Elements of Company Law – I – CS Foundation Business Law Notes

Introduction:

Word “company” is derived from Latin word “Com Panis” meaning Com i.e. with/together and Panis i.e. bread.
It is originally referred to an association of persons who took their meals together.
The word “company” denotes a joint stock enterprise in which the capital is contributed by a large number of people.
In Smith V. Anderson, it was observed that company in broad sense may mean an association of individuals formed for some purpose.
Company can be an incorporated (profit making) or unincorporated (non profit making like a club or a society) body.
An incorporated company refers to a separate person distinct from the individuals constituting it.
An unincorporated company such as partnership refers to only a collection of individuals.
It is called a body corporate because the persons comprising it are made into one body by incorporating it according to law and clothing it with legal personality and so turn it into a corporation.
Word “Corporation” is derived from Latin word “corpus” which means “body”.
It is a legal person created by process other than natural birth, thus called artificial person.
A Company have a personality, distinct and separate from its members.

The Incorporated company is formed either:

under Special Act of Parliament:
Example : LIC, Damodar Valley Corporations etc. or
under Companies Act, 2013 or under any previous Company law.
Example : Hindustan Lever Ltd., Tata Steel Ltd., etc.

As per Section 2(20) of the Companies Act, 2013. “Company” means a company incorporated under Companies Act, 2013 or under any previous company law. Section should be exactly as per law. The unincorporated Company formed not for profit purpose falls within the meaning of a company licenced U/S 8 of the Companies Act, 2013.

Characteristics:
(1) Corporate Personality

Company is a separate legal entity distinct from individuals who are its members. (It is also known as separate legal entity)
It is known by its own name.
It has its own seal. (Common seal i.e. official signature of a company) [Amendment of Sec. 9 – “the word common seal” has been omitted]
Its members are its owners but they can be its creditors simultaneously.
It is capable of owning property, incurring debts, borrowing money, having a bank account, employing people, entering into contracts and suing or being sued in the same manner as an individual.
A shareholder cannot be held liable for the company’s act even if he holds virtually the company’s entire share capital.
Shareholders are not the company’s agent and so they cannot bind it by their acts.
This was brought forward in the case of Salomon V. Salomon and Co. Ltd., (1897)
The company does not hold its property as an agent or trustee for its members and they cannot sue to enforce its rights, nor can they be sued in respect of its liabilities.

Respective Case Law:
(1) Salomon V. Salomon and Co. Ltd –

Mr. Salomon was carrying on the business of leather merchant and boot manufacturing as a sole proprietor.
He formed a limited company for taking over his business.
The Company’s nominal capital was £ 40,000 in £1 shares.
Payment of total purchase consideration of £ 38,782 was in the following form:
Fully paid shares of E, each issued to Salomon £ 20,000
Secured debentures issued to Salomon £10,000
Cash Paid £ 8,782
Other 6 members of his family were issued 1 share each.
Salomon held virtually the entire share capital of the company. Hence, the company was called as ‘one man company’
Due to trade depression, company went into liquidation.
Company’s liabilities was £ 10,000 secured by debentures and its assets realised £ 6,050.
Unsecured creditors owing £ 8,000 claimed that Salomon was carrying on business in the name of the company. Thus, company was a mere agent of Salomon.
They claimed that one man cannot owe money to himself.

Court held that:

Salomon & Co. was a real company fulfilling all the legal requirements.
It had an identity separate from its members.
Thus, secured debentures even though held by Salomon, were to be paid in priority to unsecured creditors.

This case established the legality of “one-man company” and principle of limited liability.

Lee V. Lee’s Air farming Ltd.
Alternative Case Study : Corporate personality: Salomon v/s Salomon & Co. Ltd. (1897)

(2) Limited Liability –

Members of a company cannot be held liable for its debts.
In case of limited company, the liability of members is limited to the extent of unpaid value of shares held by them.
In case of company limited by guarantee, members are liable to the extent of amount guaranteed by them.
Guaranteed amount can be called only at the time of company’s, liquidation winding up.

(3) Transferability of Shares –

Shares are movable property which are transferable subject to certain conditions.
In public company, shares are freely transferable.
However, there are certain restrictions on the transfer of shares in a private company.
Any absolute restriction on the right to transfer shares is void.
Shares in a public company can be transferred without any restriction but shares in private company can not be transferred.

(4) Common Seal –

It is the official signature of the company.
Company’s name is engraved on it.
A document not bearing common seal of the company is not authentic and has no legal force behind it.
A rubber stamp does not serve, the purpose.
Amendment made by Companies (Amendment) Act, 2015.

Amendment of Section 9:
In Section 9 of the Principal Act, the words “and a common seal” shall be omitted.

Amendment of Section 22:
In Section 22 of the Principal Act,
(i) In Sub-Section(2) –
(a) for the words “under its common seal”, the words “under its common seal if any”, shall be submitted

(b) the following proviso shall be inserted, namely:
“Provided that in case a company does not have a common seal, the authorisation under this sub-section shall be made by two directors or by a director and the Company Secretary, wherever the company has appointed a Company Secretary”.

(ii) In sub-section (3), the words “and have the effect as if it were made under its common seal” shall be omitted.

Amendment of Section 46:
In Section 46 of the Principal Act, in sub-section (1), for the words “issued under the common seal of the company”, the words “issued under the common seal, if any, of the company or signed by two directors or by a director and the Company Secretary, wherever the company has appointed a Company Secretary” shall be substituted.

(5) Perpetual Succession

Death, insolvency, insanity etc. of any member does not affects continuity legal existence and identity of the company.
“Members may come and go, but the company goes on forever.”
It can be dissolved only under law through winding up procedure.

(6) Separate Property

No member can claim to be the owner or co-owner of company’s property. Member cannot get insurance of the property belonging to the company.
Company can own and hold property in its own name.

(7) Capacity to sue and be sued in its own name:

A company is a legal person, thus it can sue others and can be sued by others in its own name.
In an unincorporated association, an action may have to be brought in name of members either individually/collectively.

Relevant to Lifting of Corporate Veil

Due to law’s fiction, company is seen as an entity distinct from its members, but actually company is an association of persons who are the beneficial owners of company’s property.
No member can be held, liable for the company’s act even if he holds virtually the entire share capital of the company.
Lifting of corporate veil means ignoring the company’s separate legal identity. It involves disregarding of the corporate personality and looking behind the corporate entity, at the controlling persons and make them liable for debts and obligations of the company.
It is permissible only when it is permitted by the statute.

It is permitted in the following cases:
(i) If the company is formed for commission of.

fraud and improper conduct.
to defraud creditors
to avoid legal obligations.

Relevant Case Law:

Gilford Motor Co. V. Home
Jones V Lipman

(ii) To determine whether company Is an enemy company or not.
Relevant Case Law:
Daimler Co. Ltd. V. Continental Tyre and Rubber Co.

(iii) To prevent evasion of taxes and duties.
Relevant Case Law:

CIT V Maeriakshi Mills Ltd.
Sir Dinshaw Manakjee Petit.

(iv) If purpose of company’s formation is to avoid a welfare legislation e.g. reducing its liability of bonus payable under Bonus Act.
Relevant Case Law:
1. The workers employed in Associated Rubber Industries Ltd. Bhavnagar V. The Associated Rubber Industries Ltd. Bhavnagar and other, A.I.R. 1986 SCI

(v) For the purpose of protecting the public policy and thus, preventing the transaction contrary to public policy.
Relevant Case Law:
1. Connors Bros V. Connors

(vi) If the holding company has incorporated the subsidiary company for the sole purpose of using it as an agent.
Relevant Case Law:
1. Re, R.G Films Ltd.

Various Statutory Provisions for lifting the corporate veil are as follows:

Reduction in Membership
Misdescription of name.
Presentation of group accounts of holding and subsidiary companies.
Fraudulent Trading.
Payment of Arrears of tax.
Ultra-vires acts.
Misrepresentation in prospectus.

Difference Between Company and Partnership:

Company

Partnership

Complex formation due to various legal formalities.
Compulsory registration is required.
Governed by Companies Act, 2013.
Separate legal entity of company from its members.
Management is in the hands of B.O.D. appointed by shareholders.
Property of the Co. is not the property of individuals.
Members of the Co. are not its agents.
Members can contract with the company.
Shares are freely transferable.
Liability of a shareholder is limited by shares or a guarantee.
Death or insolvency of a shareholder does not effect the life of the company.
A Co. is legally required to have it’s accounts audited annually by a Chartered Accountant.

Easy formation due to comparatively less legal formalities.
Registration is not compulsory.
Governed by Partnership Act, 1932.
No separate legal entity.
Its affairs, are managed by all or any of them acting for all.
Property of the firm, is the property of individuals.
Partners are the agents of the firm.
Partners cannot contract with the firm.
Shares are transferable with the consent of the other partners.
Liability of a partner is unlimited.
Death or insolvency of a partner dissolves the firm.
The accounts of the firm are audited at the discretion of the partners.

Differences between Company and LLP:

Basis	Company	LLP
Regulation	It is regulated by statute i.e. Companies Act, 2013.	It is regulated by, a contractual agreement or in absence of it, under Limited Liability Partnership Act, 2008.
Owners and Managers	In case of a company there is a clear distinction between owners and managers of a company.	In LLP, partners hold ownership and also hold power’s to manage the LLP.
Compliance of Formalities	A company would have to file annual return of audited financial statement with MCA each year.	LLP does not have to file audited financial statements if its annual turnover is less the 40 lakhs and capital contribution is less than 25 lakhs.
Fine and Penalties	A company enjoys few advantage relating fine and penalties from MCA.	LLP could incur larger comparatively a company for non-compliance or late filing with MCA example ₹ 100 per day.
Stability	A company has been in existence for longer than LLP’s in India as it is older and more familiar.	LLP is a recently introduced entity in India therefore, some of the rules, regulations and procedures are continuing to evolve thus, a company has been in existence for longer than LLP.
Investment Benefits	A company prevail better access to funding from banks and foreign direct investments than that of LLP.	LLP enjoys less funding benefits than that a company because of its better image.
Flexibility	Less flexible than LLP.	More flexible than a company.

LLP is a separate legal entity, liable to the full extent of its assets but liability of the partners is limited to their agreed contribution in the LLP. No partner is liable on account of the independent or un-authorized actions of other partners.

LLP is not relieved of the liability for its other obligations as a separate entity. As LLP consists elements of both ‘a corporate structure’ as well as ‘a partnership firm’, it is called a hybrid between a company and a partnership.

Difference Between Company and HUF:

Company	HUF
1. It consists of heterogeneous members. 2. No karta and coparceners system. 3. Person becomes member on fulfilment of certain requirements. 4. Its registration is compulsory.	1. It consists of homogeneous members. 2. Karta has the sole authority to contract, debts for the purpose of the business. While coparceners do not have such authority. 3. Person becomes member by birth. 4. Its registration is not compulsory.

Difference Between Company and Club:

Company	Club
It is a trading association. Its registration is compulsory.	It is a non-trading association. Its registration is not compulsory

Difference Between Company and Corporation:

Corporation refers to an association of persons incorporated as per the relevant law and covered with a legal personality separate from the persons constituting it.
It is wider than the word ‘company’
It is also known as ‘body corporate’

Difference Between Company v/s Body Corporate:

Basis	Company	Corporation
Meaning	A company which is created and registered under the Indian Companies Act, 2013 or any other previous act. A company is a voluntary association of two or more than two persons.	The term corporation is defined in Section 2(11) of the Companies Act, 2013. This includes a private company, public company, OPC, small company, LLP, foreign company etc.
Formation	A company must formed in India (under Companies Act, 2013).	A corporation includes a company incorporate inside or outside the country. (Exclude co-operative society, any other corporation formed by Central Government).
Scope	Comparatively Less.	wide.

It includes:

a company incorporated outside India.

it does not include:

a co-operative society registered under any law relating to societies, co-operative.
any other body corporate (not being a company as defined in this act), which the CG may by notification specify in this behalf.

Society whether a body corporate or not?
Any society registered under Societies Registration Act does not come under body corporate.
Relevant Case Law:
(i) Board of Trustees V State of Delhi, A.I.R. 1962 S.C. 458

Advantages of an incorporated Company –

Corporate Personality : It has a legal personality which is completely separate from its members.
Limited liability : Liability of the members is limited by Shares or guarantee.
Perpetual Succession : Death or insolvency of members does not affect the existence or continuity of the company. Even death of a member does not affect its existence.
Transferability of Shares : Members are allowed to transfer their shares freely, thus having liquidity of their investment. Share of Private Co. are not freely transferable.
Separate Property : Being an artificial legal person, company can own funds and assets in its own name. Company’s property is not its member’s property.
Capacity to Sue : Company can sue and be sued by others in its own name.

Flexibility and autonomy : Company can form and amend its own policy with much independence subject to the principles of law, equity and good conscience and in accordance with provisions of Companies Act, 2013 MOA and AOA. Key Managerial Personnel (KMP) has been defined in Companies Act, 2013 to mean:

the Chief Executive officer or the managing director or the manager;
the company secretary;
the whole-time director;
the Chief Financial officer; and
such other officer as may be prescribed.

As per the Amendment made by Companies (Amendment) Act, 2017 Revised Section 2(51) – “Key Managerial Personnel” in relation to a company, means :

the Chief Executive Officer or the Managing Director or the Manager;
the Company Secretary;
the Whole-time Director;
the Chief Financial Officer;
such other officer, not more than one level below the directors who is in whole-time employment, designated as key managerial personnel by the Board; and
such other officer as may be prescribed;”

Disadvantages of an Incorporated Company:
1. Several legal formalities: Incorporation of a company involves adherence to several legal formalities which requires lot of time and money. Failure to perform any formality or provision attracts penal consequence.

2. Separation of Ownership-and Management: Members have no direct control over the affairs of company which makes their ownership position more passive.

3. Greater Tax Burden: It is liable to pay income tax at a flat rate without any minimum taxable limit.

4. Corporate Disclosures: Members have comparatively restricted assessibility to company’s internal management and day to day working.

5. Greater Social Responsibility: The enormous powers used by companies have an impact on society, thus are subject to greater control and regulation.

6. Lengthy winding up procedure: Even at the time of its winding up, detailed procedure is to be followed which is expensive and time consuming.

Private Company [Section 2(68)]:
1. A company which has the following features is a private company.

restricts the right to transfer its shares.
except in case of ‘one person company’ a private company should have minimum 2 members and cannot have more than 200 members (excluding employee and ex-employee members).
prohibits any invitation to the public to subscribe for any securities of the company.
has a minimum paid up capital of one lakh rupees or such higher paid-up capital as prescribed.

2. The company can only accept deposit from its members, directors or their relatives.

3. Joint shareholders are counted as one member.

4. It must add the words ‘Private Limited’ at the end of its name.

5. They are granted certain privilege and exemptions under Companies Act, 2013 because not much public interests is involved in private companies.

6. Company is required to file it’s financial statement and annual returns to ROC (Registrar of Company) which can be accessed by any person by paying fees.

Note:
According to Companies (Amendment Act, 2015):
Provides that in Clause (68), the words “of one lakh rupees or higher paid up capital” shall be omitted.

Certain privileges granted to private company:

Only 2 members are required for its incorporation. (One in case of OPC)
Minimum 2 directors are required to be appointed.
Does not requires commencement of business certificate.
Provisions of managerial remuneration does not apply.
No limit on borrowings, etc.

Public Company [Section 2(71)]:
1. Public Company means a company which:

is not a private company
has a minimum paid-up share capital of five lakh rupees or such higher paid-up capital as may be prescribed.
is a subsidiary of a company, not being a private company, shall be deemed to be public company for the purpose of this act. Subsidiary of public co. is also treated to be public company.
should have minimum seven members and have no limit for maximum members.

2. It requires minimum 7 members for its formation.

3. Any member of public can acquire its shares/debentures.

4. Its shares are capable of being dealt in stock exchange.

5. According to Companies (Amendment) Act, 2015:
Provides that in Clause (71), the words “of ₹ 5 lakhs or higher paid up share capital” shall be omitted.

Differences Between Public and Private Company:

Basis of Differentiation	Private Company	Public Company
Minimum number of member	Two (one incase of OPC)	Seven
Maximum number of member	200	Unlimited
Transferability of shares	Restricted	Freely transferable
Raising Capital from public	Not allowed	Allowed
Number of Directors	Minimum-two maximum -15	Minimum – 3 Maximum -15
Name of company	Name must end with the words ‘Private Ltd.’	Name must end with the word ‘limited’
Exemption from several legal restriction	Not required to observe several legal restrictions	Too many legal formalities and restriction to be adhered to
Minimum paid-up capital	One lakh as per the Amendment made by Companies (Amendment Act, 2015), provides that in clause (68) the words of one lakh rupees or higher paid up capital shall be omitted.	Five lakh. as per the Amendment made by Companies (Amendment Act, 2015), provides that in clause (71) the words of ₹ Five lakh or higher paid up capital shall be omitted.

Company limited by Shares:

It is a registered company whether public or private company.
Liability of members is limited to the unpaid amount on the shares held by them.
This should be stated in the MOA of such company.
It arises when a valid call is made by the company.

Company limited by Guarantee:

It is a registered company whether public or private company.
Liability of members is limited to the amount that he has guaranteed to pay to the company.
Liability arises only in the event of winding up of company.
Its MOA should state the amount of guarantee given by members.
Example – clubs, trade associations etc.

Unlimited Company:

Its memorandum does not in any way limits the liability of its members.
Every member is liable to contribute to’the company’s assets until all its debts are paid in full.
Not common in India
Members are not however, liable directly to the company’s creditors.
Liquidator asks the members to contribute in the event of company’s winding up.
It may be subsequently converted into a limited company, subject to certain conditions.
The liability is extended to the personal property of the members.

Company with Charitable Objects Non-Profit Companies / Licenced Companies [Section 8]:

Licence may be granted by CG if the following conditions are satisfied:
Company’s object is to promote art, commerce, science, religion, charity or any other useful object.
Company applies its income in promoting its object.
Company prohibits payment of any dividend to its members.
It is not required to use the words ‘Limited’ or ‘Private Limited’ at the end of its name even though it is a Limited Company.
It shall enjoy all privileges and be subject to all the obligations of limited company.
A firm may become its member.
Company can alter its object clause in MOA or AOA only by obtaining previous approval of CG in writing.
It can convert itself into company of any kind only after complying with the prescribed conditions.

Conditions for revoking licence by CG:

Company contravenes any of the requirements or any of the conditions subject to which a licence was issued,
Its affairs are conducted fraudulently
Its affairs are conducted in manner violative of company’s objects, or
Prejudicial to public interest.

On revocation CG may also direct the company:

to wound up, or
amalgamate with another company registered under section 8, if it is in public interest.

On revocation of licence by CG:

‘Words limited’ or ‘Private limited’ shall be inserted at the end of company’s name.
Company shall cease to enjoy exemptions granted by CG Under Section 8

Before revocation, CG shall give an opportunity of being heard to the company.

Government Company [Section 2(45)]:
1. It is a company –
(i) In which not less than 51% of the paid up share capital is held by:

CG (Central Government)
SG (State Government)
Partially by CG and partially by SG

(ii) Which is a subsidiary of a Government Company.

2. Its auditor is appointed by the Comptroller and Auditor General of India (C & AG).

3. C & AG:

Directs the manner in which the accounts are to be audited.
Gives instructions to auditor regarding the performance of his functions.
Conducts supplementary test audit by persons authorised by him.
Comments upon or supplements the audit report submitted to him by the auditor.

4. If CG holds shares in the company, it is required to place before both houses of Parliament an annual report of its working within 3 months of its AGM along with a copy of audit report and any comments or supplements to it by Comptroller and Auditor General of India.

5. If SG holds shares in the company, its annual report is to be placed in the same manner before the house or both the houses State Legislature.

6. If CG does not holds shares in the company, every SG who holds shares in the Co. or where only one SG holds shares in the co. shall cause its annual report to be placed in the same manner before the house or both the houses of state legislature.

7. CG by notification in the Official Gazette can grant them certain exemptions from some provisions of Companies Act.

Foreign Company [Section 2(42)]:
Foreign Company means any company or body corporate incorporated outside India which:

has a place of business in India, whether by itself or through agent, physically or through electronic mode
conducts any business activity in India in any other manner. Thus, the companies doing business through electronic mode are also termed as foreign company and need to comply with the specified provisions.

Under foreign company:
If not less than 50% of the paid-up capital is held by:

one or more citizens of India, or
one or more companies or body corporate incorporated in India, or
partly by above two,

Whether singly or in aggregate, it has comply with:

provisions of chapter XXIII dealing with company incorporated outside India, and
other prescribed provisions of Companies Act, 2013 as if it were a company incorporated in India.

The following documents are required to be submitted by a foreign company with the Roc of New Delhi and with ROC of the State in which such place of business is situated within 30 days of the establishment.

Certified copy of the Constitution of the company
Full address of the principle or registered office
Particulars of the directors and secretary of the company
Name and address of the authorised person in India
Full address of the principle place of business in India.

Holding and Subsidiary Company [Section 2(46) and 2(87)]:
1. When a company:
(a) controls the composition of board of directors, or

(b) exercises or controls more than one half of the total share capita! either at its own or together with one or more of its subsidiary companies then, it is known as the holding company and the other company is the subsidiary company.

Total share capital for this purpose means the aggregate of:

Paid-up equity shares capital and
Convertible preference share capital.

2. Holding Company shall not have layers of subsidiaries beyond prescribed limit.
The expression “Company” includes any body corporate.

3. The word control includes;

The right to appoint majority of the directors or
to control the management or
the policy decisions exercisable by a person or persons acting individually or in concert, directly or indirectly including by virtue of their share holding or
management rights or shareholders agreements or voting agreements or in any other manner.
As per the Amendment made by Companies (Amendment) Act, 2017 For the purposes of this clause, the expression “company” includes anybody corporate;

Holding Company:

One Person Company (OPC) [Section 2(62)]:
1. It means a company which has only one person as a member.

2. The MOA of such a company is required to indicate, the name of the other person, with his prior consent in the prescribed form, who shall, in the event of the subscriber’s death’ or his incapacity to contract become the member of the company and the written consent of such person shall be filed with ROC at the time of its incorporation along with MOA and AO A.

3. Only a natural person who is an Indian citizen and resident in India is eligible to incorporate OPC and be its nominee.

4. “Resident in India” means a person who has stayed in India for a period of not less than 182 days during immediately preceding one calender year.

5. It is considered as a private company.

6. It has been granted many relaxations in compliance and procedural aspects.

7. No person shall be eligible to incorporate more than one OPC or become nominee in more than one OPC.

8. No minor shall become member or nominee of OPC or hold share with beneficial interest.

9. It cannot be incorporated or converted into Section 8 company.

10. It cannot carry out Non-Banking Financial Investment Activities including investment in securities of any Body corporates.

11. It cannot convert voluntarily into private company unless two years have expired from date of its incorporation, except if its paid-up capital is increased beyond 50 lakh rupees or its average annual turnover exceeds two crore rupees.

Small Company [Section 2(85)] – Such classification is based on size i.e. paid up capital & turnover:
1. It means a company other than a public company whose:

paid-up capital does not exceeds ₹ 50 lakh or such higher amount as may be prescribed which shall not be more than ₹ 5 crore.
turnover as per last profit and loss account does not exceeds ₹ 2 crore or such higher amount as may be prescribed, which shall not be more than ₹ 20 crore.

2. These are small sized private companies

3. However, nothing applies to:

holding company or subsidiary company,
company registered under Section 8
company or body corporate governed by any Special Act.

As per the Amendment made by Companies (Amendment) Act, 2017 – “Small Company means a company, other than a public company:
(i) paid-up share capital of which does not exceed fifty lakh rupees or such higher amount as may be prescribed which shall not be more than ten crore rupees; and

(ii) turnover of which as per profit and loss account for the immediately preceding financial year does not exceed two crore – rupees or such higher amount as may be
prescribed which shall not be more than one hundred crore rupees.”

Producer Company:

A company registered under part chapter IX A.
If the company is engaged in activities which is not described under Section 581 B, ROC can cancel the registration exclusively engaged in the activities specified by Section 581 B.
The membership of producer companies is to open such people who themselves are primary producers, which is an activity by some agricultural products is produced by such primary producer.
Any existed company can not convert itself in to producer and
Producer can not convert itself in to any other company.

Promotion and Incorporation of a Company:
1. Company should be formed for lawful purpose i.e. it, should not be in contravention of general law of the country.

2. Registrar of Companies (ROC) is a body which –

registers the company.
receives documents and forms from the company and registers them.
maintains company’s record.
makes these records available for public inspection.
ensures that company comply with provisions of Companies Act, 2013.

Company formation involves 3 steps:

Promotion
Incorporation by Registration, and.
Commencement of Business.

Promotion:

Is the process of conceiving an idea and developing it into a concrete proposition or project to be accomplished by the incorporation and floatation of a company.
The person who takes necessary steps to accomplish these objectives is known as promoter.

Promoter [Section 2(69)] means a person:

who has been named as such in a prospectus or is identified by the company in the annual return referred to in Section 92; or
who has control over the affairs of the company, directly or indirectly whether as a shareholder, director or otherwise; or
in accordance with whose advice, directions or instructions the Board of Directors of the company is accustomed to act.

Provided that sub-clause (c) shall not apply to a person who is acting merely in a professional capacity.
1. A director/officer/employee who has control over the affairs of the company, directly or indirectly whether as a share holder, director or otherwise is considered as a promoter.

2. However, a director/officer/employee of the issuer or a person, if acting as such merely in his professional capacity, shall not be treated as a promoter.

Functions of promoters include:

Decides the company’s name and ensures its acceptance by ROC.
Decides the company’s detail about MOA, AOA, director’s nomination, solicitors, bankers, auditors, secretary etc.
Identifies the registered office of the company.
Arranges for printing of MOA, AOA, registration, issue of prospectus etc.

3. He is responsible for bringing the co. in the existence for the object which he has in mind.

4. Company cannot ratify the contract made by promoter before its incorporation.
Relevant case law:
1. Kelner V. Baxter

5. A promoter is neither an agent nor a trustee of the company, as the company has not come into existence.

6. A promoter stands in a fiduciary capacity towards the company.
Duties of promoter includes:

Not to make any secret profit.
Full and fair disclosure of interests.

Relevant case law:
1. Gliuckstein V. Barnes.

Remedies available to company are:

Recession of contract
Recovery of secret profit made by the promoter
Company may sue the promoter for breach of trust

Procedure for Incorporation or Registration – Certain legal requirements to be fulfilled:

There must be an association of persons.
Minimum 2 persons are required in case of private company (One in case of OPC) and 7 persons in case of pubic company.
Company must have a common object.
Company must be a formed for lawful object.
MOA and AOA must be subscribed.
Formalities of incorporation must be complied with.

Availability of Name:
1. Company must have a name of its own to establish its separate identity.

2. Name is a symbol of its independent corporate existence.

3. Company may adopt any suitable name provided it is not undesirable.

4. As per Section 4(2), name shall not be.

identical with or resemble too nearly to name of an existing company registered under this Act
such that its use by company: will constitute an offence under any law for the time being in force, or is undesirable in opinion of CG.

5. Section 4(3) states that company, shall not be registered with a name which contains any word or expression:

giving an expression that it is in any way connected or having a patronage of CG, any SG, local authority, or corporation etc., or
prescribed, unless approved by CG.

6. As per Section 4(4) person has to make an application in e-form no. INC1 alongwith fee to ROC for reservation of

proposed name, or
name to which it proposes to change.

7. ROC with reserve the name for 60 days from date of application.

8. The main object is to prevent the use of name likely to mislead the public.
Vetting of MOA and AOA, Printing, Stamping and Signing : Promoters have to approach ROC for the required help. ROC do not charges any fees. A written request is to be made by the promoters. ROC helps and assists them and after vetting of MOA and AOA, he gets them printed. They have to be stamped as per the Stamp Act of the state in which the registered office is situated. They are to be signed by the subscribers or an agent on their behalf.

9. MOA and AOA shall be signed in following manner as per Rule 13 of Companies Rules, 2014:

They shall be signed by each subscriber to MOA in presence of atleast one witness who shall attest the signature.
Both the subscriber and witness shall add his name, address, description and occupation.
If subscriber is illiterate, he shall affix his thumb impression or mark.
Person writing on his behalf shall describe the mark, place name of subscriber against it and authenticate it by his own signature, and write no. of shares taken by him.
Such person shall read and explain contents of MOA and AOA to subscriber.
If subscriber is a body corporate, then it shall be signed by director, officer, or employee of body corporate authorized by resolution passed by BOD.
If such person is a LLP, then it shall be signed by a partner of LLP, duly authorized by resolution passed by all the partners.
Provided that in either case, the person so authorized shall not, at the same time, be a subscriber to MOA & AOA.

Where the subscriber to the memorandum is a foreign national residing outside India.

	(a) Country in any part of common wealth	(b) Country which is party to the Hague Apostille Convention 1961	(c) Country outside the common wealth and not party to the Hague Apostille Convention 1961
Signatures and address on MOA and AOA and proof of identity	Notarized by a Notary (Public) in that part of the common wealth	Notarized by a Notary (Public) of the country of his origin and duly certified by Hague convention.	Notarized by a Notary (Public) of such country and certified by a diplomatic or consular officer empowered in this behalf.

(d) Visited in India and he is not a person of Indian origin or overseas citizen of India and intended to incorporate a company, in such a case the incorporation shall be allowed if he/she is having a valid business visa.

Power of Attorney:
Promoters may appoint an attorney for carrying out instructions and requirements by registrar. Power of attorney is to be executed on a non judicial stamp paper for this purpose.

Documents required to be filed with ROC Compulsory:

S. No.	Form No.	Title	Particulars
1.	f. INC. 33 under SPICE Form No.	Memorandum of Association	Constitution of company
2.	f. INC. 34 under SPICE	Articles of Association	Regulations relating to internal management of company.
3.	INC.8	Declaration from Professional	Section 7(1)(b) requires filing of a declaration in the prescribed form by an advocate, a Chartered Accountant, Cost Accountant or Company Secretary in practice, who is engaged in the formation of the company and by person name in AOA as Director, manager or secretary of the company.
4.	INC.9	Declaration from subscribers to MOA.	Section 7(1)(c) requires filing of Self declaration from subscribers of MOA and from persons named as first directors.

1. These are to be filed within 30/180 days of incorporation respectively, but before the commencement of business.

S. No.	Form No.	Title	Particulars
1.	INC.22	Notice of registered address	Location of the company’s registered office
2.	DIR.12	Particulars of directors/ Consent to act as a director	As per Section 7(1) (f) & (g) if company appoints any person as its director, manager or secretary by virtue of its AOA, its particulars must be filed and also the particulars of their interests in other firms or body corporate along with their consent, to act as directors.
3.	_	Particulars of subscribers	Section 7(1 )(e) requires filing of particulars of name, residential address, nationality and other particulars of every subscriber to MOA along with the proof of identity.

2. The prescribed fees for the registration of the company depending upon the company’s nominal capital is required to be paid to the ROC.

3. ROC will register all the documents filed with him and there after register the company by issuing a certificate of incorporation, if he is satisfied that:

All requirements aforesaid have been complied with.
Company is authorised to be registered under the Act.

4. Incorporation has the following effects [Section 9]:

Company becomes a body corporate
It acquires a legal recognition
It gets a name in which it will carry on business.
Its object are laid down.
Subscribers become the members of the company.

Incorporation certificate issued by ROC shall be a conclusive evidence that [Section 7]:

all requirements of Companies Act have been complied with in respect of registration and matters precedent and incidental thereto,
association is a company authorised to be registered,
association has been duly registered under the Companies Act.

A significant step is taken by MCA by introducing e-forms INC – 32 under SPICE scheme vide MCA’s notification dated 01/10/2016 notifying companies (Incorporation) fourth Amendment Rules, 2016. SPICE means simplified performa for Incorporating Companies Electronically.

The SPICE form is also introduced with a function to prepare e-MOA & e- AOA (electronic MOA/AOA) via this attribute there is no opportunity to prepare the manual MOA/AOA & no option to physically sign the MOA/AOA by subscribers and witness. Form INC. 32 under SPICE scheme is a single window form which can be used for the following purposes:

Application of DIN
Application for availability of name
No need to file separate form for first director (DIR. 12)
Address of Regd. Office (INC. 22) j
No need to file separate form for PAN/TAN. Form INC. 33 is meant for e-MOA (electronic MOA) & form
INC. 34 is meant for e-AOA (electronic AOA).

Relevant Case Law:
(i) Jubilee Cotton Mills Ltd. v. Lewis

(ii) Moosa v. Ebrahim:
Even if MOA was signed by 2 adults and 5 others, who were minors, due to which certificate issued was void, however certificate is conclusive for all purpose and it prevents anyone from alleging that the company does not exist.

(iii) Performing Right Society Ltd. v. London Theatre of varieties. Where the object of a company is unlawful, it has been held that the certificate of registration is not conclusive for this purpose.

Allotment of Corporate Identity Number (CIN):

As per Section 7(3), ROC shall allot CIN to the company from the date mentioned in the incorporation certificate.
This shall be a distinct identity for the company.

Memorandum of Association (MOA):

It contains the constitution of the company
It is the first step in company’s formation
As per Section 2(56), “memorandum” means the memorandum of association of a company as originally framed and altered from time to time in pursuance of any previous company law or this Act.
It not only shows the objects of formation but also determines the scope of its operations beyond which its actions cannot go.
According to Palmer, “MOA is a document of great importance in relation to the proposed company.”
It is the charter of a company
It is the premise on which the whole foundation of the company stands
It contains 6 clauses which are known as the ‘conditions of memorandum’.

Name Clause:

Contains the name of the proposed company
Name should not be undesirable
It should not be identical with the name of another company
It should not be prohibited one
It should end with Words Limited or Private Limited.
It must be approved by ROC

Situation Clause / Registered Office Clause:

It contain only the name of the state in which the registered office is situated
It does not contains the complete address of the registered office.

Object Clause:

It contains the objects to be pursued by the proposed company.
It is sub divided into:
(a) Main objects, and other incidental and ancillary objects.
(b) Other objects.

Liability Clause:

It is required by the limited company only
It contains whether the liability of members is limited by shares, guarantee or both.

Capital Clause:
(i) It is mandatory for every company

(ii) It states:

The number of shares
The nominal value of each share, and
The total capital with which the company is to be registered.

Subscription Clause:

MOA must be subscribed by atleast 7 persons in case of public company and atleast 2 persons in case of private company. (1 in case of OPC)
Every subscriber shall take atleast one share in case of company limited by shares. The MOA should be signed by each subscriber also stating his address description and occupation.
Particulars of every subscriber shall be witnessed.

In case of OPC, name of person who is in the event of death of subscriber, shall become the member of company.

Articles of Association:

As per section 2(5) “AOA” means the articles of association of company as originally framed or as altered from time to time or applied in pursuance of any previous Company Law or Act.
It contains the regulations relating to the internal management of the company.
These rules and regulations are framed by the company for its own governance.
It is also called as regulations or bye laws of the company.
It is subordinate to and is controlled by the memorandum of association
In case of contradiction with AOA, MOA prevails.
Public company limited by shares need not have its own articles. It can adopt Table F of Schedule I.
Private company must register its own articles.
Some of the important clauses of articles are as follows:
Share capital and variation of rights, lien on shares, forfeiture of shares, directors, their appointment, accounts and audit, GM, share certificates, etc.
The Articles plays a part that is subsidiary to the memorandum of association.
The Articles govern the ways in which the object of the company are to be carried out and can be framed and altered by the members.
It must be within the limits marked out by the memorandum and the ‘ Companies Act.
It must be printed, divided into paragraphs, numbered consecutively, stamped adequately, signed by each subscriber to the memorandum and duly witnessed and filed along with the memorandum.

Forms of Articles include:

Table F – Articles of company limited by shares.
Table H – Articles of company limited by guarantee not having share capital.
Table G – Articles of company limited by guarantee having share capital.
Table I – Articles of an unlimited company having share capital.
Table J – Articles of an unlimited company not having share capital.

Content of Articles:
The articles should contain generally the following matters:

Exclusion wholly or in part of Table F
Adoption of preliminary contracts
Number and value of shares
Issue of preference shares
Allotment of shares
Calls on share
Lien on shares
Transfer and transmission of shares.
Nomination
Forfeiture of shares
Alteration of capital
Buy Back
Share certificates
Dematerialisation
Conversion of shares into stock
Voting rights and proxies
Meetings and rules regarding committees
Directors, their appointment and delegation of powers
Nominee directors
Issue of Debentures and stocks
Audit committee
Managing Director, whole time Director, Manager, Secretary
Additional Director
Seal
Remuneration of Directors
General meetings
Directors meetings
Borrowing powers
Dividends and Reserves
Accounts and Audit
Winding up
Indemnity
Capitalisation of Reserves

Multiple Choice Questions

Question 1.
Which of the following statements is not true?
(a) A company is an artificial person created by law.
(b) A company can do every act like a natural person except the acts which are pureiy of personal nature.
(c) A company can be held liable for violation of the statutory provisions of the Companies Act.
(d) A company can be imprisoned for violation of such provision which attract penalty by way of imprisonment only.
Answer:
(d) A company can be imprisoned for violation of such provision which attract penalty by way of imprisonment only.

Question 2.
Which of the following is not the characteristic of a public company?
(a) It has a separate legal entity.
(b) It has a perpetual succession.
(c) It has a common seal and separate property
(d) Its shares are non-transferable.
Answer:
(d) Its shares are non-transferable.

Question 3.
A and B were the only members of a company who died in a road accent. In this case, the company comes to end on the death of A and B.
(a) True
(b) False
(c) Partly True
(d) Partly False
Answer:
(b) False

Question 4.
A company being a legal person is also a citizen under the Constitution of India ________.
(a) True
(b) False
(c) Partly True
(d) Partly False
Answer:
(b) False

Question 5.
A statutory company or corporation is one which is incorporated ________.
(a) By an Act of Parliament
(b) By an Act of State Legislature
(c) Under the Companies Act, 2013
(d) By either (a) or (b)
Answer:
(d) By either (a) or (b)

Question 6.
In case of a company limited by guarantee, the liability of the members can be enforced ________.
(a) At any time when the company so decides
(b) Only at the time of winding up of the company
(c) Only by an order of court
(d) Only by an order of Registrar of Companies
Answer:
(b) Only at the time of winding up of the company

Question 7.
A Government Company is one in which 51% or more of the paid up share capital is held by ________.
(a) Central Government alone
(b) State Government alone
(c) Central and State Government jointly
(d) Any of the above
Answer:
(d) Any of the above

Question 8.
At the time of registration the filing of Articles of Association with the Registrar of Companies is compulsory for ________.
(a) Private companies, unlimited companies and companies limited by guarantee
(b) Unlimited companies only
(c) Companies limited by shares only
(d) All types of companies
Answer:
(a) Private companies, unlimited companies and companies limited by guarantee

Question 9.
If at the time of registration, a company limited by shares does not file Articles of Association with the Registrar, then ________.
(a) The company cannot be registered without this document
(b) The company is deemed to be adopted “Table F”
(c) The company is deemed to have become a company with unlimited liability
(d) The directors become liable to be punished with fine at the rale of ₹ 50 for each day during which the default continues
Answer:
(b) The company is deemed to be adopted “Table F”

Question 10.
On 14^th July, the Registrar of Companies issued a Certificate of Incorporation, but it was dated 10^th July instead of 14^th July. From which date the company will legally come into existence?
(a) 10^th July
(b) 14^th July
(c) 31^st July
(d) None of these
Answer:
(a) 10^th July

Question 11.
A company comes into existence when ________.
(a) the ‘memorandum of association’ is signed by the required number of members.
(b) the ‘memorandum of association’ is submitted for registration to the Registrar of Companies.
(c) It is registered under the Companies Act, 2013.
(d) It establishes its registered office and starts functioning there form.
Answer:
(c) It is registered under the Companies Act, 2013.

Question 12.
A company formed for the promotion of commerce, art, science, religion, charity etc. may not use the word limited’ at the end of its name, even if it is a limited company.
(a) True
(b) False
(c) Partly True
(d) Partly False
Answer:
(a) True

Question 13.
The Registered office clause of Memorandum of Association contains ________.
(a) The name of the state in which the registered office of the company is to be situated.
(b) The name of the city/town only and not that of the state.
(c) The name of Registrar of companies.
(d) The complete postal address.
Answer:
(a) The name of the state in which the registered office of the company is to be situated.

Question 14.
The Object clause of Memorandum of Association must be divided into two Sub- Clauses, namely (i) main objects clause, and (ii) object in furtherance of main object clause.
(a) True
(b) False
(c) Partly True
(d) Partly False
Answer:
(a) True

Question 15.
Which of the following statements is correct?
(a) In limited companies, the liability of members holding fully paid-up shares is Nil.
(b) In companies limited by guarantee, the liability of members is limited to the amount which they have agreed to pay.
(c) Both (a) and (b) are correct.
(d) None of these is correct.
Answer:
(c) Both (a) and (b) are correct.

Question 16.
For which of the following companies it is not obligatory to have Articles of Association?
(a) Public Companies Limited by Shares
(b) Public Companies Limited by Guarantee
(c) Private Limited Companies
(d) Unlimited Companies
Answer:
(a) Public Companies Limited by Shares

Question 17.
Which of the following statements is correct?
(a) The ‘memorandum’ and ‘articles’ are binding on the members in their relation to the company.
(b) The ‘memorandum’ and ‘articles’ are binding on the company in their relation to the members.
(c) None of these is true
(d) Both of these are true
Answer:
(d) Both of these are true

Question 18.
Company’s ‘memorandum’ and ‘articles’ are public documents.
(a) True
(b) False
(c) Partly True
(d) Partly False
Answer:
(a) True

Question 19.
In case ‘memorandum’ and ‘articles’ are inconsistent, then which shall * prevail over the others?
(a) Memorandum of Association
(b) Articles of Association
(c) The one approved by Registrar
(d) None of these
Answer:
(a) Memorandum of Association

Question 20.
A public company having a share capital can start its business on obtaining ________.
(a) Certificate of incorporation and approval of Company Law Board.
(b) ‘Certificate to commence business’ and approval of Company Law Board.
(c) ‘Certificate of Incorporation’
(d) Approval of High Court.
Answer:
(c) ‘Certificate of Incorporation’

Question 21.
Company has succession.
(a) Longer
(b) Continued
(c) Perpetual
(d) Limited
Answer:
(c) Perpetual

Question 22.
If company do not follow the principle of separate legal entity can be done.
(a) Lifting of corporate veil
(b) Principle of equity
(c) Principle of natural justice
(d) All of above
Answer:
(a) Lifting of corporate veil

Question 23.
Total managerial remuneration in a public company cannot be of net profit.
(a) 10%
(b) 11%
(c) 18%
(d) 11.5%
Answer:
(b) 11%

Question 24.
Audit of Government Company is done by C & AG. This statement is ________.
(a) True
(b) False
(c) Partly True
(d) Partly False
Answer:
(a) True

Question 25.
Any Corporate Body/Association of Firm can be appointed as director of the company. This statement is:
(a) True
(b) False
(c) Partly True
(d) Partly False
Answer:
(b) False

Question 26.
How many members should sign the MOA in case of public company?
(a) 1
(b) 5
(c) 3
(d) 7
Answer:
(d) 7

Question 27.
conceives the idea of the business.
(a) Promoters
(b) Auditors
(c) Directors
(d) Shareholders
Answer:
(a) Promoters

Question 28.
Shares of company are freely transferable.
(a) Private company
(b) Public company
(c) Both (a) & (b)
(d) None of the above
Answer:
(b) Public company

Question 29.
Life Insurance Corporation Ltd. is formed under:
(a) Companies Act, 2013
(b) Special Act of Parliament
(c) Both (a) and (b)
(d) None of the above
Answer:
(b) Special Act of Parliament

Question 30.
Company’s corporate personality was brought forward in the case of:
(a) Macaura V. Northern Assurance Co. Ltd.
(b) Jons V. Lipman.
(c) CIT V. Meenakshi Mills Ltd.
(d) Salomon V Salomon and Co. Ltd.
Answer:
(d) Salomon V Salomon and Co. Ltd.

Question 31.
Which of the following is a non-trading association?
(a) Company
(b) Partnership firm
(c) Club
(d) HUF
Answer:
(c) Club

Question 32.
Promoter is both an agent and trustee of the proposed company.
(a) True
(b) False
(c) Partly True
(d) Partly False
Answer:
(b) False

Question 33.
Liability clause in MOA is required by:
(a) Company limited by shares
(b) Company limited by guarantee
(c) Company limited by both shares and guarantee
(d) All of the above
Answer:
(d) All of the above

Question 34.
Articles of unlimited company having share capital is included in:
(a) Table I
(b) Table G
(c) Table H
(d) Table F
Answer:
(a) Table I

Question 35.
Which one of the following is not a main clause of memorandum of association?
(a) Name clause
(b) Capital clause
(c) Object clause
(d) Profit clause
Answer:
(d) Profit clause

Question 36.
________ is to be executed on a non judicial stamp paper.
(a) Share warrant
(b) Power of attorney
(c) Incorporation certificate
(d) None of the above
Answer:
(b) Power of attorney

Question 37.
The word company is derived from word “Com Panis”.
(a) French
(b) Latin
(c) German
(d) Indian
Answer:
(b) Latin

Question 38.
Which of the following are the characteristics of a company?
(a) Corporate Personality
(b) Limited Liability
(c) Perpetual Succession
(d) All of the above
Answer:
(d) All of the above

Question 39.
The company has a capacity to sue and be ________.
(a) Incorporated
(b) Sued
(c) Both (a) and (b)
(d) None of the above
Answer:
(b) Sued

Question 40.
A company may be an ________.
(a) Incorporated company
(b) Unincorporated company
(c) Both (a) and (b)
(d) None of the above
Answer:
(a) Incorporated company

Question 41.
A word corporation is derived from latin term “corpus” which means ________.
(a) Body
(b) Legal Person
(c) Artificial Person
(d) None of the above
Answer:
(a) Body

Question 42.
The liability of the member of the company is limited to the extent of the of the shares held by them.
(a) Unpaid value
(b) Paid value
(c) Nominal value
(d) All of the above
Answer:
(c) Nominal value

Question 43.
Which of the following statement is correct?
(a) Partners are the agents of the firm but member of company are not its agents
(b) Partner cannot contract with his firm but a member of a company can
(c) Both (a) and (b)
(d) None of these is correct
Answer:
(c) Both (a) and (b)

Question 44.
In public company, the members of the company is not less than ________.
(a) Two
(b) Seven
(c) Ten
(d) Twenty
Answer:
(b) Seven

Question 45.
In Private Company, member of the company is not less than ________.
(a) Seven
(b) Ten
(c) Two
(d) Eight
Answer:
(c) Two

Question 46.
A company is a on the other hand a club is a ________.
(a) Trading association, non trading association.
(b) Mon trading association, trading association.
(c) Trading association, trading association.
(d) None of these.
Answer:
(a) Trading association, non trading association.

Question 47.
Which of the following are not the advantages of incorporation?
(a) Separate property
(b) Unlimited liability
(c) Capacity to sue
(d) Flexibility & autonomy
Answer:
(b) Unlimited liability

Question 48.
Which of the following are not the disadvantage of incorporation?
(a) Formalities and expenses
(b) Corporate disclosure
(c) Limited liability
(d) Both (a) and (b)
Answer:
(c) Limited liability

Question 49.
Which of the following are kinds of companies?
(a) Private companies
(b) Producer companies
(c) Both (a) and (b)
(d) None of the above
Answer:
(c) Both (a) and (b)

Question 50.
Provisions related to accounts, winding up, calls on shares, forfeiture, etc. are contained in ________.
(a) Articles of Association
(b) Memorandum of Association
(c) Prospectus
(d) Statement in.lieu of prospectus
Answer:
(a) Articles of Association

Question 51.
What are the limits of number of members in a Private Company?
(a) Fifty
(b) Seven
(c) Twenty
(d) Two hundred
Answer:
(d) Two hundred

Question 52.
If XYZ is the holding company of P&R Ltd. then, which of the following statement is not true in this regard.
(a) XYZ Ltd. controls the composition of Board of P&R
(b) XYZ Ltd. holds more than 50% of the nominal value of the equity shares
(c) Both (a) & (b)
(d) None of the above
Answer:
(d) None of the above

Question 53.
Which of the following is not a stage of the development of company?
(a) Promotion
(b) Production
(c) Incorporation
(d) Commencement of Business
Answer:
(b) Production

Question 54.
Which of the following company/companies are registered by the Companies Act, 2013?
(a) Government Company
(b) Private Company
(c) Public Company
(d) All of the above
Answer:
(d) All of the above

Question 55.
A public company must have atleast directors whereas a private company must have atleast directors.
(a) 3 ; 2
(b) 2 ; 3
(c) 2 ; 5
(d) 8; 10
Answer:
(a) 3 ; 2

Question 56.
A subsidiary of a government company is also treated as a ________.
(a) Government Company
(b) Public Company
(c) Private Company
(d) All of the above
Answer:
(a) Government Company

Question 57.
The ________ of a government company is appointed or reappointed by the Comptroller and Auditor General of India.
(a) Auditor
(b) Company Secretary
(c) Both (a) and (b)
(d) None of the above
Answer:
(a) Auditor

Question 58.
Which of the following company is incorporated in a country outside India?
(a) Private Company
(b) Foreign Companies
(c) Government Company
(d) None of the above
Answer:
(b) Foreign Companies

Question 59.
Wnich of the following statement is false?
(a) No legal formality is required to form a company.
(b) The shareholders of a company have limited liability.
(c) A company can own property in its own name.
(d) A company is managed by the elected representatives of shareholders.
Answer:
(a) No legal formality is required to form a company.

Question 60.
A ________ is one who performs the preliminary duties necessary to bring a company into being and float it.
(a) Auditor
(b) Promoter
(c) Director
(d) Financer
Answer:
(b) Promoter

Question 61.
The registered office clause of memorandum of association contains ________.
(a) The name of the state in which the registered office of the company is to be situated.
(b) The name of the city/town only and not that of the state.
(c) The name of registrar of companies
(d) The complete postal address.
Answer:
(a) The name of the state in which the registered office of the company is to be situated.

Question 62.
“One who undertakes to form a company with reference to a given object and set it going and who takes the necessary steps to accomplish that purpose”
(a) Promoter
(b) Directors
(c) C.E.O.
(d) Board of Directors
Answer:
(a) Promoter

Question 63.
Which of the following are the functions of a promoter?
(a) Decides name of a company
(b) Nomination of directors
(c) Settles the details of memorandum and articles
(d) All of these
Answer:
(d) All of these

Question 64.
A ________ is neither an agent, nor a trustee of a company.
(a) Directors
(b) Company Secretary
(c) Employees
(d) Promoters
Answer:
(d) Promoters

Question 65.
Which documents contains the constitution of a company?
(a) Memorandum of Association
(b) Articles of Association
(c) Both (a) and (b)
(d) None of these
Answer:
(a) Memorandum of Association

Question 66.
Which documents contains the regulations relating to the internal management of a company?
(a) Memorandum of Association
(b) Articles of Association
(c) Both (a) and (b)
(d) None
Answer:
(b) Articles of Association

Question 67.
For vetting the MOA and AOA, as per SPiCE eMOA and eAOA is required.
(a) True
(b) False
(c) Partly True
(d) None of the above.
Answer:
(a) True

Question 68.
The companies are regulated-under ________.
(a) Companies Act, 1596
(b) Companies Act, 1957
(c) Indian Partnership Act,1932
(d) Companies Act, 2013
Answer:
(d) Companies Act, 2013

Question 69.
The certificate of incorporation is that the company is entitled to commence business.
(a) Exclusive
(b) Conclusive
(c) Supportive
(d) Either (a) or (b)
Answer:
(d) Either (a) or (b)

Question 70.
The whole process of the company formation may be divided into three direct stages, the sequence is ________.
(a) Promotion, incorporation by registration, commencement of business.
(b) Incorporation by registration, commencement of business, promotion.
(c) Commencement of business, promotion, incorporation by registration.
(d) Commencement of business, incorporation by registration, promotion.
Answer:
(a) Promotion, incorporation by registration, commencement of business.

Question 71.
Company is managed by ________.
(a) Shareholders
(b) Board of Directors
(c) Karta
(d) Both (a) & (b)
Answer:
(b) Board of Directors

Question 72.
H.U.F. consists of which type of members ________.
(a) Both (b) & (c)
(b) Heterogeneous
(c) Homogeneous
(d) None of the above
Answer:
(c) Homogeneous

Question 73.
Partnership is governed by Partnership Act ‘
(a) 1956
(b) 1948
(c) 1932
(d) 1982
Answer:
(c) 1932

Question 74.
Which is not a case of lifting of corporate veil ________.
(a) Connors Bros. v. Connors
(b) Jones v. Lipren
(c) Pearce v. Brookes
(d) CIT v. Meenakshi Mills Ltd.
Answer:
(c) Pearce v. Brookes

Question 75.
Word ‘Corporation’ is ________ than company
(a) Narrow
(b) Wider
(c) (a) or (b)
(d) All of the above
Answer:
(b) Wider

Question 76.
Advantage of incorporated company is ________.
(a) Corporate disclosures
(b) Common seal
(c) Capacity to sue
(d) Winding up procedure
Answer:
(c) Capacity to sue

Question 77.
Find the odd one out:
(a) Private Company
(b) Public Company
(c) Consumer Company
(d) Producer Company
Answer:
(c) Consumer Company

Question 78.
Joint shareholders are counted as ________.
(a) Two
(b) No limit
(c) 50
(d) One
Answer:
(d) One

Question 79.
Example of company limited by guarantee ________.
(a) Clubs
(b) Both (a) & (c)
(c) Societies
(d) None of the above
Answer:
(b) Both (a) & (c)

Question 80.
Which is not a registered company ________.
(a) Company limited by share
(b) Company limited by guarantee
(c) Both (a) & (b)
(d) None of the above
Answer:
(d) None of the above

Question 81.
Public company shares are dealt in ________.
(a) Stock exchange
(b) Public
(c) Market
(d) All of the above
Answer:
(a) Stock exchange

Question 82.
Is there any limit on borrowings to a Private Company ________.
(a) Limit up to ₹ 50,000
(b) Limit up to 1 lakh
(c) No limit
(d) None
Answer:
(c) No limit

Question 83.
Unlimited company may be subsequently converted into limited company ________.
(a) True
(b) Partly true
(c) False
(d) None of the above
Answer:
(a) True

Question 84.
Non-Profit companies are also called ________.
(a) Holding companies
(b) Licensed companies
(c) Subsidiary companies
(d) Government companies
Answer:
(b) Licensed companies

Question 85.
Government company comes under section ________.
(a) 2(46)
(b) 2(44)
(c) 2(43)
(d) 2(45)
Answer:
(d) 2(45)

Question 86.
Foreign company must issue prospectus ________.
(a) True
(b) Partly true
(c) False
(d) None of these
Answer:
(a) True

Question 87.
Company’s memorandum & articles are public documents ________.
(a) True
(b) False
(c) Partly True
(d) Partly False
Answer:
(a) True

Question 88.
For Incorporation or registration ________.
(a) MOA must be subscribed
(b) AOA must be subscribed
(c) Only MOA
(d) Both (a) & (b)
Answer:
(d) Both (a) & (b)

Question 89.
MOA contains ________.
(a) Constitutions
(b) Regulations
(c) Declaration
(d) None of these
Answer:
(a) Constitutions

Question 90.
MOA has ________.
(a) 9
(b) 7
(c) 6
(d) 10
Answer:
(c) 6

Question 91.
AOA is also called as ________ of the company.
(a) Regulations
(b) Bye-Laws
(c) Provisions
(d) Both (a) or (b)
Answer:
(d) Both (a) or (b)

Question 92.
Tables I includes articles of ________.
(a) Unlimited company having share capital
(b) Company limited by guarantee
(c) Company limited by shares
(d) Public company
Answer:
(a) Unlimited company having share capital

Question 93.
Which amongst the following documents is not required to be filed by a foreign company with the Registrar?
(a) Address of the registered office of the company
(b) Address of the principles place of business in India
(c) Declaration of Solvency
(d) Articles of Association
Answer:
(c) Declaration of Solvency

Question 94.
Lifting of corporate veil is permitted ________.
(a) By statue
(b) Voluntary
(c) Any time
(d) None of these
Answer:
(a) By statue

Question 95.
Which one of the following is NOT an essential feature of a company?
(a) Perpetual Succession
(b) Unlimited Liability
(c) Separate Property
(d) Transferability of shares
Answer:
(b) Unlimited Liability

Question 96.
Which one of the following statement is not true regarding a company?
(a) The shares of a company can be transferred
(b) It is very simple and easy to form a company
(c) It is a separate legal entity
(d) it has independence to form its policies
Answer:
(b) It is very simple and easy to form a company

Question 97.
Which one of the following is NOT a disadvantage of a company?
(a) It does not has a capacity to sue
(b) it has more social responsibility
(c) Greater tax burden
(d) More disclosures
Answer:
(a) It does not has a capacity to sue

Question 98.
Which of the following statement is NOT true regarding a private company?
(a) It cannot invite public to subscribe to shares or debentures
(b) Restricts the right to transfer its share
(c) At least five members are required to form a company
(d) It should have at least two directors
Answer:
(c) At least five members are required to form a company

Question 99.
The auditor of a Government company is appointed by ________.
(a) Central Government
(b) Comptroller and Auditor General of India
(c) Directors of the Company
(d) Shareholders of the Company
Answer:
(b) Comptroller and Auditor General of India

Question 100.
The maximum managerial remuneration which can be paid by a private company is ________.
(a) 11 % of net profit
(b) 11 % of turnover
(c) 5% of share capital
(d) None of the above
Answer:
(d) None of the above

Question 101.
In case of a company limited by shares, the members are liable to the extent of ________.
(a) Nominal value of share
(b) Called up value of shares
(c) They are personally liable
(d) None of the above
Answer:
(a) Nominal value of share

Question 102.
Which one of the following is not true with reference to an unlimited company?
(a) The liability is extended to their personal property
(b) The members are not liable directly to the creditors of the company
(c) It cannot convert itself into a public company
(d) All of the above
Answer:
(c) It cannot convert itself into a public company

Question 103.
A “not for profit” company is permitted as per which section of the Companies’ Act, 2013?
(a) Sec. 3 (i) (iv)
(b) Sec. 5
(c) Sec. 8
(d) Sec. 12.
Answer:
(c) Sec. 8

Question 104.
The licence to form a company “not for profit” is granted by ________.
(a) State Government
(b) Registrar
(c) High Court
(d) Central Government
Answer:
(d) Central Government

Question 105.
Government company is defined under which section of the Companies Act, 2013?
(a) Sec. 2(45)
(b) Sec. 2(44)
(c) Sec. 2(43)
(d) None of the above
Answer:
(a) Sec. 2(45)

Question 106.
In a Government Company, the minimum share of Centre and State Government is:
(a) 51 % or more of the paid up share capital
(b) 5% or more of the issued share capital
(c) 51 % or more of the authorised share capital
(d) None of the above
Answer:
(a) 51 % or more of the paid up share capital

Question 107.
As per the Companies Act, 2013, what is the minimum paid up share capital required for a public? company?
(a) ₹ 1 Lakh
(b) ₹ 5 Lakh
(c) ₹ 1 Crore
(d) None of the above
Answer:
(d) According to Companies (Amendment) Act, 2015: Provides that in Clause (71), the words “of ₹ 5 lakhs or higher paid up share capital” shall be omitted.”

Question 108.
Which one of the following is known as owners of a company?
(a) Debentureholders
(b) Board of Directors
(c) Shareholders
(d) Partners
Answer:
(c) Shareholders are known as owners of company because they provide funds to company. A person who holds shares in the capital of company is known as a shareholder.

Question 109.
A company can change its name by passing:
(a) Ordinary resolution
(b) Special resolution
(c) Board resolution
(d) None of the above.
Answer:
(b) A company can change its name by passing Special Resolution (SR). Company shall alter his Memorandum of Association and sent a copy of SR and altered MOA to ROC. The Registrar as shall issue a fresh certificate of Incorporation to the company containing a new name.

Question 110.
The minimum number of directors in a public company is:
(a) 3
(b) 5
(c) 2
(d) 7
Answer:
(a) The minimum directors required to run a public limited company is 3 directors. The maximum directors on the other hand would be 15′ directors and if more directors need to be appointed than they can be appointed by the special resolution.

Question 111.
What is the meaning of maxim ultra vires?
(a) An accomplished act
(b) Within the powers
(c) Beyond the powers
(d) With the guilty mind
Answer:
(c) Maxim ‘ultra vires’ means beyond the power of the company i.e. beyond the objects clause of memorandum of association or beyond the companies Act itself. Acts which are ultra vires are void ab initio and whole body of Shareholders acting unanimously cannot ratify the ultra vires acts.

Question 112.
In a company who conceives the idea of the business?
(a) Promoters
(b) Auditors
(c) Directors
(d) Shareholders.
Answer:
“Promotion” is the process of conceiving an idea and developing it into a concrete proposition or project to be accomplished by the incorporation and flotation of a company. The person who conceives the idea of business is termed as “Promoter”.

Question 113.
Which of the following are the characteristics of a private company?
X. Limited liability of members
Y. Perpetual succession
Z. Free transferability of shares
Correct option is –
(a) X and Y
(b) Y and Z
(c) X and Z
(d) X, Y and Z.
Answer:
(a) A company form of organisation possess various characteristics such as –

Corporate personality
Limited liability
Perpetual succession
Transferability of shares
Separate property
Capacity to sue and be sued

However, two forms of company i.e. public and private company differs from each other on the basis of transferability of shares. Private company restricts the right of member to transfer their shares freely. However, public company allows free transfer of shares to its members. Therefore, free transferability of shares is not a feature of private company and so the answer is X and Y.

Question 114.
The maximum number of directors in a private limited company is ________.
(a) 3
(b) 10
(c) 5
(d) 15
Answer:
(d) The Company Act, 2013 prescribes the minimum number of directors i.e. 2 to form a private limited company and one in case on OPC (One Person Company). However, there is maximum number of directors in a private limited Company is 15.
Hence, option (d) is correct.

Question 115.
Which company give its members a right to transfer his shares:
(a) Public
(b) Private
(c) Government
(d) None
Answer:
(a) In public company, the members can freely transfer their shares while private company districts the right to transfer its shares while private company districts the right to transfer its shares.

Question 116.
Maximum number of members in public company are:
(a) 50
(b) 10
(c) No limit
(d) None of these
Answer:
(c) Public company can have any number of members. Thus, there is no limit on the maximum number of members in public company.

Question 117.
Which of the following cases clearly established that a company has a separate legal entity:
(a) Salomon v Salomon and Co. Ltd.
(b) Sultan and Co. Ltd. v Sultan
(c) Connors Bros v Connors
(d) Foss v Harbottle.
Answer:
(a) Salomon Vs Salomon and Co. Ltd. clearly established that a company has a separate legal entity.

Under this case, the court held that:
Salomon & Co. was a real company fulfilling all the legal requirement and it had an identity separate from its members.

Question 118.
A company that owns substantial shares in another company to control management and operations by influencing its Board of Directors is known as:
(a) Holding Company
(b) Foreign Company
(c) Public Company
(d) Private Company.
Answer:
(a) As per Sec. 2 (46) of the Companies Act, 2013, Holding Company is a company:

Controls the composition of Board of Directors or
Exercises or controls more than one half of the total share capital either at its own or together with one or more of its, subsidiary companies then it is known as holding company and the other company is the subsidiary company.

Question 119.
Articles of Association of a Company contains the name of ________.
(a) First Directors ”
(b) Subsequent Directors
(c) Shareholders
(d) Managers
Answer:
(a) Section 7(1 )(g) of the Companies Act, 2013 states that the particulars of the interests of the persons mentioned in the Article of Association as the first Directors of the company in other firm or bodies corporate along with their consent to act as directors of the company in such form and manner as may be prescribed.

Question 120.
An OPC must have minimum number of directors ________.
(a) One
(b) Three
(c) Five
(d) None
Answer:
(a) Section 149(1) of Companies Act, 2013 requires that every company shall have a minimum number of 3 directors in case of public company, 2 in case of private-company and one in case of one person company.

Question 121.
A company dies with the death of its shareholders:
(a) Partly true
(b) True
(c) False
(d) Can’t say
Answer:
(c) Members may come and members may go but the company goes on forever. A company has perpetual succession, i.e. death or insolvency of a shareholder or all of them does not affect the life of company.

Question 122.
Transfer and transmission of shares are dealt under:
(a) Certificate of incorporation
(b) Article of Association
(c) Confidential agreement
(d) Memorandum of association.
Answer:
(b) Transfer and transmission of shares are dealt under article of association. It is one of the content of Articles framed by the company for its own working. Every member owing fully paid up shares is at liberty to dispose off according to his choice but subject to Articles of Company.

Question 123.
The word is added at the end of its name by a private limited company.
(a) Public Company Limited
(b) Limited
(c) Private Limited
(d) Public Limited.
Answer:
(c) By virtue of Section 2(68) of Companies Act, 2013. It is clearly prescribed that the word “private limited” must be added at the end of its name by a private limited company.

Question 124.
Firm is a separate entity in the eyes of law. This statement is:
(a) True in case of Limited liability Partnership
(b) Not true for Indian firms
(c) Depends on agreement between partners
(d) True in all cases.
Answer:
(d) True in all cases.

Question 125.
An application seeking extension of time to hold annual general meeting of a company should be made to;
(a) Company Secretary
(b) The Registrar of Companies
(c) Company Law Tribunal
(d) Court.
Answer:
(b) In case, it is not possible for a company to hold an annual general meeting within the prescribed time, the Registrar may, for any special reason, extend the time within which any AGM shall be held.

Question 126.
Those who provide financing in exchange of ownership are called:
(a) Lenders
(b) Analysts
(c) Equity Investors
(d) Debt financing
Answer:
(c) Those who provide financing in exchange, of ownership are called equity investors or shareholders.

Question 127.
Under section 12 of the Companies Act, a company shall, on and from the ________ of its incorporation, have a registered office capable of receiving and acknowledging all communications and notices as may be addressed to it.
(a) 45th day
(b) 2 months
(c) 15th Day
(d) 30th Day
Answer:
(c) Under Companies Act, 2013. Section 12, a company shall, Within 30,h Days of its incorporation have a registered office capable of receiving and acknowledging all communication and notice as may be addressed to it.

Note:

In Section 12 of the Principal Act, –
In sub-section (1), for the words “on and from the fifteenth day of its incorporation”, the words ” within thirty days of its incorporation” shall be substituted;
In sub-section (4), for the words “within fifteen days”, the words “within thirty days” shall be substituted. ‘

Question 128.
A company limited by shares, which does not have Articles of Association can adopt ________ as its Articles.
(a) Table J of Schedule II
(b) Table G of Schedule I
(c) Table H of Schedule II
(d) Table F of Schedule I
Answer:
(d) Companies are required to have its own MOA & AOA registered where public company limited by shares, need not have its own articles. It can adopt table F of Schedule.

Question 129.
Those who provide financing in exchange of ownership are called:
(a) Debt financing
(b) Analysts
(c) Lenders
(d) Equity investors
Answer:
(d) Equity investors are people who invest money into a company in exchange for a share of ownership in the company, typically, equity investors ^iave no guarantee of a return on their investment and may lose their money should the company go out of business.

Question 130.
________ is the company in which at least 51 % shares are held by Central or State Government or partly by both.
(a) Public company
(b) Government company
(c) Foreign company
(d) HoSdina
Answer:
(b) A “Government Company” is defined under Section 2(45) of the Companies Act, 2013 as “any company in which not less than 51% of the paid-up share capital is held by the Central Government, or by t any State Government or Governments, or partly by the Central Government and partly by one or more State Governments, and includes a company which is a subsidiary company of such a Government Company”.

Thus, the cardinal feature of a Government . Company is not less than 51% ownership – by Central/State Government, either individually or jointly. Hence, option (b) is , correct.

Question 131.
A Public Corporation has:
(a) Public ownership
(b) Public accountability .
(c) Business management for public end
(d) All are applicable
Answer:
(d) A public corporation has –

Public ownership: They are owned and controlled by public.
Public accountability: They are accountable to public because public money is involved.
Business management for public end: Management is appointed by public.

Question 132.
The basic document of company generally are:
(a) Annual Accounts’
(b) Prospectus
(c) Minutes of meetings
(d) Memorandum and Articles of Association
Answer:
(d) Memorandum and Articles of the association are the basic document of the company. They are the charter or constitution of company.

Question 133.
In case of loss to a limited company, the liability of the shareholders is:
(a) Unlimited
(b) Limited to the amounts as they have declared
(c) Limited to the amount of capital to which they have subscribed
(d) Limited up to it’s secured debts
Answer:
(c) The liability of shareholder is limited to the amount of capital to Which they have subscribed and not paid.

Question 134.
In a company who conceives the idea of the business?
(a) Promoters
(b) Auditors
(c) Directors
(d) Shareholders
Answer:
(a) Promoters are the persons who take into their mind the idea of formation of company. They play most important role in the formation of company as they are persons who conceives idea of formation and without them, there can not be any company formation is done.

Question 135.
Every company public or private has to be registered with
(a) Central Bank of India
(b) RBI
(c) State Bank of India
(d) Registrar of Companies (ROC)
Answer:
(d) Every public or private company has to e registered with Registrar of Company (ROC).

Question 136.
Which of the following are the characteristics of a private company?
X. Limited liability of members
Y. Perpetual succession
Z. Free transferability of shares Correct option is:
(a) X and Y
(b) Y and Z
(c) X and Z
(d) X, Y and Z
Answer:
(a) A company form of organisation posses various characteristics such as:

Corporate personality
Limited Liability
Transferability of Shares
Perpetual Succession
Separate property
Capacity to sue and be sued.

However, two forms of company i.e. public and private company differs from each other on the basis of transferability of shares. Private company restricts the right of member to transfer their shares freely. However, public company allows free of shares to its members. Therefore, freely transferability of share is not a feature of private company, hence option (a) is correct.

Question 137.
A public corporation has ________.
(a) Public ownership
(b) Public accountability
(c) Business management for public
(d) All of the above
Answer:
(d) A public corporation has

Public ownership i.e. they are owned and controlled by public
Public accountability i.e. they are accountable to public because public money is involved,
Business management for public end i.e. management is appointed by public.

Thus the right answer is option (d).

Question 138.
Board of Trustee v/s State of Delhi AIR, 1962?
(a) Separate Property
(b) Fraud
(c) Distinction of between company and corporation
(d) Exception of privity to contract
Answer:
(c) In the content of Distinction between a company and a corporation, the term corporation does not include a Co-operative Society registered under any law relating to Co-operative Societies. A society registered under Societies Registration Act has been held by Supreme Court in Board of Trustees v/s State of Delhi, AIR 1962
S.C. 458 not to corrie within the term ‘body corporate’ under Companies Act.

Question 139.
Who can’t use the terms ‘limited’ and ‘Private Limited’?
(a) OPC (one person company)
(b) Section‘8’CO
(c) LLP (Limited Liability Partnership
(d) Both‘A’and‘C’
Answer:
(b) The ‘Section 8’ company which are registered under Companies Act for the purpose of promotion of commerce, art, science, sports, education, religion, etc. are issued a licence by Central Government in such prescribed manner and conditions as it deem fit to be a limited company, without addition to its name of words ‘limited’ or ‘private limited’ as the case may be.

Elements of Company Law – I – CS Foundation Business Law Notes

Elements of Company Law – I – CS Foundation Business Law Notes

CS Foundation Business Environment and Law Notes