Comparison Between Bailment & Wadee'ah (Deposit)  

Tuesday, April 29, 2008


a) Bailment
Bailment is a legal relationship created when a person gives property to someone else for safekeeping. To create a bailment the other party must knowingly have exclusive control over the property. The receiver must use reasonable care to protect the property.

This word is derived from the French, bailler, to deliver. It is a compendious expression, to signify a contract resulting from delivery. It has been defined to be a delivery of goods on a condition, express or implied, that they shall be restored by the bailee to the bailor, or according to his directions, as soon as the purposes for which they are bailed shall be answered. Or it is a delivery of goods in trust, on a contract either expressed or implied, that the trust shall be duly executed, and the goods redelivered, as soon as the time or use for which they were bailed shall have elapsed or be performed.

Mr. Justice Blackstone has defined a bailment to be a delivery of goods in trust, upon contract, either expressed or implied, that the trust shall be faithfully executed on the part of the bailee. And in another place, as the delivery of goods to another person for a particular use.
Mr. Justice Story says that a bailment is a delivery of a thing in trust for some special object or purpose, and upon a contract, express or implied, to conform to the object or purpose of the trust.

Bailment is also defined as the temporary placement of control over, or possession of Personal Property by one person, the bailor, into the hands of another, the bailee, for a designated purpose upon which the parties have agreed. Or it can be said as the act of placing property in the custody and control of another, usually by agreement in which the holder (bailee) is responsible for their safe keeping and return of the property. It is also understood as the delivery of an asset by its owner to another person or persons for temporary care.

Sir William Jones has divided bailment into five sorts, namely:
-Depositum, or deposit.
-Mandatum, or commission without recompense.
-Commodatum, or loan for use, without pay.
-Pignori acceptum, or pawn.
-Locatum, or hiring, which is always with reward.

This last is subdivided into,
-Locatio rei, or biring, by which the hirer gains a temporary use of the thing.
-Locatio operis faciendi, when something is to be done to the thing delivered.
-Locatio operis mercium vehendarum, when the thing is merely to be carried from one place to another.

b) Wadee’ah

Literary, the word wadee’ah is derived from word al-wad’u or wada’ means ‘to leave’. It is because each mudee (proprietor) and muda’ (trustee) leaves one another. It can also mean al-hifz (to preserve, to keep, and to secure). It is kind of Amanah.

As-Sun’anee defines al-wadee’ah as the thing or good (corpus) entrusted by the owner or his agent to another to be kept in the custody. The contract of wadee’ah can be mandoob if the trustee has a character trust confidence in his self. Allah said in soorah al-Maidah verse 2:
وتعاونوا على البرّ والتّقوى

Means: “Do help one another in the courtesy and God-fearing”.

But wadee’ah can be wajib (compulsory) when nobody else other than himself (trustee) who is capable to keep the goods, and it is worried to be perish when nobody takes it into custody.

Ibn Balban defines wadee’ah as the wealth which is delivered or is handed over the person keeping it without reward.

In fact, wadee’ah contract is a kind of Bailment. It is sort of deposit in which the trust is for the benefit of the bailor as mandates. Generally, wadee’ah is done gratuitously.


There are some comparisons between the contract of Bailment and Wadee’ah:

a. Definition
Bailment has a wider sense in definition, as it includes many kinds of trust contracts, e.g [1] Those contracts in which the trust is for the benefit of both parties, as pledges or pawns, and hiring and letting to hire, [2] Those in which the trust is for the benefit of the bailee, as gratuitous loans for use, and [3] those in which the trust is for the benefit of the bailor, as deposits and mandates. The result; wadee’ah is one of its kind, as it is sort of deposit and mandates.

b. Use of Term
The term of ‘Bailment’ is used for a kind of contract, while the term of ‘wadee’ah’ is used for two meanings: for the contract itself and for subject of the contract (the goods delivered to the muda’).

c. Elements of Contract
In Bailment three elements are generally necessary: delivery, acceptance, and consideration.
a.) Delivery
Actual possession of or control over property must be delivered to a bailee in order to create a bailment. Control over property is not necessarily the same as physical custody of it but, rather, is a type of constructive delivery. The delivery of the keys to a safe-deposit box is constructive delivery of its contents.
b.) Acceptance
A requisite to the creation of a bailment is the express or implied acceptance of possession of or control over the property by the bailee. A person cannot unwittingly become a bailee. Because a bailment is a contract, knowledge and acceptance of its terms are essential to its enforcement.
c.) Consideration
Consideration is the exchange of something of value, must be present for a bailment to exist. Unlike the consideration required for most contracts, as long as one party gives up something of value, such action is regarded as good consideration. It is sufficient that the bailor suffer loss of use of the property by relinquishing its control to the bailee; the bailor has given up something of value, the immediate right to control the property.
Whereas the Wadee’ah contract involved 3 elements as well, they are: Sighah, mudee, and muda’.

-Sighah (offer and acceptance),
-mudee’ (the party who deliver the goods, he can be the owner, the possessor or his agent), and
-muda’ (the trustee, or the party who is to take the goods into his custody).

But, Imam Shafe’i did not consider the sighah (offer and acceptance) as the element required in the wadee’ah contract. Merely silence of both mudee’ and muda’ in certain circumstances may be enough to create wadee’ah contract.

d. Parties involved
In Bailment the parties involved are known as bailor and bailee. Bailor is the party delivering the goods, and Bailee is the person to whom the goods are delivered. While in Wadee’ah they are known as mudee’ and muda’ (proprietor and trustee).

e. Source of Provision
The rights and duties of each bailor and bailee are provisioned in Contract Act 1872, while the rights and duties of each mudee and muda’ are regulated in the sources of Islamic Law (Qur’an, Sunnah, Ijma or consensus of jurists, and Qiyas).

f. Voluntarily and Involuntarily
Bailment can be established voluntarily or involuntarily, e.g by operation of law, while wadee’ah contract is always created voluntarily.

g. Movable and Immovable
Bailment contract is created for movable property, while wadee’ah can be done for both movable and immovable property. For instance; Z (mudee’) entrusted his home to Y (muda’) during Z’s travel to other city, or during specific time period. That illustration is an example of wadee’ah contract for immovable property.

h. Transfer of Goods to 3rd Party
In Bailment when bailee, without the knowledge of or authority from bailor, transferred the goods bailed to other person to be kept in the custody of that other person, and that transfer caused the goods bailed to the damage or loss. In this case bailee will be held liable to compensate. In Wadee’ah, when C (owner of the goods) entrusted the goods to A to be kept in his home, but after few days the door of A’s home was broken, and it may cause to the loss of the goods. Knowing this condition, A transferred the goods to his friend (B/third party) by reason to believe that B has more capability to keep the goods in his save home. In this circumstance, A will not be held liable to compensate in case of damage or loss, because his act is done in his capacity as trustee who has right to do so in case of emergency or manifest urgency.

i. Legal & Possessory Right
Trust of wadee’ah may cover realty as well as personality; the beneficiary under a trust has an equitable interest only, whereas a bailee has a legal interest (viz. various possessory rights). A trustee has the legal title of ownership, and so has power to convey a good title to a bona fide purchaser for value, whereas the bailee has only possessory rights.

j. Several joint Owners
Bailment in accordance with section 165 of Contract Act states that if several joint owners of goods bail them, the bailee may deliver them back to, or according to the directions of one joint owner without the consent of all, in the absence of any agreement to the contrary. On the other hand, in case of deposit (wadee’ah) by two persons, the trustee cannot deliver to either his share, but in presence of the other. So, if two men deposit (entrusted) something jointly with another, and one of them afterward appears and demands his share of deposit, the trustee must not give it unless in the presence of the other depositor, according to Imam Abu Haneefah.

The argument of Abu Haneefah is that the person present, in claiming his on share, necessarily claim half of the absentee’s since he claim a separate and determinate portion, whereas his right is indefinite. Now, where a right is mixed indefinitely with another, it is to be rendered separate and determinate only by means of division, but the trustee has no power to make a division.

k. To Use the Goods
In bailment, the bailee may use the thing bailed, provided that his act is not out of authorized use. Bailee can be held liable in case of making unauthorized use of goods bailed. He can use the thing bailed as far as the permission given by the bailor is concerned. In Wadee’ah, the muda’ (trustee) is not allowed to use the thing deposited to him. When the mudee (depositor/proprietor) allowed him to use the goods, the wadee’ah contract turns into areeyah (loan).

l. Reward
Consideration is one of the elements of Bailment contract. That is why in many cases, the bailee will be given a reward after the accomplishment of the task. For instance; a tailor will have a right of money after finishing the task of sewing the ordered garment of customer. It is a kind of non-gratuitous bailment. In the other hand, Wadeeah is generally created gratuitously and without a reward. And the goods are to be returned when it is demanded or required.

m. Termination
The contract of Wadee’ah is terminated when the goods are returned to mudee (proprietor/depositor) on his demand. It can be also terminated by the agreement of both parties, e.g when the muda’ (trustee) feels of incapability to keep the goods, or when the time period was specified.

Bailment, according to section 148 of 1872 Contract Act, is the delivery of goods by one person to another for some purpose, upon a contract that they shall, when the purpose is accomplished, be returned or otherwise disposed of according to the directions of the person delivering them. Thus, a bailment is ended when its purpose has been achieved, when the parties agree that it is terminated, or when the bailed property is destroyed. A bailment created for an indefinite period is terminable at will by either party, as long as the other party receives due notice of the intended termination. Once a bailment ends, the bailee must return the property to the bailor or possibly be liable for conversion.[]


1. A Law Dictionary, Adapted to the Constitution and Laws of the United States, By John Bouvier. Published in 1856.
2. AL-IKHYAR LITA’LEEL AL-MUKHTAR, by Majdooddin Abdullah Ibn Mahmood Ibn
3. Maudood al-Mausly, vol. II, Darul Fikr, Amman, Jordan, 1999
4. MAWAHIBUL JALEEL; MIN ADILLAH KHOLEEL, by Sheikh Ahmad al-Mukhtar al-Jaknee as-Shanqeety, vol. IV, Publisher: Idaratu Ihya-e-Turats al-Islami, Qatar, 1987.
5. AKHSARUL MUKHTASARAT, by Ibn Balban, vol. I, publisher: Maktabah ar-Rushd
THE HIDAYAH; Mussulman Laws, by Charles Hamilton, vol. III, Premier Book House, Lahore, 1982
6. Contract Act 1872, Mansoor Book House, Lahore, 2007

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Thursday, April 24, 2008

I. Introduction

Limited Liability Partnerships are distinct from limited partnerships, in that limited liability is granted to all partners, not to a subset of non-managing “limited partner”. As a result the LLP is more suited for business where the investors to take an active role in management. Whereas Limited Partnership is kind of partnership in which one or more partners have limited liability and at least one of the partners has unlimited liability. The liability of the limited partner is limited to the extent of his investment in the business. In Pakistan there is no Limited Partnership type of business.

A Limited Liability Partnership ("LLP") is essentially the same thing as a Limited Liability Company ("LLC"), except that an LLP is specifically designed for use by certain professions (for example, accountants, lawyers or architects). Generally the partners in limited liability partnerships aren't responsible for the debts, obligations, or liabilities of the partnership resulting from negligence, malpractice or wrongful acts, or misconduct by another partner, employee or agent of the partnership.

Professional organizations (such as accounting and law firms) generally prefer limited liability partnerships because they are specifically designed to limit malpractice claims against partners not involved in the malpractice. But a partner of a limited liability partnership is liable for other partnership debts and obligations as well as for their own negligence, malpractice or wrongful acts, or misconduct, and that of any person under their direct supervision and control.

There are more administrative duties involved compared to the Partnership business structure. In terms of liability, the Limited Liability Partnership is itself liable for debts run up in running the business, rather that the individual members of the LLP. As a result, LLP's are only recommended for profit running businesses.

Individuals or existing businesses can be members of a Limited Liability Partnership, and the LLP must have at least 2 members. The rights and responsibilities of all members would usually be laid out in a "Deed of Partnership". The LLP would typically select a "Designated Member" (or members) who would be responsible for maintaining communications with Companies House, preparing accounts and acting for the LLP if for some reason it is dissolved further down the line.

II. Forming a Limited Liability Partnership

Limited liability partnerships are formed by either:
filing a certificate with the Secretary of State, or
filing a certificate to convert an existing general partnership to a limited liability partnership.
At least two people “carrying on a lawful business with a view to profit” must subscribe their names to a document called an "incorporation document". The incorporation document must be delivered to the Registrar of Companies at Companies House. A statement must also be delivered to the Registrar that there has been compliance with the requirement that at least two persons, associated for the purpose of carrying on a lawful business with a view to profit, have subscribed their names to the incorporation document. The statement must be made by a subscriber to the incorporation document or a solicitor engaged in the formation of the limited liability partnership.

The incorporation document must include this information: the name of the limited liability partnership, the name and address of the persons who are to be members on incorporation; whether some or all of the members are to be designated members. There is no restriction on the number of members, but at least two must be designated members. A designated member is responsible for certain administrative and filing duties and for the filing of accounts as well as other duties in particular circumstances. Specifically, it is the designated partners who are held liable for the correct filing and recording of the limited liability partnership affairs. It is they too, who will be subject to the criminal penalties of failure to comply. If the LLP reduces in number and there are fewer than two designated members then every member is deemed to be a designated member.

An LLP should draw up a "Deed of Partnership" at the time of formation, a legally binding agreement between members which lays out the rights and responsibilities of each party to the agreement. Alongside administrative details such as the names and addresses of members, the deed will also include details on the amount of capital each partner will inject into the business, what their individual roles and responsibilities will be in running the business and what would happen if a partner leaves the business.

There are precise provisions for registration of a limited liability partnership, which are not dissimilar for those for creating a new limited company. However, a person cannot buy an "off the shelf" limited liability partnership as he can a limited company. The original documents have to be prepared with the names of the first set of "real" partners.

The law of “ostensible authority” applies to partner transactions. Every partner is an agent of the limited liability partnership. The limited liability partnership is bound by every contract made by any partner, unless first, the partner had no authority to make the contract and second, the third party was aware of that fact. The limited liability partnership is bound even by contracts by former partners, unless the other party has been told that the former partner is no longer a member, or the registrar has received a notice to that effect.

III. Tax and National Insurance

Limited liability partnerships are run like general partnerships and have a similar degree of management flexibility. Income, losses and gains are passed through to the general partners according to the partnership agreement. If there is no partnership agreement, income, losses and gains will be allocated in proportion to the partnership interests of each partner. Partners can agree among themselves as to how income, losses, and gains are divided among the partners. The partners then report the amount allocated on their own income tax returns and pay tax accordingly.

All profits in a Limited Liability Partnership (LLP) are split between the members. The tax liability falls on the individual members, not the LLP itself. Most members are likely to be self-employed, so all income should be declared via self-assessment. If an LLP member is another business, they will be liable to pay corporation tax on any income they receive from the LLP.
The profits of the business of a limited liability partnership are taxed as if the business were carried on by partners in partnership, rather than by a body corporate. This ensures that the commercial choice between using a limited liability partnership or a partnership is a tax neutral one. There are fair and foreseeable provisions to restrict set off of losses elsewhere against partnership profits of a partner and other anti-avoidance measures.

The transfer of an existing business to a limited liability partnership will not be treated for tax purposes as a cessation of the business of the partnership which is making the transfer unless in identical circumstances a transfer between one partnership and another would do so.

IV. When to use a limited liability partnership

Of all the legislation of the last few years, the “creation” of limited liability partnership is one of the most interesting.

a. Limited liability generally
The essence of a limited liability partnership for practical purposes is as a vehicle to contain a partnership of any size where partners may be at risk from the careless or accidental negligence of a colleague. For example, partners in International accountancy firms would be protected from personal liability if a claim was successfully pursued by a major client. Partners in a construction business would be protected if a new building collapsed, causing high level claims against them.

b. Protection for a non-active lender
A limited liability partnership may also be appropriate for a partnership where some partners are not actively involved. They might have once been called “sleeping” partners. This will suit both a company and an individual lender.

c. Easy in, easy out
The LLP structure is more suitable for a group of people engaging together in a property or finance venture where it may be necessary to account for partners coming and going more frequently than we would expect in a normal partnership business.
V. Direct Partner Liability in LLP

All limited liability partnership ("LLP") statutes provide that LLP partners will be personally liable for their own negligence or malfeasance. In addition, most LLP statutes provide that LLP partners are liable for the negligence, wrongful acts and misconduct of any person under the LLP partner's "direct supervision and control, "although the statutory terminology differs in this regard. The various state LLP statutes do not define what is meant by "direct supervision and control," and this question is left to judicial interpretation. For supervisory liability to be imposed upon a LLP partner, both "supervision and control" must exist, and the mandated supervision and control must be "direct."

It is probable that the LLP statutes contemplate immediate, close supervision and control by a LLP partner, rather than a casual level of supervision or control is contemplated. The direct supervision and control standard should require an intimate involvement in supervision and control in connection with actual work with respect to a matter, rather than mere responsibility for a matter or client. Thus, for example, a LLP partner in an accounting firm who is working on a day-to-day basis in supervising and directing the activities of an employee would appear to have liability exposure. On the other hand, the chair of a department in a law firm, the members of the governing body of law firm or the managing partner of a law firm, who have established general policy for their firms but who are not personally involved in a client representation would appear not to have liability exposure. Similarly, two LLP partners working on a matter independently of each other, neither of whom is viewed as supervising and controlling the other, should be able to argue that since they acted independently of each other, they should not be exposed to liability for the other's conduct. However, the lack of authority on this issue creates risk, which likely will affect the actions of LLP partners.

VI. The Benefits And The Disadvantages of LLP

A limited liability partnership is unlikely to be useful for a small trading company of any sort because a conventional limited company is likely to perform an appropriate role at less cost.
The benefits of a limited liability partnership against a limited company may be:
less public scrutiny because the partnership agreement remains confidential, easier manipulation of shares between partners, easier changes of membership, no administration relating to the issue and allotment of shares, easier expression of administration, roles and management in a partnership agreement.

The disadvantages may be:
lack of certainty as to how the Registrar and the courts will treat limited liability partnerships, lack of a body of law to protect minorities, possibly more “fuss” to administer until staff and advisers are fully conversant with new procedures, If the limited company is insolvent all the loss is the value of its assets.
It may be found a limited liability partnership insolvency more expensive since the amount which might lose is likely to be more. However, this cannot be a hard and fast rule. Each case will depend on its facts. []

1. Qureshi, Fayyaz Hameed and Khurram Abbas Sheikh. LAW OF CONTRACT. Doggar Publisher: Lahore, 2006.

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A sole proprietorship is a business which legally has no separate existence from its owner. Hence, the limitations of liability enjoyed by a corporation do not apply. All debts of the business are debts of the owner. It is a "sole" proprietor in the sense that the owner has no partners. A sole proprietorship essentially means a person does business in his or her own name and there is only one owner. Since the business is really just an extension of that person and not a new entity (like a corporation) any business debts are also personal debts. If the business were to get a judgment filed against it, it would be a problem for the owner. As a sole proprietorship is not a corporation, it does not pay corporate taxes, but rather the person who organized the business pays personal income taxes on the profits made, making accounting much simpler. A sole proprietorship need not worry about double taxation like a corporation would have to.

A business organized as a sole proprietorship will likely have a hard time raising capital since shares of the business cannot be sold, and there is a smaller sense of legitimacy relative to a business organized as a corporation or limited liability company. Hiring employees may also be difficult. This form of business will have unlimited liability, therefore, if the business is sued, it is the proprietor's problem.

Most sole proprietors will register a trade name or "Doing Business As". This allows the proprietor to do business with a name other than his or her legal name and also allows the proprietor to open a business account with banking institutions.

The main advantages that differentiate the sole proprietorship from the other legal forms are as follow:
-Low start-up costs
-Greatest freedom from regulation
-Owner is in direct control of decision making
-Minimal working capital required
-Tax advantages to owner
-All profits to owner

And the disadvantages are as follow:
-Unlimited liability
-Lack of continuity in business organization in absence of owner
-Difficulty in raising capital
-No name protection


Indian Partnership Act 1932 defines Partnership as:
“The relation between persons who have agreed to share profits of a business carried on by all or any of them acting for all.” Then, a partnership is an agreement in which you and one or more people combine resources in a business with a view to making a profit. It contains three basic elements: agreement, share of profit, business.

However, it is advisable to have a written partnership agreement that will spell out the specifics of the agreement. This should state (1) each partner's rights and responsibilities, (2) the amount of capital each partner is investing in the business, (3) the distribution of profits, (4) what happens if a partner joins or leaves the business, and (5) how the assets are to be divided if the business is discontinued. Things have a way of changing and people forgetting over time, so it is essential that there be a signed document that all abide by.

A partnership is a type of business entity in which partners (owners) share with each other the profits or losses of the business undertaking in which all have invested. Partnerships are often favored over corporations for taxation purposes, as the partnership structure does not generally incur a tax on profits before it is distributed to the partners (i.e. there is no dividend tax levied). However, depending on the partnership structure and the jurisdiction in which it operates, owners of a partnership may be exposed to greater personal liability than they would as shareholders of a corporation.

Advantages and disadvantages of Partnership:

There are a number of advantages and disadvantages that we should keep in mind when deciding whether to operate business as a Partnership. The advantages of Partnership are as follow:
-Ease of formation
-Low start-up costs
-Additional sources of investment capital
-Possible tax advantages
-Limited regulation
-Broader management base

And the disadvantages are as follow:
-Unlimited liability
-Divided authority
-Difficulty in raising additional capital
-Hard to find suitable partners
-Possible development of conflict between partners
-Partners can legally bind each other without prior approval
-Lack of continuity
-No name protection


Company is described as a body of persons associated for the purpose of business. It has some features, such as: Voluntarily Association, Separate Legal Entity, Limited Liability, Limitation of Activities, Transferability of Shares, Separate Management, Company is not a citizen, One Share One Vote.

In the legal field, a company is specifically a corporation (or less commonly, an association, partnership, or union) that carries on a commercial or industrial enterprise. Generally, a company may be a corporation, partnership, association, joint-stock company, trust, fund, or organized group of persons, whether incorporated or not.


A corporation differs from the other legal forms of business, it possess the same rights and responsibilities as a person. Unlike sole proprietorships or partnerships, it has an existence separate from its owners. It has all the legal rights of an individual in regards to conducting commercial activity: it can sue, be sued, own property, sell property, and sell the rights of ownership in the form of exchanging stock for money.

As a result, the corporation offers some unique advantages:
a. Limited liability: owners aren’t personally responsible for the debts of the business,
The ability to raise capital by selling shares of stock,
b. Easy transfer of ownership from one individual to another,
It has "unlimited life" and thus the potential to outlive its original owners

And the disadvantages are:
-Corporations utilize specialists.
-Corporations are taxed twice.
-Corporations must pay capital stock tax.
-Starting a corporation is expensive.
-Corporations are closely regulated by government agencies. []


Law Dictionary, by Mian Asad Hakim, Mansoor Book House, Lahore, 1999
Partnership Act 1932, Mansoor Book House, Lahore

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Law is that element which binds the members of the community together in the adherence to recognized values and standards. It is both permissive in allowing individuals to establish their own legal relations with rights and duties, as in the creation of contracts, and coercive, as it punishes those who infringe its regulation

International law, as understood among civilized nations, may be defined as consisting of those rules of conduct which reason deduces, as consonant to justice, from the nature of the society existing among independent nations; with such definitions and modifications as may be established by general consent (element of international law by Wheaton). It can be regarded as laying down as established practice of international law that in the absence of stipulation a new state takes over and becomes bound by the liabilities of its predecessor.

The expression ‘International Law’ and ‘Law of Nations’ are synonymous and are equivalent terms. Professor Charles Cheney defines International Law as that body of law which is composed for its greater part of principles and rules of conduct which states feel themselves bound to observe, and therefore, do commonly observe in their relations with each other. While according to Oppenheim, Law of Nations or International Law is the name for the body of customary and treaty rules which are considered legally binding by States in their intercourse with each other.

Public international law (or international public law) concerns the relationships between sovereign nations. International law consists of rules and principles which govern the relations and dealings of nations with each other. It is developed mainly through multilateral conventions. Its modern corpus started to be developed in the middle of the 19th Century.

International law is divided into conflict of laws (or private international law) and public international law (usually just termed as international law). The former deals with those cases in which foreign elements obtrude, raising questions as to the application of foreign law or the role of foreign courts. For example, if two Englishmen make a contract in France to sell goods situated in Paris, an English court would apply French law as regards validity of that contract. By contrast, public international law is not simply an adjunct of a legal order, but a separate system altogether.


One of the most controversial issues that has long been debated and discussed and on which the opinions of the jurists are sharply divided since the beginning of the sciences of law of nations concerns the status of International Law. Although rules regulating the relations of States are referred to International Law in practice consistently since 200 years, a number of jurists have expressed doubts on the question: Is International Law really law? One view is that International Law is not a true law. It is a code of rule of conduct of moral force only. Another view is that International Law is a true law, and it is to be regarded as law in the same way as that of ordinary laws of a State which are binding upon the individuals.

Austin’s View

According to Austin, international law is not legally binding on States. Law is the command of the sovereign attended by sanction in case of violation of the command. In the other words, law should be limited to rules of conduct enacted by determinate legislative authority and enforced by physical sanction. The superior according to him is the real sovereign. The definition contains two important elements. Firstly, law is command enacted by the sovereign legislative authority i.e., any rule which is not enacted by sovereign or superior cannot be regarded as law. And secondly, it must be enforced by the sovereign authority i.e., if laws are violated, there should be adequate sanction behind it.

Logically, if the rules concerned did not in ultimate analysis issue form a sovereign authority, which was politically superior, or if there were no sovereign authority, then the rules could not be legal rules, but rules of moral or ethical validity only. Applying this general theory to international law, as there was no visible authority as legislative power or indeed with any determinate power over the society of the States, Austin concluded that international law was not true law but ‘international positive morality’ only analogous to the rules binding a club or society.

Oppenheim’s View

Oppenheim says that law is a body of rules for human conduct within a community which by common consent of this community shall be enforced by external power According to this definition, essential conditions for the existence of law are threefold. Firstly, there must be a community. Secondly, there must be a body of rules of human conduct within that community, so that the community may be orderly governed. All the communities submit to the rule of law because they wish to afford due respect and protection to the dignity of men and nations. And thirdly, there must be common consent of that community that these rules shall be enforced by external powers. It means that it is not necessary that rules should be enacted through law-making authority or there should exist a law administering court within the community concerned.


Public international law covers relations between states in all their myriad forms, from war to satellites, and regulates the operations of the many international institutions. It may be universal or general, in which case the stipulated rules bind all the states (or practically all depending upon the nature of the rule), or regional, whereby a group of states linked geographically or ideologically may recognize special rules applying only to them.

The rules of International law must be distinguished from what is called international comity, or practices such as saluting the flags of foreign warships at sea, which are implemented solely through courtesy and are nor regarded as legally binding. Similarly, the mistake of confusing international law with international morality must be avoided. While they may meet at certain points, the former discipline is a legal one both as regards its contents and its form, while the concept of international morality is branch of ethics. However, this does not mean that international law can be divorced from its value.


It may be concluded that at present, World is, in reality, regarded as an international community. John Austin regarded International Law as a ‘positive morality’ in the 19th century, when international community lacked legislation, a court, sanctioning powers and enforcement machinery. And in view of all these if he concluded that International Law is not a true law, perhaps he was not wrong. But presently, international legislation has come into existence as a result of multinational treaties and conventions. These include the recognition that certain rules have the character of jus cogens, which reduces the area for the operation of purely consensual rules, and establishes that within general body of rules of the International Law there exists superior legal rules, with which rules of a lower order must be compatible.

Practice of states suggests that they consider themselves bound by such rules. If rules are violated by a State, sanctions may be applied against it not only by the aggrieved State itself but collectively by the United Nations Organization (UNO) as well. Further, international community has a Court (International Court of Justice), whose decisions are binding upon the parties to a case. If a party falls to perform its obligations incumbent upon it under a judgment rendered by the Court. Security Council of the United Nations is empowered to take measures to enforce the decisions of the Court, if the aggrieved party seeks the help of the Council.

Existence of International legislation, a Court, sanctioning authority and the enforcement machinery are the developments of the present century. Personally, I agree with the view of John Austin. But, the Statement of “International Law is a true law” is evident even if Austin’s definition is accepted. In the light of these developments, perhaps one would not hesitate to call International Law as a true law even if Austin’s definition of law is accepted.[]

1. Law Dictionary, 1999. by Mian Asad Hakim, Lahore: Mansoor Book House, First Edition.
2. Starke’s, J.G., Introduction to International Law, New Delhi: Aditya Books (P) Ltd., 1989.
3. Shaw, Malcolm N., International Law, Cambridge: Cambridge University Press, Fifth Edition, 2003.
4. Oppenheim, International Law, Vol. 1, Eight Edition (1995).
5. Agarwal, H.O. Dr., International Law , Allahabad: Asia Press, Third Edition, 1995.

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a). Private Companies
Private companies are all companies that are not public companies. A private company is not permitted to offer its shares to the public. Due to the capitalization requirements, the vehicle tends to be used for smaller businesses. Where a private company is limited by its shares, shareholders are liable to contribute to the assets any unpaid amount on shares issued to that shareholder. The nominal value of the shares, including premiums payable on subscription, determines the amount which is payable. Where a private company is limited by guarantee, shareholders will be liable to contribute to the assets of the company the amount required for payment of the company’s debts and costs of winding up, up to the maximum set out in the memorandum.

b). Public Companies
A public company must be limited by shares; the memorandum must explicitly state that it is a public company. The name must end with “public limited company” or the abbreviation "PLC". If there is less than two shareholders of the company for more than six months, the single member will be jointly and severally liable with the company for its debts, thus limited liability protection will be lost, as the company does not satisfy the requirements of the Act.


1. Private company is privately held. This means that in most cases, the company is owned by the company's founders, management or a group of private investors. A public company, on the other hand, is a company that has sold a portion of itself to the public via an initial public offering of some of its stock, meaning shareholders have claim to part of the company's assets and profits.

2. A private company’s memorandum and articles of association need only be subscribed by two persons, and the members of a private company only incur personal liability for its debt if its membership falls bellow two. While a public company is not so.

3. A private company may commence business on its corporation, it does not hold a statutory meeting or issue a statutory report and it may issue shares and debentures without delivering a statement in lieu of prospectus to the Registrar of Companies. While a public company is not so.

4. A private company may not issue share warrants or freely renounceable letters of allotment in respect of its share. The Companies Act 1948 does not expressly so provide but no effective restriction could be imposed on the transfer of the company’s shares in compliance with the Companies Act 1948, if they were represented by share warrants or such letters of allotment. However, there is nothing in the Act to prevent a private company from issuing bearer debentures or from issuing renounceable letters of allotment in respect of its shares of debentures, provided in the case of shares, that they are subject to some restriction on their transferability both while letters of allotment are outstanding and when they are eventually registered in the register of members.
5. Formation of a public company requires a minimum of two directors. In general terms, anyone can be a company director, if they have fulfilled the required rules. On the other hand, a private company need have only one director. Two or more directors of a private company may be elected by a single resolution at general meeting, a director of a private company which is not subsidiary of a public company does not retire by operation of law at the annual meeting, nor is necessary for a resolution to elect or re-elect such a director.
6. Unless its articles otherwise provide the quorum at a general meeting of a private company is two persons present in person. A member may appoint only one proxy to represent him at such a meeting unless the articles permit the appointment of more than one, and any proxy may speak as well as vote at the meeting.

7. With its annual return a private company must send to the Registrar of Companies a certificate by signed by a director and the secretary that the company has not since the date of the preceding annual return, or, in the case of the first return, since the date of its incorporation issued an invitation to the public to subscribe for its shares or debentures and, if their company’s membership exceeds fifty a further certificate that the excess consists of members who are employees of the company or former employees who became members while employed by it.

8. Difference between the two types of companies deals with public disclosure. If it's a public U.S. company, which means it is trading on a U.S. stock exchange, it is typically required to file quarterly earnings reports (among other things) with the Securities and Exchange Commission (SEC). This information is also made available to shareholders and the public. Private companies, however, are not required to disclose their financial information to anyone since they do not trade stock on a stock exchange.

9. The difference in main advantage: Public company has ability to tap the financial markets by selling stock (equity) or bonds (debt) to raise capital (i.e. cash) for expansion and projects. While private company’s advantage is that its management doesn't have to answer to stockholders and isn't required to file disclosure statements with the SEC. However, a private company can't dip into the public capital markets and must therefore turn to private funding, which can boost the cost of capital and may limit expansion. It has been said often that private companies seek to minimize the tax bite, while public companies seek to increase profits for shareholders.

10. Private companies may issue stock and have shareholders. However, their shares do not trade on public exchanges and are not issued through an initial public offering. In general, the shares of these businesses are less liquid and the values are difficult to determine. A public company has sold a portion of the business to the public via an initial public offering. IPO can generate intense news coverage and going public can be seen as coming of age for companies in hot sectors.

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