Karnataka 1st PUC Business Studies Question Bank Chapter 7 Formation of a Company
You can Download Chapter 7 Formation of a Company Questions and Answers, Notes, 1st PUC Business Studies Question Bank with Answers Karnataka State Board Solutions help you to revise complete Syllabus and score more marks in your examinations.
1st PUC Business Studies Formation of a Company Textual Questions and Answers
1st PUC Business Studies Formation of a Company Multiple Choice Questions
Question 1.
Minimum number of members to form a private company is
(a) 2
(b) 3
(c) 5
(d) 7
Answer:
(a) 2
Question 2.
Minimum number of members to form a public company is
(a) 5
(b) 7
(c) 12
(d) 21
Answer:
(b) 7
Question 3.
Application approval of name of a company ¡s to be made to
(a) SEBI
(b) Registrar of Companies
(e) Government of India
(d) Government of the State in which Company is to be registered
Answer:
(b) Registrar of Companies
Question 4.
A proposed name of Company is considered undesirable if
(a) It ¡s identical with the name of an existing company
(b) It resembles closely with the name of an existing company
(c) It is an emblem of Government of India. United Nations etc.
(d) In case of any of the above
Answer:
(d) In case of any of the above
Question 5.
A prospectus is issued by
(a) A private company
(b) A public company seeking investment from public
(c) A public enterprise
(d) A public company
Answer:
(b) A public company seeking investment from public
Question 6.
Stages in the formation of a public company are in the following order
(a) Promotion, Commencement of Business, Incorporation, Capital Subscription
(b) Incorporation, Capital Subscription Commencement of Business, Promotion
(c) Promotion, Incorporation, Capital Subscription, Commencement of Business
(d) Capital Subscription, Promotion, Incorporation,Commencement of Business
Answer:
(c) Promotion, Incorporation, Capital Subscription, Commencement of Business
Question 7.
Preliminary Contracts are signed.
(a) Before the incorporation
(b) After incorporation but before capital subscription
(c) After incorporation but before
(d) After commencement of commencement of business business
Answer:
(a) Before the incorporation
Question 8.
Preliminary Contracts are
(a) binding on the Company
(b) binding on the Company, if ratified after incorporation
(c) binding on the Company, after incorporation
(d) not binding on the Company
Answer:
(d) not binding on the Company
True/False Answer Questions
- It is necessary to get every company incorporated, whether private or public. (True)
- Statement in lieu of prospectus can be filed by a public company going for a public issue. (True)
- A private company can commence business after incorporation. (True)
- Experts who help promoters in the promotion of a company are also called promoters. (False)
- A company can ratify preliminary contracts after incorporation. (False)
- If a company is registered on the basis of fictitious names, its incorporation is invalid. (False)
- Articles of Association is the main document of a company. (False)
- Every company must file Articles of Association. (False)
- A provisional contract is signed by promoters before the incorporation of the company. (False)
- If a company suffers heavy issues and its assets are not enough to pay off its liabilities, the balance can be recovered from the private assets of its members. (False)
1st PUC Business Studies Formation of a Company Short Answer Questions
Question 1.
Name the stages in the formation of a company.
Answer:
Formation of a company is a complex activity, involving these stages which are as follows:
- Promotion Identification of opportunities, analysis of its prospects and initiating steps to form a company is known as promotion of a company.
- Incorporation Registration Of company as body corporate under Companies Act, 1956 is known as incorporation.
- Subscription of Capital A public company’s raising funds from the public by means of issue of shares and debentures is known as capital subscription.
- Commencement of Business The registrar issues certificate of commencement of business which is a conclusive evidence of completion of formation requirement of a company.
Question 2.
List the documents required for the incorporation of a company.
Answer:
The documents required for the incorporation of a company are:
- The Memorandum of Association duly stamped, signed and witnessed.
- The Articles of Association duly stamped and witnessed as in case of the ‘ Memorandum. If company adopts Table A, statement in lieu of the prospectus is submitted, instead of Articles of Association.
- Written consent of the proposed directors to act as directors and an-undertaking to purchase qualification shares.
- The agreement, if any, with the proposed Managing Director, Manager or whole¬time director.
- A copy of the Registrar’s letter approving the name of the company.
- A statutory declaration affirming that all legal requirements for registration have been complied with.
- A notice about the exact address of the registered office (can be submitted within 30 days of incorporation).
- Documentary evidence of payment of registration fees.
Question 3.
What is a prospectus? Is it necessary for every company to file a prospectus?
Answer:
A prospectus is ‘any document described or issued as a prospectus including any notice, circular, advertisement or other document inviting deposits from the public or inviting offers from the public for the subscription or purchase of any shares or – debentures of, a body corporate’. In other words, it is an invitation to the public to apply for shares or debentures of the company or to make deposits in the company.
It is issued by a public company which is seeking to raise the required funds from the public by means of issue of shares and debentures. It is not necessary for every company to file a prospectus. A statement in ‘ lieu of prospectus is filed with the Registrar of Companies if the company has adopted Table A of the Companies Act instead of Articles of Association. Private companies are not required to file a prospectus.
Question 4.
Explain the term,‘Minimum Subscription’.
Answer:
Minimum subscription refers to the minimum amount required by the company for its preliminary functions. It has been provided by the Companies Act, that the company must receive applications for a certain minimum number of shares before going ahead: with the allotment of shares in order to prevent companies from commencing business with inadequate resources. This is called the ‘minimum subscription’. The limit of minimum subscription is 90% of the size of the issue.
Question 5.
Briefly explain the term return of Allotment’.
Answer:
Return of Allotment is a statement submitted to the Registrar which contains the names and addresses, of shareholders and the number of shares allotted to each shareholder. Return of allotment, signed by a director or secretary is filed with the Registrar of Companies within 30 days of allotment. Return of allotment shows that the company has received the minimum subscription.
Question 6.
At which stage in the formation of a company does it interact with SEBI.
Answer:
A company interacts with. SEBI (Securities and Exchange Board of India) in the third stage of formation that is, in the stage of capital subscription. SEBI is the regulatory authority of capital markets in our country which has issued guidelines for the disclosure of information and investor protection.
A company inviting funds from the general public must make adequate disclosure of all relevant information and must not conceal any material information from the potential investors as per SEBI guidelines. Prior approval from SEBI is, therefore, required before going ahead with raising funds from public. SEBI ensures that the proposed issue of securities follows all the guidelines laid down by it, no oversubscription of any issue can be retained, full underwriting of issue is important, promoters contribution must be 25% in an issue of less than Rs. 100 crore.
Question 7.
Distinguish between ‘preliminary contracts’ and ‘provisional contracts’.
Answer:
|
SI. No. |
Preliminary Contracts | Provisional Contracts |
| 1. | Contracts signed by promoters with third parties before the incorporation of company. | Contracts signed after incorporation but before commencement of business. |
| 2. | These are not legally binding on the company and cannot be ratified after incorporation. | These become enforceable only after the company gets the certificate of Commencement of Business. |
| 3. | These contracts are the liabilities of promoters. | These contracts are the responsibilities of the company. |
| 4. | Both private and public company have right to undertake these contracts. | They can only be undertaken by public company. |
1st PUC Business Studies Formation of a Company Long Answer Questions
Question 1.
What is meant by the term ‘Promotion’? Discuss the legal position of promoters with respect to a company promoted by them.
Answer:
Promotion is the first stage in the formation of a company. It involves conceiving a business opportunity and taking an initiative to form a company so that the available business opportunity can be turned into a real business project. A promoter is said to be the one who undertakes to form a company with reference to a given project and to set it going and who takes the necessary steps to accomplish that purpose.
It is the function of promoters to analyze the prospects and bring together the men, materials, machinery, managerial abilities, financial resources and commence the business. Promoters undertake various activities to get a company registered and get it to the position of commencement of business. But they are neither the agents nor the trustees of the company. Legally they cannot be the agent of nonexisting companies.
It means that he is personally liable for the contracts, not legally. Also promoters are not the trustees they supposed to observe good faith in the promotion and must not make secret gains out of the dealings. If there is gain then it must be disclosed. Promoters are not legally entitled to claim the expenses incurred in the promotion of the company but the pre-incorporation expenses may be reimbursed.
The company may also remunerate the promoters for their efforts by paying a lump sum amount or a commission on the purchase price of property purchased through them or on the shares sold. Shares or debentures may also be allotted to the promoters or they may be given an option to purchase the securities at a future date.
Question 2.
Explain the steps taken by promoters in the promotion of a company.
Answer:
The important steps taken by promoters in the promotion of a company are as follows:
(i) Identification of Business Opportunity
The first step to be taken by a promoter is to identify a business opportunity. The opportunity may be in respect of producing a new product or service or making some. product using a different process or any other opportunity having an investment potential.
(ii) Feasibility Studies.
All the identified business opportunities may not be feasible or profitable as real projects. The promoters, therefore, undertake detailed feasibility studies to investigate all aspects of the business they intend to start.
Various types of feasibility have to be assessed which include
- Technical Feasibility
- Financial Feasibility
- Economic Feasibility
These feasibility studies are undertaken with the help of the specialists like engineers, chartered accountants etc and only when these investigations throw up positive results, the promoters may decide to actually launch a company.
(iii) Name Approval
The promoters have to select a name for the company and submit an application to the registrar of companies of the state in which the registered office of the company is to be situated, for its approval. The proposed name may be approved if it is not considered undesirable.
According to the name clause the name of a company should not be identical or resembling the name of an existing company and should not violate the provisions of The Emblem and Names (Prevention of Improper Use) Act, 1950. Three names, in order of their priority are given in the application to the Registrar of Companies so that alternative; name may be allotted in case the first preference does not fulfill the name clause.
(iv) Fixing up Signatories to the Memorandum of Association
Promoters have to decide about the members who will be signing the Memorandum of Association of the proposed company. Usually, the people signing memorandum are also the first Directors of the Company. Their written consent to act as Directors and to take up the qualification shares in the company is necessary.
(v) Appointment of Professionals
Certain professionals such as mercantile bankers, auditors etc, are appointed by the promoters to assist them in the preparation of necessary documents which are required to be submitted with the Registrar of Companies. The names and addresses of shareholders and the number of shares allotted to each is submitted in a statement called return of allotment to the Registrar with the help of these professionals.
(vi) Preparation of Necessary Documents
The promoter takes up steps to prepare certain legal documents which include Memorandum of Association, Articles of Association and Consent of Directors These documents have to be submitted under the law, to the Registrar of the Companies for getting the company registered.
Question 3.
What is a ‘Memorandum of Association’? Briefly, explain its clauses.
Answer:
Memorandum of Association is the most important document. It defines the objectives of the company and determines the boundary line, within which the company has to perform tasks. No company can legally undertake activities that are not contained in its Memorandum of Association. The Memorandum of Association contains different clauses, which are given as follows:
(i) The Name Clause
This clause contains the name of the company with which the company will be known, which has already been approved by the Registrar of Companies. According to name clause the name of a company should not be identical or resembling the name of an existing company and should not violate the provisions of ‘The Emblem and Names (Prevention of Improper Use) Act, 1950.
(ii) Registered Office Clause
This clause contains the name of the state, in which the registered office of the company is proposed to be situated. The exact address of the registered office is not. required at this stage but the same must be notified to the Registrar within thirty days of the incorporation of the company.
(iii) Objects Clause
This clause is the most important one as it defines the purpose for which the company is formed. A company is not legally entitled to undertake an activity, which is beyond the objects stated in this clause. The object clause is divided into two objects
(a) The Main Objects: The main objects for which the company is formed are listed in this sub-clause.
(b) Other Objects: Objects not included in the main objects could be stated in this sub-clause. A company can undertake a business included in this sub-clause, either by passing a special resolution or passing an ordinary resolution and get central government’s approval for the same.
(iv) Liability Clause
This clause limits the liability of the members to the amount unpaid on the shares – i owned by them.
(v) Capital Clause
This clause specifies the maximum capital which the company will be authorized to raise through the issue of shares. The authorized share capital of the proposed company along with its division into the number of shares having a fixed face value is specified in this clause.
(vi) Association Clause
In this clause, the signatories to the Memorandum of Association state their intention to be associated with the company and also give their consent to purchase qualification shares. The Memorandum of Association must be signed by at least seven persons in case of a public company and by two persons in case of a private company.
Question 4.
Distinguish between ‘Memorandum of Association’ and ‘Articles of Association.’
Answer:
Difference between Memorandum of Association and Article of Association.
| Basis | Memorandum of Association | Articles of Association |
| Objective | Memorandum of association defines the objects for which the company is formed. | Articles of association are rules of internal management of the company. They indicate how the objectives of the company are to be achieved. |
| Position | This is the main document of the company and is subordinate to the companies Act. ‘ | This is a subsidiary document and is subordinate to both the memorandum of association and the companies act. |
| Relationship | Memorandum of association defines the relationship of the company with outsiders. | Articles define the relationship of the members and the company. |
| Validity | Acts beyond the memorandum of association are invalid and cannot be ratified even by unanimous vote of the members. | Acts which are beyond articles can be ratified by the members, provided they do not violate the memorandum. |
| Necessity | Every company has to file a memorandum of association. | It is not compulsory for a public limited company to file articles of association. It may adopt table A of the Companies Act. |
| Alteration | Alteration of memorandum of association is quite difficult and in many cases, approval of certain statutory authority is required. | Articles can be altered by passing a special resolution by the members. |
Question 5.
What is the effect of conclusiveness of the ‘Certificates of Incorporation’ and ‘Commencement of Business’?
Answer:
Effect of Certificates of Incorporation
A company becomes a legal entity with perpetual succession on the date printed on the Certificate of Incorporation. After conclusiveness of the certificate of incorporation, the company becomes entitled to enter into valid contracts. The Certificate of Incorporation is a conclusive evidence of the regularity of the incorporation and legal existence of a company.
Once a Certificate of Incorporation has been issued, the company has become a legal business entity irrespective of any flaw in its registration. Thus, whatever may be the deficiency in the formalities, the Certificate of Incorporation once issued, is a conclusive evidence of the existence, of the company. Even when a company gets registered with illegal objects, the birth of the company cannot be questioned. The only remedy available is to wind it up. On the issue of Certificate of Incorporation, a private company can immediately commence its business. It can raise necessary funds from friends, relatives or through private arrangement and proceed to start business. A public company, however, has to undergo two more stages in its formation
Effect of Certificate of Commencement of Business
The Registrar, after examining the required documents like memorandum of association, articles of association and consent of Directors, etc. issues a ‘Certificate of Commencement of Business’ if these documents are found satisfactory. This certificate is conclusive evidence that the company is entitled to do business. With the grant of this certificate the formation of a public company is complete and the company can legally start doing business.
Question 6.
Is it necessary for a public company to get its share listed on a stock exchange? What happens if a public com pany going for a public issue fails to apply to a stock exchange for permission to deal in its securities or fails to get such permission?
Answer:
A public company can raise the required funds from the public by means of issue of shares and debentures. For doing the same, it has to issue a prospectus which is an invitation to the public to subscribe to the capital of the company and undergo various other formalities.
It is necessary for the company to make an application to at least one stock exchange for permission to deal in its shares or debentures by getting its shares listed on the stock exchange. If a public company going for a public issue fails to apply to a stock exchange for permission to deal in its securities or fails to get such permission before the expiry of ten weeks from the date of closure of subscription list, the allotment of shares done by the company shall become void and all money received from the applicants will have to be returned to them within eight days.
1st PUC Business Studies Formation of a Company Additional Questions And Answers
1st PUC Business Studies Formation of a Company Multiple Choice Questions
Question 1.
On incorporation of a company, the Registrar of Companies in addition to the Certificate of Incorporation, issues a unique identification number called –
(a) Unique corporate number
(b) Corporate identification number
(c) Company identification number
(d) Unique identification number
Answer:
(a) Unique corporate number
Question 2.
An Indian public company holds 80% of the paid-up share capital of a company incorporated at a place outside India. Is the annual statement of the latter company required to be attached to the annual statement of the former company pursuant to Section 212
(a) No, as it is foreign company.
(b) No. as the format of the annual accounting statement is not as per Schedule VI of the Companies Act, 1956.
(c) Yes
Answer:
(c) Yes
Question 3.
A company in which 50.25% of shares are held by one State Government while the rest of the shares are held by private sector companies and by retail shareholders i. e., members of public, is a
(a) Government company
(b) Public company
(c) Corporation
(d) Private sector company
Answer:
(b) Public company
Question 4.
The Central Government may exempt any class of companies from complying with the provisions of Schedule VI of the Companies Act, 1956, if it is necessary to grant such exemption in the
(a) National interest
(b) Public interest
(c) Social interest
(d) Company’interes
Answer:
(b) Public interest
Question 5.
Global Ltd. has the paid-up equity capital structure – Central Government: 38%; State Government: 10%; Subsidiary of a Government Company: 17.50%; and retail shareholders remaining shares. Which of the following classes of companies would it belong to –
(a) Government company
(b) Non-government company
(c) Deemed public company
(d) Deemed private company
Answer:
(a) Government company
Question 6.
Contracts made after incorporation of a public company, but before issue of the certificate of commencement of business are
(a) Provisional contracts
(b) Post-incorporation contracts
(c) Preliminary contracts
(d) Contracts in the normal course of business.
Answer:
(a) Provisional contracts
Question 7.
The applicant for the availability of name of the proposed company can have option to give maximum –
(a) 3 Alternative names
(b) 4 Alternative names
(c) 5 Alternative names
(d) 6 Alternative names
Answer:
(d) 6 Alternative names
Question 8.
Which one of the following sections of the Act specifies that the provision of the Companies Act, 1956 override the provisions in the memorandum of association
(a) Section 2
(b) Section 4
(c) Section 9
(d) Section 13
Answer:
(c) Section 9
Question 9.
The rights attached to the shares of any class may be varied with the consent in writing of the holders of the issued shares of that class having not less than
(a) 1/3 of the shareholding
(b) 1/2 of the shareholding
(c) 3/4 of the shareholding
(d) 2/3 of the shareholding
Answer:
(c) 3/4 of the shareholding
Question 10.
Where title in shares of a company is in dispute, the matter has to be resolved by
(a) Court
(b) Arbitrator
(c) Company Law Board
(d) Central Government
Answer:
(a)Court
Question 11.
In case of buyback of shares by a listed company, the letter of offer to the shareholders shall be dispatched not earlier than
(a) 10 days from its submission to the SEBI in draft form
(b) 15 days from its submission to the SEBI in draft form
(c) 21 days from its submission to the SEBI in draft form
(d) 30 days from its submission to the SEBI in draft form
Answer:
(c) 21 days from its submission to the SEBI in draft form
Question 12.
The majority required in a shareholders meeting to approve a scheme of arrangement is simple majority of shareholders holding at least
(a) 3/4lh in value of the shares
(b) 2/3rd in value of the shares
(c) 9/10th in value of the shares
Answer:
(a) 3/4lh in value of the shares
Question 13.
The audit committee of a listed company shall meet at least
(a) 3 times in a year
(b) 4 times in a year
(c) 5 times in a year
(d) 6 times in a year
Answer:
(b) 4 times in a year
Question 14.
Non-executive directors of a public company may get remuneration on quarterly basis if such basis of payment is approved by/under
(a) Articles of association of the company
(b) General meeting of the company
(c) Central Government
(d) Schedule XIII of the Companies Act, 1956.
Answer:
(c)Central Government
Question 15.
As per Companies Act, 1956, the maximum number of directors a private limited company which is subsidiary of a public company, can have without approval of the Central Government is
(a) 10
(b) 11
(c) 12
(d) 13
Answer:
(c) 12
Question 16.
A director appointed by the Board to hold the office until the conclusion of next annual general meeting is known as
(a) Additional director
(b) Alternate director
(c) Nominee director
(d) Director retiring by rotation
Answer:
(a) Additional director
Question 17.
The minimum number of directors of the audit committee in the case of a listed company with 12 directors shall be
(a) 2 Directors
(b) 3 Directors
(c) 4 Directors
(d) 5 Directors
Answer:
(b) 3 Directors
Question 18.
The maximum age limit for directors in case of private companies is
(a) 65 years
(b) 20 years
(c) 75 years
(d) None of the above
Answer:
(d) None of the above
Question 19.
A member of the ICS1 in practice shall be deemed to be guilty of professional misconduct if he issues compliance certificates / signs annual return in aggregate in a calendar year for more than
(a) 20 Companies
(b) 50 Companies
(c) 80 Companies
(d) 100 Companies
Answer:
(c)80 Companies
Question 20.
A person who is Company Secretary and director of a company is
(a) Employee director
(b) Non-executive director
(c) Executive director
(d) Independent director
Answer:
(c)Executive director
Question 21.
Statutory auditor of a company in which the Central Government holds 49% and a government company holds 19% of the paid-up share capital of the company, shall be appointed by the
(a) Central Government
(b) Members of the company in the AGM by passing ordinary resolution
(c) Members of the company in the AGM by passing a special resolution
(d) By the Comptroller and Auditor General of India.
Answer:
(d) By the Comptroller and Auditor General of India.
Question 22.
The appointment of a statutory auditor under section 224A is with reference to 25% of-
(a) Paid-up capital
(c) Subscribed capital
(b) Issued capital
(d) Only equity capital
Answer:
(c) Subscribed capital
Question 23.
A casual vacancy arising out of resignation of company’s auditor can be filled by
(a) Company in general meeting by ordinary’ resolution
(b) Company in general meeting by special resolution
(c) Board of Directors
(d) Audit committee
Answer:
(a) Company in general meeting by ordinary’ resolution
Question 24.
A High Court has exclusive jurisdiction in respect of the matters covered by
(a) Section 211
(b) Section 232
(c) Section 292A
(d) Section 391
Answer:
(d) Section 391
Question 25.
The number of scrutineers to be appointed by the Chairman of a general meeting is
(a) 3
(b) 2
(c) 1
(d) 4
Answer:
(b) 2
Question 26.
A special notice is required for
(a) Removal of a member
(b) Removal of the Company Secretary
(c) Removal of a nominee director
(d) None of the above
Answer:
(d) None of the above
Question 27.
A notice of disclosure of interest at the Board meeting is the requirement of section
(a) 295
(b) 269
(c) 297
(d) 299
Answer:
(d) 299
Question 28.
As per the provisions of the Companies Act, 1956, the form of proxy must be deposited with the company at least
(a) 24 Hours before the time of AGM
(b) 36 Hours before the time of AGM
(c) 48 Hours before the time of AGM
(d) 72 Hours before the time of AGM
Answer:
(c)48 Hours before the time of AGM
Question 29.
In a listed company with 11 directors, what is the quorum for the Board meeting
(a) 2 Directors
(b) 3 Directors
(c) 4 Directors
(d) 5 Director
Answer:
(c) 4 Directors
Question 30.
As per the rules framed under section 205A(3) relating to use of past reserves for payment of dividend should retain in the reserves an amount not less than
(a) 25% of the paid-up share capital of the company
(b) 20% of the paid-up share capital of the company
(c) 15% of the paid-up share capital of the company
(d) 10% of the paid-up share capital of the company
Answer:
(c) 15% of the paid-up share capital of the company
1st PUC Business Studies Formation of a Company Short Answer Questions
Question 1.
What are the types of companies?
Answer:
The following can be formed by registration at Companies House:
- Public limited company (pic)
- Private company limited by shares (Ltd, Limited)
- Company limited by guarantee
- Unlimited company
- Limited liability partnership (LLP)
- Limited partnership (LP)
- Societas Europaea (SE): European Union-wide company structure
- Community interest company (CIC)
- European economic interest grouping (EEIG)
Question 2.
Explain company formation.
Answer:
Company formation is the term for the process of incorporation of a business in the UK. It is also sometimes referred to as company registration. Both these terms are used when incorporating a business in the Republic of Ireland. Under UK company law and most international law, a company or corporation is considered an entity that is separate from the people who own or operate the company.
Today the majority of UK companies are formed the same day electronically. Companies can be created by individuals, specialised agents, solicitors or accountants. Many solicitors and accountants subcontract incorporation out to specialised company formation agents. Most agents offer company formation packages for less than £100. The cost of carrying out paper filing directly with Companies House is £20. This fee does not include the cost of witnessing documents or preparation of memorandum, & articles of association for the company, which would usually be carried out by a 1 solicitor or accountant. Forming a company via the paper filing method can take up to 4 weeks.
Question 3.
List various acts relating to companies.
Answer:
The various Acts relating to companies are:
- Company rule in India
- Societies Registration Act, 1860
- The Indian Partnership Act, 1932
- Companies Act, 1956
- The Companies Amendment Act, 2006
- The Limited liability Partnership Act, 2008
1st PUC Business Studies Formation of a Company Long Answer Questions
Question 1.
Explain the formation process of limited companies.
Answer:
Paper process
Under section 9 of the Companies Act 2006, those forming a company must send the following documents, together with the registration fee, to the Registrar of Companies. Most incorporations submitted by paper take around 5 working days to be accepted. For detailed information see the Companies House guide.
Articles of association
The articles of association (often referred to as just ‘articles’) is the document which sets out the rules for the running of the company’s internal affairs. The company’s articles delivered to the Registrar must be signed by each subscriber in front of a witness who must attest the signature. In the event that articles are not registered for the new company, model (default) articles will be registered. These model articles can be chosen to be adopted in the IN01 form. This new procedure was introduced by the Companies Act 2006, Section 20.
This contains the intended situation of the Registered Office, (this will be either in England and Wales, Northern Ireland, Scotland or Wales), the details of the consenting Secretary and Director(s), details of the subscribers and, in the case of a company limited by shares, details of the share capital. The form also includes the Statement of Compliance that the requirements of the Companies Act have been complied with. Memorandum of association
This contains the names and signatures of the subscribers that wish to form the company and, in the case of a company limited by shares, a commitment by the subscribers to take at least one share each. A draft template is available on the Companies House website. It sets out constitution of a company and the foundation on which the structure of a company is based. In other words, memorandum of association is considered the charter or constitution of the company because it lays down the objectives of the company precisely and clearly, defines scope of its relation with the investor and outside world.
Electronic process
The electronic process can be accessed using compatible software that works with the Companies House eFiling service and an account with Companies House. Company formation agents have direct finks into Companies House, to look up the company name, and submit the company. Different agents have differences in their processes caused by their website and software implementation. Companies House have a fist of company formation agents that have passed integration testing.
Question 2.
List and explain the type of companies.
Answer:
The types of companies are:
1. Sole Proprietorship – A sole proprietorship, also known as a trader firm or proprietorship, is a business form that is owned and run by one individual. A sole proprietor may use a trade name or business name other than his or her name. Registration not required – In summary, biggest advantage is quick formation and low compliances. However, the biggest disadvantage is unlimited liability.
2. Partnership – The relation between persons who have agreed to share the profits of a business carries on by all or any of the acting for all. Registration the partnership firm is compulsory and the liability is joint and unlimited. Active partners take part in day-to-day operations of the business, in addition to investing in it. Active partners are entitled to a share of the enterprise’s profits. Sleeping partners invest in the business and are entitled to a share of its profits, but do not participate in day-to-day operations.
3. HUF (Hindu Undivided Family) – businesses owned by a joint family belonging to Hindu religion. Even though Jain and Sikh families are not governed by the Hindu law, they can still form a HUF.
4. Cooperative Societies – Meaning
5. Dormant company – A company which has been created for a future project or for holding assets including intellectual property of the company
6. Small company – A company other than a public company whose paid up share capital is not more than 50 lakh and turnover does not exceed crore is a small company.
7. Public sector undertaking (PSU) – Alternatively known as Public Sector Enterprise (PSE). It may be public limited company listed on stock exchanges with major ownership by a state government or a central government of India or it may be unlisted entity with major ownership by a state government or a central government of India. Some of these entities are formed as business entities through special legislation, where these entities are governed by the statutes of these legislation and may or may not be governed by company laws like a typical business entity.
8. One-person company – It is a type of private company which can have only one director and member.
9. Unlimited Company – A company, similar to its limited company (Ltd, or Pvt Ltd) counterpart, but where the liability of the members or shareholders is not limited.
Question 3.
Explain the concept of corporate governance in detail.
Answer:
Company constitut ions Governance of the board
Under CA 2013 section 169, the basic rule is that any company director may be removed by the general meeting with a simple majority vote, after giving “special . notice” of 28 days. In companies which elect the board by proportional representation according to section 163, there is an exception so that directors appointed by one particular group of members cannot be ousted by the majority. Those directors can only be removed by the members that appointed them, so as to protect the system of proportional voting.
Employee rights
It was the view of many in the Indian Independence Movement, including Mahatma Gandhi, that workers had as much of a right to participate in management of firms as shareholders or other property owners. Article 43A of the Constitution, inserted by the Forty-second Amendment of the Constitution of India in 1976, created a right to codetermination by requiring the state to legislate to “secure the participation of workers in the management of undertakings”.
However, like other rights in Part IV, this article is not directly enforceable but instead creates a duty upon state organs to implement its principles through legislation (and potentially through court cases). In 1978 the Sachar Report recommended legislation for inclusion of workers on boards, however this had not yet been implemented.
The Industrial Disputes Act 1947 section 3 created a right of participation in joint work councils to “provide measures for securing amity and good relations between the employer and workmen and, to that end to comment upon matters of their common interest or concern and endeavour to compose any material difference of opinion in respect of such matters”. However, trade unions had not taken up these options on a large scale. In National Textile Workers Union v Ramakrishnan the Supreme Court, Bhagwati J giving the leading judgment, held that employees had a right to be heard in a winding up petition of a company because their interests were directly affected and ^ their standing was not excluded by the wording of the Companies Act 1956 section 398.
Duties of directors
(1) Subject to the provisions of this Act, a director of a company shall act in accordance with the articles of the company.
(2) A director of a company shall act in good faith in order to promote the objects of the company for the benefit of its members as a whole, and in the best interests of the company, its employees, the shareholders, the community and for the protection of environment.
(3) A director of a company shall exercise his duties with due and reasonable care, skill and diligence and shall exercise independent judgment.
(4) A director of a company shall not involve in a situation in which he may have a direct or indirect interest that conflicts, or possibly may conflict, with the interest of the company.
(5) A director of a company shall not achieve or attempt to achieve any undue gain or advantage either to himself or to his relatives, partners, or associates and if such director is found guilty of making any undue gain, he shall be liable to pay an amount equal to that gain to the company.
(6) A director of a company shall not assign his office and any assignment so made shall be void.
(7) If a director of the company contravenes the provisions of this section such director shall be punishable with fine which shall not be less than one lakh rupees but which may extend to five lakh rupees.
Companies Act 2013 section 166
Directors owe a range of duties to the company, which primarily involve acting within the constitution, avoiding conflicts of interest and performing their role to a desired standard of competence. The Companies Act 2013 section 166 lists directors’ duties in seven simple sections, which reflect the existing principles developed by the case law in the courts around most Commonwealth countries, in common law and equity.
Part of the reason for codification of directors’ duties was to provide a transparent statement of the duties directors owe, and therefore to publicise principles of best practice. However, because of their generality, the case of law of the courts matters to interpret how duties will apply in specific situations.
Corporate social responsibility
In a new with the Companies Act 2013, section 135 requires companies to spend 2% of their net profit on socially responsible projects, if they have a net worth of over rupees 500 crore, or a turnover of over rupees 1,000 crore, or a net profit over rupees 5 crore. Socially responsible projects are defined in Schedule VIII, and mainly involve community development.
Question 4.
How to register a company in India?
Answer:
The Registrar of Companies (ROC) is an office under the Indian Ministry of Corporate Affairs that deals with administration of the Companies Act 1956 and Companies Act, 2013. There are currently 22 Registrars of Companies (ROC) operating from offices in all major states of India. Some states, such as Maharashtra and Tamil Nadu, have two ROCs each. Section 609 of the Companies Act, 1956 tasks the ROCs with the primary duty of registering companies and LLPs floated in the respective states and the union territories under their administration.
The ROCs also ensure that LLPs comply with the statutory requirements under the Companies Act. The office of the ROC is maintains a registry of records related to companies registered with them, and permits the general public to access this data on payment of a fee. The Union Government maintains administrative control over ROCs through Regional Directors.
There are 7 Regional Directors, and they supervise the functioning of ROCs within their respective regions. The Registrar of Company takes care of company registration (also known as incorporation) in India, completes reporting and regulation of companies and their directors and shareholders, and also oversees government reporting of various matters including the annual filling of various documents.