Question 1. What Are The Essential Characteristics Of A Company?
The essential characteristics of a company are:
- It is a voluntary association of persons.
- It is a separate legal entity.
- It has a common seal.
- It has a perpetual succession.
- It is created by law with limited liability.
Question 2. What Is The Statutory Company?
A company which is formed by the special Act passed by the Central or State legislature is called Statutory company. This type of company is not required to frame their Memorandum or Articles of Association. They are also not required to use the word limited as a part of their name. Their working is controlled, checked and reviewed by Lok Sabha and the Comptroller. Auditor General of India conducts the annual audit of its final accounts. Some examples of statutory companies are State Bank of India, Life Insurance Corporation of India, Reserve Bank of India.
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Question 3. Define Registered Company And On What Basis They Are Categorized?
Registered company is the one which is registered under the Companies Act. These companies are categorized on the basis of liability and number of members.
On the basis of liability companies can be categorized in the following three categories:
- Unlimited companies.
- Company limited by shares.
- Company limited by guarantee.
On the basis of number of members companies can be of two types:
- Private company
- Public company
Question 4. Define Subsidiary Company?
A company is a subsidiary of a holding company, if a holding company controls the majority composition of its board of directors, having an object to control the management of the subsidiary or that other company that is the holding company holds the majority of its shares or the holding company’s subsidiary has its own subsidiary, it become the subsidiary of the first mentioned company on the first holding company.
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Question 5. What Are Key Differences Between A Partnership Firm And A Company?
- Registration is not compulsory under Indian Partnership Act, 1932 whereas company comes into existence after the registration under Companies Act, 1956.
- In the case of partnership firm the number of members must not exceed 20 in any business and minimum is 2 whereas in a private limited company minimum is 2 and maximum is 50 and in public limited company minimum 7 and no maximum limit.
- Partnership firm do not have an independent legal position or status whereas company is independent legal status.
- In partnership firm partners have unlimited liability whereas liability of shareholders is limited to the amount of the shares they hold.
- In partnership firm transfer of interest is not transferable without consent of other partners whereas in a company shares are freely transferable without consent of other members.
- Audit is not mandatory for a partnership firm whereas accounts of a company must be audited annually.
- In a partnership firm stability of business is not affected by death or insolvency of partner whereas in the case of a company shareholder’s death or insolvency would not affect the constitution of the company.
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Question 6. What Are The Important Stages Involved In Formation Of A Company?
Filing of documents: Following documents are required:
- Memorandum of Association duly stamped, signed and witnessed;
- Articles of Association duly stamped, signed and witnessed;
- A list of persons who have consented to become directors of the company.
- A written and duly signed consent of the directors agreeing to act as directors and to pay for qualification shares, if any.
- A notice of the address of the registered office of the company.
- A statutory declaration to the effect that all the requirements of the law for registration have been duly complied with. Payment of fees and issue of certificate of incorporation
Question 7. When Can A Company Commence Its Business?
Private companies or companies having no share capital can start their business immediately after they are incorporated. But public companies with share capital are required to obtain the necessary certificate from the registrar of companies to comment the business.
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Question 8. What Is Articles Of Association And Memorandum Of Association?
- Articles of Association is the internal regulations of the company which help to govern the management of the internal affairs of the company and the conduct of its business.
- Memorandum of Association contains the constitution and the objects of the company for which it is formed. The company cannot exceed the powers conferred on it by its memorandum.
Question 9. What Is The Difference In The Main Objects Of Articles Of Association And Memorandum Of Association?
- Memorandum controls external operations of the company whereas articles control internal operations of the company.
- Memorandum are the conditions introduced for the benefits of creditors, buyers, debtors, sellers and outside public whereas articles govern the relationship between the company and the shareholders, members amongst the members. It is just like the partnership deed in a partnership.
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Question 10. How Can Memorandum Be Altered?
Memorandum of association can be altered only under certain circumstance and in the manner provided in teh Companies Act. IT requires the sanction of shareholders and the Central Government or the Company law board or the Court as the case may be. The procedure of alteration or memorandum is more difficult.
Question 11. Can Articles Of Association Of A Company Be Altered After Its Incorporation?
Yes, Articles of association of a company can be altered as the procedure of alteration or amendment of articles of association is relatively simple. It can be altered by the members by passing a special resolution subject to the provisions of the Companies Act.
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Question 12. What Do You Understand By Company Limited By Shares?
Companies where the liability of the shareholders of a company is limited to the extent of the unpaid amount on the shares held by them the company is known as a company limited by shares. In n companies, whatever may be the liabilities of a company, shareholders are not bound to pay anything more than the face value of the shares held by them. Thus, the liability of each of the shareholders of such a company is always limited to the extent of the amount unpaid on his shares. A company limited by shares can be a public company or private company.
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Question 13. Explain Company Limited By Guarantee?
Companies where liability of members is always limited to a fixed amount agreed by its members to contribute towards the assets of the company is is known as a company limited by guarantee. In such companies the articles shall state the number of members with which the company is to be registered. Thus, the amount promised to pay by a member of a company limited by guarantee is called the guarantee.
Question 14. Explain The Term Unlimited Companies?
Companies registered without limited liability is known as an unlimited company. The liability of such company is unlimited like an ordinary partnership firm and every member of such company is liable for debts of the company in proportion to his interest in the company. In such companiesm the articles shall state the number of members with which the company is to be registered and if the company has a share capital the amount of the share capital with which the company is to be registered.
Question 15. What Is Ultravires Acts?
Ultravires is any act done outside the limits of memorandum of association. It is void and cannot be ratified even by the whole body of the shareholders whereas in the case of Articles of association the acts done by the company beyond the articles can be ratified by the shareholders if such acts are not beyond the memorandum and illegal.
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Question 16. What Is Annual General Meeting?
It is an annual meeting of the body of members. Every company is required to hold the Annual General meeting. The first annual general meeting must be held within eighteen months from the date of incorporation of a company. The gap between two AGMs should not be more than fifteen months.
Question 17. What Are The Rights And Duties Of Directors?
Rights of Directors:
- Right to participate in the affairs of the company
- Right to have remuneration
- Right to compensation.
Duties of Directors:
- Duty of greatest good faith of fiduciary duties.
- Duty of reasonable care, skill and diligence.
- Duty to attend Board Meetings.
- Duty to invest Company’s money.
- Duty not to delegate functions.
- To see that all money received from applicants are deposited in a scheduled bank.
- To call an extra ordinary general meeting when demanded by a valid requisition.
- To present annual accounts and balance sheet.
- To forward a statutory report to every member of the company.
- To call and hold the statutory meeting.
- To disclose their interest while entering into any transaction with the company.
- Not to enter into any contract with the company without the consent of the Board of Directors for the sales, purchase or supply of any goods, materials etc.
Question 18. What Are The Different Types Of Capital?
Nominal Capital or Authorized Capital: is the total fee value of the shares which the company is authorized to issue.
Issued Capital: is that part of authorized capital which is actually offered to the public for sale.
Subscribed Capital: is that part of issued capital which is taken up and accepted by the public.
Paid up Capital: is the amount of money actually paid by the subscribers or credited as so paid.
Uncalled Capital: is the unpaid portion of the subscribed capital.
Reserved Capital: is that part of the uncalled capital which can only be called up at the time of and for the purposes of winding up for the company.
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Question 19. What Is The Importance Of Certificate Of Incorporation?
The certificate of incorporation is a conclusive evidence about various matters mentioned below:
- A proof of legal existence of a company.
- A proof showing that all the legal requirements have been complied with.
- Certificate of incorporation and pre-incorporation contracts.
- Company acquires a perpetual succession after the issuance of certificate of incorporation is issued to the company.
- The property or assets acquired in the name of the company become the property, assets of the company and not of its members.
Question 20. Define Prospectus. Explain Legal Requirements Of Prospectus?
Prospectus is defined as any document described or issued as a prospectus and includes 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 in, or debentures of a body corporate.
Following are the legal requirements of a prospectus:
- It is to be issued after the incorporation of the company.
- It must contain all the particulars listed in schedule II to the Companies Act.
- It must be dated.
- It must be signed by every person mentioned therein as a director or a proposed director.
- Every application form for shares, issued by the company must be accompanied by a copy of the prospectus.
- A statement relating to a company by an expert can be included in the prospectus.
- Deposits should be invited after issuing an advertisement.
- No prospectus can be issued more than 90 days after a copy of it is filed for registration.
- Penalty for non compliance of any ot the above rules shall be punishable with fine which may exten to Rs. 5000.
Question 21. Distinguish Between Prospectus And Statement In Lieu Of Prospectus?
- Prospectus is prepared for filing with the registrar of companies and publicity whereas Statement in Lieu of Prospectus is prepared only for filing purpose.
- Prospectus does publicity and has a selling approach whereas Statement in Lieu of Prospectus is prepared for fulfilling the legal formality of filing with the Registrar of the companies and has an informative approach.
- Publication of prospectus is necessary for the companies for raising the capital from public whereas Statement in Lieu of Prospectus is suitable for companies which raise the capital from Known sources where shares are not offered to the public for subscription.
- Prospectus is necessary when a compnay wants to raise the capital from the general public whereas Statement in Lieu of Prospectus is not meant for general public. It is to be filed with the registrar of the companies.