II. Very Short Answer Questions

Question 1. What are the different types of companies?

Answer

1. Incorporation

2. Membership

3. Member liability

4. Control

5. Nationality

 

Question 2. Define a Company.

Answer "A company is an artificial person created by law having a separate entity with a perpetual succession and a common seal." — L.H. Haney.

 

Question 3. What is meant by Limited liability?

Answer. The liability of a shareholder is limited. The risk of loss is limited to the unpaid amount on the face value of shares held.

 

Question 4. Explain any two characteristics of a company.

Answer

1. Separate Legal Entity: Under Incorporation a company becomes a separate legal entity as compared to its members. The company is distinct and different from its members.

2. Limited Liability: The liability of the members of the company is limited to contribution to the assets of the company up to the face value of shares held by him. A member is liable to pay only the uncalled money due on shares held by him.

 

Question 5. What is meant by Chartered Company?

Answer. Chartered companies are established by the King or Queen of a country. Powers and privilege of chartered company are specified in the charter. Power to cancel the charter is vested with King/Queen.

 

III. Short Answer Questions

 

Question 1. What are the advantages of Companies? (Any 3)

Answer

1. Large Capital:

A company can secure large capital compared to a sole trader or partnership. Large amount of capital is necessary for conducting business on a large scale.

 

2. Limited Liability:

The liability of a shareholder is limited. The risk of loss is limited to the unpaid amount on the face value of shares held. In the case of a company limited by shares, the liability of a shareholder is restricted to the unpaid amount on the shares held by him.

 

3. Transferability of Shares:

Transaction of Shares between two individuals is easy. So there is liquidity of investment. Any shareholder can easily convert his shares into money by selling his shares.

 

Question 2. What is meant by Private Company?

Answer Private limited company is a type of company which is formed with minimum two shareholders and two directors, the minimum requirement with respect to authorised or paid up capital of Rs. 1, 00.000 has been omitted by the Companies (Amendment) Act. 2015 w.e.f. 29th of May, 2015.

Another crucial condition of a private limited company is that it by its articles of association restricts the right to transfer its shares and also prohibits any invitation to the public to subscribe for any securities of the company.

 

Question 3. What is meant by Government Company?

Answer. A public enterprise incorporated under the Indian Companies Act, 1956 is called a Government company. These companies are owned and managed by the central or the state government.

Section 617 of the Companies Act 1956 defines "Government Companies" as any company in which not less than 51% of the paid — up share capital is held by the Central Government or any State Government or governments or partly by the Central Government and partly by one or more State Governments. A subsidiary of a Government company shall also be treated as a Government company.

 

Question 4. What is meant by Foreign Company?

A Foreign company means a company which is incorporated in a country outside India under the law of that country. After the establishment of business in India, the following documents must be filed with the Registrar of Companies within 30 days from the date of establishment:

1. A certified copy of the charter or statutes under which the company is incorporated, or the memorandum and articles of the company translated into English.

2. The full address of the registered office of the company.

3. A list of directors and secretary of the company.

4. The name and address of any person resident of India who is authorised to accept on behalf of the company, service of legal process and any notice served on the company.

 

IV. Long Answer Questions

Question 1. What are the contents of Memorandum of Association?

1. Name Clause: The name clause requires you to state the legal and recognized name of the company. You are allowed to register a company name only if it does not bear any similarities with the name of an existing company.

 

2. Situation Clause: The registered office clause requires you to show the physical location of the registered office of the company. You are required to keep all the company registers in this office in addition to using the office in handling all the outgoing and incoming communication correspondence.

 

3. Objective Clause: The objective clause requires you to summarize the main objectives for establishing the company with reference to the requirements for shareholding and use of financial resources. You also need to state ancillary objectives; that is, those objectives that are required to facilitate the achievement of the main objectives.

 

4. Liability Clause: The liability clause requires you to state the extent to which shareholders of the company are liable to the debt obligations of the company in the event of the company dissolving. You should show that shareholders are liable only their shareholding and/or to their commitment to contribute to the dissolution costs upon liquidation of a company limited by guarantee.

 

5. Capital Clause: The capital clause requires you to state the company% authorized share capital, the different categories of shares and the nominal value (the minimum value per share) of the shares. You are also required to list the company's assets under this clause.

 

6. Association Clause: The association clause confirms that shareholders bound by the MOA are willingly associating and forming a company. You require seven members to sign an MOA for a public company and riot less than two people for a MOA of a private company. You must conduct the signing in the presence of witness who must also append his signature.

 

Question 2. What are the contents of Articles of Association?

Answer. Contents of Articles of Association (AOA):

1. Amount of shares. Capital, value and type of shares.

2. Rights of each class of shareholders regarding voting, dividend, and return of capital.

3. Rules regarding issue of shares and debentures.

4. Procedures as well as regulations in respect of making calls on shares.

5. Manner of transfer of shares.

6. Declaration of dividends.

7. Borrowing powers of the company.

8. Rules regarding the appointment, remuneration, removal of directors.

9. Procedure for conducting proxy, quorum, meetings etc..

10. Procedures concerning keeping of books and audits.

11. Seal of the company.

12. Procedures regarding the winding up of the company.

 

Question 3. What is meant by Prospectus?

Answer. According to Section 2(36) of the Companies Act, any document inviting the public to buy its shares or debentures comes under the definition of prospectus. It also applies to advertisements inviting deposits from the public. A prospectus is "the only window through which a prospective investor can look into the soundness of a company's venture". Hence it must specify at least the following matters as per Schedule II:

1. The prospectus contains the main objectives of the company, the name and addresses of the signatories of the Memorandum of Association and the number of shares held by them.

2. The name, addresses and occupation of directors and managing directors.

3. The number and classes of shares and debentures issued.

4. The qualification share of directors and the interest of directors for the promotion of company.

5. The number, description and the document of shares or debentures which within the two preceding years have been agreed to be issued other than cash.

 

Question 4. What is meant by Multi National Company?

Answer. A Multi National Company (MNC) is a huge industrial organisation which:

1. Operates in more than one country.

2. Carries out production, marketing and research activities on international Scale in those countries. 3. Seeks to maximise profits world over. Examples: Micro Soft Corporation, Nokia Corporation, Nestle, Coca — Cola, International Business Machine, PepsiCo, Sony Corporation.

 

 

Question 5. What is meant by Holding and Subsidiary company?

Answer 1. Holding Company: As per Section 2(87) "subsidiary company" or "subsidiary", in relation to any other company (that is to say the holding company), means a company in which the holding company:

• Controls the composition of the 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:

Provided that such class or classes of holding companies as may be prescribed shall not have layers of subsidiaries beyond such numbers as may be prescribed.

 

2. Subsidiary Company: "Subsidiary company" or "Subsidiary", in relation to any other company (that is to say the holding company), means a company in which the holding company:

• Controls the composition of the 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:

Examples: H Ltd., holds more than 50% of the equity share capital of S Ltd. Now H Ltd..., is the holding company of S Ltd.., and S Ltd., is the subsidiary of H Ltd.