B.Com 1st Sem Corporate Administration Previous Papers

B.Com 1st Sem Corporate Administration Previous Papers

Time: 3 Hours
Max. Marks: 70

SECTION – A

I. Answer any 5 questions. Each question carries 2 marks. (5 x 2 = 10)

Question (1)
Define ‘Private Company’.

Question (2)
Give the meaning of Promoter.

Question (3)
What is Quorum?

Question (4)
What is Statutory Report?

Question (5)
What is meant by Statement in -lieu of Prospectus?

Question (6)
Define Global Company.

Question (7)
Give the meaning of Annual General meeting.

Question (8)
Define ‘public company’.

Question (9)
State the meaning of proxy.

Question (10)
Mention any two characteristics of global company.

Question (11)
Define ‘Agenda’.

Question (12)
What is common seal?

Question (13)
What is book-Building?

Question (14)
State the meaning of ‘statement in lieu of prospectus.

Question (15)
What is Limited Liability?

Question (16)
What is an Associate Company?

Question (17)
State the provisions for e-Filing.

Question (18)
Who is an Independent Director?

Question (19)
Define Meeting.

Question (20)
What is a Motion?

Question (21)
Define Multinational Corporation.

Question (22)
What is a motion?

Question (23)
Give the meaning of proxy.

Question (24)
What is memorandum of association?

Question (25)
State the provisions of e-filing.

Question (26)
What is company limited by shares?

Question (27)
Who is residential director?

Question (28)
What is international company?

Question (29)
Define Joint Stock Company.

Question (30)
What is Prospectus?

Question (31)
What is demat account?

Question (32)
Define‘Company Secretary’.

Question (33)
State the meaning of Bonus Share.

Question (34)
What is transactional corporation?

Question (35)
What is Quorum?

Question (36)
What do you mean by private company?

Question (37)
What do you mean by Memorandum of Association?

Question (38)
What is limited liability?

Question (39)
Mention any two liabilities of director.

Question (40)
What is quorum?

Question (41)
What do you mean by multinational company.

Question (42)
Who is company secretary?

SECTION – B

II. Answer any three of the following. Each question carries six marks. (3 x 6 = 18)

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

Question 3.
Explain briefly the Appointment and Qualification of a Company Director.

Question 4.
Who is Secretary? Explain briefly the rights of a secretary.

Question 5.
What are the essentials of a valid meeting of a company?

Question 6.
State the features of Global Companies.

Question 7.
What is Articles of Association? State any 4 of its contents.

Question 8.
Explain the powers of managing director.

Question 9.
State the role of promoters in formation of Joint Stock Company.

Question 10.
State the highlights of Companies Act, 2013.

Question 11.
When and how statutory meeting is convened? Explain?

Question 12.
Explain, briefly the privileges of a Private Company.

Question 13.
Briefly explain the types and functions of promoters.

Question 14.
State how Directors of a company are appointed.

Question 15.
What is a Statutory Meeting? Briefly explain the contents of Statutory Report.

Question 16.
Briefly explain the features of Global Companies.

Question 17.
Briefly explain functions of promoters.

Question 18.
State the features of multinational enterprises.

Question 19.
Explain the concept of one person company.

Question 20.
State the qualifications of a secretary.

Question 21.
Write a note on statutory meeting.

Question 22.
Write the role and significance of Promoters.

Question 23.
State the guidelines regarding allotment of shares.
Answer:
Following are the rules regarding allotment of shares:
(a) Application form: A prospect is an invitation to general public to purchase shares. The intending buyer has to apply in prescribed form to purchase of shares.

(b) Offer and acceptance : The application form given by public is the offer and the acceptance given by company to distribute the shares to them is called as acceptance.

(c) Conditional offer and acceptance : Conditions are printed by the company in the application form to put restriction on the ownership of the shares.

(d Proper authority : Allotment of shares are always made by proper authority usually board of directors make the allotment of shares to public.

(e) Reasonable time: Allotment of shares should be made by the proper authority within reasonable time.

Some restriction are prescribed by the company act regarding allotment of shares they are:

  • Allotment of shares can be made by the company until the minimum subscription has been received.
  • The application money received by the company must not less than 5% of nominal value of the shares.
  • The money received from the applicants must be deposited in scheduled bank until commencement of business has been decided.
  • If the allotment could not be made within 120 days from the date of publications must return the money received from applicants.

Question 24.
What is special resolution? State the instances of business where special resolutions passed.

Question 25.
Define‘meeting’. State the pre-requisits of a valid meeting.

Question 26.
Explain the concept of one person company.

Question 27.
Differentiate between private company and public company.

Question 28.
What is Articles of Association? Discuss any four contents.

Question 29.
State the duties and responsibilities of a company director.

Question 30.
State the features of multinational enterprises.

Question 31.
When and how statutory meeting is convened? Explain.

SECTION – C

III. Answer any 3 of the following. Each question carries 14 marks. (3 x 14 = 42)

Question 32.
Define Prospectus. Explain the contents of Prospectus.

Question 33.
Explain the appointment, qualification and removal of a company secretary.

Question 34.
Discuss the steps involved in the incorporation of a company.

Question 35.
What is Memorandum of Association? Explain the clauses of Memorandum of Association.

Question 36.
What is Resolutions? Explain different kinds of Resolutions.

Question 37.
Define ‘Joint Stock Company’. Explain its features.

Question 38.
What is ‘Memorandum of Association’? Explain its clauses.

Question 39.
Discuss the powers and duties of company secretary.

Question 40.
What is Extra- ordinary General Body Meeting’? Explain objectives and provisions of holding extra-ordinary general meeting.

Question 41.
Explain the differences between public company and private company.

Question 42.
Discuss the important Highlights of Companies Act 2013.

Question 43.
What is incorporation of a company? Explain the steps and formalities for incorporation of a company.

Question 44.
Explain the provisions and contents of Articles of Association of a company.

Question 45.
“A Secretary is not only a servant of the Company, but also a servant of law”. Discuss.

Question 46.
What is an Annual General Meeting? Explain the objects of AGM, Legal formalities for holding AGM and State the Businesses transacted in the AGM.

Question 47.
What is Articles of Association? Explain the contents of Articles of Association.

Question 48.
Explain the advantages and disadvantages of a Joint Stock Company.

Question 49.
Explain the duties and responsibilities of company secretary.

Question 50.
What is Annual General Meeting? Explain the objectives of AGM, legal formalities of a Annual General Meeting.

Question 51.
Explain the duties and responsibilities of Managing Director.

Question 52.
What is Articles of Association? Discuss the contents and significance of Articles of Association.

Question 53.
Define ‘Company Secretary’. Explain the duties and responsibilities of company secretary.

Question 54.
What is extra-ordinary general meeting? Explain the objectives and provisions relating to conduct of extra-ordinary general meeting.

Question 55.
Who is chairman? Illustrate the powers,duties and responsibilities of a Chairman.
Answer:
Managing director is a director of the company and he is called as chairman of the company meetings. Company meetings and company proceedings are controlled and managed by chairman of the company.

Question 56.
What is global company? State its merits and demerits to the present context.

Question 57.
What do you mean by Joint Stock Company? Explain briefly the steps in formation Of a joint Stock Company.

Question 58.
What is Annual General Meeting? Explain objectives and provisions of holding Annual General Meeting.

Question 59.
Explain the appointment, qualifications and removal of a company secretary.

Question 60.
Explain the differences between Memorandum of Association and Articles Association.

Question 61.
Who is Managing Director? Explain his powers and duties.

Formation of Global Companies Long Answer Type Questions

Formation of Global Companies Long Answer Type Questions

Question 1.
What are the merits and demerits of MNCs.
Answer:
Benefits of MNCs can be considered under two heads.
(a) Benefits to the host countries: To the host countries MNCs bring the following benefits.

  • Transfer of technology, capital and entreprencurship to the host country.
  • Creation of local job and career opportunities.
  • Better use of available resources.
  • Greater access to high quality managerial talent that tends to be scarce in host countries.
  • Encouragement to world economic unity.

(b) Benefits to home countries.

  • Continuous -and sufficient supply of raw materials at lower rates from foreign countries.
  • Technology and management expertise acquired from competing in global markets.
  • Home country can derive good income from overseas profits, royalties, licensing fees and management contracts.
  • Job and career opportunities at home countries are increased through overseas operating problem of MNCs.
  • MNCs are working in host countries for profit maximisation and not for the developmental needs of home countries.
  • Sometimes host country may loss of control over its own nation.
  • MNCs may destroy competition and acquire monopoly powers in host countries.
  • The profits of MNCs are remitted to home countries Therefore profits of MNCs are not available for further investment in host countries.

Question 2.
Explain the organization structure of MNC.
Answer:
Multinational companies, especially smaller ones, face more organizational challenges than companies operating in only one national market. They have to maintain functional organizational units, but they have to fulfill these functions in different ways, depending.on where the business in operating. The essential challenge is to create differentiated organizational units responsible for the foreign markets while coordinating operations across the whole company.

Functional:
A functionally organized multinational company uses corporate functions as the basis for its organizational structure. Production, human resources, design and customer service are typical functional units. If a functionally organized company has a centralized structure, all operations are based in the home country and individual employees have responsibilities for different national markets.

This type of organization is efficient and effective for companies that are too small to have overseas subsidiaries. Larger companies can have this type of organization, but in a decentralized form, where foreign employees carry out some of the work in their own countries. In this case, companies have to pay special attention to coordinating activities.

Geographic:
A common form of organizational structure for larger companies and businesses that require a presence in the foreign markets is one that’s based in geography. In addition to the home office or headquarters, semi-independent operations are established in the countries where the company is active.

For larger corporations, these can take the form of subsidiaries, while smaller companies can have something as simple as an agent or a small office. This structure affords flexibility; the head office can transfer responsibilities abroad if required by local conditions and if the foreign operation is competent, but it can also take over local operations if needed.

Question 3.
Explain the legal practices of MNC.
Answer:
Multinational companies (MNCs) are responsible to host countries for their actions there. If they have a presence in the U.S. as most multinationals do they are also responsible under U.S. law for their actions even if they were conducted abroad. Further complicating matters, MNCs are also subject to international law. A clear policy of best practices and a corporate support structure are required for the sake of clarity and compliance.

Competing Laws:
MNCs have a responsibility to obey the laws of each host country, international laws and those of countries with a record of legal intervention in areas such as human rights. Fulfilling this responsibility can be tricky because laws in one country are often incompatible with those in another. That difficulty has increased as international non-governmental organizations (NGOs) have begun pursuing legal remedies in one country for alleged violations elsewhere.

Areas of Concern:
Some legal issues, such as human rights and employment practices, have been particularly troublesome. For example, U.S. financial company JPMorgan Chase was accused of corruption by the Department of Justice for hiring the sons and daughters of prominent Chinese government officials.

The circumstances, as reported in The New York Times, suggested that company executives in China may have wandered into the. problem naively, believing they were engaging in a common hiring practice in China. U.S. investigators then began probing similar practices by five more Wall Street firms doing business in China.

Problem Awareness:
A guidance paper from Pinsent Masons, a U.K. law firm with an extensive international practice, suggests that MNCs should address potential problem areas sooner rather than later. Legal departments can conduct preventive research to identify which areas may cause trouble, promote corporate awareness of those problems and suggest solutions before legal issues arise and. the courts intervene.

Policy Information:
Best practices can also arise from an awareness of a company’s culture and of what kinds of policies have worked in the past. They may also arise from position papers, in-service education programs or the wisdom of senior legal staff with experience abroad. Countries and NGOs can also help MNCs by informing them of best legal practice in specific countries from an international perspective. The International Law Office, for example, distributes its “Code of Best Practice for Corporate Governance” for Nigeria to global counsel.

Formation of Global Companies Short Answer Type Questions

Formation of Global Companies Short Answer Type Questions

Question 1.
What are the stages of development of company at global level?
Answer:

  • Domestic company
  • International company
  • Multinational company
  • Global company
  • Trans national company.

(a) Domestic company: This company carries its business at national level under domestic rules.

(b) International company: These companies carries in business in two or more countries by opening its branches. Places and polices of business are framed by Head Office of home country itself.

(c) Multinational company: These companies will have domestic orientation with decentralized management and work in many countries as local companies. .

(d) Global compaies: Global companies have centralized hub level. It has global market and uses resources globally. It will have mixed orientation. These companies are strking the right balance between global and cocal factors.

(e) Transnational companies: This companies have a global strategies. It will have integrated network and use global resources.

Question 2.
What is global company? What are its features?
Answer:
Global company means a company which carries its business around the world and has the ability to compete in domestic markets with foreign competitions.
Features of global company:

  • Its business operations are in multiple units located in different parts of the globe but all – linked by common ownership.
  • All the units draw on a common pool of resources such as money, credit, information, patents, trade mark, trade names and control systems.
  • All the units respond to some common strategy.
  • Personal resounes contains high diversity.
  • This company transactions includes intellectual properties and technology process accross the globe.

Question 3.
State the features of multinational company.
Answer:

  • It is a large scale business company have its operations in a certain minimum number of countries (i.e. at least in six countries).
  • It operates through branches, subsidies, joint ventures, etc in host countries.
  • It possesses management team which companies personal drawn from different countries.
  • It is managed controlled by professionally trained personnel of several countries therefore. It is has professional management.
  • It has centralized control with the head office and it has, its head office in the home country.

Question 4.
Write a note on management style of MNCs.
Answer:
Efficient operation of multinational companies requires an effective organizational structure. A successful system is required to operate internally and to control the business smoothly. Several factors affect the organizational structure of MNC they are:

  • Company object
  • Management style
  • External constraints
  • Internal constraints etc

Management style of a company can effect the organizational design profoundly. There are three management style in MNCs. They are –
(a) Ethnocentric management style: It is characterized by strong control by the parent company strong centralization in decision making and most of its managerial personnel are home country nationals.

(b) Poly centric management style: This management style allows decentralization of authority and decision, making. Management personnel in foreign subsidiaries are largely of host countries.

(c) Geo centric management: It is the combinations of poly centric and ethnocentric management style major decision making powers are centralized and management personnel in any particular nationality. The characteritics of these management styles are essential for organizational designs and to control the business strategy.

Question 4.
Explain the various types of MNC.
Answer:
(a) Transnational Corp: Incorporated or Unincorporated enterprises comprising parent enterprises and their foreign affiliates.

(b) Parent enterprise: controls assets of other entities in countries other than its home country, usually by owning a certain equity capital state (usually 10% or more)

(c) Foreign Affiliate: is an incorporated or unincorporated enterprise in which an investor, who is resident in another economy, owns a stake that permits a lasting interest in the management of that enterprise, A subsidiary, associate, and branches are all referred to as foreign affiliates.
→ Subsidiary: is an incorporated enterprise in the host country in which another entity directly owns more than half of the shareholding voting power and has the right to appoint or remove a majority of the members of the administrative, management, or supervisory body.

→ Associate: is enterprise in the host country in which an investor owns at least 10% but not more than half of the shareholders voting power.

→ Branch: is a wholly or jointly owned unincorporated enterprise in the host country.

Formation of Global Companies Very Short Answer Type Questions

Formation of Global Companies Very Short Answer Type Questions

Question 1.
What is multinational corporation?
Answer:
These companies operates its business in multiple countries. Its managerial head quarters are located in one country while company carries out operations in a number of other countries.

Question 2.
What is turn – key project?
Answer:
Multinational companies participate in bids or tender invited by the government of host countries for the commissioning and execution of projects, e.g. road way project, railway project dam project, power project etc. It is called as turn – key projects.

Question 3.
Name any four Indian MNCS.
Answer:

  • Tata motors to take over Daewoo in South Korea.
  • Kirloskar Brothers took over SPP pumps UK.
  • Amtek Auto acquired the GWK group in UK.
  • Ambainis to take over flag international.

Question 4.
What is ethnocentric management style?
Answer:
It means in MNCs, parent company is taking all the decisions of the company and most of its managerial personnel are home country nationals.

Question 5.
Give the meaning of polycentric management style.
Answer:
In this method authority and decision making powers are decentralized and its managerial personnel are largely of host countries.

Question 6.
What is geocentric approach in management style of MNCs?
Answer:
In this method some major decisions are taken by home country management and management personnel in any particular nationality.

Corporate Meetings Long Answer Type Questions

Corporate Meetings Long Answer Type Questions

Question 1.
Write a note on the annual general meeting of the company as per act.
Answer:
Under the companies at every company public or private must hold an annual general meeting of shareholders once every calendar year. This meeting enable the shareholders to discuss the affairs of the company on the board annual report of directors. The first annual general meeting must be held with in 18 months of the incorporation of the company and thereafter it must be held within six months of expiry of the financial years of the company.

Provisions of the act to conduct annual general meeting:
(a) The first annual general meeting must be held within 18 months of the incorporation of the company and there after it must be held within six months of the expiry of the financial year of the company.

(b) Notice of meeting must be sent to every members at last 21 days before the date of meeting.

(c) The meeting must be held at the registered office of the company within the business hours or at some place within the city or village in which the registered office is situated.

(d) The notice for the meeting must be accompany by a copy of audited balance sheet, profit and loss account and annual report directors.

Question 2.
Who can call an extra ordinary general meeting what are the procedure for the holding the meeting.
Answer:
An extra ordinary general meeting may be convened by:

  • Board of directors
  • The board,of directors on the requisition of the members.
  • The requisition themselves.
  • The company, law board.

Procedure for holding the meeting:
(a) If the meeting is convened at the instruction of the directors the secretary sends notice of meeting to the members at least 21 days before the meeting.

(b) If the meeting is held on the requisition of the members, the secretary first ascertain the requirements of the at relating to the requisition and then in consultation with chairman he will convene the meeting.-The meeting should be held within 45 days of the deposit of the requisition.

(c) At the meeting chairman first follow the proceedings of the meeting and than secretary ready the notice of the meeting.

(d) Chairman will proceed the business as per agenda of the meeting.

(e) Before moving the resolution the chairman addresses the meeting and explains the need and importance of passing the resolution.

(f) If the resolution is a special resolution it must be passed by a 3/4th majority.

(g) After the meeting a copy of the special resolution must be filed with the registrars within 30 days.

Question 3.
Write a note on statutory meeting.
Answer:
Statutory meeting in the first meeting of the share holders of a company held only once in life time of public company must hold this meeting within a period of not less than one month and not more than six months from the date of commencement of Business.

The main purpose of conducting this meeting is to give details on financial position and prospectus of the company. Members of the company get an opportunity at this meeting to discuss matters relating to the formation of the company, results of the company etc.

See 165 of companies act makes following provisions relating to statutory meeting.
(a) Every company limited by share, limited by guarantee, and having a share capital must hold a statutory meeting of share holders within a period of not less than one month and not more than six months from the date of commencement of business.

(b) Board of directors must send notice of meeting and statutory report to every member of the company at least 21 days before the day of the meeting.

(c) After sending the copies of statutory report to the members a certified copy of the same must be field with the registrars.

(d) The board must also produce at the statutory meeting a list showing the names address and occupation of member and the number of shares held by them. The list shall remain open for inspection members.

(e) At the meeting the members shall have a right to discuss any matter relating to company formation.

(f) If directors and the other officers of a company failed to follow the valid procedures of the meeting they are punishable with fine and the court on application of the registers or a contributory may order the winding up of the company or may direct the meeting be held.

Question 4.
Explain the laws relating to meetings under the companies act 2013.
Answer:
(1) Annual general meeting:
Provided under Section 96 of the companies act “Annual General Meeting” every company other than a One person company shall each year hold a general meeting as annual general meeting other than any other kind of meetings and the company should make sure that there should not be a gap of more than fifteen months between two annual general meetings.

(a) First annual general meeting: With respect to first AGM, it should be held within the time frame of nine months from the date of closing of the first financial year. Now one of the biggest dilemmas is with respect to first financial year of the company as some major changes were brought up in the companies act 2013. Under the new provisions of the companies act, the financial year of the company incorporated after 1st January of a year would be 31st March of the following year and in other cases, it would be the period ending on the 31st March.

(b) Notice for Annual General Meeting: For a general meeting not less than a clear notice of 21 days either in writing or through electronic mode should be given. But a general meeting may be called after giving a shorter notice if consent by not less than 95% of the members entitled to vote at such meeting is given in writing or by electronic mode.

The notice of such meeting should consist of place, day, date and the proper hour of the meeting and should also contain a statement stating business which is to be transacted at such meeting. The notice should be circulated to every member of the company, legal representative of deceased and assignee of insolvent member, auditor and every director of the company. Section 101 of the Companies act 2013, deals with the provision of Notice for the annual general meeting.

(c) Quorum of meeting: As provided under section 103 of the companies act the quorum of the company in case of public company should be five personally present in case the total member on date of the meeting does not exceed 1000, 15 in case more than thousand but less than five thousand and 30 in case of more than 5000 members on the date of meeting. While in the case of a private company only 2 members if personally present will make up the quorum of the meeting.

It has been also provided that in case the quorum is not fulfilled within half an hour the scheduled time of the meeting then the meeting would be adjourned to the same day of the next week. In case the quorum is not filled within half an hour in the adjourned meeting then the present members would form the required quorum for the meeting. In the case of the meeting by requisition under section 100, the meeting stand cancelled in case of lack of quorum as provided under section 103(2).

(2) Extraordinary General Meeting:
(i) Under Section 100(1) of the Companies Act, the board may whenever it deems fit may call an extraordinary meeting of the company. (ii) Section 100(2) lays down the procedure for calling an extraordinary general meeting in case of the requisition. In case of the company who has share capital (basically the company limited by shares), should be voted upon by such number of members who on the date of receipt of the requisition holds not less than one-tenth of such of the paid-up share capital of the company as on that date carries the right of voting and in case of the company who does not have a share capital(basically the company limited by guarantee who don’t have share capital) should be voted upon by such number of members who on the date of receipt of the requisition holds not less than one-tenth of the total voting power of all the members having on the said date a right to vote.

(3) Meeting called by tribunals:
Under Section 98 of the Companies Act tribunal has been endowed with power to call for meetings on application by the member of the company or any director who is entitled to vote at such a meeting. It is basically done in the case where it is not practically possible for the company to hold a meeting other than an annual general meeting. It can pass any ancillary or consequential order as the tribunal may feel important.

Also, under section 97 of the Act Tribunal can call an annual general meeting in case of default of the company. It can pass any ancillary or consequential order as the tribunal feels expedient to do.

(4) Board meetings: Under Section 173 of the Act, this provision of the board meeting is applicable to all types of companies including one person company. The first board meeting is mandatory to be held within thirty days of the incorporation of the company and subsequent to that the company should hold a minimum of four meetings of the board of directors. One of the most important aspects is that not more than 120 days gap should be there between two such meetings.

One Person Company shall convene at least 1 board meeting in half calendar year and the gap between two meeting should not exceed by more than 90 days. The meeting can be done by way of video conferencing or any other audio-video means. The central government may decide upon exceptions, modifications or conditions of the companies or class of companies to be excluded from the applicability of this section and it can also decide which matters can’t be decided upon by way of video conferencing.

Notice and quorum for board meeting:
A minimum notice of not less than seven days has to be provided to every director of the company about the meeting at his registered address in the company by way of post or by e-mode. The meeting can be called at a shorter notice. In the case of absence of the independent director, decisions of such meeting should be circulated to every director and should also be ratified by at least one independent director. The quorum for the board meeting is 1/3rd of the total strength of the board of director or two, whichever is highest.

(5) Meeting of audit committee:
Audit committee has formation, rights and liabilities have been provided under section 177 of the Act. It consists of a minimum of three directors along with independent directors forming a majority.They can hold a meeting with respect to the discussion of audit reports.

Question 5.
Explain the various types of meetings under the companies act 2013.
Answer:
(1) Member’s Meeting:
This meeting is only for the members of the company. Members and also directors discuss on the matters related to company.
Following are the types of member’s meeting:

  • Statutory Meeting.
  • Annual General Meeting.
  • Extra Ordinary General Meeting.

(A) Statutory Meeting:
Statutory meeting is the first meeting which company conducts afters its commencement. Conduction of statutory meeting is compulsory. Public limited company is required to hold such meeting within a period not less than one month and not more than six months from the date of commencement.The directors of company also need to make statutory report. Every members also must be given a copy of report at least 21 days before the date of the meeting and a copy is also to be sent to the Registrar for registration.

Section 165(3) provides that the Statutory Report must contain the following particulars:

  • The total number of fully paid-up and partly paid-up shares allotted
  • The total amount of cash received
  • The receipts, classifying them and also the expenses; incurred for commission, also brokerage etc.
  • The names, addresses and also occupations of directors, auditors, managers and secretaries and also changes of the names, address etc.
  • Particulars of contracts with proposed modifications presented at meeting for approval;The arrears of calls.
  • Commissions and brokerages paid to directors and managers.

Every director or any other officer of the company who is in default shall be punishable with a fine which may extend to Rs. 500.

(B) Annual General Meeting (AGM):
Under Section 96 of the companies act, every company shall hold a general meeting as annual general meeting every year. Except one person company. There should not be a gap of more than fifteen months between two AGM.

Notice of AGM can be either in writing or also in electronic form. The member should get the notice at least fore 21 clear days. The notice should consist of place, day, date and the proper hour of the meeting. It should also contain agenda of meeting. Every member of the company, legal representative of deceased and assignee of insolvent member, auditor and every director of the company should get notice. Section 101 of the Companies act 2013, deals with the provision of Notice for the AGM.

(C) Extra ordinary meeting (EGM):
Every meeting which is not a AGM or statutory meeting meeting is EGM. An EGM is held for some special business which can not be transacted at AGM. It is also held to transact some urgent business. This meeting may be called by the Directors or by the member’s according to Sec. 169 of the Companies Act, 1956.

Meeting of Creditors: Meeting is when directors of company has any scheme for creditors. The Court may order a meeting of the creditors On the application of the company or of liquidator in case of a company being wound-up.

Meeting of Debenture Holders: Such meetings is held in the interest of debenture holder. The rules for appointment of Chairman, notice of the meeting, quorum etc. are there in the Trust Deed.

Meeting of Creditors and Contributories:
The main purpose is obtain consent of creditors and contributories to the scheme of rearrangement or compromise. It is to save the company from financial difficulties. Sometimes, the Court may also order to conduct meeting. The term “contributory” covers every person who is liable to contribute to the assets of the company when the company is being wound-up.

4. Meeting of the Board of Directors:
The Board of Directors -controls the management of the company. Therefore, the Directors are to meet frequently to decide both policy and also other related matters. It is conducted four times in a year.

Question 6.
What is extra ordinary general body meeting? Explain objectives and provisions of holding extra ordinary general meeting?
Answer:
Every general meeting (i.e. meeting of members of the company) other than the statutory meeting and the annual general meeting or any adjournment thereof, is an extraordinary general meeting. Such meeting is usually called by the Board of Directors for some urgent business which cannot wait to be decided till the next AGM. Every business transacted at such a meeting is special business. An explanatory statement of the special business must also accompany the notice calling the meeting. The Articles of Association of a Company may contain provisions for convening an extraordinary general meeting.

Objectives (Purposes) of Extraordinary General Meeting: The main purpose (Objectives) to hold these meetings are –

  • Change in memorandum of association.
  • Change in articles of association.
  • Reduction or reorganization of share capital.
  • Issue of debentures.
  • Removal of directors.
  • Removal of auditors.

The business transacted at an extraordinary general meeting, being special business, every notice of such meeting must be accompanied by an explanatory statement.

Legal Provisions Relating to Extraordinary General Meeting (EGM):
(1) By Whom EGM is called:
(a) By the Board of directors: EGM may be called by the board whenever it deems fit by depositing a valid requisition at the registered office. On receipt of a valid requisition, the board shall within 21 days proceed to call an EGM to be held not later than 45 days from the date of deposit of requisition. The notice shall be given to those members whose names appear in the register of members within 3 days of receipt of a valid requisition.

(b) On the Requisition of shareholders: EGM may be called on requisition of members holding 1/10th or more of the paid up equity share capital if company have share capital. If company do not have share capital, on requisition of members holding 1/10th or more of total voting power. The requisition shall specify the matters for the consideration of which EGM is to be called and it is signed by all the requisitionists or a requisitionist duly authorised.

(c) By the requisitionists themselves: If the board fails to call an EGM, it may be called by the requisitionists themselves as follows:

  • The EGM shall be held within 3 months from the. date of deposit of the requisition.
  • The EGM shall be called in the same manner in which a meeting is called by the board of directors.
  • The requisitionists shall be entitled to receive a list of members from the company.
  • The EGM should be convened on a working day at the registered office or in the same city or town in which the registered office is situated.
  • The notice of EGM shall be given by speed post or registered post or electronic mode.
  • The notice of EGM shall disclose the place, date, day, hours and business to be transacted at the meeting.

(d) By the tribunal: If for any reason it is impractible to call a meeting of a company, other than annual general meeting, in any manner in which meeting of the company may be called, or to hold or conduct the meeting of the company in the manner prescribed by this act or the articles, the tribunal may, either of its own motion or on the application of any director of the company, or of any member of the company who would be entitled to vote at the meeting order a meeting of the company to be called, held and conducted in such manner as the tribunal thinks fit and give such ancillary directions as the tribunals thinks necessary.

Question 7.
What is annual general meeting? Explain the purpose and provisions relating to annual general meetings.
Answer:
Annual General Meeting (AGM) is a meeting conducted by every Private Limited Company or Limited Company that provides an opportunity to the shareholders to meet every year and discuss matters relating to the Company. The AGM ensures the interest of the shareholders are protected. In this article, we look at the procedure for conducting an AGM and recording the same.

Purpose for Annual General Meeting:
Annual General Meeting is a statutory requirement for Private Limited Company and Limited Company in India. Every Company whether, public or private, limited by shares or guarantee, with or without share capital or unlimited company is required to hold an AGM every year.

Annual General Meeting is an annual meeting conducted by the shareholders and Directors of the Company. In the Annual General Meeting, the audited accounts of the Company are approved, appointment of auditors and Directors are finalized. Other items that can be decided in an AGM include compensation of officers, confirmation of proposed dividends and any other issue raised by shareholder.

First Annual General Meeting:
The first annual general meeting of the company must be held within 18 months from the date of incorporation of Company. Even a Company that has no activity is required to conduct a annual general meeting. Subsequent AGM should be held on the earliest of the following dates:

  • 15 months from the date of last annual general meeting.
  • the last day of the calendar year (December 31st).
  • 6 months from close of the financial year (September 30th).

All company must hold an annual general meeting in every calendar year. However, if the first annual general meeting is held within 18 months from the date of its incorporation, it is not necessary to hold any annual general meeting in the year of incorporation or in the following year.

Notice for Annual General Meeting:
The notice for annual general meeting must be sent to all the member, auditors and debenture trustees atleast 21 days before the meeting along with the annual report of the Company. Shorter notice may be provided with the consent of all the members entitled to vote at the meeting.

Quorum for Annual General Meeting :
For a Quorum, 5 members personally present in the case of public limited company and 2 members personally present in the case of Private Limited Company shall be the quorum for the meeting, unless the Articles of Association provides for a larger quorum. The proxies cannot be counted for the purpose of quorum.

If within half an hour from the time appointed for holding a meeting, the quorum is not present, the meeting, shall stand adjourned to the same day in the next week at the same time and place, or to such other day, time and place as the Board of Directors may determine. If at the adjourned meeting also, a quorum is not present within half an hour from the appointed time, then the members present shall be the quorum.

Question 8.
What is resolutions? Discuss different kinds of resolutions.
Answer:
Accordingly, a resolution may be defined as an agreement or decision made by the directors or members (or a class of members) of a company. A proposed resolution is a motion. When a resolution is passed a company is bound by it. The resolutions could be on just about any subject in case of Board meetings since they are ultimately responsible for running the Company. The Act generally specifies the matters in respect of which resolutions are required to be passed by the members in general meetings

(a) Board Resolution:
Board resolutions are akin to a poll which is Held by a company in its board meetings and annual general meeting for passing orders. The members of the company may cast their votes in the form of yes or no. In a medium sized company it typically happens by show of hands for “Yes” and “No” in a judgment to be taken by the company.

(b) Ordinary Resolution:
A resolution will be an ordinary resolution if the notice, required under the Companies Act has been duly given and it is necessary to be passed by the votes cast, whether on a show of hands, or electronically or on a poll. When a motion is passed by a simple majority of the members related the company who are permitted to voting at the General meeting, it is said to have been passed by an ordinary resolution. The votes cast in favor inclusive of the chairman if any are more than the votes cast in opposition to the resolution.
Matters passed as an ordinary resolution:

  • Alteration in authorized capital
  • Declaration of dividend
  • Appointment of auditors
  • Fixation of remuneration
  • Election of directors

Special resolution:
A resolution shall be a special resolution in the following conditions:
The intention to recommend the resolution as a special resolution has been accordingly specified in the notice naming the general meeting or other intimation given to the members of the resolution.

Notice necessary under the Companies Act has been given; and the votes east in favor of the resolution, whether on a display of hands, or by electronic means or on a poll, as the case perhaps, by members who, being entitled so to do, vote in person or by proxy or by postal ballot, are necessary to be not less than three times the number of the votes, if any, cast in opposition to the resolution by members so entitled and voting.
1. According to legislation and Section 114 (2) of Companies Act, 2013 a special resolution is held subsequent to the following conditions: The meaning of the proposal must be notified to the members of the company in the form of Notice.

2. Notice should comply with the requirement of 21 clear days earlier than the annual general meeting.

3. Votes cast in favor.by poll or show of hands.must by three times the votes cast against the resolution.

4. If there are any abstentions, they are not to be taken into account.
A number of matters applicable to Special Resolution:

  • Alter object clause of memorandum.
  • Change in registered office of company from one state to another.
  • Reduce share capital of the company.
  • Alteration of Articles of association.

Board Resolution:
Every company will hold its first board meeting within a period of 30 days from its date of incorporation and subsequently 4 board meetings of its board of directors every year in such a manner that not more than 120 days will intervene between two following, meetings of the board Participation of directors can be In-person, by video conferencing or any other audio visual modes which are capable of recording and recognizing the participation related to the directors.

Notice for the meeting should be served in not less than 7 days. The notice should be in writing to every director at his address registered with the company and can be sent by means of hand delivery or post or by any electronic modes.

Question 9.
Explain the requisites of valid meeting under the company act 2013.
Answer:
(a) Proper Authority to Convene Meeting:
A meeting must be convened or called by a proper authority. Otherwise it will not be a valid meeting. The proper authority to convene general meetings of a company is the Board of Directors. The decision to convene a general meeting and issue notice for the same must be taken by a resolution passed at a validly held Board meeting.

(b) Notice of Meetings:
A meeting in order to be valid must be convened by a proper notice issued by the proper authority. It means that the notice convening the meeting be properly drafted according to the Act and the rules, and must be served on all members who are entitled to attend and vote at the meeting. For general meeting of any kind at least 21 days notice must be given to members.

A shorter notice for Annual General Meeting will be valid, if all members entitled to vote give their consent. The number of days in each case shall be clear days, i.e. the days must be calculated excluding the day on which the notice is issued, a day or so for postal transit, and the day on which the meeting is to he held. Every notice of meeting of a company must specify the place and the day and hour of the meeting, and shall contain a statement of the business to be transacted thereat.

(c) Quorum of Meetings:
Quorum is the minimum number of members who must be present at a meeting as required by the rules. Any business transacted at a meeting without a quorum is invalid. The main purpose of having a quorum is to avoid decisions being taken at a meeting by a small minority which may be found to be unacceptable to the vast majority of members, The number constituting a quorum at any company meeting is usually laid down in the Articles of Association.

In the absence of any provision in the Articles, the provisions as to quorum laid down in the Companies Act, 2013 (under Sec. 103) will apply. Sec. 103 of Companies.Act provides that the quorum for general meetings of shareholders shall be five members personally present in case of a public company if the number of members as on the date of meeting is upto 1000, 15 quorum if number of members as on the date of meeting is more than 1000 but upto 5000 and if number of member exceeds 5000 than 30 quorum is required; and two members personally present for any private company or articles may provide otherwise.

(d) Chairman of a Meeting:
‘Chairman’ is the person who has been designated or elected to preside over and conduct the proceedings of a meeting. He is the chief authority in the conduct and control of the meeting.

Agenda of Meetings:
The word ‘agenda’ literally means ‘things to be done’. It refers to the programme of business to be transacted at a meeting. Agenda is essential for the systematic transaction of the business of a meeting in the proper order of importance. It is customary for all organisations to send an agenda along with the notice of a meeting to all members. The business of the meeting must be conducted in the same order in which the items are placed in the agenda and the order can be varied only with the consent of the meeting.

(e) Minute: Minute of a meeting contains a fair and correct summary of the proceedings of a meeting. Minutes must be prepared and signed within 30 days of the conclusion of the meeting. The minute books of meetings must be kept at the registered office of the company or at such other place as may be approved by the board.

(f) Proxy: The term ‘proxy’ is used to refer to the person who is nominated by a shareholder to represent him at a general meeting of the company. It also refers to the instrument through which such a nominee is named and authorised to attend the meeting.

Question 10.
What is Extra- ordinary General Body Meeting? Explain objectives and provisions of holding extra-ordinary general meeting.
Answer:
Objectives and provisions of holding extraordinary general meeting:

  • The main objectives of conducting extra ordinary general meeting is to transact urgent nature of special business.
  • This meeting is convened by Board of directors on the requisition of members or company law board or board of directors themselves.
  • The meeting notice is send by the secretary at least 21 days before conducting the meeting.
  • Secretary has to prepare the draft resolution and the explanatory statement and it should be approved by the board.
  • The explanatory statement will also adverstise in the newspapers.
  • Secretary is held responsible for conducting the extraordinary meeting.
  • During the meeting board of directors will pass the resolution on urgent matters related to company.
  • The minutes of the meeting is prepared by the secretary and get them approved and signed by the chairman of the same meeting.
  • The certified copy of the extra ordinary general meeting resolution should be field with the registrars within 30 days of the passing resolution.

Question 11.
State the business transacted in annual general meeting and default for holding annual general meeting.
Answer:
Business to be transacted:
As per section 102(2) of the Companies Act, 2013,the following business es may be transacted during AGM:
(1) Ordinary Business [Section 102(2)], i.e.

  • Consideration of financial Statements and reports of board of directors and Auditors..
  • Declaration of any Dividend
  • Appointment of directors in place of retiring one
  • Appointment of and Fixation of the remuneration of the auditors.

(2) Special Business [Section 102(b)]: Apart from the above businesses, the rest are deemed to be a Special business, transacted during the AGM. Annual General Meeting is compulsory if,

  • Business of the Company was taken over by Government.
  • Company did not function.
  • Accounts of the Company are not ready.

Defaulting in holding Annual General Meeting:
If a Company not holding an Annual General Meeting as per Section 166, or not complying with any direction of the Central Government, then the Company and its every officer come in the Category under section 168 of the Company Act ,2013 and punishable with fine which may extend to Rs. 50000 and for regular basis it may extend to Rs.2500 for every day [Section 168].

Further, as per section 167 of The Companies Act ,1956 provides for the power of the Company Law Board (CLB) to call AGM in the following circumstances:

  • As per section 94, if Company fails to hold Annual General Meeting, any member of the company can request to NCLT (powered with CLB) for calling AGM. [Section 97(1)]
  • The CLB can give any ancillary or consequential directions which are expedient in relation to the calling, holding and conducting the meeting. [Section 167(1)]
  • Apart from the above, CLB also directs that one member of the company present in person or by proxy, which shall be deemed to constitute a meeting.
  • A general meeting held as per the direction of the CLB, deemed to a n annual ‘ general meeting of the company.

Corporate Meetings Short Answer Type Questions

Corporate Meetings Short Answer Type Questions

Question 1.
What are the essentials of a valid meeting of a company.
Answer:
Meeting may be defined as any gathering assembly of two or more persons in a particular place to discuss for the transaction of some lawful business of common concern and to take decision by common consent.
Following are the requisites of a valid meeting:

  • It must be properly convened by the person authorized by the act or articles of association to convene the meeting.
  • Notice of meeting should be issued to all persons entitled to receive the notice.
  • Meeting should be properly constituted it means quorum of members as required by the act or the articles is present and maintained throughout the meeting.
  • The meeting should be presided over by the person duly elected as the chairman of the meeting.
    There should be an agenda for the meeting and agenda items are to be discussed at the meeting.

Section 170 to 186 of the companies act contains provisions relating to holding of meeting. However companies may also include additional rules in their articles for the conduct of meetings. Subject to provisions of the act.

Question 2.
Explain different kinds of meeting.
Answer:
Following are the types of meetings:
(i) Share holders meetings:
These meetings enable the shareholders to exercise their collective rights as proprietors. It includes,
(a) Statutory Meeting: It is the first general meetings of the Shareholders held by the public company just after the commencement of business.

(b) Annual General Meeting: This meeting of shareholders held once a year by the company. Every company should hold this meeting to discuss the affairs of the company, to pass the accounts, to appoint directors and auditors etc.

(c) Extraordinary general Meeting: This meeting is held whenever required to transact urgent nature of special business.

(d) Class meeting: It is the meeting of particular class of share holders to discuss the mattes affecting their interests.

(ii) Directors meeting:
(a) Meeting of board of directors: It is held at regular intervals to frame polices and to review the progress of the company.

(b) Meetings of committee: It is held to discuss and to take decision some specific business problems of the company.

(iii) Creditors meeting: These meetings are held to take decision on matters offering their interests. These meetings includes following kinds.

  • Debenture holders meeting
  • Meetings of creditors and contributories in a winding up.
  • Meetings of creditor other wise than in a winding up.

Question 3.
What is statutory report? What are the contents of statutory report?
Answer:
U/s 165(2) of the companies act statutory report should contain all the necessary information relating to company formation, financial position etc. the statutory report must be certified by two or more directors including the managing directors.
Following are the contents of statutory report:

  • Total number of shares allotted as fully paid and partly paid.
  • Number of shares allotted for consideration other than cash and the consideration there of.
  • Total amount of cash received on allotted shares.
  • An abstract of the receipts and payments under different heads upto a date within seven days of the date of report.
  • Name address and occupation of directors, auditors, managing director, secretary manager if any of he company.
  • Details of any contract to be modified at the meeting.
  • Details of under writing contract.
  • The arrears due on calls, if any from directors, managing director of manager.
  • Details of any commission or brokerage paid or to be paid in connection with issue of shares or sale of shares to any director, managing director or manager.

Question 4.
What are the powers can be exercised by the board during board meeting?
Answer:
Board can pass the resolutions on following matters:

  • Management policy and trading policy.
  • Appointment promotion and dismissal of employees staff.
  • Allotment of shares, call on shares, forfeiturel and re issue of shares.
  • Transfer and transmission of shares
  • Convening meeting of share holders.
  • Investment of company funds.
  • Exercising borrowing powers of the company.
  • Filing of statutes returns and statements.
  • Issue of shares and debentures.

Question 5.
Examine the usual methods; of determining the sense of meeting.
Answer:
The usual methods of determining the sense of meeting are:
(a) By voice vote:
This method is used when there is perfect or near unanimity on a motion. When the chairman feels that sufficient decision has taken place on a motion before he meeting, he calls all those who are against the motion to say no. thus, he is in a position to find out the sense of the meeting on the basis of the volume of voice for the motion and against, the motion and declare the result of the voting.

(b) By show of hands:
Under this method the chairman asks all those in favour of the meeting to raise heir hands. Then he counts the number of hands raised. After that he asks all those against the meeting to raise their hands and counts them.

(c) Standing vote:
This is variant of voting by show of hands under this method, member in favour of and those against the motion in turn stand up in their seats and are counted by the feller.

(d) By division:
The chairman requests the member present to divide themselves into two blocks one block consisting of these who are in favour of the motion and other block consisting of those who are against the motion.

(e) By ballot:
Ballot papers are distributed to the members present and they are required to record their voted on ballot papers either for the motion or against he motion and deposit them on the ballot box provided for that purpose.

Question 6.
What are the contents of minutes?
Answer:
Minutes should contain the following:

  • The kind of the meeting.
  • The time date and place of the meeting.
  • The various business transacted at the meeting.
  • Names of persons present at the meeting.
  • In case of special resolution the number of votes cast for and against the motion.
  • The name of the chairman of the meeting.
  • Date of the next meeting.
  • Vote of thanks.
  • Chairman’s signature with the date in his own handwriting.

Question 7.
What are the essentials of good minutes?
Answer:

  • The minutes should be prepared by the secretary as soon as the meeting is over in consultation with the chairman of the meeting.
  • It should contain in detail the discussion that took place at the meeting.
  • It should be divided into paragraphs each paragraph dealing with a separate object.
  • It should contain the full and exact text of the resolutions passed at the meeting.
  • Minutes should be recorded in separate minute book for future reference.
  • Every page of the minutes book should be initialed and last page of the minutes should be signed and dated by he chairman.
  • Contents of the minutes should be accurately worded so as to avoid the risk of their subsequent interpretation.
  • For the purpose of quick reference each paragraph of the minutes should be given a brief heading or marginal title example Appointment auditor, declaration of dividend etc.
  • The minutes book should be kept under the stafe custody of the secretary.

Question 8.
What are the secretarial duties relating to minutes?
Answer:

  • Secretary should maintain separate minutes books for general meeting and board meeting.
  • He should prepare the minutes from the notes taken by him during the meeting.
  • He should see that the minutes contain an accurate and full record of the proceedings of the meeting.
  • He should see that minutes contain the full and exact text of the resolution passed at the meeting.
  • He should see that the minutes are,read and verified if required of the next meeting and signed by the chairman.
  • He should see that each page of minute book initialed and the last page signed and dated by the chairman.
  • He should see that the minutes are kept at the registered office of the company open to inspection by the members free of charge on every working day.

When any member of the company request for copy of minutes with prescribed fees, the minutes is supplied to the members concerned within seven days of his request.

Company Administration Long Answer Type Questions

Company Administration Long Answer Type Questions

Question 1.
What are the legal qualifications and qualities required for a company secretary?
Answer:
Any individual possessing the prescribed qualifications appointed as a company secretary any firm or a body corporate cannot Be appointed as a secretary qualification company secretary prescribed by the Central Government from time to time.

Section 2(c ) of the company secretaries act 1980 company secretary means a person who is a member of the institute of company secretaries of India. He is appointed to perform the managerial functions of the company. He is performing many duties of the company, therefore, he should be efficient. He should possess the certain qualification for the good management of the company’s affairs.

Statutory qualifications or professional qualifications:
i) He is a member of the institute of company’s secretary of India.

ii) Membership of the institute of company secretaries of India is necessary to become a whole time secretary of a company having paid up share capital of Rs. 50 lakhs or more.

iii) In case of other companies having less than Rs. 50 lakhs paid up capital. One or more of the following qualifications are necessary for appointment of company secretary.

  • Membership of the institute of the company secretaries of India.
  • Post graduate degree in commerce’ on corporate secretary ship.
  • Degree in law.
  • Membership of the institute of chartered accountantants of India.
  • Membership of the institute of cost and works accounts of India.
  • Post graduate diploma in company law and secretarial practice granted by the university of Udaipur.
  • Membership of association of secretaries and manager Calculat.
  • Diploma in corporate laws and management granted by the India law institute Newdelhi.

Other qualifications:

  • Company secretary should possess a sound general education.
  • He should have command over the language.
  • He should have specialized knowledge of the office administration.
  • He should have knowledge of general procedure of meetings.
  • He should have knowledge of book keeping and accounts.
  • He should know the working of money market stock market foreign exchange market.
  • He should possess the through knowledge of the company law.
  • He should have a through knowledge of the various law.
  • He should posses a full knowledge of the business of the company.
  • He should have full knowledge of the competitive industries which are in the market.

Along with this following are personal qualities: Required to a successful company secretary –

  • He should have desire to work hard.
  • He should be honest in his work.
  • He should be loyal to his employer.
  • He should be able to take good sound and quick decision
  • He should be courteous and polite in dealing with other.

Question 2.
Explain the powers and duties of the director of a public company.
Answer:
In a joint stock companies, management is not in the hands of shareholders, because they are large in number and not in position to run the business effectively therefore they elect some person who are good in management as their representatives to manager the affairs of the company. These persons are called as directors of the company. Director is detined U/s 2(13) of company act as “any person occupying the position of a director by whatever name called director of the company. In a public limited company there must be minimum 3 directors and in other company minimum 2 directors are required to run the functions of the company.

Powers of directors: Powers of directors are subject to provisions of articles of association, memorandum of association and companies act directors can exercise the powers collectively as a board by passing resolutions in the meeting.

Following are the powers of directors:

  • To appoint managing director of the company.
  • To appoint manager of the company.
  • To invest the funds of the company in other body corporate.
  • To make calls on share
  • To forfeit shares.
  • To issue shares and debentures.
  • To borrow money from outsiders.
  • To appoint the first auditor of the company.
  • To make a contract with third parties in the name of the company.
  • To recommend the rate of dividend.
  • To look after the day to day functions of the company.
  • To administers the internal organisation of the company.
  • To formulate major polices of the company.

But powers of directors are restricted on following points they are –

  • Not to sell, lease, or dispose, the property of the company.
  • Not to limit or extend the time for the payment of debt of the company.
  • Not to appoint sole selling agent for a period of more than 5 years.
  • Not to invest money in other body corporate in excess of the amount mentioned in company act.
  • Not to donate the fund in excess of amount specified in rules of company act.

Duties of the director: Directors duties are classified into two categories –

  • Statutory duties
  • General duties

(a) Statutory duties:
These duties are performed by the directors of the company as per company act. Statutory duties of directors are –

  • To determine the amount of minimum subscription.
  • To see that amount received from share applicants is deposited in a scheduled back until the certificate to commence business is obtained.
  • To held the statutory meeting.
  • To prepare a statutory report and file a copy of it with the registrar of companies.
  • To forward a copy of statutory report to every member of the company at least 21 days before the statutory meeting is held.
  • To call annual general meeting every year.
  • To call an extra ordinary general meeting of the company on the requisition of required number of members of the company.
  • To give all records and documents to auditor to audit the company’s accounts.
  • To approve the balance sheet and profit and loss account before they submitted to the auditor for their report.
  • To pay dividend only out of divisible profits of the company.
  • To purchase and pay for their qualification shares with in specified time.
  • To function the affairs of the company effectively.
  • To maintain the register of members.

(b) General duties:
Directors of a company are performing these duties as per general law following are the general duties of a director.

  • Directors must act in the company in good fait.
  • Directors must take interest in the progress of the company.
  • Directors must use the property of the company for the benefits of the company.
  • They must attend the meeting the company regularly.
  • They must work for the company in honest way.

Question 3.
Analyse the ways of by which the director of the company are appointed.
Answer:
Directors of the company may be appointed in the following ways.

  • By the promoters of the company.
  • By the subscribes of the memorandum of association (U/s 254, 266)
  • By the company in a general meeting (U/s 256, 261)
  • By the board of directors (U/s 260, 262, 313)
  • By the principle of proportional representation (U/s 265)
  • By the central govt. (U/s 408)
  • By third parties.

(a) By the promoters of the company: At the time of the formation of a company the promoters of the company select and secure the consent, of prominent persons to act as the first directors and mention their, names in the articles of the company.

(b) By the subscribers of the memorandum of association (U/s 254, 266): If the first directors are appointed by the promoters of the company. Than the subscribes to the memorandum of association also are individuals will be deemed to the first directors of the company.

(c) By the company in a general meeting (U/s 256, 261): First directors are appointed either by promoters or by the subscribes to the memorandum of association of the company. The subsequent directors are elected by the share holders at the general meeting or nominated as per the articles.

(d) By the board of directors (U/s 260, 262, 313): Board of directors may appoint (i) additional directors within the maximum strength fixed for the board by the articles of association, b) Casual vacancy may be filled by the directors as per provisions of articles of association, c) alternate directors may be appointed in the place of original directors during his absence for a period of more than three months.

(e) By the principle of proportional representation (U/s 265): In general directors are appointed on a straight vote of the company section 265 of companies act 1956 permits the public and private company for the appointment of not less than two thirds of the total directors by the principle of proportional representation either by a single transferable vote or according to the principle of cumulative voting.

(f) By the central govt. (U/s 408): U/s 408 of the companies act. Central Government may appoint directors of the company to prevent the oppression of the minority of the share holders and to prevent mismanagement of the company or in the interest of the public.

(g) By third parties: Sometimes articles of association of a company permits to financial corporations, debentures holders and other banking companies to nominate their directors on the board of the company to know the funds advanced by them are fused by the company for the purpose which they are borrowed.

Qualification of Company director:
The act does not prescribe any qualification of directors for appointment. But the articles of association of a company may provide that the qualification of a director shall be holding shares of the company. Directors of the company must have a specified number of shares to get appointment in a company. This qualification is called as share qualification. According to articles of association direction of a company must have certain number of qualification shares and this is disclosed by the company in the prospectus.

Question 4.
Explain the duties and functions of company secretary.
Answer:
Duties of a company secretary may be classified under the following heads:

  • Statutory duties
  • General duties

(I) Statutory duties:
These duties are performed by the secretary of the company as per company s per company act and others acts following duties are to be performed by the company secretary as per the act.

  • He should maintain books, documents and registers of the company.
  • He is required to file various returns statements documents with the registrar of companies.
  • He should supervise the issue, allotment, transfer, forfeiture of shares and debentures of the company.
  • He should attend the meetings of the company.
  • He should record the proceeding of the meetings.
  • He should allow the books and documents for inspection when required by the stature.
  • He should use properly the common seal of the company.

(II) General duties:
It includes:

  • Duties to directors
  • Duties to shareholders
  • Duties to organization and office.
  • Duties to public
  • Duties before in corporation.
  • Duties after incorporation.

(a) Duties to directors:

  • He is required to arrange for board meeting record the proceedings and w e minutes of the board meeting.
  • He should attend and maintain all the correspondence in which directors are interested.
  • He is considered as eyes, ears and hands of the company.
  • He is responsible for connecting link between directors and staff, shareholders and the public.
  • He should give guidance to directors on all important legal matters of the company.

(b) Duties to shareholders:

  • He should clarify all the doubts of the shareholders.
  • He has to convene the meetings of the share holders, record the proceeding, write the minutes of the meetings.
  • He has to attend all the letters of shareholders.
  • He should arrange for the payment of dividend to share holders
  • He should allow for inspection of registers and documents to be members of the company.

(c) Duties to organization and staff:

  • He should maintain the work of office properly.
  • He should attend the recruitment work of office staff.
  • He should maintain coordination among the staff members to achieve the goals of the company.

(d) Duties to public:

  • He has to function as a medium of communication between the directors general public.
  • He should provide necessary information to general public that may be asked for

(e) Duties before incorporation:

  • He has to attend the preliminary meetings of the promoters, record the proceedings, write the minutes of these meetings.
  • He should help the promoters in preparation of various documents of the company.

(f) Duties after incorporation:

  • He has to arrange for the first board meeting record the proceeding and minutes of the meetings.
  • He has to look after the application, allotment calls on shares and debentures of the company.

Question 5.
Explain the various types of director as per companies act 2013.
Answer:
(1) Residential Director:
According to Act – “Every company shall have at least one director who has stayed in India for a total period of not less than one hundred and eighty-two days in the previous calendar year. ” The Definition says that the director should be resident of India which shows the director is responsible for the company and has not been making trips without any worry about the company.

(2) Additional Director:
According to the Act – “The articles of a company may confer on its Board of Directors the power to appoint any person, other than a person who fails to get appointed as a director in a general meeting, as an additional director at any time who shall hold office up to the date of the next annual general meeting or the last date on which the annual general meeting should have been held, whichever is earlier.” This definition says that ‘ the articles of the company has authorized the board of directors to appoint the additional directors whenever needed, this additional director would hold the office up to the date of next ACM.

(3) Alternate Director:
According to the Act – “The Board of Directors of a company may, if so authorized by its articles or by a resolution passed by the company in general meeting, appoint a person, not being a person holding any alternate directorship for any other director’in the company, to act as an alternate director for a director during his absence for a period of not less than three months.” This director is to be specifically appointed when the original director or the whole time director is not present in the office due to any of the factors.

(4) Women Director:
According to the Companies Act 2013, some companies have been compulsory ordered to get at least 1 director as the women director. The list of companies who are required to get there director as women are:

  • A listed Company
  • Any Public company having
  • Turnover of Rs. 300 crore or more
  • Paid up capital of Rs. 100 crore or more

(5) Independent Director:
Independent director basically means the director other than Whole time director, Managing Director, or Nominee Director. There are certain reserved criteria for companies to appoint independent directors. The following companies need to have at least 2 independent’directors :

  • Public limited companies having outstanding loans, deposits of Rs. 50 Crores or more.
  • Public limited company having turnover of Rs. 100 Crore or more.
  • Public limited share capital of Rs. 10 Crores or more.

(6) Nominee Director:
The nominee directors are the directors which are appointed in case of any of the non executive director is not able to continue. Generally they are appointed by the shareholders, but in some cases it may also be appointed by banks or Central government as the case may be.

(7) Shadow Director:
Shadow director is the new term which has been arrived which means that the person who is not officially appointed by the board but he/she gives such advice to the directors which they are accustomed to follow except when such shadow director provides the same in his professional capacity.

Question 6.
Give a brief note on appointment of independent, additional and nominee director.
Answer:
Independent Director: Independent Director is for the first time introduced in the New Act, and has been clearly defined as “any director other than a managing director, whole time director, and a nominee director.” Such a director not having any significant pecuniary relationship with the company-is more efficient. Section 149(4) requires that one third of the directors should be independent directors. Section 149(6) lists in detail the specific qualifications for an independent director:
1) Person of integrity and relevant experience.

2) Is not a promoter, nor has any relation with the promoters or directors of the company, its holding, subsidiary or associate company.

3) Has no pecuniary relationship with company, its holding, subsidiary or associate company, its promoters or directors in the preceding two years of his appointment.

4) Has no relatives who have pecuniary relationship with Company, its holding, subsidiary or associate company, its promoters or directors, amounting to two percent in the preceding two years of his appointment.

5) Neither he, nor any of his relatives have held a key managerial personnel or is or has been employee of the company or its holding, subsidiary or associate company in any of the three financial years immediately preceding the financial year in which he is proposed to be appointed.

6) Neither he nor any of his relatives have been an employee or proprietor or a partner, in any of the three financial years immediately preceding the financial year in which he is proposed to be appointed, of (a) a firm of auditors or company secretaries in practice or cost auditors of the company or its holding, subsidiary or associate company; or (b) any legal or a consulting firm that has or had any transaction with the company, its holding, subsidiary or associate company amounting to ten per cent, or more of the gross turnover of such firm.

7) Neither he nor any of his relatives hold together with his relatives two per cent, or more of the total voting power of the company; or

8) Neither he nor any of his relatives is a Chief Executive or director, by whatever name called, of any nonprofit organization that receives twenty-five per cent, or more of its receipts from the company, any of its promoters, directors or its holding, subsidiary or associate company or that holds two per cent, or more of the total voting power of the company; or

9) Who possesses such other qualifications as may be prescribed.
The appointment of independent directors has to also be approved by the shareholders.

Additional Directors: Additional Directors may be appointed by a company under section 161 of the New Act. The.article should confer such power on the Board of Directors of the Company. A provision further added in 2013 with regards to such appointment is that the proposed person should not have failed to get appointed as a Director in a General Meeting.

Nominee Director: Nominee Director is defined under an explanation to section 149. He is a Director nominated by any financial institution pursuant to any law for the time being in force, or of any agreement or appointed by any Government or any other person to represent its interest.

Alternate Directors: Alternate Directors, under section 161(2) of Companies Act, 2013, may be appointed by a company if the articles confer such power or a decision is passed by a resolution if an independent Director is absent from India for not less than three months. He must be qualified to become an independent director, but should not hold any Directorship. An alternate Director cannot hold the office longer than the term of the Director in whose place he has been appointed. Additionally, he will have to vacate the office, if and when the original Director returns to India. Any alteration in the term of office made during the absence of the original Director will apply to the original Director and not to the Alternate Director.

Question 7.
Explain the liabilities of company secretary.
Answer:
(A) Statutory Liabilities: Statutory liabilities derived from different relevant Acts including companies Act, Stamp Act, Income tax Act etc. statutory liabilities are as follows:

  • Maintain the formalities during pre-incorporation stage
  • Arranging the statutory meeting within the stipulated time limit
  • Preparation of statutory report
  • Arranging the meeting of Board of Directors
  • Arranging the Annual General Meeting
  • Submitting Annual Returns to the Registrar of the companies
  • Maintaining ‘Minute-book’.
  • Taking initiative of the registration of the resolutions passed in different meetings
  • Ensuring proper stamping of the documents
  • Arranging the appointment of auditor in time
  • Maintains the register of the shareholders and debenture holders of the company
  • Taking initiative to pay the income tax in time.
  • Not to take any loan without the approval of the Board of Directors
  • Not to secure any secret profit form the company etc.

(B) Contractual Liabilities: According to the agreement signed between the company and the secretary different types of liabilities imposed on the secretary. These liabilities are as follows

  • Accountable to the Board of Directors for duties
  • Maintaining the secrecy of the affairs of the company.
  • Not to do anything beyond his/her capacity
  • Not to show any kind of negligence in performing the responsibility
  • Not to commit any fraudulent activity
  • Protect the interest of the company.
  • Obeying the terms and conditions of the service.
  • Maintain the rules and procedures of the Memorandum of Association and Articles of Association, Act.

Question 8.
Give a detailed note on corporate social responsibility committee and Audit committee under the companies act 2013.
Answer:
Section 135 of the 2013 Act envisages a Corporate Social Responsibility Committee (‘CSR Committee’) of the Board in every company whose net worth is more than Rs. 500 Crores, or turnover over Rs. 1000 Crores, or having a net profit of more than Rs. 5 Crores. The Committee must consist of at least 3 directors of whom at least one should be independent. However, unlisted public companies and private companies are exempted from the requirement of an independent director on the CSR Committee and a minimum of two members is adequate for such companies.

The functions of a CSR Committee are to formulate a CSR policy including activities as have been listed under Schedule VII of the 2013 Act, monitor the said policy periodically and prepare a transparent monitoring mechanism. The 2013 Act also mandates that the CSR Committee must ensure that at least 2% of the company’s net profits are directed towards CSR activities.

The CSR Rules also provide further guidelines and enumerate various methods in which a company can conduct CSR activities such as setting up of not-for profit organizations and collaboration with other companies to further CSR activities. An escape route has been incorporated in the Act itself whereby companies who are unable, for sufficient cause, to spend 2% of their average net profit for the past years, may explain the reasons for the same in the Board report.

Audit committee:
Under Section 292A of the Companies Act, 1956 (‘1956 Apt’) an audit committee was required for every public company whose paid up capital was INR 5 crores or more. The 2013 Act read with the rules, requires every listed company and other public companies with a paid up capital of more than Rs. 10 Crores or a turnover of INR 100 crores or outstanding loans or borrowing exceeding INR 50 crores (as per the latest audited accounts) to form an audit committee comprising at least 3 directors, the majority of whom have to be independent as well as a Nomination and Remuneration Copimittee, in which at least half the members have to be independent. The 1956 Act was silent on the terms of reference, leaving it to the Board of a company to define the scope and powers.

The 2013 Act prescribes certain specific items like recommendations for the appointment and remuneration of auditors, scrutiny of inter corporate loans and investments, approval of related party transactions etc., though the Board may at its discretion add more functions. The 2013 Act and rules also envisage companies to set up a vigil mechanism under the oversight of the audit committee to enable complaints against frauds or misdemeanors’ by employees or others. The audit committee is also empowered to protect whistle blowers and also to take action against frivolous complaints.

The performance of the audit committee (as well as the Board and other committees) and its efficacy have to be evaluated under Section 134 (3)(p) of the 2013 Act. Under Section 292A (8) of the 1956 Act, the Audit Committee’s recommendations were binding on the Board of Directors. However, under the 2013 Act any recommendation of the Audit Committee that is not accepted by the Board has to be reported in the Board along with reasons for the same. Furthermore, under Section 292A (6) of the 1956 Act, the Audit Committee was mandated to have periodic discussions with auditors about the compliance of internal control systems and to review the financial statements of the company. This power has been made discretionary under Section 177(5) of the 2013 Act.

Question 9.
Explain the duties and responsibilities of Managing director.
Answer:
Duties and Responsibilities of Managing director:
The erstwhile Companies Act, 1956 (‘CA 1956’) contained no statement of statutory duties of directors, and acts of directors were usually reviewed in the context of their powers in terms of section 291 of the CA 1956 (which dealt with general powers of the board) and other applicable laws, and their established roles under common law as laid down in several judicial precedents.

The Companies Act, 2013 (‘CA 2013’) for the first time has laid down the duties of directors, in unequivocal terms in section 166. In summary, the general duties of directors under the CA 2013 are as follows:

  • to act in accordance with the articles of the company, in other words, to act within powers
  • to act in good faith in order to promote the objects of the company for the benefit of its members as a whole
  • to act in the best interest of the company, its employees, shareholders, community and for the protection of environment
  • to exercise due and reasonable care, skill and diligence and independent judgment
  • to avoid direct or indirect conflicts of interest
  • to avoid undue gain or advantage either to himself or relatives, partners or associates
  • not to assign his office to any other person

A Director is part of a collective body of Directors called the Board, which is responsible for the superintendence, control and direction of the affairs of the company. Under common law rules and equitable principles, director’s duties are largely derived from the law of agency and trusts (i.e., set of contractual, quasi-contractual and non-contractual fiduciary relationships with the Company). Under the law of agency, duties of skill, care and diligence are imposed on directors.

On the other hand, law of trusts impose fiduciary duties on directors. Accordingly, directors are the trustees of the company’s money and property, and also act as agents in the transaction which they enter into on behalf of the company, directors are liable as trustees for breach of trust, if they misapplied the funds or committed breach of byelaws of the company.

A director is expected to perform his duties as a reasonably diligent person having the knowledge, skill and experience both of as person carrying out that director’s function and of that person himself. A director, therefore plays various roles in the company, may that be of an agent,’an employee ( when appointed on the rolls of the company), an officer and/or a. trustee of the Company.

Question 10.
“A secretary is not only a servant of company but also a servant of law” comment.
Answer:
The Companies Act has provided the definition of a Secretary in the following manner – “Secretary means any individual possessing the prescribed qualifications appointed to perform the duties which may be performed by a Secretary under this Act and any other ministerial or administrative duties” [Sec 2(45)].

Further, the Act states that the Secretary is an officer of the company. The term officer has a special meaning in the Act. Sec 2(30) defines an officer in the following manner – “an officer includes any director, manager or secretary or any person in accordance with whose directions or instructions the Board of Directors or any one or more of the Directors is or are accustomed to act…”

From Sec 2(45) and Sec 2(30), the legal status of a Company Secretary can be analysed in the following manner:
(1) He is an employee of the company as he is appointed to do ministerial and administrative duties.

(2) As an employee he holds a high rank as he has to do administrative duties and the Board of Directors may act according to his directions or instructions.

(3) He is bracketed with the Directors of the company as:

  • Like a Director he can give directions and instructions and
  • Like a Director he is also an officer of the company.

(4) He is appointed by virtue of an agreement with the company. Generally other employees are not appointed by virtue of agreements. His status by law is higher than that of other employees. He is ranked with manager or auditor of the company in this respect.

(5) According to Sec. 5 of the Companies Act, the Company Secretary, being an officer of the company is personally liable for any default or non-compliance of provisions of the Act.

(6) The Board of Directors of a company delegates a large part of its authority to the Secretary. Generally, the Board does not delegate so much authority to any other high-ranking employee. The Board can do so because statutorily the Secretary has greater responsibilities.

The Secretary is empowered to sign notices of meetings (in place of the Directors), to sign share certificates (together with Directors), to sign other statements and returns to be submitted to the Registrar of Companies and to affix the Common Seal of the company. Perhaps he is the only outsider present at a meeting of the Board of Directors which is highly confidential.

All these signify that by virtue of the different provisions of the Companies Act, a Company Secretary has legally a high status in the company, almost next to that of the directors. The directors have to function collectively as the Board but the Secretary functions individually. That is why a person to enjoy the status of a Company Secretary must, however, have some qualifications.

It is rightly said that a Company a secretary is not only a servant of company but also a servant of law as per indisecretary is not only a servant of the company but he is a servant of law. He must see, in order of priority, that:

  • Any legal provision has not been violated,
  • The interest of the company has not been adversely affected and
  • The orders of the Board of Directors have not been disregarded, when-ever he does any act.

Company Administration Short Answer Type Questions

Company Administration Short Answer Type Questions

Question 1.
Explain briefly liabilities of Board of directors of a company?
Answer:
Directors are having certain liabilities at the time of performing their duties in a company. They are –
(a) Directors are personally liable to make good the loss caused to the company by their acts these cases are:

  • If directors used the powers beyond their limit in payment of dividend out of capital.
  • Use of powers by the directors which are not according to provisions of articles of association of the company.
  • Making secret profits or use of a company funds for their personal benefit.
  • Purchase of property in the name of director by using company funds.
  • Misappropriation of companies assets and funds will fully.
  • Any illegal act or breach of contract for the directors personal benefit.
  • Wrong statement given by directors to outsides about material facts of the company in the prospectus of the company.
  • Use of borrowing power of the company beyond the borrowing limits.
  • If the court holds then personally liable for fraudulent trading at the winding up of the company.

Directors of a company personally liable for fine or imprisonment or both. If they:

  • Failure to hold annual general meeting
  • Failure to attach board’s report to. the balance sheet
  • Failure to file annual return with the registrar of companies
  • Fraudulently inducing persons to invest money in the company.
  • Failure to keep proper account of the company.

Question 2.
Write a note on (legal) actual position of directors in a company.
Answer:
Companies act defined the legal position of the directors, directors of a company are described as
(a) Agent: Directors are acting as an agent of the company. They have certain power and duties to carry On the business of the company. The relationship between the company and the directors is that of principal and the agent. But the directors are not allowed to use the powers beyond their authority.

(b) Trustees: Directors have been described as trustees of their company according to this the directors must take reasonable care to protect the assets of the company. They must act in good faith and cannot miss appropriate the funds of the company.

(c) Managing partners: Directors are appointed to look after the affairs of the company. They are described as the managing partners of the company. They frame the rules and policies of the company to manage the affairs of the company. Directors of a company act as the agents trustees and the managing partners of the company under certain circumstances.

Question 3.
Analyse the circumstances in which a company director is removed.
Answer:
A director of a company may be removed before the expiry of his term of appointment by

  • Share holders
  • Central Govt.
  • Company law board.

(a) By Share holders: According section 284 of the companies act directors may be removed before the expiry of their teem as per the procedure given below.

  • A special notice of 14 days is required to be given to the company by the shareholders to pass an ordinary resolution to remove director.
  • In the second step company must inform it to all members and also send a copy of the notice to the director proposed to be removed.
  • If the director concerned wishes to make any representation, he may send it in – writing to the company in time and after receiving such representation by the company it must send copies of the representation to all the members of the company along with notice of meeting.
  • This meeting is called as extra ordinary general meeting of the shareholders and in this meeting two resolutions are passed by the shareholders, one for the removal of the director and the other for appointment of new director.

(b) Central Government: U/S 388 of companies act Central Government has power to remove the directors of a company on the grounds of fraud, negligence, breach of contract, misuse of company funds illegal activities etc.

(c) Removal of director by the company law board: Company law board on receiving an application for prevention of oppression of mismanagement may enquire the matter with concerned director and on enquiry if it funds that relief ought to be granted it may given an orders for removal of director.

Question 4.
Distinguish between director and managing director.
Answer:

Director Managing director:
(a) He is responsible for framing policies of the company. He is responsible for implementing the policies.
(b) He does not take part in day to day work of the company. He takes part in day to day work of the company.
(c) He is appointed by the share holders in annual general meeting. He is appointed by the directors in board meeting.
(d) A person can act as a director for 20 companies at a time. A person can act as a managing director for 2 companies at a time.
(e) Director is appointed for a period not exceeding 3 years. Managing director is appointed for a period not exceeding 5 years.
(f) Director is considered as an agent of shareholders. He is considered as an agent of board of directors.
(g) Appointment of director is compulsory to all the companies. Appointment of managing directors not compulsory.

Question 5.
How company secretary is appointed in a company.
Answer:
Only an individual can be appointed as a company secretary. But he must posses the qualification prescribed by the central government form time to time. The procedure to be followed for the appointment of the company secretary is as follows –

  • In board meeting resolution has to be passed for appointing a secretary on certain terms and conditions.
  • A copy of details of appointment must be filed with the registrar within 30 days of the appointment.
  • If the person appointed as a secretary function as a secretary in any company, he has to inform the other company within 20 days of his appointment.
  • If the appointed secretary is the director of the company or a relative of a director a special resolution has to be passed for such appointment.

Question 6.
Explain briefly the termination of the service of the secretary of a company.
Answer:
Company secretary is terminated from the service in any of the following grounds.

  • After the expiry of the term of appointment.
  • Insolvency or in capacity of the secretary.
  • Breach of terms and conditions on the part of secretary work.
  • Negligence of secretary in management affairs of the company.
  • Misconduct
  • Fraudulent practices, dishonesty.
  • Making secret profits.
  • Misuse of company rights and powers.
  • Willful disobedience of lawful orders.
  • Court orders for dismissal of secretary during compulsory winding up of the company.

Question 7.
Write the distinction between director and managing director.
Answer:

Director Managing director
(a) He is appointed by the share holder at the general meeting. (a) He is appointed by the board of directors of the board meeting.
(b) Appointment of director does not require the approval of the Central Government. (b) Appointment of managing director requires the approval of the Central Government.
(c) A director is subject to retirement by rotation. (c) Managing Director is not subject to retirement by rotation.
(d) Company has at least two directors in private company and three directors in public company. (d) Company has only one Managing Director.
(e) He is considered as agent of share holders. (e) He is considered as agent of directors.
(f) Directors are must for every company (f) Managing Director is not a must for a company.

Question 8.
Explain the rights and duties of managing director of a public company.
Answer:
Managing director is of the director of the company who is in charge of implementing the policies framed by the board of directors. He acts as a chief executive offices of the company and he attends the day to day administration work of the company.

Managing director acts in dual responsibilities:
(i) As a director:
He performs all the works of a director and attends the board meeting and takes part in the formulation of polices.

(ii) As a manager he performs:

  • Executive functions of the company
  • Administer day to day affairs of the company
  • Purchases and sells the properties on the behalf of the company.
  • Enters into contract with the other parties.
  • Maintaining day to day records of the company.

Question 9.
Write a note on whole time director of the company.
Answer:
Whole time director is a director in the whole time employment of the company. He is appointed in the company as a controller of finance and accounts of the company. Provisions of the act relating to whole time director:

  • Only one individual can be a whole time director of the company.
  • Whole time director must be in the whole time employment of the company.
  • Whole time director can act as whole time director in more than one company.
  • The appointment of whole time director may be made by passing resolution in the company or according to the articles of the company.
  • Previous approved from the central government is required to appoint whole time director in the company.
  • Changes in the terms of appointment and reappointment of whole time director is to be made with prior approval from the central government.
  • There are no restrictions regarding the period of appointment of the whole time director.
  • There can be a whole time director along with managing director of the company.

Question 10.
Write a note on Rights and powers of an auditor.
Answer:
Auditor of a company has following rights and powers.

  • Auditor has power to receive notice of the meeting and to attend any general meeting of the shareholders.
  • He has right to give any statement and explanation in connection with accounts audited by him.
  • He has right to inspect the books of accounts and vouchers of the company.
  • He has right to get information and explanation from the officers and directors of the company.
  • He has right to visit branches of the company to audit the accounts.
  • He is enpowered to take legal and technical advice on matters relating to his audit work of the company.
  • He has right to claim remuneration for his audit work.

Question 11.
What are the duties and liabilities of auditor of the company.
Answer:
Following are the duties and liabilities of auditor of the company.
(a) Duties of auditor of the company:

  • The main duty of auditor is to submit the report of the company accounts audited by him to shareholders.
  • He must examine the relevant documents accounts financial statement of the company.
  • He should submit his report on the financial items before the annual general meeting.
  • He must obtain all the information and explanation necessary for the purpose of audit.
  • He should prepare audit report as per the act.
  • When a company desired to raise further capital by prospectus the auditor should submit his report on the financial accounts for the previous year. ‘
  • He must be honest and must exercise reason able care and skill in pectorming his duties.
  • he must report all material facts to the share holders.

(b) Liabilities of an auditor:

  • If auditor fails to comply with the requirements of the company act in respect B/s and P & L A/c he is liable for a fine which may extert upto Rs. 1,000.
  • He is liable for imprisonment for falsification of books of accounts.
  • He is liable for breach of duty.
  • He will be liable to indemnify the company if he is negligent in the performance of duties.

Question 12.
Give a brief note on appointment of director.
Answer:
Section 152 of the New Act governs the appointment of directors. Certain specific requirements for appointment of director as laid down in the New Act are:
→ If there is no provision for appointment of Director in the Articles (AoA), the subscribers to the memorandum, i.e. the shareholders, who are individuals shall be deemed to be the first directors of the company until the directors are duly appointed.

→ Director to be appointed in a general meeting. If it is so done, an explanatory statement for such appointment, annexed to the notice for the general meeting, shall include a statement that in the opinion of the Board, he fulfills the conditions specified in this Act for such an appointment.

→ The proposed Director has to furnish his DIN (Director Identification Number) mandatorily. DIN is allotted by the Central Government on application by a person intending to be the Director of a company. DIN can be obtained in pursuance of section 153 and 154.

→ The proposed Director has to also furnish a declaration stating that he is not disqualified to be a director.

→ Furthermore, such appointment should be with his consent. Earlier such consent was not mandatory for private companies.Consent implies that being appointed a director and taking the charge of the office are two different things.

Consent has to be filed with the Registrar of Companies within 30 days of appointment, The provisions for optional proportionate representation which was earlier mandated only for public companies and the private companies which are subsidies of a public company has now been extended to all private companies also (section 163 of the Companies Act, 2013). Also, the disqualifications for appointment and reappointment of directors have been made applicable to the private companies. Therefore, prior to appointing a director, a company must tick off the various disqualifications for appointment as director under Section 164 of the New Act.

Question 13.
Give a brief note on composition of board of directors under the companies act 2013.
Answer:
Composition of Board: The Board of directors consists of whole time director/Managing, director and other directors including independent directors. Whole time directors as the name itself implies devote whole time and are treated as employees. Similar is the position of Managing director and this category of directors are entrusted with substantial powers of management to look after the day to day affairs of the company. Listed companies have to comply with Clause no.49 which deals with Corporate Governance.

As per Corporate Governance clause, the Board of directors of the company shall have an optimum combination of executive and non-executive directors with not less than fifty percent of the board of – directors comprising of non-executive directors. If chairman of the Board is a non-executive director, at least one-third of the Board should comprise of independent directors and in case he is an executive director, at least half of the Board should comprise of independent directors.

Unless the articles provide for retirement of all directors not less than 2/3rds of the total number of directors shall be liable to retire by rotation at every Annual General meeting of a public Limited company {Section 152 (6)} and are eligible to be reappointed. The remaining 1/3 directors shall be permanent directors. There is no change in the provisions relating to retirement of (l/3rd of 2/3rds) directors at every Annual General meeting. Directors to retire shall be those who have been longest in the office.

Question 14.
State the duties and responsibilities of company director.
Answer:

  • A director must act in accordance with the Articles of Association of the company
  • A director must pursue the best interests of the stake holders of the company, in good faith and to promote the objects of the company.
  • A director shall use independent judgement to exercise his duties with due and reasonable care, skill and diligence.
  • A director should always be aware of conflict of interest situations and should try and avoid such conflicts for the interest of the company.
  • Before approving related party transactions the Director must ensure that adequate deliberations are held and such transactions are in interest of the company.
  • To ensure vigil mechanism of the company and the users are not prejudicially affected on account of such use.
  • Confidentiality of sensitive proprietary information, commercial secrets, technologies, unpublished price to be maintained and should not be disclosed unless approved by the board or required by law.
  • A Director of a Company shall not assign his office and any assignment so made shall be void.
  • 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 Lac Rupees.

Question 15.
State the provisions relating to appointment of director as per companies act 2013.
Answer:
If there is no provision for appointment of Director in the Articles (AoA), the subscribers to the memorandum, i.e. the shareholders, who are individuals shall be deemed to be the first directors of the company until the directors are duly appointed. Director to be appointed in a general meeting. If it is so done, an explanatory statement for such appointment, annexed to the notice for the general meeting, shall include a statement that in the opinion of the Board, he fulfills the conditions specified in this Act for such an appointment.

The proposed Director has to furnish his DIN (Director Identification Number) mandatorily. DIN is allotted by the Central Government on application by a person intending to be the Director of a company. DIN can be obtained in pursuance of section 153 and 154. The proposed Director has to also furnish a declaration stating that he is not disqualified to be a director.

Furthermore, such appointment should be with his consent. Earlier such consent was not mandatory for private companies.Consent implies that being appointed”a director and taking the charge of the office are two different things. Consent has to be filed with the Registrar of Companies within 30 days of appointment

Question 16.
Explain the various key managerial personnel under the companies act 2013.
Answer:
1) CEO: Chief executive officer means an officer of a company, who has been designated as such by it.

2) Chief Financial officer: Chief financial officer means a person appointed as the Chief financial officer of a company,

3) Company secretary or secretary: means a person who been qualified as such and holds a valid qualified certificate issued by Institute of Company Secretary of India as prescribed under Company secretaries act 1980.

4) Manager – means a person appointed as such who is in charge of control and direction of the Board of Director and is entrusted with the substantial powers of management of the affairs of the Company and it is inclusive the position of managing director or by whatever name called.

5) “Managing Director”: means a person who is appointed as such by passing a resolution in general meeting, or by its Board of Directors and has the substantial power of management of the affairs of the Company.

6) “whole time director”: includes a director in the whole-time employment of the Company,

Question 17.
Explain the functions of audit committee.
Answer:

  • Approval of transactions with related parties.
  • Scrutiny of Inter-corporate Loans & Advances.
  • Valuation of undertakings or assets of the company wherever it is necessary.
  • Monitoring the end use of funds raised through public offers and related matters.
  • Recommend appointment of Auditors, their remuneration, terms of appointment etc. and monitoring their performance.
  • Examination of financial statements and auditors report thereon.
  • Evaluation of internal financial controls and risk management systems

Question 18.
State the functions of company secretary under the companies act 2013.
Answer:
According to Section 205 of the Companies Act, 2013 the Company Secretary shall discharge following functions and duties, this is the first time that the duties of the company secretary have been specified in the company law:

  • To report to the Board about the compliance with the provisions of this Act.
  • To ensure that the company complies with the applicable secretarial standards.
  • To provide to the directors of the company the guidance they require in discharging their duties, responsibilities and powers.
  • To facilitate the convening of meetings and attend Board, committee and general meetings and maintain the minutes of these meetings.
  • To obtain approvals from the Board, general meeting, the government and such other authorities as-required under the provisions of the Act.
  • To assist the Board in the conduct of the affairs of the company.
  • To assist and advise the Board in ensuring good corporate governance and in complying with the corporate governance requirements and best practices

Question 19.
Explain the rights and powers of company secretary.
Answer:
Company Secretary is a senior level officer. He enjoys the rights as per the agreement signed by him with the Company. Some rights areas follows:

  • As a senior level officer Company Secretary can supervise, control and he can direct subordinate officers and employee.
  • A Company Secretary can sign any contractor agreement on behalf of the company as a principle officer of a company, subject to the delegation of power by the board of the company.
  • Company Secretary can issue guidelines for the employees on behalf of the company.
  • Company Secretary can attend meeting of shareholders and the meeting of board of directors.
  • During Winding up he can claim his legal dues as a preferential creditor of a company.
  • He can sign and authenticate the proceeding of meetings (Board, Annual general’or extra ordinary general meeting) and other documents on behalf of the company where common seal is not required.
  • Company Secretary is a Compliance Officer and he has a right to blow whistle whenever he finds the conduct of the officers or of the directors of the company are detrimental to the interest of the company.

Question 20.
Explain the legal position of company secretary.
Answer:
The legal position of a company secretary may be explained as follows:
(a) Servant of the company: The Secretary of a company is servant of the company, whose duty is to act in accordance within the instructions given to him by directors.

(b) Agent of the company: The secretary of a company, being chief administrative officer of the company by virtue of his office, is also an agent of the company in a restricted sense. He also ostensible authority to enter into contracts on behalf of the company as regards matters connected with office administration.

(c) Officer of the company: As an officer of the company, the secretary may incur personal liability to statutory penalties by reason of non-compliance with the requirements’of Companies Act, 2013. Besides, he is a chief officer under whose supervision all ministerial and administrative work at registered office of the company is carried on.

Question 21.
Explain the role and need of company secretary under the companies act 2013.
Answer:
The present Companies Act has strengthened the role of company secretaries. Some of the f key areas that have directly impact the role of company secretaries in employment or in practice due to this Act are as follows:
(1) Introduction of secretarial audit:
Secretarial Audit is the process to check whether the company is adhering to the legal and procedural requirements and a process to monitor the company’s compliance with the requirements of the stated laws. The objective behind the introduction of secretarial audit is to improve corporate governance and compliance.

According to Section 204 of the Companies Act 2013, it is the duty of the Company Secretary in practice to perform secretarial audit of every listed company and any such other class of prescribed companies. The Central Government has prescribed the such other class of prescribed companies as –

  • Every public company with a paid-up share capital of Rs. 50 Crore or more.
  • Every public company with a turnover of Rs. 250 Crore or more.

(2) Secretarial standards:
The objective behind the formulation of secretarial standards is to integrate, harmonize and standardization of diverse secretarial practices. The Companies Act, 2013 under Section 118 has made the compliance of Secretarial Standards compulsory on meeting of the Board of Directors and on general meetings.

(3) Annual return:
Annual return is a comprehensive document contains information regarding share capital, directors, shareholders, changes in directorships etc about the company. Under the old Companies Act of 1956 the annual return of the listed companies are required to be signed by the company secretary in practice. The new Companies Act, 2013 under Section 92 has widened this requirement by providing that annual returns of companies having such paid up capital and turnover to be signed and certified by the company secretaries in practice.

(4) Appointment of whole-time key managerial personnel:
Under Section 203 of the new Companies Act, 2013. the companies has to compulsorily appoint the whole time Key Managerial Personnel in respect of certain class of companies as prescribed by the Central Government to ensure good corporate governance and regulation.

The company shall have the following whole-time Key Managerial Personnel (KMP):

  • Managing Director, or Chief Executive Officer or manager and in their absence, a whole-time director.
  • Company Secretary.
  • Chief Financial Officer.

So this made the appointment of whole-time Company Secretary mandatory for better efficiency.

Question 22.
State the disqualifications for appointment of director.
Answer:
Sec 164 of the Companies Act, 2013 provides that a person is ineligible for appointment as a director of a company if he –
→ Is of unsound mind

→ Has been declared insolvent or has applied to be adjudicated as an insolvent

→ Has been convicted of any offense involving moral turpitude or otherwise, and sentenced in respect thereof to imprisonment for six months or more by a court and a period of five years has not elapsed from the date of expiry of a sentence. However, a person is ineligible to be appointed to any company if, has been convicted of any offense and was sentenced to imprisonment for a period of seven years or more.

→ Has been disqualified from appointment as a director by any court or Tribunal

→ Has failed to pay any call money in respect of any shares of the company held by him and a period of six months has elapsed from the day on which the call money was to be paid.

→ Has been convicted of the offense dealing with related party transactions under section 188 in preceding five years;

→ Does not have a DIN.

Question 23.
What is the difference between director, additional director and whole time director?
Answer:
As per Companies Act, a Director is a person appointed to the Board of a Company by the shareholders of that-firm, to perform the duties of administering the companies policies, manage the business and other legally required activities.

Director: An attendee to all Board meetings – A director who attends the Board meetings of the Company and participates in the matters of the business of the Board. They are neither Managing Directors or Whole Time Directors.

Additional Director:
Appointed between 2 AGM’s by the Board of Directors – If the Articles specifically so provide or enable, the Bbard has the discretion, where it feels it necessary and expedient, to appoint Additional Directors who will hold office until the next AGM. However, the number of Directors and Additional Directors together shall not exceed the maximum strength fixed in the Articles for the Board.

Whole Time Director: In the employment of the Company whole time – A whole-time director is a director in the whole-time employment of the company. In other words, a director who devotes his whole time to the affairs of a company is called a whole-time director of the company. A whole-time director of a company cannot accept the position of a whole-time director in other companies, though he may accept office of non-whole-time director in other companies.

Question 24.
State the qualification of independent director.
Answer:
Companies Act 2013 prescribes detailed qualifications for the appointment of an independent director on the board of a company. Some important qualifications include:
→ he / she should be a person of integrity, relevant expertise and experience.

→ he / she is not or was not a promoter of, or related to. the promoter or director of the company or its holding, subsidiary or associate company.

→ he / she has or had no pecuniary relationship with the company, its holding, subsidiary or associate company, or their promoters, or directors during the 2 (two) immediately preceding financial years or during the current financial year.

→ a person, none of whose relatives have or had pecuniary relationship or transaction with the company, its holding, subsidiary or associate company, or their promoters, or directors amounting to 2 (two) percent or more of its gross turnover or total income or INR 5,000,000 (Rupees five million only), whichever is lower, during the 2 (two) immediately preceding financial years or during the current financial year.

→ Companies Act 2013 also sets forth stringent provisions with respect to the relatives of the independent director.

Question 25.
Explain the powers of managing director.
Answer:
Managing directors is a director of a company. All the directors of the company by virtue of an agreement, or by resolution or by virtue of its memorandum or a articles of association appoints one of the director among themselves to occupy the position of a managing director. He is also called as full time director of the company.

Managing director is entrusted with substantial powers of management of the company he is delegated power by directors to take decisions on matters like investment of funds, buying and selling on behalf of the company, appointment of the company’s employees, entering into contracts with other parties etc. Managing director exercises his powers subject to superintendence, control and direction of the board of director of the company.

He takes the responsibility of management to frame the policy of the company. He is considered as an agent of the board of directors. He is entrusted with special powers of management by the board can act individually.

Question 26.
‘Directors are the brains of the company, the secretary is its ears, eyes and hands’ Comment.
Answer:
It is rightly said that “while the Directors are the brains of the company, the Secretary is its ears, eyes and hands”. The Directors are the brains because they collectively make policy decisions. But in order to do so they require to have detailed information and data and they need that their policies are communicated to the organisation so that they are carried out. The assistance of the Secretary becomes necessary for this purpose.

The Secretary is described as ‘eyes and ears’ because the Board of Directors looks at things and hears information through the Secretary. The Secretary, as in charge of the office, keeps detailed information about the men and their activities inside the company.

As a liaison officer he keeps in contact with the outside world on behalf of the company. Moreover, as a liaison officer between the Board of Directors and the members of the staff, the Secretary communicates all the decisions of the Board to the members of the staff. The orders are issued under the signature of the Secretary and so he is the ‘hands’ of the company.

Company Administration Very Short Answer Type Questions

Company Administration Very Short Answer Type Questions

Question 1.
Give the meaning of routine secretary.
Answer:
When a secretary acts as an agent and registrar of the company he is called a routine Secretary.

Question 2.
Who is a director of a company?
Answer:
Any person occupy the position of a director to perform the functions of a company is called as director of a company.

Question 3.
Who is pro-term Secretary?
Answer:
Pro-term secretary is the Provisional secretary appointed during pre-incorporation stage of the company.

Question 4.
Who is a Managing Director of a company?
Answer:
Managing director is director of a Company acts as a chief executive officer and attend the day to day administration of the company.

Question 5.
Who is a Company Secretary?
Answer:
Any individual possessing the prescribed qualifications appointed to perform the duties which may be performed by a secretary under the companies act and any other ministerial or k administrative duties.

Question 6.
Who is an executive Secretary?
Answer:
Directors of the company may delegate power of management to secretary to executive it in the company. Such secretaries are called as executive secretary.

Question 7.
What is the duty of company secretary under Indian stamp act?
Answer:
Secretary is responsible for verifying the documents and their correctness needing stamps.

Question 8.
What is the legal position of the company secretary?
Answer:
As per the company act secretary is recognised as the Principal officer of the company. He is responsible for administrative work of the company.

Question 9.
Give the meaning of whole time director.
Answer:
Whole director is a director who is in the whole time employment of the company.

Question 10.
Who is executive director?
Answer:
Executive director is either managing director or whole time director of the company

Question 11.
Who is called as shadow Director?
Answer:
Shadow director is a person not appointed to the board but on his direction the board is accustomed to act and is liable as a director of the company shadow director is also called as officer in default.

Question 12.
Who is defacto director?
Answer:
Defacto director is a person who is not actually appointed as a director but acts as a director and is held out by the company defacto director is liable as a director under the companies act.

Question 13.
Who are having right to remove the director of the company?
Answer:
Share holders, central government and court order.

Question 14.
What is the legal position of the director on a company?
Answer:
Director can act as agent, trustee, or managing partner on behalf of the company.

Question 15.
Give the meaning of board of directors?
Answer:
Board of directors means the directors of a company collectively constitute the board of directors of the company.

Question 16.
Who is manager of a company?
Answer:
Manager means an individual who subject to the super intendance control and direction of the board of directors has the management of the whole of the affairs of the company.

Question 17.
Give the meaning of doctrine of indoor management.
Answer:
Doctrine of indoor management means doctrine declaring the outsiders that the outsiders dealing with company are bound to read the registered document and see that the proposed dealings and apparently regular and consistent with the memorandum of association and articles of association.

Question 18.
Write any two difference between whole time director and managing director of a company.
Answer:
The following are the difference between whole time director and managing director of a company.
(a) Whole time director is an employee of the company but managing director is management leader and enjoys powers of the company.

(b) Appointment of whole time director required the sanction of share holders by means of special resolution but appointment of managing director does not require the sanction of the shareholders.

Question 19.
Who is the auditor of the company?
Answer:
Auditor is an agent of the shareholders he is qualified chartered accountant appointed for the purpose of examining the books of accounts of joint stock company.

Question 20.
Give the meaning of CSR.
Answer:
CSR means corporate social responsibility according to Company Act 2013 CSR means Indian companies requiring to formulate a corporate social responsibility by incurring minimum expenditure on social activities.

Question 21.
What are the disqualification of auditor?
Answer:

  • Body corporate.
  • An officer or employee of the company.
  • Partner who is indebted to the company.

Are disqualifies from being appointed as a auditor of a company.

Question 22.
Who is solicitor of a company?
Answer:
Solicitor is a legal‘expert acts as a legal adviser of the company, he is a servant of the company he is appointed by the director or any other officer of the company.

Question 23.
What is CSR committee.
Answer:
Under section 135 of companies act 2013 CSR means corporate social responsibility committee which means every company having net worth of rupees 500 crore or more or turnover of 1000 crore or more or more or a net profit of 5 crore or more during any financial year shall constitute CSR committee.

Question 24.
What are the functions of CSR committee.
Answer:
CSR committee shall:

  • Formulate and recommend to the Board a CSR policy.
  • CSR policy shall indicate the activities to be under taken by the company as specified in schedule VII.
  • CSR committee recommend the amount of expenditure to be incurred on the each mentioned activities.
  • Monitor the CSR policy of the company time to time.

Question 25.
Who is an independent director?
Answer:
According to Section 149(6) an independent director is an alternate director other than a Managing Director which is known as Whole Time Director Or Nominee Director. According to Rule 4 of Companies (Appointment and Qualification of Directors) Rules, 2013 these are the following type of companies which have to appoint minimum 2 independent directors:

  • Public Companies which have Paid-up Share Capital-Rs.10 Crores or More
  • Public Companies which have Turnover- Rs.100 Crores or More
  • Public Companies which have total outstanding loans, debenture, and deposits of Rs. 50 Crores or More.

Question 26.
Who is a residential director?
Answer:
According to Section 149(3) of Companies Act,2013, Every company should appoint a director who has stayed in India for a total Period of not less than 182 days in the previous calendar yea

Question 27.
Who is a shadow director?
Answer:
A person who is not the member of Board but has some power to run it can be appointed as the director but according to his/her wish.

Question 28.
Who is a women director?
Answer:
As per Section 149 (1) (a), there are certain categories according to which there should be at least one woman as a director on the Board. Such companies are any listed company or any public company having. There are types of directors in women director also.

Question 29.
State the minimum directors required in a company.
Answer:

  • One Person Company: One Director
  • Private Limited Company: Two Directors.
  • Public Limited Company: Three Directors.

Question 30.
State any two responsibilities of board of directors.
Answer:
Determining the company’s strategic objectives and policies.
Monitoring progress towards achieving the objectives and policies.
Appointing senior management.
Accounting for the company’s activities to relevant parties, e.g. shareholders

Formation of a Company Long Answer Type Questions

Formation of a Company Long Answer Type Questions

Question 1.
What is equity share? What are the feature explain briefly its merits and demerits.
Answer:
Equity shares : are ordinary shares of a company. These share holders are not having preferential right either in respect of payment of dividend or in respect of repayment of capital. These shares are also known as ownership shares.

Features:

  • These shares earn dividend only after the payment of dividend to preference shareholders.
  • The rate of dividend on equity shares depend on the profits available for distribution.
  • These share holders are not having right over the arrears of dividend.
  • Market value of equity shares fully depend on dividend paid to equity share holders.
  • Equity share holders have full voting right.
  • Major portion of share capital of a company is generally in equity share capital.

Advantages of equity shares:

  • It is a major amount of capital to a company.
  • It is a long term finance to a company.
  • These share holders are real owners of the company.
  • These share holders have voting right in the management of the company.
  • If company earns more amount of profits, equity shareholders may get very high rate of dividend.

Disadvantages:

  • Over – issue of equity shares may lead to over capitalization and it is very danger to company development.
  • Equity shareholders cannot get fixed and regular dividend. Therefore it is a kind of investment assume risks.
  • Equity share amount is not refunded to shareholders during the existence of the company.

Question 2.
What is preference share? What are is features? Explain its advantages and disadvantages?
Answer:
Preference shares are the shares which are having preferential rights over the other kinds of shares in respect of payment of dividend of the company.

Features:

  • These shares have fixed rate of dividend.
  • These share holders are having priority over the equity shares in the payment of dividend.
  • These share holders are having priority in respect of refund of capital during the winding up of the company.
  • These shareholders are having restricted and limited voting rights.
  • Preference shares can get the arrears of dividend also.
  • As compared to equity shares risk is less in preference shares.

Advantages of preference shares:

  • Preference share capital is the long term capital for the company.
  • Preference share capital have only fixed rate of dividend. Therefore it is comparatively cheaper than equity shares.

Disadvantages:

  • Preference share holders are not sure in getting regulars dividend every year.
  • In case of good profit earning company equity share holders are receiving more dividend than the preference share dividend.
  • Preference share holders are not having full voting rights. They can exercise their voting rights only on these matters which directly affect this interest.

Question 3.
What is debentures. What are its features? Briefly explain its merits and demands.
Answer:
Debentures is an instrument of credit issued by the company to borrow funds from the public. It is also called as an acknowledgement of debt issued by a company.

Features:

  • It is a loan borrowed by the company by issuing a certificate of loan.
  • Debentures holders are getting fixed rate of interest every year on this investment.
  • Interest amount paid to debenture holders is a deductible expenditure for the income tax purpose to company.
  • Debenture amount is received by the company fully from debenture holders.
  • Debentures amount is paid back by the company after certain period of time.

Advantages:

  • It is a long term finance for a company development.
  • Interest on debenture is counted as expenditure for income tax purpose.
  • Debenture holders have no control over the affairs of the company therefore company is free from debenture holders control.
  • It is an easy method of .raising funds from public.
  • Debentures holders are getting fixed and regulars rate of interest on thus investment therefore it is less risk investment to the public.
  • Debenture holders have priority over the shareholders as regards the repayment of finds.

Disadvantages:

  • It is not allowed to use by private company only public company can borrow debenture capital.
  • Debenture holders have no control over the affairs of the company.
  • Debenture holders are not getting more amount of interest during the profit earned by the company in surplus.

Question 4.
Explain briefly power and functions of SEBI?
Answer:
Following are the functions and powers of SEBI (Securities and Exchange Board of India)
(a) Functions of SEBI:
Section 11 of SEBI act 1992 specifies the function of SEBI into –

  • Regulatory functions
  • Developmental function

(i) Regulatory functions :

  • SEBI regulates stock exchange organization.
  • It registers the name of intermediates.
  • It registers and regulates investment schemes including mutual funds.
  • it tries to put control over the fraudulent and unfair trade practices relating to securities market

(ii) Developmental functions:

  • It educates the investors.
  • It gives training to intermediaries.
  • It conducts research on market transaction.
  • It publishes information which are useful to all market participants.
  • It tries to,promote fair practices in securities market.
  • It promotes self regulatory organizations.

(b) Powers of SEBI:

  • It has power to collect information from stock exchanges.
  • It has power to put control over stock exchange.
  • It has power of make enquires in relation to affairs of stock exchange market.
  • It has power to grant approval to bye laws of recognised stock exchange.
  • It has power to make bye – laws of stock exchanges.
  • It has power to regulate stocks exchanges.
  • It has power to charge fees on regulation of stock exchanges.
  • It has power to compel listing of securities by public companies.

Question 5.
Explain in detail the SEBI guidelines for issue of shares?
Answer:
Securities and exchange Board of India guide lines for public issue of shares:

  • Prospectus of the company has to be attacked with every application.
  • Company has to mention risk factor in the prospectus.
  • Company has to mention aim and objectives of the project in the prospectus.
  • Company’s over all historical growth and preset business situation must be maintained in the prospectus.
  • Company has to mention the reason for issue of shares at premium or discount in the prospectus.
  • Subscription list for public issue should be kept open for 3-10 days.
  • Collection agents are having right to collect application at free of cost.
  • Detail report on such issue of securities should be submitted to SEBI with in 45 days from the date of closure of issue.
  • Minimum 500 shares of face value of Rs. 100 has been fixed for each application.
  • Allotment of shares have to be made in multiples of tradable lot of 100 shares of Rs. 10 each.
  • Issue of Bonus shares to be made in appropriate lots.
  • In care of refund of amount to investors the entire amount to be returned within 120 days.
  • Underwriting has been made mandatory.
  • Listing of companies issue in stock exchange has been increased from Rs. 3 crore to 5 crores.
  • The gap between closure dates of various issues should not exceed 30 days.

Question 6.
Explain the various stages of promotion.
Answer:
(1) Identification of Business Opportunity:
The first stage in promotion of a business is the identification of a business opportunity. The promoter visualises that there are opportunities for a particular type of business and it can be run profitability. The idea may be to exploit a new area of natural resources or a venture in the existing line of business. He develops the ideas with the help of technical experts of that field. When the promoter feels that there are opportunities in taking up a particular venture then the idea is taken further.

(2) Detailed Investigation:
At the second stage, various factors relating to the business are studied from a practical point of view. The demand for the product is estimated and the likely business share is determined. After determining the prospective demand, the promoter thinks of arranging finances, labour, raw materials, power, etc. The cost structure of the product is analysed to find out profitability from the venture. An expert opinion is sought upon the viability of the project.

(3) Approval of Name:
It is necessary to get the name of the company approved from the Registrar of Companies. This is done in order to avoid duplication of the name. Generally, a company submits a list of names in order of preference. The Registrar matches the names with the names of existing companies and then one name is approved.

(4) Signatories to Memorandum:
The promoters decide the names of persons to be the signatories to the memorandum of association. Usually, the first signatories to the memorandum become the first directors of the company. The written consent of the persons to act as directors is taken and they are asked to take qualifying shares of the company.

(5) Appointment of Professionals:
The next stage is of raising funds and deciding about various contracts. So, promoters appoint the brokers and underwriters to ensure the availability of capital by sale of company’s securities. They also appoint solicitors to deal with legal matters of the company.

(6) Preparing necessary Documents:
The promoters take steps to prepare various legal documents of the company which have to be submitted to the Registrar of Companies at the time of incorporation. The documents which are required to be prepared include Memorandum of Association, Articles of Association, Prospectus, etc.

Question 7.
Explain the stages involved in formation of company as per companies act 2013.
Answer:
(a) Digital signature certificate:
The first step towards the incorporation of the company is getting authorized signatories as mentioned under the Information Technology Act, 2000. A digital signature is basically an electronic signature which is duly issued by a certifying authority that shows the authority of a person signing the same

(b) Section 153 obtaining directors’ identification number:
The next step is to obtain directors identification number, every individual who is appointed as a director of a company will make an application for director identification number in form of Dir 3, It is mandatory for the directors to apply for the DIN. DIN is required before commencing the incorporation of the company.

(c) Name for proposed company:
According to the Section 4(4) with rule 9 of Companies (Incorporation) rules, 2014 the name of the company shall be in Form no. INC 1 with a payable fee of one thousand rupees and the name should be in accordance with name guidelines given in Rule 8. After the company’s approval name ROC will send a letter with respect to approval for the availability of name for a company. The name will be valid for sixty days from the date on which application was made.

(d) Preparation of important documents:
After the company’s name is approved by ROC, then the next step is to prepare documents like a memorandum of association and articles of association. It should be noted that main object of both the documents should match the objects mentioned in e- Form INC. 1 these two documents contain the rules and regulations of the company arid, therefore, should be prepared with utmost care drafted in a broader sense. Memorandum of Association shall be in the respective form as prescribed in Tables A, B, C, D and E in schedule 1 and Article of Association in F, G, H, I and J in schedule 1.

(e) Documents required for the incorporation of a private company:
A private company requires certain documents Memorandum of Association, Articles of Association, Declaration in Form no INC 8 by professionals, an affidavit from each subscriber, proof of residential address, verification signature of the subscriber, NOC, proof of identity.

(f) Commencement:
After all the documents are submitted the company is finally registered, the company can start the commencement from the date mentioned.

Question 8.
State the contents of prospectus.
Answer:
Section 2(70) of the Companies Act, 2013 defines a prospectus as “”A prospectus means Any documents described or issued as a prospectus and includes any notices, circular, advertisement, or other documents inviting deposit fro the public or documents inviting offer from the public for the subscription of shares or debentures in a company.” A prospectus also includes shelf prospectus and red herring prospectus. A prospectus is not merely an advertisement.

A document shall be called a prospectus if it satisfy two things:

  • It invites subscription to shares or debentures or invites deposits.
  • The aforesaid invitation is made to the public.

Contents of a prospectus:

  • Address of the registered office of the company.
  • Name and address of company secretary, auditors, bankers, underwriters etc.
  • Dates of the opening and closing of the issue.
  • Declaration about the issue of allotment letters and refunds within the prescribed time.
  • A statement by the board of directors about the separate bank account where all monies received out of shares issued are to be transferred.
  • Details about underwriting of the issue.
  • Consent of directors, auditors, bankers to the issue, expert’s opinion if any.
  • The authority for the issue and the details of the resolution passed therefore.
  • Procedure and time schedule for allotment and issue of securities.
  • Capital structure of the company.
  • Main objects and present business of the company and its location.
  • Main object of public offer and terms of the present issue.
  • Minimum subscription, amount payable by way of premium, issue of shares otherwise than on cash.
  • Details of directors including their appointment and remuneration.
  • Disclosure about sources of promoter’s contribution.
  • Particulars relation to management perception of risk factors specific to the project, gestation period of the project, extent of progress made in the project and deadlines for completion of the project.

Question 9.
Give a brief note on book building process.
Answer:
Book building is a systematic process of generating, capturing, and recording investor demand for shares during an initial public offering (IPO), or other securities during their issuance process, in order to support efficient price discovery. Usually, the issuer appoints a major investment bank to act as a major securities underwriter or book runner.

The following are the important points in book building process:

  • The Issuer who is planning an offer nominates lead merchant banker(s) as ‘book runners’.
  • The Issuer specifies the number of securities to be issued and the price band for the bids.
  • The Issuer also appoints syndicate members with whom orders are to be placed by the investors.
  • The syndicate members put the orders into an ‘electronic book’. This process is called ‘bidding’ and is similar to open auction.
  • The book normally remains open for a period of 5 days.
  • Bids have to be entered within the specified price band.
  • Bids can be revised by the bidders before the book closes
  • On the close of the book building period, the book runners evaluate the bids on the basis of the demand at various price levels.
  • The book runners and the Issuer decide the final price at which the securities shall be issued.
  • Generally, the number of shares is fixed; the issue size gets frozen based on the final price per share.
  • Allocation of securities is made to the successful bidders. The rest bidders get refund orders.

Question 10.
State the various types of documents required to efile to the registrar of companies under the companies act 2013.
Answer:

Type of Document TYPE OF E-FORM Purpose of Filing of Form
Balance -Sheet Form AOC-4. Filing of Financial Statement with the ROC
Consolidated Financial Statement Form AOC-4 (CFS) Companies which have subsidiary Company, Associate Company and Joint Ventures.
Profit & Loss Account Form AOC-4. Filing of Profit & Loss Account with the ROC
Annual Return Form MGT-7. To be filled by Companies having share Capital. To give information relating to directors and shareholder for the period of Financial Year.
Annual Return Form MGT-7 To be filled by companies not having share capital.
Director Report Director Report along With Following Annexure:
1. AOC-22. MGT-93. Secretarial Audit Report
Filing of CTC of Resolution Form MGT-14 (for the Companies except Private Limited Company) For the purpose of adoption of Balance Sheet and Director Report.

Question 11.
Explain the legal position of promoter.
Answer:
The promoter is neither a trustee nor an agent of the company because there is no company yet in existence. The correct way to describe his legal position is that he stands in a fiduciary position towards the company about to be formed. Lord Cairns has correctly stated the position of promoter in Erlanger V. New Semberero Phophate Co. “The promoters of a company stand undoubtedly in a fiduciary position. They have in their hands the creation and moulding of the company. They have the power of defining how and when and in what shape and under what supervision, it shall start into existence and begin to-act as a trading corporation.”

From the fiduciary position of promoters, the two important results follow:
(1) A promoter cannot be allowed to make any secret profits. If it is found that in any particular transaction of the company, he has obtained a secret profit for himself, he will be bound to refund the same to the company.

(2) The promoter is riot allowed to derive a profit from the sale of his own property to the company unless all material facts are disclosed. If he contracts to sell his own property to the company without making a full disclosure, the company may either repudiate/ rescind the sale or affirm the contract and recover the profit made out of it by the promoter.

A promoter who wishes to sell his own property to the company must make a full disclosure of his interest.
The disclosure may be made:

  • To an independent Board of Directors, or
  • In the articles of association of the company, or
  • In the prospectus, or
  • To the existing and intended shareholders directly.

If the promoter fails to discharge the obligation demanded of his fiduciary position the company may rescind the contract or may in the alternative choose to take advantage of the contract and sue the prortoter or damages for breach of his duty to the company. Secret profits on the sale of property can be recovered from a promoter only when the property was bought and sold to the company while he was acting as a promoter.

Question 12.
Give a brief note on commencement of business under the companies act 2013.
Answer:
The provisions with regard to Certificate of Commencement of business have been dispensed with under the Companies Bill, 2013. Only declaration and verification is required by the Public Company under the Companies Bill, 2013.

These provisions were as follows:
(1) A company having a share capital shall not commence any business or exercise any borrowing powers unless:
(a) a declaration is filed by a director in such form and verified in such manner as may be prescribed, with the Registrar that every subscriber to the memorandum has paid the value of the shares agreed to be taken by him and the paid-up share capital of the company is not less than five lakh rupees in case of a public company and not less than one lakh rupees in case of a private company on the date of making of this declaration; and

(b) the company has filed with the Registrar a verification of its registered office as provided in sub-section (2) of section 12.

(2) If any default is made in complying with the requirements of this section, the company shall be liable to a penalty which may extend to five thousand rupees and every officer who is in default shall be punishable with fine which may extend to one thousand rupees for every day during which the default continues.

(3) Where no declaration has been filed with the Registrar under clause (a) of subsection (1) within a period of one hundred and eighty days of the date of incorporation of the company and the Registrar has reasonable cause to believe that the company is not , carrying on any business or operations, he may, without prejudice to the provisions of sub-section (2), initiate action for the removal of the name of the company from the register of companies under Chapter XVIII.

Question 13.
Give a brief note on statement in lieu of prospectus.
Answer:
Where a public company does not invites public to subscribe for it shares but arrange money from private sources, it needs not issue the prospectus to the public. But the company has to get its prospectus registered three days before the allotment of shares. Thus, the company not inviting public to subscribe, prepare a draft prospectus which contains the information given in schedule III of the act, such a draft prospectus is knows as a statement in lieu of f prospectus.

Provisions:
Only public company which does not invite public for subscription can issue this prospectus. Responsibility will be same as that when actual prospectus is issued.

When issued: Section 70( 1) requires a public company having a share capital to file with the Registrar of Companies a statement called “Statement in lieu of prospectus” in the following cases:
(a) Where it does not issue a prospectus (because it feels that it can raise enough capital without inviting a subscription from the public); or

(b) Where it issues a prospectus but has not proceeded to allot any of the shares offered to v the public for subscription (because the issue has been a failure and the minimum subscription has not been received)

Statement in lieu of prospectus must be filed with Registrar of Companies at least three days before any allotment of shares or debenture is made.

Form of statement in lieu of prospectus: Schedule III contains a model form of a statement i in lieu of prospectus in pursuance of section 70; Schedule IV contains a model form of a statement in lieu of prospectus when a private company is converted into a public company in pursuance of section 44.

Consequences/Penalty for misstatement in, or not filing of statement in lieu of prospectus: If the allotment of shares or debenture is made without filing the statement in lieu of prospectus.
(i) The allottee may avoid the allotment within two months after the statutory meeting, or where no such meeting is held, within two months of the allotment [section 71(1)]

(ii) The person who authorized the delivery of SLP may be punished with imprisonment upto 2 years or with fine Rs. 50,000 or with both, [section 70(5)]

Question 14.
Distinguish between prospectus and statement in lieu of prospectus.
Answer:

Basis For Comparison Prospectus Statement in Lieu-of Prospectus
Meaning Prospectus refers to a legal – document published by the company to invite general public for subscribing its shares and debentures. Statement in lieu of prospectus is a document issued by the company when it does not offer its securities for public subscription.
Objective To encourage public subscription. To be filed with the registrar.
Used when Capital is raised from general public. Capital is raised from known sources.
Content It contains details prescribed by the Indian Companies Act. It contains information similar to a prospectus but in brief.
Minimum subscription Required to be stated Not required to be stated

Question 15.
Explain the duties and liabilities of promoter.
Answer:
Duties of promoter:
(1) To disclose the secret profit:
The promoter should not make any secret profit. If he has made any secret-profit, it is his duty to disclose all the money secretly obtained by way of profit. He is empowered to deduct the reasonable expenses incurred by him.

(2) To disclose all the material facts:
The promoter should disclose all the material facts. If a promoter contracts to sell the company a property without making a full disclosure, and the property was acquired by him at a time when he stood in a fiduciary position towards the company, the company may either repudiate the sale or affirm the contract and recover the profit made out of it by the promoters.

(3) The promoter must make good to the Company what he has obtained as a trustee:
A promoters stands in fiduciary position towards the company. It is the duty of the promoter to make good to the company what he has obtained as trustee and not what he may get at any time.

(4) Duty to disclose private arrangements:
It is the duty of the promoter to disclose all the private arrangement resulting him profit by the promotion of the company.

(5) Duty of promoter against the future allottees:
When it is said the promoters stand in a fiduciary position towards the company then it does not mean that they stand in such relation only to the company or to the signatories of memorandums of company and they will also stand in this relation to the future allottees of the shares.

Liabilities of Promoter:
The liabilities of promoters are given below:
(1) Liability to account in profit:
As we have already discussed that promoter stands in a fiduciary position to the company.
The promoter is liable to account to the company for all secret profits made by him without full disclosure to the company. The company may adopt any one of the following two courses if the promoter fails to disclose the profit.

  • The company can sue the promoter for an amount of profit and recover the same with interest.
  • The company can rescind the contract and can recover the money paid.

(2) Liability for mis-statement in the prospectus:
Section 62(1) holds the promoter liable to pay compensation to every person who subscribes for any share or debentures on the faith of the prospectus for any loss or damage sustained by reason of any untrue statement included in it. Sec. on 62 also provides certain grounds on which a promoter can avoid his liability. Similarly Sec. 63 provides for criminal liability for mis-statement in the prospectus and a promoter may also become liable under this section. The promoter may also be imprisoned for a term which may extend to two years or may be punished with the fine upto Rs. 5,000 for untrue statement in the prospectus. (Sec.63).

(3) Personal liability:
The promoter is personally liable for all contracts made by him on behalf of the company until the contracts have been discharged or the company takes over the liability of the promoter. The death of promoter does not relieve him from liabilities.

(4) Liability at the time of winding up of the company:
In the course of winding up of the company, on an application made by the official liquidator, the court may make a promoter liable for misfeasance or breach of trust. (Sec. 543). Further where fraud has been alleged by the liquidator against a promoter, the court may order for his public examination. (Sec. 478).

Question 16.
Distinguish between memorandum and articles of association.
Answer:

Basis For Comparison Memorandum of Association Articles of Association
Definition Memorandum of Association (MOA) is a document that contains all the fundamental data which are required for the company incorporation. Articles of Association (AOA) is a document containing all the rules and regulations that govern the company
Registration MOA must be registered at the time of incorporation. The articles may or may not be registered.
Scope The Memorandum is the charter, which characterizes and limits powers and constraints of the organization. The articles demonstrate obligations, rights, and powers of individuals, who are endowed with the responsibility of running the organization and administration.
Status Supreme document. It is subordinate to the memorandum.
Power The memorandum cannot give the company power to do anything opposed to the provision of the companies act. The articles are constrained by the act, but they are also subsidiary to the memorandum and cannot exceed the powers contained therein.
Contents A memorandum must contain six clauses. The articles can be drafted according to the decision of the Company.
Objectives The memorandum contains the objectives and powers of the company. The articles provide the regulations by which those objectives and powers are to be conveyed into impact.
Validity The memorandum is the dominant instrument and controls articles. Any provision, as opposed to a memorandum of association, is invalid.

Question 17.
What are the contents of articles of association?
Answer:
Contents of Articles Of Association:
Section 5(1) and section 5(2) of the Companies Act, 2013 provide for the contents of the articles of association. The articles must contain the regulations for the management of the company along with the matters prescribed by the Central Government. Further, the articles of association must also contain the following:

  • Share capital including sub-division, rights of various shareholders, the relationship of these rights, payment of commission, share certificates.
  • Lien of shares: Lien of shares means to retain possession of shares in case the member is unable to pay his debt to the company.
  • Calls on shares: Calls on shares include the whole or part remaining unpaid on each share which has to be paid by the shareholders on the company’s demand.
  • Transfer of shares: The articles of association include the procedure for the transfer of shares by the shareholder to the transferee.
  • Transmission of shares: Transmission includes devolution of title by death, succession, marriage, insolvency, etc. It is not voluntary but is in fact brought about by operation of law.
  • Forfeiture of shares: The articles of association provide for the forfeiture of shares if the purchase requirements such as paying any allotment or call money, are not met with.
  • Surrender of shares: Surrender of shares is when the shareholders voluntary return the shares they own to the company.
  • Conversion of shares in stock: In consonance with the articles of association, the company can convert the shares into stock by an ordinary resolution in a general meeting.
  • Share warrant: A share warrant is a bearer document relating to the title of shares and cannot be issued by private companies; only public limited companies can issue a share warrant.
  • Alteration of capital: Increase, decrease or rearrangement of capital must be done as the articles of association provide.
  • General meetings and proceedings: All the provisions relating to the general meetings and the manner in which they are to be conducted are to be contained in the articles of association.
  • Voting rights of members, voting by poll, proxies: The members right to vote on certain company matters and the manner in which voting can be done is provided in the articles of association.
  • Directors, their appointment, remuneration, qualifications, powers and proceedings of the boards of directors meetings.
  • Dividends and reserves: The articles of association of a company also provide for the distribution of dividend to the shareholders.
  • Accounts and Audits: The auditing of a company shall be done subject to the provisions of the articles of association of the company.
  • Borrowing powers: Every company has powers to However, this must be done according to the articles of association of the company.
  • Winding up: Provisions relating to the winding up of the company finds mention in articles of association of the company and must be done accordingly.

Question 18.
What is memorandum of association? State the clauses of memorandum of association of company.
Answer:
Memorandum of association is the charter of the company and defines the scope of its activities. Memorandum of association defines the relation of the company with the rights of the members of the company interest and also establishes the relationship of the company with the members. As per Section 2(56) of the Companies Act,2013 “memorandum” means the memorandum of association of a company as originally framed or as altered from time to time in pursuance of any previous company law or of this Act.

Memorandum Of Association:
Section 4 of the Companies Act,2013 deals with MOA. The Memorandum of a company shall contain the following:
1. Name Clause: The name of the company with the last word “Limited” in the case of a public limited company, or the last words “Private Limited” in the case of a private limited company.

2. Situation Clause: The State in which the registered office of the company is to be situated.

3. Object Clause: The objects for which the company is proposed to be incorporated and any matter considered necessary in furtherance thereof.

4. Liability Clause: The liability of members of the company, whether limited or unlimited, and also state

  • in the case of a company limited by shares- liability of its members is limited to the amount unpaid, if any, on the shares held by them.
  • in the case of a company limited by guarantee-the amount up to which each member undertakes to contribute.

(A) to the assets of the company in the event of its being wound-up while he is a member or within one year after he ceases to be a member, for payment of the debts and liabilities of the company or of such debts and liabilities as may have been contracted before he ceases to be a member,as the case may be; and

(B) to the costs, charges and expenses of winding-up and for adjustment of the rights of the contributories among themselves;

5. Capital Clause:
(i) the amount of share capital with which the company is to be registered and the division thereof into shares of a fixed amount and the number of shares which the subscribers to the memorandum agree to subscribe which shall not be less than one share.

(ii) the number of shares each subscriber to the memorandum intends to take, indicated opposite his name.

Question 19.
Explain the procedure involved in alteration of memorandum of association.
Answer:
(i) Name clause change in the Memorandum of association:
The company may be nominated by the Central Government approval by passing a special resolution. Changes If the name changes are subject to a private limited or public limited, no central government approval is required.

If a company registers a name similar to the existing company name, the central government may ask it to change its name. In that case the general resolution is sufficient. The change of name should be given to the registrar and they will add a fresh certificate. Changing the situation transition .
(1) Registration Office should be issued notice within thirty days if it is to be moved within one city, town or village.

(2) In order to move the registered office from one town to another town or to another village, a special conclusion should be implemented.

(3) A company can change its registered office from one state to another.

  • To trade the business more effectively and economically
  • To achieve the main purpose of the company by a sophisticated approach
  • Expand its operations in the current location
  • To control any of the existing objects
  • To sell the whole or part of the business
  • To associate with other business or person.

In order to be transferred from state to state to another registered office, a special decision must be passed and approved by the company’s Law Board. The memorandum should be replaced by the Registrar of the State by the State and the Registrar of the State.

(ii) Object clause change in memorandum of association:
Objects can be conditional by passing a special resolution. Items can change the clause for the following reasons:

  • For the purpose of carrying out its business more economically and efficiently.
  • The purpose of obtaining the company’s main business through new and advanced methods
  • The purpose of expanding or replacing the local area of its operations.
  • The purpose of having some business may be convenient or conveniently integrated With existing business.
  • For the purpose of abandoning any objects specified in the memorandum.
  • For the purpose of selling the whole or any stake.
  • For the purpose of integrating any company.

(iii) Conditions of Liability in the Association of Memorandum:
The liability clause can only be changed when a public company is converted to a private company.

(iv) Change of Capital clause of memorandum of association:
The company changes its capital clause by passing a general resolution at a general meeting. May be related to capital change;

  • Sub category of shares
  • Reinforcement of shares
  • Converting shares into shares and canceling unsubscribed capital.

In order to pass a resolution within thirty days, the revised articles and memorandum must be submitted to the Registrar.

(v) Change of Subscription clause of the Memorandum of Association:
The company may change the subscription condition to appoint the subsequent replacement of the liability of the director.

Question 20.
Explain the steps involved in incorporation of a company under the companies act 2013.
Answer:
Step-1: Select the type of company.

Step-2: Apply for Digital Signature Certificate (DSC) – It is an electronic certificate refers to the identity of a person as like as passport or driving license. DSC is used in certain cases for signing the various documents in digital medium.

Step-3: Apply for DIN (Director Identification Number) – It is a unique identification number which is allotted to director of the company according to Section 152, 153, 154 of Company Act, 2013. DIN is mandatory for all directors.

Step-4: Apply for Name Approval – Company shall give proposed name of company to ROC for approval of name. The name shall not be resembled to any other company name.

Step-5: Upload the SPICe Forms INC-32, INC-33 and INC-34 in MCA (Ministry of Corporate Affairs) for incorporating the company.

INC-32 – It contains the details of the company like SRN of form INC-1, the type of company, the class of company, the category of company, sub-category of company, Company is Having share capital or Not having share capital, Main division of industrial activity of the company, Capital structure of the company, Registered office address, Particulars of individual first subscriber(s) cum directors, Particulars of payment of stamp duty, Additional Information for applying Permanent Account Number (PAN) and Tax Deduction Account Number (TAN) Information specific to PAN, Source of Income.

INC-33 (MOA) – It is a constitution of company which contains all the objects of the company. It is a document which describes activity and scope and relation with shareholders.

INC-34 (AOA) – It is a document which contains rules and regulations relating to the internal management of the company.

Step-6: Payment of Fees – After uploading above forms, registration fees shall be paid towards the registrar of companies online.

Step-7: Incorporation Certificate – When all documents are filed in order with requisite, fees then MCA will verify it and issue the incorporation certificate. After this a company can start their business journey in the corporate world.

Question 21.
Explain the procedure for altering articles of association.
Answer:
A company which proposes to alter its articles of association has to follow the procedure detailed below:
(1) Convene and hold a Board meeting to:

  • Consider and decide which of the articles are to he altered and pass a formal resolution in this respect.
  • Fix time, date and venue for holding a general meeting of the company for passing a special resolution as required by Section 14 of the Companies Act, 2013.
  • Approve notice, agenda and explanatory statement to be annexed to the notice of the general meeting as per 102 of the Act.
  • Authorise the Company Secretary or any other competent officer of the company to issue notice of the general meeting as approved by the Board.

(2) On the conclusion of the Board meeting, send to the stock exchanges, where the securities of the company are listed, particulars of the proposed alteration of the articles of association of the company.

(3) Issue notice of the general meeting along with the explanatory statement, to all the members, directors and the auditor of the company. Also forward three copies of the notice of the general meeting to the concerned stock exchanges as per the Listing Agreement.

(4) Hold the general meeting and have the special resolution passed.

(5) Forward a copy of the proceedings of the general meeting to the concerned stock exchanges as per the Listing Agreement.

(6) File with the ROC, Form MGT- 14 along with a certified copy of the special resolution and the explanatory statement annexed to the notice of the general meeting at which the resolution was passed and a copy of the Articles of Association, within fifteen days of the passing of the resolution along with the prescribed filing fee.

(7) Make necessary changes in all the copies of the articles of association of the company lying in the office of the company.

Formation of a Company Short Answer Type Questions

Formation of a Company Short Answer Type Questions

Question 1.
Explain briefly different types of debentures?
Answer:
Following are the types of debentures –

  • Registered debentures
  • Unregistered or bearer debentures
  • Unsecured debentures
  • Secured debentures
  • Redeemable debentures
  • Irredeemable debentures
  • Convertible debentures
  • Non convertible debentures

(a) Registered debentures:
In means debenture holders name are entered in the register of debenture holders kept by the company. These registered debenture holders are entitled to receive payment of interest and repayment of debenture amount. These debentures are not. possible to transfer like a negotiable instrument. It can be transferred only in the manner specified in the condition endorsed on them.

(b) Unregistered or bearer debentures:
It is a bearer debentures. These debenture holder name is not recorded in the register of v debenture holders maintained by the company. These debentures are considered as negotiable instrument and it can be transferred by mere deliver.

(c) Unsecured debentures:
It is a simple debenture. These debenture holders do not have any charge on the assets of the company. These debenture holders are like unsecured creditors of the company.

(d) Secured debentures or Mortgage debentures:
These debenture holders are secured by a charge on the assets of the company. These debenture holders amount is used by the company for purchase of some specific immovable property.

(e) Redeemable debentures:
These debenture amount is refunded by the company as per terms and conditions after a specified period of time.

(f) Irredeemable debentures:
These debenture holders amount is not repaid by the company according to the demand of debenture holders. It is repaid by the company whenever it is convenient for repayment and it is repaid during the existence of the company.

(g) Convertible debentures:
These debentures have an option to convert their debt document into equity or preference shares after expiry of certain period. But this option must be exercised with in given period of time only.

(h) Non convertible debentures:
These debentures have no option to convert into equity as preference shares. Therefore they are continued as a debenture holders during the existence of the company.

Question 2.
State the difference between share and debenture?
Answer:
Difference between shares and debentures Shares:

Shares Debentures
(a) It is issued by the company to start the business. (a) It is issued by the company to expand the business.
(b) It is owner ship capital. (b) It is loan capital.
(c) Share holders have voting rights. (c) Debentures holders donot have voting rights.
(d) Payment of dividend is not fixed and regular. (d) Payment of interest is regular and fixed.
(e) Share holders are not secured by a charge on the assets of the company. (e) Debentures holders are secured by charge on the assets of the company.
(f) Shares can be forfeited. (f) Debentures are not forfeited.
(g) Shares may be fully or partly paid. (g) Debentures are fully paid.
(h) Share amount is not returned by the company during its existence. (h) Debentures amount is returned during the existence of the company.

Question 3.
Explain different types of preference shares.
Answer:
Types of preference shares:

  • Cumulative preference shares
  • Non-cumulative preference shares
  • Participating preference shares
  • Non-participating preference shares
  • Convertible preference shares
  • Non convertible preference shares
  • Redeemable preference shares
  • Irredeemable preference shares

(a) Cumulative preference shares: These share holders are entitled to receive – i) fixed parentage of dividend before anything is given to other kinds of share holders and ii) arrears of dividend out of future profits.

b) Non-cumulative preference shares: These share holders are entitled to receive only fixed percentage of dividend and they have no right over arrears of dividend.

c) Participating preference shares: These share holders are entitled to receive i) fixed percentage of dividend on their shares and ii) percentage of dividend recommended to the equity share holders.

d) Non-participating preference shares: These share holders are having right to get fixed percentage of dividend declared on their share and are not eligible for participate in the surplus profit of the company:

e) Convertible preference shares: These are all eligible for converting into equity shares after certain period of time.

f) Non convertible preference shares: These shares are not given right to convert into equity shares.

g) Redeemable preference shares: These shares are redeemed and amount is paid back to share holders as per the terms of issue after a stipulated period of time.

h) Irredeemable preference shares: These share holders are continued as preference share holder-until the company is wound up.

Question 4.
State difference between equity shares and preference shares.
Answer:
Following are the difference between equity shares and preference shares.

Equity shares Preference shares
(a) These share holders do not have priority in payment of dividend and repayment of Capital. (a) These shareholders have priority over the payment of dividend and repayment of capital
(b) Rate of dividend is fixed. (b) Rate of dividend is not fixed.
(c) These shares have full voting rights. (c) These share have restricted voting rights.
(d) It is ownership shares of the company. (d) It is not enjoying such ownership.
(e) It cannot be redeemed during the existence of the company. (e) It can be redeemed during the existence of the company according term and conditions.
(f) It is not possible to convert into other form. (f) It can be convert into ordinary shares.

Question 5.
What are the guidelines issued by SEBI on Book Building?
Answer:
SEBI guidelines came into operational with effect from sept. 1997. Following are the guidelines issued by SEBI:

  • The option of 100% book building shall be receivable to issuer company which propose to make an issue of capital of more than 100 crores.
  • SEBI registers the name of merchant beakers to carry on activity as the under writer.
  • Issuing company must take permission from SEBI to give advertisement in news paper about the date of opening and closing of the bidding.
  • Issuing company shall appoint category one merchant bankers as book runner. And this name must be mentioned to SEBI.
  • The book runner shall determine the issue price based on the bids received through syndicate members
  • SEBI shall have the right to carryout an inspection of the records books documents relating to book building process.

Question 6.
Discuss briefly the steps in capital Subscription stage of the company.
Answer:
Capital subscription is the third stage in the formation of a public limited company. Promoters of a company fulfills following steps in this stage:

  • Director are conducting meeting to appoint a secretary of the company.
  • Bankers auditors solicitor, brokers are appointed to mention their name in the prospectus of the company.
  • Pre-incorporation contracts are rectified by the promotrs to give legal touch to all contracts.
  • Resolution is passed by the directors of the company to list their share in recognized stock exchange market.
  • Promoters enters into agreement with underwrites to issue shares to public easily
  • If company’s offer to the public for subscription of shares for more than one crore had to obtain the permission of the controller of capital issues before offering the shares to the public.

Question 7.
Explain the relationship between memorandum and articles of association.
Answer:
(1) Articles of Association are subsidiary to the Memorandum of: Association. Articles of Association can be made only within the limits as decided by the Memorandum of Association. Articles cannot go beyond the Memorandum of Association.

(2) Supplementary to Each Other : These two documents are not competitors to each other but they are supplementary to each other. Memorandum directs for the limit and power of the company whereas Articles of Association guides for the internal Management of the company.

(3) Articles of Association cannot amend a memorandum of Association, because articles of Association are subsidiary of the Memorandum. They cannot control/amend the memorandum.

(4) Memorandum states objects while articles provide the manner in which objects may be attained.

(5) Memorandum can be explained as constitution or foundation stone where as articles are relating to internal regulations.

Question 8.
Who is a promoter? Explain the various types of promoter.
Answer:
As per Section 2(69) of Companies Act, 2013 the term Promoters is defined as:
“Promoter” 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:

(1) Professional Promoters:
These are the persons who specialise in promotion of companies. They hand over the companies to shareholders when the business starts. In India, there is lack of professional promoters. In many other countries, professional promoters have played an important role and helped the business community to a great extent. In England, Issue Houses; In U.S. A., Investment Banks and in Germany, Joint Stock Banks have played the role of promoters very appreciably.

(2) Occasional Promoters:
These promoters take interest in floating some companies. They are not in promotion work on a regular basis but take up the promotion of some company and then go to their earlier profession. For instance, engineers, lawyers, etc. may float some companies.

(3) Financial Promoters:
Some financial institutions of financiers may take up the promotion of a company. They generally take up this work when financial environment is favourable at the time.

(4) Managing Agents as Promoters:
In India, Managing Agents played ah important role in promoting new companies. These persons used to float new companies and then got their Managing Agency rights.
Managing Agency system has since long been abolished in India.

Question 9.
State the functions of promoter.
Answer:
Functions of a Promoter:
The Promoter Performs the following main functions:
(1) To conceive an idea of forming a company and explore its possibilities.

(2) To conduct the necessary negotiation for the purchase of business in case it is intended s to purchase as existing business. In this context, the help of experts may be taken, if considered necessary.

(3) To collect the requisite number of persons (i.e. seven in case of a public company and two in case of a private company) who can sign the ‘Memorandum of Association’ and ‘Articles of Association’ of the company and also agree to act as the first directors of the company.

(4) To decide about the following:

  • The name of the Company.
  • The location of its registered office.
  • The amount and form of its share capital.
  • The brokers or underwriters for capital issue, if necessary.
  • The bankers.
  • The auditors.
  • The legal advisers.

(5) To get the Memorandum of Association (M/A) and Articles of Association (A/A) drafted and printed.

(6) To make preliminary contracts with vendors, underwriters, etc.

(7) To make arrangement for the preparation of prospectus, its filing, advertisement and issue of capital.

(8) To arrange for the registration of company and obtain the certificate of incorporation.

(9) To defray preliminary expenses.

(10) To arrange the minimum subscription

Question 10.
State the steps involved in efiling under the companies act 2013.
Answer:
A) Register Your Self ( Step – I):
Only registered users are allowed to do E-Fling. Registration is a Simple, One time process.

B) Download E-Form ( Step – II):
Go to the Annual filling corner following the link provided at the home page of the MCA portal & download the applicable E-forms following the Link “Downloads E-form”

C) Complete E-Form ( Step – III):
Download e-form MGT-7 & AOC- 4 and fill the complete e-forms and attach respective attachments. Affix DSC of Director and Professional and complete the e-form.

D) Submit E-Form ( STEP – IV ) :
A connection to the internet will be required to carry out- e-filling submission will need to be made at the MCA21 Portal using Specialized Functionality that is provided.

E) Make Payment (Step – V ):
Fees calculation will be done automatically by the system as applicable under the law & the Fee for the services will be displayed to the user. The filling fees will be paid through credit card & internet Banking. The system will generate a receipt that one can retain as a part of your records.

Question 11.
State the documents to be filed at the time of incorporation under the companies act 2013.
Answer:
Following documents have to be filled at the time of incorporation:

  • Self attested PAN Card (2 Copies) ( attested by gazetted officer or bank manager)
  • Self attested Address Proof – Voter ID/Adhaar Card/ Driving License/Passport (2 Copies) (attested by gazetted officer or bank manager)
  • 5 passport size photographs
  • Self attested Bank Statement/ Electricity Bill/ Mobile Bill/ telephone Bill not older than one month (passbook copy is not accepted)
  • Rental agreement and electricity bill of office address(Electricity bill not older than 1 month) if rented premises
  • NOC (No Objection Certificate)
  • BBMP tax paid receipt and electricity bill of office address (Electricity bill not older than 1 month) if own premises.
  • Nature of Business
  • 6 unique names of company
  • Mail Id and Mobile Number of the Directors/Designated Partners

Question 12.
Give a brief note-on commencement of business under the companies act 2013.
Answer:
The provisions with regard to Certificate of Commencement of business have been dispensed with under the Companies Bill, 2013. Only declaration and verification is required by the Public Company under the Companies Bill, 2013.

These provisions were as follows:
A company having a share capital shall not commence any business or exercise any borrowing powers unless:
(a) a declaration is filed by a director in such form and verified in such manner as may be prescribed, with the Registrar that every subscriber to the memorandum has paid the value of the shares agreed to be taken by him and the paid-up share capital of the company is not less than five lakh rupees in case of a public company and not less than one lakh rupees in case of a private company on the date of making of this declaration.
and

(b) the company has filed with the Registrar a verification of its registered office as provided in sub-section (2) of section 12. If any default is made in complying with the requirements of this section, the company shall be liable to a penalty which may extend to five thousand rupees and every officer who is in default shall be punishable with fine which may extend to one thousand rupees for every day during which the default continues.

Where no declaration has been filed with the Registrar under clause (a) of subsection: (1) within a period of one hundred and eighty days of the date of incorporation of the company and the Registrar has reasonable cause to believe that the company is not carrying on any business or operations, he may, without prejudice to the provisions of sub-section (2), initiate action for the removal of the name of the company from the register of companies under Chapter XVIII.

Question 13.
Explain in detail doctrine of ‘ultra vires’.
Answer:
‘Ultra’ means beyond and ‘vires’ means powers. The term ultra vires a company means that the doing of the act is beyond the legal power and authority of the company. The doctrine of ultra vires is important in defining the limits of the powers conferred on the company by its Memorandum of Association. According to this doctrine, the vires (power) of a company to enter into a contract or transaction is limited by the ambit of the Objects Clause of the Memorandum and the provisions of the Companies Act.

Whatever is not permitted by the Objects Clause and the Act, is prohibited by the doctrine of ultra vires. If a company engages in any activity or enters into any contract which is ultra vires (outside the power conferred by) the Memorandum or Act, it will be null and void so far as the company is concerned and it cannot be subsequently ratified or validated even if all the shareholders give their consent. Thus under this doctrine, a company has powers to engage in only such activities or enter into such transactions:

  • Which are essential to the attainment of the objects specified in the Memorandum.
  • Which are reasonably and fairly incidental to the main objects.
  • Which are permitted by the provisions of the Companies Act.

Effects of Ultra Vires Transactions:
If a company enters into transactions, which are ultra vires, it will have the following effects:
(1) Injunction: Whenever a company goes beyond the scope of the object clause, any of its members can get an injunction from the court to restrain the company from undertaking the ultra vires act.

(2) Personal Liability of Directors: If the transaction is ultra vires, for instance, if the fundsofthecompany are misapplied, the directors will be held personally liable. ‘

(3) Ultra Vires Contracts: Contracts entered into by a company, which are ultra vires, are void ab initio and unenforceable.

(4) Property Acquired Ultra Vires: If a company acquires any property under an ultra vires transaction, it has the right to hold the property and protect it against damage by other persons.

(5) Ultra Vires Torts: A company is not liable for torts committed by its agents or employees in the course of ultra vires transactions.

Question 14.
Give a brief note on book building.
Answer:
Book building is a systematic process of generating, capturing, and recording investor demand for shares during an initial public offering (IPO), or other securities during their issuance process, in order to support efficient price discovery. Usually, the issuer appoints a major investment bank to act as a major securities underwriter or book runner. Book Building is an alternative method of making a public issue in which applications are accepted from large buyers such as financial institutions, corporations or high net-worth individual, almost on firm allotment basis, instead of asking them to apply in public offer.

Book building is essentially a process used by companies raising capital through public offerings – both initial public offers (IPOs) and follow-on public offers (FPOs) to aid price and demand discovery. It is a mechanism where, during the period for which the book for the offer is open, the bids are collected from investors at various prices, which are within the price band specified by the issuer. The process is directed towards both the institutional as well as the retail investors. The issue price is determined after the bid closure based on the demand generated in the process.

Question 15.
State the role of promoters in formation of company.
Answer:
The role of a promoter is as follows :

  • Discovery a business idea: The promoter identifies the areas of profitable avenues of investment after making preliminary analysis of risk involved, capital required, etc.
  • Detailed investigation: The promoter undertakes detailed investigation of all aspects of the business with the help of experts/specialists, etc. He prepares a project report on its technical, economical and financial feasibility.
  • Assembling of resources: After being satisfied about the project, the promoters make . contacts for the purchase of land,’plant, machines, etc.
  • Preparing preliminary documents: The promoter prepares the essential documents required for the registration of the company.

Question 16.
Discuss the objects of prospectus.
Answer:
Prospectus refers to any document inviting deposits from the public for the subscription of shares or debentures of a company.
It is the statement which gives all material and essential information about the affairs of the company, indicates the future prospects of the company arouses the interests of the investor in the proposed company and induces them to subscribe to the shares of debentures of the company.

The main objects of issuing a prospectus are:

  • To inform the public about the formation of a new company.
  • To state the prospectus of the company and to induce the public to subscribe to the shares or debentures of the company.
  • To invite offers from the public for the subscription of shares or debentures of the company.
  • To create confidence in the public about the company by providing complete accurate and reliable information and by making the directors responsible for the information given in the prospects.
  • To have an authenticated record of the terms and conditions on which the shares and debentures are issued by the company.