or occupation”: PA 1890,s.45. The partnership is not a separate legal person, and partners have unlimited joint liability for the firm’s debts and obligations (PA 1890,s.9); and joint and several liability for torts (PA 1890,s.12). There is no distinction between the assets of the partnership and the assets of the individual partners. The partners can be pursed personally for the debts of the partnership.

A partnership is a very risky type of business to get involved in, just because of all the potential for conflict, and the financial effect conflict between partners would be likely to have on the business. However, now the Limited Liability Partnerships Act has received Royal Approval and will become Law by the end of the year.

Law firms in particular have very complex partnership agreements governing their operation. This means that the management structure, profit sharing and the life of the partnership can be made to fit any situation. The obligations are the same as for a Sole Trader.

Accountability and regulation- As with the sole trader, there is relatively little accountability or regulation attached to a partnership and no requirement to file reports and accounts with any official regulator. You will need to keep records for Inland Revenue (and also for VAT if you are VAT registered), but there are no other legal requirements. Each partner should submit a P/SE/1 and you are taxed as an individual. If you leave the partenership your tax liability will follow you (unlike in the past when the remaining partner had to pay it). The workload can be shared.

5. Partnership Agreement Form-

(The aim of the agreement is to provide a written structure of your business with respect to each partner's responsibility, rights, profit/liability sharing, and also the terms on which the partnership can be terminated.) This agreement is based on a full partnership and therefore some changes may need to be made in the structure if you wish to set up a Limited Partnership.

Content: 1) The name of the business/partners 2) Commencement of the partnership 3) Nature of the business 4) Business location 5) Set-up investment; 6) Contribution 7) Ownership 8) Role of the partners 9) Decision making and voting rights 10) Profit and loss sharing 11) Liability sharing 12) Business bank account/cash management 13) Accounts 14) Holiday entitlement 15) Illness and incapability 16) Retirement 17) The introduction of new partners; 18) Drawings and direct expenses; 19) Dissolution of the partnership 20) The death of a partner 21) Unfair competition 22) Dismissal of a partner 23) Signatures.

6. Limited liability partnerships (LLPs)

The Limited Liability Partnerships Act 2000 allows for partners to achieve limited liability up to a point. It allows liability to be limited for general trading debts but individual partners will not be able to limit their personal liability for negligence. This type of partnership (LLP) was designed to allow large professional partnerships (law and accountancy firms) to achieve some protection from large negligence actions. Created by registration under the Limited liability Partnership Act 2000, they are regulated by the Companies Act 2006 as private limited companies except that the management structure is fixed by the partnership agreement. They have the benefit of being able to secure loans by floating charge.

The business is controlled by the 'designated members' (who have a similar responsibility to a directors / secretary of a Ltd Company) and the 'members'. Capital is provided by the members, LLP's are similar to 'Partnerships' or 'Sole Traders' in this respect. Incomes derived by the members will be closer to that of a 'Partnership' than to the dividends paid by companies. The members will provide working capital and share any profits. An LLP will be taxed as a partnership. The internal structure of the LLP will be similar to that of a partnership. The members will provide working capital and will share any profits. Income derived by the members from the LLP will be closer to that of a partnership than to the dividends paid by companies. The Bill also provides that any partnership converting to an LLP will receive relief from stamp duty on any property transferred in the first year, subject to conditions. Members will be liable to pay Class 2 and Class 4 National Insurance contributions.

The LLP legislation does not allow for a 'conversion process' - in the way that a limited company can convert to PLC status under the Companies Act!

7. Private limited company –

The private limited company is the most common trading structure and is the central focus of company law. The company is created by a process of incorporation by individuals known as the promoters. Unlike a Sole Trader or a Partnership, the Limited company is legally a separate entity in its own right. The directors and shareholders have limited liability. When a limited company is created it will have an Authorised Shareholding which specifies the limit of a shareholders liability. If all shares have been issued then shareholders are not liable for any more debts that the company may accrue. This is definitely the most sensible option if capital is being put into the business by anyone who is not involved in running it.

Most limited companies are owned by “members” who each own a number of shares in the company. Usually, each share has a vote attached to it and so the members are able to vote on important decisions affecting the company, although the day-to-day management of the company is left to the directors.

However, it is possible that all of the shareholders of a very small company are also the directors and, following the introduction of the Companies (Single Member Private Limited Companies) Regulation 1992, it is even possible to have a single person who is both the sole shareholder and the sole director of the company.

A limited company always has staff, because a director of a company is considered an employee of the company, and a limited company must have at least 1 director, and a company secretary.

Accountability- You have to hold an Annual General Meeting (AGM) for all the share holders, within 18 months of setting up the company, and at least every 15 months after that. These meetings must receive, and approve, Annual Reports from directors and auditors. These reports must include summaries of the accounts, names of the directors, details about the shareholders, and other information. At these meetings the shareholders must also elect directors and auditors.

You must also submit an Annual Return to the Companies Registration Office, summarising the information included in the Annual Reports. These details are displayed at Companies House, where they are available for public inspection.

As a Limited Company, you will have to pay Corporation Tax on all profits.

8. Single member companies-

A single member company is a private company, limited by shares or by guarantee, which is formed with one member, or whose membership is reduced to one.

A single member - present in person or by proxy - constitutes a quorum in these circumstances. If you hold such a meeting you must record it in the minutes. If, as a sole member you take a decision, except by written resolution of the company, you must give a written record of the decision to the company. (This is to ensure continuity of records if you sell some or all of your interest in the company.)

If the company enters into an unwritten contract with the sole member who is also a director of the company (and the contract is not in the ordinary course of the company's business), the company must ensure that the terms of the contract are set out in a memorandum or are recorded in the minutes of the next director’s meeting.

A company's register of members must accurately record its members. The register of members of a single member company must contain an express statement to the effect that the company has only one member and state the date upon which the company became a single member company.

If the company originally had more than one member and the membership reduces to one, then the register must contain an express statement to the effect that the company has only one member and state the date upon which the company became a single member company.

If the membership of a single member company later increases, you must record the details of the new member in the register of members. You should enter an express statement to the effect that the company is no longer a single member company and the date on which that event occurred.

9. Type of share-

Ordinary shares will usually carry one vote per share on a poll. The dividend is that recommended by the directors, and the amount payable on a distribution of assets on a winding up proportional to the nominal value of the shares.

Preference shares usually entitle the holder to a dividend of a fixed amount per share to be paid in priority to other shareholders. However, that there is no entitlement until the dividend is declared. Preference shares may be: a) cumulative: if the dividend is not paid in one year, then the shareholder will be entitled to receive the arrears from profits in subsequent years. Unless the articles or terms of issue provide otherwise, preference shares are cumulative; b) non-cumulative: the dividend will lapse if the company is unable to pay it in any one year.

Preference shares may also entitle the holder to prior return of capital on a winding up where the company is solvent.

Deferred shares (sometime called founders’ shares) are now rare. Promoters used to take shares which would not qualify for a dividend until the ordinary shareholders had received one.

Redeemable share are issued with a provision that they may be bought back by the company at a later date, at the option of either the company or the shareholder.

Non-voting shares carry similar rights to ordinary shareholders, but no rights to vote.

10. Shareholders' agreement-

A shareholder's agreement is a contract between the shareholders of a company in which they agree how the company will be run. They all agree that they will use their voting power in the company to ensure that the terms of the agreement are complied with for as long as they are all shareholders.

For example a Shareholders Agreement includes the following clauses: 1) company details, 2) shareholder details, 3) business of the company, 4) directors' meetings, 5) management decisions, 6) appointment of directors, 7) transfer of shares, 8) dividend policy, 9) winding up, 10) termination, 11) confidentiality 12) no assignment and 13) communications.

11. Private company limited by guarantee –

In this type of company, members do not make any contribution to the capital during its lifetime as they do not purchase shares. The members' liability is limited to the amount that they each agree to contribute to the company's assets if it is wound up.

There are three different types of Limited by Guarantee Companies:

a) Club / Association, b) Charity, c) Flat Management etc.

12. Private unlimited company –

This type of company may or may not have a share capital and there is no limit to the members' liability. Because there is no limitation on members’ liability, the company has to disclose less information than other types of company.

13. Public limited company (plc)-

This type of company has a share capital and, the liability of each member is limited to the amount unpaid on shares that a member holds. A public limited company may offer its shares for sale to the general public and may also be quoted on the stock exchange.

A limited company with a share capital is a public company if:
a) it has been registered or re-registered as a public company on or after 22 December 1980;
b) its memorandum states that it is a public company;
c) its name ends with 'Public Limited Company' or 'PLC' or if it is a Welsh company, – that is, a company the memorandum of which says that its registered office must be in Wales – it may use the Welsh equivalents, namely 'Cwmni Cyfyngedig Cyhoeddus' or 'CCC';
d) it has an authorised share capital of at least £50,000 or at least €65,600 and states this in its memorandum.

Note- A Community Interest Public Limited Company: its name must end with 'community interest public limited company' or 'community interest p.l.c.' (or, if it is a Welsh company, it may use the Welsh equivalents, namely 'cwmni buddiant cymunedol cyhoeddus cyfyngedig' or 'cwmni buddiant cymunedol c.c.c');

A newly formed public company cannot commence business activities or exercise any borrowing powers until Companies House has issued a trading certificate under section 761 of the Companies Act 2006 (previously under section 117 of the Companies Act 1985).

Companies House will issue a Trading Certificate to a public company if the value of the company’s allotted share capital is not less than £50,000 or €65,600. This requirement must be wholly satisfied either in sterling or in euros, as a mixture of both will not be sufficient to meet the legal requirements. (This does not prevent the rest of the company’s capital being in a mixture of sterling, euros and even other currencies).

A PLC must have at least two members and a minimum of two company Directors. The Company Secretary must be a person who appears to the directors to have the necessary knowledge and ability to fulfil the functions or is a member of any of the following bodies:
the Institute of Chartered Accountants in England and Wales;
the Institute of Chartered Accountants of Scotland;
the Institute of Chartered Accountants in Ireland;
the Institute of Chartered Secretaries and Administrators;
the Chartered Association of Certified Accountants;
the Chartered Institute of Management Accountants (formerly known as the Institute of Cost and Management Accountants); or
the Chartered Institute of Public Finance and Accountancy.

14. Community Interest Companies (CICS)-

Community interest companies (CIC) are a new type of limited company designed specifically for those wishing to operate for the benefit of the community rather than for the benefit of the owners of the company. This means that a CIC cannot be formed or used solely for the personal gain of a particular person, or group of people. CICs can be limited by shares, or by guarantee, and will have a statutory “Asset Lock” to prevent the assets and profits being distributed, except as permitted by legislation. This ensures the assets and profits are retained within the CIC for community purposes, or transferred to another asset-locked organisation, such as another CIC or charity.

A CIC cannot be formed to support political activities and a company that is a charity cannot be a CIC, unless it gives up its charitable status. However, a charity may apply to register a CIC as a subsidiary company.

The Regulator - the companies (Audit, Investigations and Community Enterprise) Act 2004 “the Act” established the Regulator as an independent public office holder appointed by the Secretary of State for Trade and Industry. The appointment was subject to an open public recruitment process monitored by the Office of the Commissioner for Public Appointments. The Regulator is an independent official and her powers are set out in the Act and the Community Interest Company Regulations 2005. The Act requires her to discharge her functions in accordance with good regulatory practice. In particular, she must have regard to:
The likely impact of her actions on those affected
The results of consultation with stakeholders
The efficient and economic use of her resources
The Government expects the Regulator to be a “light touch regulator” who will encourage the development of the CIC brand and provide guidance and assistance on matters relating to CICs.

15. Listed companies-

Those public limited companies which wish to trade their shares are “listed” on the London Stock Exchange.

Shareholders in listed companies enjoy the same protection of “limited liability” afforded to members of other public (and private) companies. As with other public companies, there is a gulf between the small number of directors and potentially thousands of shareholders and this is even more pronounced I listed companies, where shareholder may live anywhere in the world.

Source:
Partnership Act 1890a
Companies Act 2006
Gower and Davies: The Principles of Modern Company Law (Paperback) by L.C.B. Gower, Sweet&Maxwell, 2008
Alan Dignam, John Lowry „Company Law”, Oxford University Press, 2006
Stephen Judge „Company Law 2008 and 2009” , Oxford University Press, 2008
Jacqueline Martin, Chris Turner „Company Law 2009-2010 edition”, Hodder Education, 2009
Chris Taylor „Company Law”, Pearson Longman, 2009
Derek French, Stephen Mayson, Christopher Ryan „Mayson, French and Ryan on Company Law”Oxford University Press, 2007
Companies House || http://www.companieshouse.gov.uk
Fast Link Solutions || http://www.fastlinksolutions.co.uk
Community interest companies || www.cicregulator.gov.uk

Many people are surprised when they go to a wrongful death attorney, and then learn that they don't get paid unless they win the case. Actually, that's not totally true, but it's the basis for how these types of lawsuits get going, and why they've very circumspect as to which cases they'll accept and which ones they'll turn down.

Depending on the type of wrongful death lawsuit the lawyers are fighting, and the amount, wrongful death lawyers will charge anywhere from 30 to 50% of the damages awarded. There isn't any one standard for how much lawyers are allowed to receive, though the norm is usually below 40%. If the case goes into very high millions, often they'll accept a lower percentage of the award. This works especially well in class action wrongful death lawsuits.

One of the determinants in figuring out what percentage a lawyer might charge in some instances is how much in expenses a lawyer figures they might have to pay out of their own pockets. Expenses aren't always fully reimbursed, and because lawyers don't always get money if they happen to lose the case, they'll look to find ways to recoup their losses whenever they can. Something that happens from time to time is the plaintiff will get a little bit of money from an outside source that's related to the case in some fashion. Lawyers will usually write something in the contract that they get a percentage of that money that goes against their expenses, and will have it returned if they win the case. That's a caveat that some plaintiffs forget when lawyers ask for a portion of that money while the case is still being litigated.

The part about lawyers not necessarily being paid if they lose is that, sometimes, the judge will state that the defendants have to pick up all court costs and attorneys fees, even if their clients didn't win. That happens at least half the time, although it rarely happens in the case of a civil suit. It's totally at the discretion of the judge, which means it's something that no one is ever sure will happen at the time.

Many of the big houses have in-house legal counsel to aid them in their legal needs or proceedings. But, for small business it is not at all possible. It is difficult for them to have personal legal support due to some of the reasons such as capital investment, size of business, etc. therefore small firms take assistance from law firms if required. Many law firms are in Toronto who can provide any kind of legal assistance and advice if required to small business.

Remember these things while choosing a law firm

Many law firms in the city of Toronto provide their legal advice whenever required by small business houses. However, it is very difficult to judge which firm provides the best services. Just look at the few tips that help you get the best legal support.

It is important to understand your business before you hire any legal firm. The business requirement of the small firm is limited to a certain field when compare to large organizations. Thus, it is necessary to know your business well before going for the hiring option.

Narrow your search

It is better to narrow your search as per your business requirements. This way you have only look for those firms that can efficiently provide you services. Some law firms are there who deal with business like employment, labor law, commercial collections, copyright, trademark, etc. some firms are specialized in providing legal advice to small and medium sized services. Such firms can understand your problem better and provide precise legal support.

Check the background:

Before either hiring it is always advisable to check the background of the firm by visiting it or asking somebody you has hired their services. This way you can understand the kind of legal service they provide.

Ask for reference:

Just ask your friends, relatives and colleagues if they know any reputed law firm that provides excellent services. Those who had better experience in seeking legal advice can better guide you and refer to the firm. However, you have to be sure that the reference provided should match your business field.

Thus, it is a very difficult task to choose a legal firm. For a small business, one has act wisely in order to choose the right firm. The above tips will surely help you to hire the right firm. You can even check at Opara law firm for further details.

It has become a common practice for individuals, businesses and organizations to hire a law firm to deal with various legal issues in their lives. It is important that when you plan to hire one, you need to be sure whether it is capable of carrying out your best interest and is competent enough to help you win your legal battle.

In Toronto and the GTA, in the Province of Ontario, Canada there are many law firms with good reputation that can give you dedicated and cost-effective services. So you have to take care of many things while choosing a law firm. In other words, certain important factors have to be kept in mind while making a choice of law firm.

Expertise and Experience

Law firms which possess knowledgeable and expert attorneys are always noted for their excellence. Thus, opt for such firms as they will be able to provide you innovative legal solutions in the areas that you need legal assistance. The lawyers in the law firm should be able to provide creative solutions for your legal problems and should be capable of helping you out of any business transaction or litigation problem, no matter how sophisticated and complex the legal issues may be.

Track Record

Experience plays a vital role, so it is necessary that the law firm has good experience in dealing with lawsuits. You can ask for the results of the cases that have been handled by the law firm in the past or get the information about the number of cases won by the firm. In addition, you can also get suggestions and directions from your friends and relatives about a particular law firm. You can also ask the existing or old clients of the firm about the reputation of the law firm.

Client Services

The firm you hire should be able to tell you all about the minute details of your legal process which you may not know while filing litigation. These little things if properly implemented can help you in your legal process. The firm should also be able to provide regular feed backs about the ongoing process.

Staff

The result of your legal suit also depends on the efficiency of the staff of the firm. A properly trained staff, having enough knowledge and experience in the area can surely help you win the case. They should give timely response with proper legal guidance. They are effective communication tools between the attorney or lawyer and the client.

The airline industry is once again making the news with several carriers increasingly showing risk of bankruptcy, even after major reorganizations under Chapter 11 bankruptcy earlier in the decade. The looming issues, which have already caused labor cuts, are due to worsen as consumer demand continues to drop, the price of jet fuel skyrockets in the US economy increasingly moves towards a deep recession.

Bankruptcy cases filed in 2008 were nearing the 1 million mark. This clearly shows the financial stress being felt across the US and the dire need for relief and government intervention. Recent efforts by Democrats to pass a bill that would adjust existing mortgage loan amounts to more accurately reflect the current fair market value were rejected by Republicans and the banking sector due to projected losses base would have to take, leaving homeowners still waiting for a resolution to their ever increasing mortgage rates.

The mortgage crisis is one of the major reasons for the current state of the economy and to some extent in the number of people filing bankruptcy this year. Subprime loan products, being the most likely cause of the crisis, were marketed aggressively during the real estate boom of the first half of the decade, these loans, which started with low teaser rates, have adjusted to unmanageable levels for borrowers who could only qualify for such products during that time.

John McCain supports bankruptcy and mortgage reform. As part of his revamped economic plan, McCain has proposed a government purchase of troubled mortgages to stem the tide of foreclosures by re-amortizing the loans at fair market value. While McCain should be commended for recognizing the collapsing housing market as the major source of our faltering economy, his plan to keep the middle class in homes and out of personal bankruptcy, will not work.

The problem is that home mortgages are pooled together by the thousands into a special tax free trust. Wall Street sells shares of these mortgage backed securities, known as certificates, to investors, which makes the government purchase of the underlying securitized mortgages impossible. The best Uncle Sam can do to buy these worthless certificates, which will only serves to bail out investors without helping homeowners.

Currently, commercial properties, vacation homes, and investment properties as well as furniture, cars, computers and other assets can have the principle amount of the loan reduced to the value of the property, the interest rate lowered to market rate and the loan re-amortized. This is what is called a “cram down” except there is one problem. You can't do it for the mortgage on your home. It's a hold over from 30 years ago, when mortgages have large down payments and fixed interest rates. Because the loans were simple and conservative, they were shielded from having to take a hit when homeowners had to file for bankruptcy. Well, the interest-only, adjustable-rate, zero down payment mortgages from a few years ago, are anything but simple or conservative. There is no need for this exception in this current market. If something isn't done quickly Chapter 7 bankruptcies will continue to increase over the next few years.

There has been much doom and gloom written about the bankruptcy means test under the new laws and how much more difficult it's going to be to file Chapter 7. It's true that there are more hoops to jump through under the new bankruptcy code and it's true that the bankruptcy means test will result in some people having to file Chapter 13 instead of chapter 7. However, the vast majority of chapter 7 bankruptcy filers is still available with very little extra effort. If you're in a financial situation that when you pay all your bills and you have nothing left, you will probably qualify for Chapter 7 bankruptcy.

Filing bankruptcy is not magic that only had a bankruptcy attorney may perform. The fact is bankruptcy is a lawyer’s cash generator. The sixth amendment to the Constitution allows anyone to represent themselves in a court proceeding. That's why many people have developed do-it-yourself bankruptcy websites.

These legal websites, usually backed by attorneys, realize that over 1 million people would have to file bankruptcy over the next few years. So they reached out to technology companies and asked them to help create bankruptcy software that would allow people to file from the comfort of their home. Along with the ease of using this new software to file on your own, there is a huge savings of money.

If you decide to file bankruptcy on your own you should probably use a bankruptcy software program because each state has varying rules and regulations regarding bankruptcy, it is important to get software that works in your state. These programs offer general bankruptcy advice and tips on filing area this will ensure that you have all you need to file in your state’s federal bankruptcy court.

When you file for bankruptcy, educate yourself and know the laws. Bankruptcy laws can change, so read up on all the recent changes before starting the process so you will be able to apply that new laws to your situation.

When filing bankruptcy you need to understand your responsibilities. You must pay filing fees, so find out what those will be, and have the money ready. Ensure that you fill out every bit of information on the bankruptcy forms, as one small omission can cause your case to get sidetracked. You will also need to take on the duties that your bankruptcy attorney would normally handle, sending out creditor letters, arranging a meeting of the creditors and attending the hearings.

If any of the above steps seem daunting, then you should hire a bankruptcy attorney. However, plenty of do-it-yourself bankruptcy cases are filed without error, and the results are the same as if you used a bankruptcy attorney. You'll get a discharge and rearrangement of your debts so that you can get a better handle on your finances in the future. You can save quite a bit of money by doing it yourself, as long as it's done correctly.

Islamic financial arrangements used in Islamic banking (MUSHARIKA, MURABIHA, QARDE AL'HASANA, IJAREH, MUDARABA) Author: EHSAN ZARROKH ZARROKH2007@YAHOO.COM 2007-04-06 ABSTRACT Islamic finance is an old concept but a very young discipline in the academic sense. It lacks the required extent and level of theories and models needed for expansion and implementation of the framework provided by Islam. In these circumstances, unawareness and confusion exist as to the form of the Islamic financial system and instruments. The main difference between the present economic system and the Islamic economic system is that the later is based on keeping in view certain social objectives for the benefit of human beings and society. Islam, through its various principles, guides human life and ensures free enterprise and trade. That is the reason why the conventional banker does not have to be concerned with the moral implications of the business venture for which money is lent.

TABLE OF CONTENTS 1. ABSTRACT 2. The Role of Money 3. Types of Islamic Financial Instruments 4. Risk Mitigating Features 5. Islamic Leasing 7. MUSHARIKA 8. MODARABA 9. CONCLUSIONS Socio-economic justice is central to the Islamic way of life. Every religion has the same basic aim. In an Islamic environment, an individual not only lives for himself, but his scope of activities and responsibilities extend beyond him to the welfare and interests of society at large.

The KORAN is very precise and clear on this issue. There are basically three components of an Islamic economic paradigm: 1. That as vice-regent, man should seek the bounties of the land that God has bestowed on humanity. From the wealth thus obtained, he should enjoy his own share. 2. That he should be magnanimous to others and use a part of the wealth so obtained also for the benefit of his fellow-beings. 3. That his actions should not be willfully damaging to his fellow-beings. Human society in Islam is based upon the validity of law, of life and the validity of mankind. All these are natural corollaries of the faith. Islamic laws promote the welfare of people by safeguarding their faith, life, intellect, property and their posterity. God nurtures, nourishes, sustains, develops and leads humanity towards perfection. Even though an individual may be making a living because of his efforts, he is not the only one contributing towards that living. There are a number of divine inputs into this effort and therefore, the results of such an effort obviously cannot be construed as entirely proprietary. Whereas the Islamic banker has a much greater responsibility. This leads us to a very fundamental concept of the Islamic financial system i.e. the relation of investors to the institution is that of partners whereas that of conventional banking is that of creditor-investor. The Islamic financial system is based on equity whereas the conventional banking system is loan based. Islam is not against the earning of money. In fact, Islam prohibits earning of money through unfair trading practices and other activities that are socially harmful in one way or another. [1] Those who swallow down usury cannot arise except as one whom SHAITAN (evil) has prostrated by (his) touch does rise. That is because they say, trading is only like usury; and Allah has allowed trading and forbidden usury. To whomsoever then the admonition has come from his Lord, then he desists, he shall have what has already passed, and his affair is in the hands of Allah; and whoever returns (to it) - these are the inmates of the fire; they shall abide in it [SURAH 2:275]. Not that there was any ambiguity in the Command of Allah. Far be it from Him to give any order to His Servants, which they can not comprehend. The fact is that those who had surplus money and wanted to earn profit did so either by lending it through RIBA (usury) or by investing it in trade and hypocrites were not prepared to forgo the first option. Hence, they argued that since both were means of earning profit, they were alike and the prohibition of RIBA did not stand to reason. The practice of RIBA i.e. usury was so deep-rooted in society and continuance of the practice was so undesirable, that Allah warned the believers that if they did not desist, they should be prepared for a war against Allah and His Apostle. This warning was heeded by the Muslim UMMAH and for more than a thousand years the economies of Muslim states were free from RIBA. With the ascendancy of Western influence and its suzerainty over Muslim states, the position changed and an interest-based economy became acceptable.

Efforts in Muslim countries to revert to an interest-free economy were hampered by many obstacles. [2] The Role of Money The traditional definition of the time value of money leads one to assume that profit maximization is the objective of investors irrespective of whether or not the earning of profit has made someone else worse off. Some economists have termed the maximization of profit as the sole objective of corporations. This view cannot be supported or defended since the profit maximization process may lead to perverse outcomes. When financial operations are removed of moralistic tone, competitive markets fail to achieve the efficient allocation of a country's resources. In Islam money in itself is not considered, as actual capital only exists when money, along with other resources, is sunk into productive activities. Linking the use of money to productive purposes invariably brings into action the factor of labor, a process from which benefits pass on to society. Types of Islamic Financial Instruments Demand for monetary instruments is influenced by the variation and level in the market rate what is meant as the market rate of return.

The demand for household monetary instruments is mainly for the purpose of circulation of income. Banks need these instruments for: 1. Transaction purposes; 2. Precautionary purposes, in that some unexpected payments have to be made while some expected inflows may not be forthcoming on their due date, and; 3. not only to avoid loss but also to obtain gains in the capital value of financial assets under the expectation that the market rate of return may move in a certain direction. What differentiates a traditional financial market from others markets is that no tangible good or service is exchanged for any monetary consideration; only a "financial claim" changes hands in the form of a promissory note or a title to any future flow of income adjusted for any capital appreciation. Not all Islamic instruments are purely financial claims. Some of the instruments also represent ownership of the underlying assets together with a claim to underlying cash flows. Basically there are the following four types of Islamic financial instruments: 1. Type "A" is a financial claim of monetary value with recourse to underlying durable assets and related cash flows. This type has a predictable future income stream, is marketable and can be discounted since with the changing of hands, the instrument passes title to the goods and not to the debt. It is basically lease-based. 2. This instrument is partly backed by durable assets and its income is not predictable, but evaluated through an asset valuation process at the end of an agreed and declared duration. The underlying transactions can be a mix of IJARA, MODARABA, MUSHARAKA etc., contracts. This Type may be traded in the secondary market at its fair market price acceptable to the parties involved but not discounted. 3. Type "C" is purely a monetary claim to an expected income stream forthcoming from underlying commercial transactions.

Income is evaluated through an asset-valuation process at the end of an agreed and declared period. A transaction of this type may comprise MORABAHA, ISTASNA etc., contracts which are debt claims against third parties in respect to actual commercial transactions. The Type may be traded at its face value declared at the end of each accounting period but cannot be discounted. 4. The Type "D" is purely a financial claim of monetary value but with recourse to certain precious metals such as gold, silver, platinum, etc., or commodities quoted on exchanges. The instrument entitles the holder to take delivery of the underlying asset but does not carry any attached revenue stream except that its price is pegged to the price of the underlying precious metal or commodity quoted at recognized international exchange rates. It can be traded but not discounted. [3] Risk Mitigating Features The phenomenon of risk plays a pervasive role in economic life. Without it, financial and capital markets would consist of the exchange of a single instrument each period, the communications industry would cease to exist in so far as this market is concerned and the profession of investment banking would be reduced to that of accounting. Risk is further segregated from uncertainty. A situation is said to involve risk if the randomness facing an economic agent can be expressed in terms of specific numerical probabilities (these probabilities may either be objectively specified, as with lottery tickets or else reflect the individual's own subjective beliefs). Situations where the agent cannot (or does not) assign actual probabilities to alternative possible occurrences are said to involve uncertainty. While it is not always true that a riskier asset will pay a higher average rate of return, it is usually return. Risk is an opportunity in financial markets and also a problem. Risk-averse investors require additional return to be at additional risk and, in effect, in a competitive market higher return is accompanied by higher risk. An investor evaluates an asset in terms of its marginal contribution to his/her portfolio. The fundamental principal of valuation is that the value of any financial asset is the present value of the cash expected. The process requires two steps: 1. Estimating the cash flow, and; 2. Determining the appropriate interest rate that should be used to calculate the present value

The following are the SHARI'AH compliant risk mitigating features: 1. By prior arrangements in the instrument, the investing company, through its banker, would have a priori right in profit sharing up to an agreed upon ratio. 2. The profit will be paid on account on a monthly basis to the investing company as provided in the projected accounts. 3. The final accounting and settlement is accomplished at the end of the term of the instrument when the profit and loss accounts are finalized. 4. In order to mitigate the risk and as per the terms of the instrument, a TAKAFUL fund is established for the term of the instrument. 5. In this TAKAFUL fund where the invested company earmarks a part of their reserves for the TAKAFUL fund. 6. The investing company will contribute 1% of the invested amount. 7. This 1% contribution is made through an advance by the invested company on account of future profits. 8. In case of any loss during the tenancy of the instrument, it will be adjusted against the TAKAFUL fund. 9. The balance will be distributed between investor and at the end of the term of instrument. 10. Through a valuation, value of the investment would be established for the purpose of exercising the put option. 11. The investing company shall have the option to exercise its put option at the value price and the company shall buy this instrument. [4] Islamic Leasing But before describing leasing, as aforesaid, let me very briefly touch upon two of the basic or fundamental principles of Islamic finance in order to develop a premise for meaningful discussions on leasing. 1. It has to be asset-based financing: The first fundamental principle of SHARI'AH is that as opposed to conventional monetary dealing, profit is generated when something having intrinsic utility is sold or offered for use. Money has no intrinsic value. As such dealing in money (same currency) cannot generate profit but a RIBA unless converted into real assets to deal with. 2. There has to be an element of risk: The second basic element of SHARI'AH is that one cannot claim a profit or fee for a property/transaction, the risk of which was never borne by him. Based on the above fundamental principles, the most ideal mode or instrument of financing in SHARI'AH are MUSHARAKA and MUDARABA followed by SALAM and ISTINSA. MORABAHA and leasing are not originally modes of finance. However, to meet certain specific needs where ideal modes like MUSHARAKA or MUDARABA are not workable for whatever reasons, they have been reshaped and allowed in SHARI'AH subject to certain conditions. 1. Leasing described for leasing, IJARAH is an Arabic term with origins in Islamic FIQH, meaning to give something to rent. There are two types of IJAREH. One relates to employing or hiring the services of a person for wages whereas the second type relates to the hiring of any asset or property in order to reap its benefits without the transfer of ownership, or what is called in English "USUFRUKT". The price or consideration of this is the rent. It is the second type of IJAREH which is the subject matter of the discussion here because it is generally used as a form of investment and also as a means of finance. As described earlier, in the light of the two basic cornerstones of SHARIA'H, leasing is a contract whereby usufruct rights to an asset are transferred by the owner, known as the lessor, to another person, known as the lessee, at an agreed-upon price called the rent, and for an agreed-upon period of time called the term of lease. 2. Lease as a mode of financing Strictly speaking leasing is not a means of finance as originally envisaged. It is simply a transaction much as a sale/purchase. As described above, the leasing transaction simply denotes the transfer of the usufruct of a property from one person to another for an agreed-upon price called rent without transferring the corpus i.e. ownership of that asset. Accordingly, the rules of "leasing" closely resemble the rules governing "sale" because in both cases something is transferred to second person for valuable consideration. Leasing differs from sale only in-so-much-as not transferring the corpus or ownership of the property which remains with the transferor. As such in SHARIA'H, a lease transaction is governed by a separate set of rules, which we shall outline in the following paragraphs. Although leasing, as originally conceived, is not a means of finance, the financial institutions and the corporate world have adopted it as such. Due to several factors (including tax concessions, etc.), instead of providing an interest-bearing loan, certain financial institutions in the West started to provide requisite equipment to their customers.

To arrive at the rent, the total cost of the asset is calculated plus interest or mark-up to be recovered during the period of lease on a monthly or quarterly basis. This type of lease in the West is known as a finance lease, to be distinguished from an operating lease, wherein various basic features of the leasing transaction are ignored which is tantamount to RIBA. Knowing that leasing is lawfully allowed under SHARIA'H, since it meets one of the basic criteria of asset-based finance, a number of Islamic financial institutions have adopted leasing on this model as carried out by conventional financial institutions without making the necessary modifications that really conform to the rules under SHARIA'H, particularly in regards to assuming the risk of ownership in the leased asset. Great care needs to be exercised to ensure various SHARIA'H requirements, as rendered below, based on the basic two principles of: 1. Asset based finance, and; 2. Assuming a risk element connected to the ownership of the asset. 3. Basic Rules of Leasing The description or definition given above, under part A, contains the following essential ingredients for outlining the basic rules under SHARIA'H: 1. That it is a contractual obligation. 2. That there has to be a valuable use of the asset and transferability of that usufruct. 3. That the ownership of the asset is retained by the transferor or lessor throughout the lease period. Consumable articles cannot be leased. 4. That the risk and liabilities of ownership lie with the lessor. The leased asset shall remain the risk of the lessor throughout the lease period. Any loss or harm caused by factors beyond the control of the lessee shall be borne by the lessor. However, the lessee is liable to compensate the lessor for any harm to the leased asset caused by any misuse or negligence on the part of the lessee. 5. That the risk and liabilities associated with the use of the asset shall be borne by the lessee. For instance, taxes and other government levies, utilities, etc. However, the contract must specify these items for clarity's sake. 6. That the term of the lease, period of the lease, its renewal or early termination must be stipulated. 7. Purpose of use. The lessee cannot use the leased assets other than for the purpose specified in the contract or agreed to by the lessor expressly. 8. Commencement of lease. The lease commences from the date of delivery of the asset to the lessee and not from the day of payment or lease agreement, with reference to the commencement of rentals. 9. Determination of rental. The rent for the entire period of the lease must be determined at the time of the contract. Different rates of rent for different phases during the lease period are permissible. This point will be elaborated in the following discussion of the issues. 4. Issues While operating a leasing business, a number of practical issues have cropped up which warrant discussion and interpretation under SHARIA'H. An exhaustive and conclusive list of such issues is impossible to make. However, certain important and salient issues need to be taken up in these discussions as follows: 1. Joint ownership (Lessors)/Joint Lessees - (permissible) 2. Insurance - Islamic TAKAFUL - (by the owner) 3. Renewal of or variation in the lease period - (permissible if mutually agreed-upon) 4. Future date. Agreement to commence lease on some future date is allowed. However, the rent has to commence from the date of delivery. If the lessee has paid the price and delivery of the asset is delayed by the supplier, then no rent is liable to be paid for the period of delay. It must be noted that future or forward sale in sale/purchase transaction is not permissible in SHARIA'H. This is another major point after ownership transfer which differentiates leasing from a sale/purchase transaction under SHARIA'H. 5. Acquisition of an asset by the lessee. For various reasons, the asset subject to lease may be acquired by the lessee and payment may be disbursed? Through him by the lessor. This is permissible under SHARIA'H on the principles of agent and principal. Here there are two relationships separate from and independent of one and other. The first relationship is that before becoming a lessee, an individual acts as an agent for and behalf of the lessor to acquire the asset. This is an independent arrangement. Once the asset has been acquired with all the risk and reward of ownership to the lessor, then a second relationship is created i.e. the lessor and the lessee under the lease agreement. That cost of acquisition shall be borne by the lessor being owner and not by the lessee. 6. Rentals. 1. Advance rentals are admissible subject to the condition of adjustment against the actual rental when due upon commencement of the lease as discussed before. 2. Unilateral increase by the lessor is not permissible even if stipulated in the contract. 3. Bench marks. The fixing of any bench mark for determining the amount of rent, as with an inflation index etc., is permissible provided that the lease agreement clearly stipulates the same e.g. if the inflation rate as declared by an authoritative body like the State Bank etc. is said to be 10% per annum, then the rent can be increased every year by that percentage. 7. Penalty for late payment of rentals. Penalty or compensation for late payment is not permissible. Rentals once due become a debt obligation or monetary asset which cannot generate profit under SHARIA'H. This situation has been exploited by unscrupulous lessees. In such circumstances, contemporary scholars have provided a solution whereby a penalty can be charged to the lessee for delayed payment though the amount recovered is only to be used for charitable purposes by the lessor. In other words, the late payment charges cannot be taken as income by the lessor. A suitable clause, therefore, is to be incorporated into the lease agreement to avoid any misunderstanding in this regard. 8. Premature termination of lease. Premature termination of lease is allowed provided that the lessee has violated or contravened the terms of the lease or it is by mutual consent of the lessee and the lessor. Any unilateral or unconditional termination of the lease either by the lessor or the lessee without prior notification is contrary to the principles of justice and equity, hence not allowed under SHARIA'H. 9. Repossession of an asset. In the event of early termination, or upon maturity of the term of lease, assets have to return to the lessor unless he voluntarily relinquishes his rights or makes a gift of the leased assets to the lessee. However, rent would be payable only up to the date of termination and not beyond. Entitlement or the right of the lessor to claim rent from any period after termination, even if expressly stipulated in the contract, is not valid under SHARIA'H. 10. Residual value. It is accepted under SHARIA'H that ownership of the asset belongs to the lessor and, therefore, assets should revert back to him upon expiry of the lease. Any stipulation to the contrary in the contract that the lessor can sell or transfer the asset to the lessee upon the expiry of the term of the lease at a pre-determined price called residual value is not considered valid from the point of view of SHARIA'H However, this point is currently a subject matter of debate among contemporary scholars. They are of the view that if a lessor unilaterally undertakes or promises to transfer the ownership to the lessee as a gift or at a token price separate from the lease agreement, then this can be considered validly binding on the lessor at the option of the lessee. 11. What is important is that under SHARIA'H the leasing and sale/purchase transactions are two separate things and should not be mixed up in one contract, as both are independent and governed by separate rules. Nothing, however, in SHARIA'H stops the lessor from giving away the ownership of his assets at his own discretion or good will toward the lessee at any mutually agreed-upon price or as a gift upon the expiry of the leasing contract. 12. Sale and lease back. This is allowed, but only as two separate transactions. That in the first place there is a sale of assets to be purchased by the lessor. This is governed by SHARIA'H rules of sale/purchase at a fair market value. Once the ownership title is validly passed on to the lessee, a lease transaction can then be executed separately through a lease agreement. 13. Sub-lease. Sub-lease by the lessee is permissible under SHARIA'H subject to the consent of the lessor and can be expressly outlined in the lease agreement. In SHARIA'H, however, there are divergent views if the rent arising from the sub-lease is higher than the rent payable on the original lease. Some scholars allow the differential to be retained by the lessee while others feel that the surplus received from the sub-lease should be passed on to the owner i.e. main lessor. 14. Assigning of the lease. Also permissible under SHARIA'H, the lessor can sell the leased assets to a third party along with his rights and obligations. The relationship between lessor and lessee in this case will be determined between the new owner and the lessee. However, the lessor cannot assign the lease without transferring the ownership for monetary consideration. Here the basic SHARIA'H cornerstone of asset-back transaction is not there. Rent receivables are debt obligation which cannot therefore be transacted for a monetary price. Assignment of lease rentals without monetary consideration is, however, not prohibited in SHARIA'H. 15. Securing of the lease. Leased assets can be secured along the same principles governing the assignment i.e. ownership of assets along with the rent. Rent alone without ownership of the assets cannot be secured for the reason of being a debt obligation as discussed before. Securing a lease can be made wholly or partly to one party or to a number of persons. Documentation has to be carefully prepared to ensure the securing instrument represents assets and not the debt or monetary obligation alone. [5] Some Difficulties Major hurdles faced by Islamic finance houses are the absence of a necessary legal framework and the lack of adequate infrastructure in the banking and investment fields. [6] The modern banking system is based on the concept that money should be treated like any other factor of production and must earn some return over a period of time. It is argued that the establishment of large-scale enterprises, and hence material progress, is not possible unless there is an agency that can mobilize financial resources from the public by paying them some interest, while lending these resources to entrepreneurs. By charging these entrepreneurs a higher interest, these agencies were able to utilize the difference (called a spread) to meet their expenses and to make some profit for the owners of the agency (i.e. share-holders). Banks were established to fulfill this need and from the beginning were only authorized to perform this function. They were legally prohibited from entering into trade or industry. When the Government of IRAN decided to introduce an interest-free banking system, this prohibition was removed. After a lot of in-house the banks were told that they were allowed to deal in only 1 to 12 means of financing (only two were classified as "Financing by Lending"). These two permitted lending without interest by charging the actual expense incurred by the banks to meet their cost of operation and QARDE AL'HASANA. All the rest were either trade-related or investment-type models. These included the purchase of goods by banks and their sale to clients at an appropriate mark-up price on a deferred payment basis, in case of default there being no further mark-up. This sale of goods on mark-up is known as MURABIHA. Other types of financing were hire-purchase, leasing, MUSHARIKA or profit- and-loss-sharing, equity participation and purchase of shares, etc. Since MURABIHA was the type nearest to lending and since it did not require any expertise in buying and selling commodities, bankers limited most of their financing to this type. In order to eliminate the risk of prospective buyers refusing to accept goods purchased by the banks by reason of not being strictly in accordance with the specifications, banks were allowed to appoint the prospective buyer as their agent for the purchase of the goods and later for the sale of the goods to the buyer's firm. Furthermore, to give as much leeway to the banks, as safeguards of public money, as possible, the ULAMA did not fix a waiting period between the two stages of buying and selling. The banks did not assume the role of trader and MORABIHA degenerated into lending on mark-up. The banks rarely hired persons who knew even the basics of trading, nor did they train their existing staff to learn the art. They did not even bother to find out whether their agents had actually purchased the goods or not. The inability or reluctance of banks and financial institutions to change over their operations from lending to trading has been a serious impediment to the Islamisation of the economy. The blame does not entirely fall on the bankers. Depositors have become so accustomed to their money remaining safe and yet earning profit that if a bank had really ventured to trade and incurred a slight loss, then the depositors would have immediately demanded their money back causing the bank to go bankrupt. In the existing state of morality this was more likely to happen. It actually did happen to a few investment companies that had started with good intention, but could not go on giving away handsome profits to their depositors. A lack of seriousness and dedication in those responsible for the implementation was also another great impediment to the achievement the goal of an interest-free economy. Many of these individuals thought that in the present world, there was no alternative to interest, yet something had to be done because of demands from the government. Some, who were more influenced by Western education and culture, thought that interest banking was not prohibited by Islam. Yet others thought that the efforts being made were only superficial and in reality the new system was no different from the existing system. One weakness in the implementation of the proposals to eliminate interest from the system was that people were not sufficiently motivated to sacrifice a part of their financial interests for the sake of carrying out the commands of Allah (SWT), and the Prophet (SAW). Anyone attempting to change a well-established practice must be prepared to make some sacrifice for this, as arguably no noble cause has been achieved without any sacrifice. The prevailing level of public morality within the existing legal and taxation system of the state made it an up-hill struggle to rid the banking system of interest. And it remains so. Beyond this, there are many avenues of making profit that would have to be forgone and many types of modern banking services which also could not be provided by a bank working strictly on Islamic principles. For example, they could not keep their surplus cash in fixed or saving deposits. In spite of these difficulties, those who were engaged in the task of Islamisation took it upon themselves to portray as successful the reforms, while those who pointed out the difficulties were labeled as either a cynic or an opponent of the new system. Anyone who uttered a word of caution was regarded as someone who did not want the experiment of Islamisation to succeed. As a matter of fact, reward in the Hereafter (AAKHIRAT) should have been the main purpose of Islamisation. It might not have attracted many people, but the foundation would have been firm. One great obstacle in the realisation of the goal of an interest-free economy has been absence of a proper environment. Unfortunately nothing has been done to produce an ideal or a near ideal Islamic environment by government or public leaders.

The most important pre-requisite for the enforcement of SHARIA'H is A'DL [translation!!!!!!]. Establishment of the rule of law and ensuring justice to aggrieved persons should be the first task of an Islamic state, yet nothing have been done to achieve this end. One very important requirement of an ideal environment is an inflation-free economy. Inflation erodes the real value of money, meaning that when a person gives a sum of money on loan and receives the same amount back after one year, he has made a net loss. A major source of inflation is deficit financing. The printing of notes to meet budgetary deficit is in fact an injustice to the public, since the real value of their money is consequently eroded. In this respect too, the government's performance is very discouraging. Government borrowings at high interest rates and the quantum of the government's domestic and foreign debts has reached a level which cannot be sustained. There has also been no effort to change the taxation structure so as to bring it to conform to SHARIA'H. [7] MUSHARIKA MUSHARIKA represents the most desirable form of Islamic financing arrangements. Yet, in terms of its ability to be an effective and efficient instrument for replacing interest-based transactions, it poses formidable problems. The salient features of the MUSHARIKA agreement, as practiced by the commercial banks, were as follows: 1. It was a short-term financing arrangement specific only to the parties to the contract. 2. Investment by the banks was made in the form of the sanctioning of a funding limit to the client and the degree of employment of funds was determined on the basis of daily product of outstanding balances due to the bank. 3. All participative funds, including equity, reserves and other non-debt capital was included in the definition of capital qualifying for profits. 4. Profit sharing ratio was determined through negotiations within the boundaries specified by the SBP. 5. Profits for the purpose of sharing were to be determined after apportioning a share of net-income as a management fee to the firm. 6. Provisional profits, based on projected profits, were to be paid to the bank on quarterly basis, subject to a final adjustment on the basis of actual profits or losses. 7. Shortfalls or excess profits were to be settled through the creation of a [participation] reserve fund, which would attempt to smooth out the payments to the bank. 8. Losses, if any, were to be shared in strict proportion to the bank's investment in the total capital of the firm. 9. Against the apportioned loss of the bank, ordinary shares were to be issued, which qualified for recon version in MUSHARIKA investment under the original terms of the agreement in case profits accrued in future. 10. Standard securities in the form of pledging and hypothecation stocks or the mortgaging of properties were required against MUSHARIKA financing. Some of these features of the instrument attracted criticism. For example, the profit sharing arrangement did not strictly conform to the requirements of SHARIA'H particularly in the treatment of losses and the payment of provisional profits or their adjustment through the participation reserve. Secondly, despite being a sharing arrangement, the actual agreement was cast within the framework of a creditor-debtor relationship, and was also protected as such in law. Three, MUSHARIKA also demanded securities which were akin to the relationship between a creditor and debtor. Finally, in the absence of a legal framework regulating the operation of MUSHARIKA, there was no standardization of the agreement, and the terms and conditions of various agreements varied considerably. MODARABA MODARABA represents another of the more desirable forms of Islamic financing arrangements. The salient features of MODARABA companies and their operations are as follows: 1. Only registered companies or those established under specific laws are eligible to register as MODARABA companies. 2. MODARABA can either be specific purpose or multi-purpose and can either be for a fixed term or in perpetuity. 3. On fulfillment of certain conditions, and with the prior approval of the Registrar, MODARABA companies may float MODARABA on the stock exchange, and their certificates of issue will be tradable securities. 4. Each MODARABA will be a separate business and its operations must conform to those approved under the injunctions of SHARIA'H. 5. A Religious Board, to be periodically constituted under the ordinance, will be empowered to declare whether the operations of MODARABA were in conformity with the provisions of SHARIA'H or not. 6. Many disclosure requirements, similar to those applicable to listed companies, are applicable to MODARABAS, including statutory audit, annual meetings and investments and loans to and from the directors of the MODARABA Company. Evidently, the entire scheme was an elegant formulation of the simple relationship required under a MODARABA contract between labor (DARIB) and capital (RABBULMA'L). The management company was to be remunerated through a fixed management fee paid out of the net income of the MODARABA and the remainder was to go to MODARABA certificate holders, with adequate provisions for retained earnings to ensure future growth. CONCLUSIONS To outline the broad features of a strategy which holds the promise of successfully implementing an Islamic system of finance are as follows: 1. The process has to be guided by basic legislative efforts covering all the essential elements of the proposed programmed. 2. The legislation would define RIBA and prohibit transactions connected with RIBA. 3. The application of the law would be unqualified and without exception, thus the entire financial sector, covering banking government finance and foreign transactions would be covered in its ambit. 4. Given the unqualified and non-exceptional nature of the proposed law, even existing relations will have to be converted into permissible forms, for which a suitable time frame, within a phasing-in period, will be allowed. 5. The law should also provide for the Constitution of a SHARIA'H Board which would assist the SBP to formulate permissible means of financing. Such means, specified with the prior approval of the Board, will only be illustrative and no restrictions will be placed on banks and financial institutions to design means of financing which are free of RIBA. 6. A major portion of the law will have to be devoted to a plan of restructuring the fiscal policy which comprises a scheme for the privatization of public sector assets and the use of its proceeds for the settlement of the outstanding stock of public debt. The proposed strategy is based on the clear recognition of the scope implied by the prohibition of RIBA. This is critical, for otherwise the solution will continue to elude us.