Introduction of Company Short Answer Type Questions

Question 1.
State the characteristics of a public company.
Answer:

  • It must have at least seven members and no limit on the maximum number of members.
  • Shares of a public company can be freely transferred.
  • It invites the public to subscribe to its shares or buy its shares.
  • It should create a board audit committee.
  • Public company will issue prospectus to general public.

Question 2.
Give a brief note on:
(a) Dormant company
(b) Small company.
Answer:
(a) Dormant company:
If a company is formed and registered under this Act for future planning, or holds a property or intellectual property and does not have any significant accounting, such a company or passive company can make the application in a way that can be applied to the registrar to obtain the status of a dormant company.

The inactive company does not fit into any business or operation or does not make any significant accounting transaction over the last two financial years, or a company that does not provide financial statements and. annual income over the last two financial years.

(b) Small company: A small company means that the company, except the public company.

  • Paid share capital is Rs. 50 lakh or more amount can be specified
  • According to its last P & L A/ C trading is Rs. 2 crore or more.

However, a small company means:

  • holding or affiliate company
  • Company registered under Section 8 of the Act of 2013.
  • Company or body corporate governed by any special act.

Small company exemption:

  • Financial statements should not include cash flow statement.
  • The Director and Company Secretary shall submit annual profits or when there is no company secretary as any director.
  • At least half of the calendar year is required to hold at least one meeting of the board of directors.

Question 3.
Give a brief note on one person company under the companies act 2013.
Answer:
It is just one type of company that has one member. OpC provides the benefit of both types of business – ownership and company. The OPC may run as a proprietor by pursuing the law by creating a business and the responsibility of the member is limited by the shares or the guarantee.

The provisions of OPC under the Companies Act 2013 are:

  • All provisions of the Act applicable to Private Companies are also applicable to the OPC unless it is agreed.
  • It should be considered as a private company for all legal purposes.
  • The name of the company includes the words ‘One Person Company’ within brackets under the company name.
  • The person who creates the OPC must nominate as nominee with the written consent of that person.
  • It must have a maximum of 15 directors, and they do not have to retire from rotation.

Question 4.
Give a brief note on body corporate.
Answer:
Body Corporate means a corporate entity that has a broader legal presence. As per company ies act 2013 body corporate includes a private company, a public company, a personal company, small company, limited liability partnerships, a foreign company, etc.

“Body Corporate” or “Corporation” also includes a company outside India, However, the body corporate does not includes the following:

  • Co-Operative Society registered under any law relating to co-operative societies.
  • The Central Government shall, by notification in any other body corporate (not a company as described in the Companies Act 2013).

Question 5.
State the various types of companies that can be formed under the companies act 2013.
Answer:
Types of Companies which can be formed under The Companies Act, 2013 is as under:

  • Public Company limited by shares
  • Public Company limited by Guarantee having share capital
  • Public Company limited by Guarantee and having no share capital
  • Public unlimited Company having share capital
  • Public unlimited Company not having share capital
  • Private Company limited by shares
  • Private Company limited by Guarantee having share capital
  • Private Company limited by Guarantee and having no share capital
  • Private unlimited Company having share capital
  • Private unlimited Company not having share capital
  • OPC Company limited by shares
  • OPC Company limited by Guarantee having share capital
  • OPC Company limited by Guarantee and having no share capital
  • OPC unlimited Company having share capital
  • OPC unlimited Company not having share capital

Question 6.
Give a brief note on companies act 2013.
Answer:
Companies Act 2013 is an Act of the Parliament of India which regulates incorporation of a company, responsibilities of a company, directors, dissolution of a company. The 2013 Act is divided into 29 chapters containing 470 sections as against 658 Sections in the Companies Act, 1956 and has 7 schedules. The Act came into force on 12 September 2013 with few changes like earlier private companies maximum number of member was 50 and now it will be 200. A new term of “one person company” is included in this act that will be a private company and with only 98 provisions of the Act notified.

On 27 February 2014, the MCA stated that Section 135 of the Act which deals with corporate social responsibility will come into effect from 1 April 2014. On 26 March 2014, the MCA stated that another 183 sections will be notified from 1 April 2014. The Ministry of Company Affairs thereafter proposed a draft notification for exempting private companies from the ambit of various sections under the companies act.

Question 7.
State the objectives of companies act 2013.
Answer:
The Act broadly seeks to achieve the following objectives:

  • To promote the development of the economy by encouraging entrepreneurship and enterprise efficiency and creating flexibility and simplicity in the formation and maintenance of companies.
  • To encourage transparency, accountability and high standards of corporate governance
  • To recognize various new concepts and procedures facilitating ease of doing business while protecting interests of all the stakeholders.
  • To enforce stricter action against fraud and gross non-compliance with company law provisions.
  • To set up institutional structure in the form of various authorities, bodies and panels as well as by including recognition of various roles for professionals and other experts.
  • To cater to the need for more effective and time bound approvals and compliance requirements relevant in the present content.

Question 8.
Briefly explain any three classification of companies as per companies act 2013.
Answer:
(i) Classification on the basis of Incorporation:
There are three ways in which companies may be incorporated.
(a) Statutory Companies: These are constituted by a special Act of Parliament or State Legislature. The provisions of the Companies Act, 2013 do not apply to them Examples of these types of companies are Reserve Bank of India, Life Insurance Corporation of India, etc.

(b) Registered Companies: The companies which are incorporated under the Companies Act, 2013 or under any previous company law, with ROC fall under this category.

(ii) Classification on the basis of Liability:
Under this category there are three types of companies:
(a) Unlimited Liability Companies: In this type of company, the members are liable for the company’s debts in proportion to their respective interests in the company and their liability is unlimited: Such companies may or may not have share capital. They may be either a public company or a private company.

(b) Companies limited-by guarantee: A company that has the liability of its members limited to such amount as the members may respectively undertake, by the memorandum, to contribute to the assets of the company in the event of its being wound-up, is known as a company limited by guarantee. The members of a guarantee company are, in effect, placed in the position of guarantors of the company’s debts up to the agreed amount.

(c) Companies limited by shares: A company that has the liability of its members limited by the memorandum to the amount, if any, unpaid on the shares respectively held by ‘ them is termed as a company limited by shares; For example, a shareholder who has paid Rs. 75 on a share of face value ‘ 10Q can be called upon to pay the balance of Rs. 25 only. Companies limited by shares are by far the most common and may be either public or private.

(iii) Other Forms of Companies:

  • Associations not for profit having license under Section 8 of the Companies Act, 2013 or under any previous company law
  • Government Companies
  • Foreign Companies
  • Holding and Subsidiary Companies
  • Associate Companies/Joint Venture Companies
  • Investment Companies
  • Producer Companies.
  • Dormant Companies

Question 9.
State the highlights of companies act 2013.
Answer:

  • The Companies Act, 2013 contains 470 Sections 29 Chapters & 7 schedules as against 658 Sections 13 parts and 15 schedules in the present Act. The Companies Act, 2013 has been categorized into introduced section for quick and easy reference.
  • Maximum number of members in Private Company increased to 200.
  • The Concept of One Person Company (OPC) has been introduced.
  • Certain privileges and concessions for Small Company defined for the first time.
  • Now onward Memorandum of Association will have five clauses only (six earlier).
  • Bifurcation of Object Clause is done away with.
  • The maximum number of directors in the company has been increased from 12 to 15.
  • To increase it further, only shareholder approval is required.
  • Maximum No. of Directorship increased from 15 to 20. But private companies also included in this limit.
  • Independent Directorship limited to 2 companies only.
  • The term “Officer in Default” widened and will include select external agencies/individuals.
  • The Resident Director becomes compulsory.
  • One Woman Director becomes compulsory for listed and other companies with paid up capital of rupees 100 crores or more.
  • Maximum tenure of the Auditors, Independent Directors defined.
  • Consolidated Financial Statements is compulsory now.
  • Constitution of Corporate Social Responsibility (CSR) Committee, adoption of CSR Policy and Spending on CSR becoming compulsory for companies: – having net worth of rupees 500 crore or more, or – turnover of rupees 1000 crore or more or – a net profit of rupees 5 crore or more during any financial year.
  • Central Government empowered to constitute National Financial Reporting Authority and National
  • Financial Reporting Appellate Authority.
  • Commencement of Business compulsory even for private company.
  • Financial year flexibility done away with.
  • Secretarial audit been made mandatory for every listed companies and other companies • belonging to such classes as prescribed.
  • Select Secretarial Standards issued by ICSI becomes mandatory.
  • Length of the Notice of BM now prescribed.
  • National Company Law Tribunal and National Company Law Appellate Tribunal becomes reality.
  • In relation to industrial sickness, the word ‘industrial undertaking’ has been replaced with the word‘company’.
  • Soft window provided for mergers of small companies
  • Implementation of Merger Scheme – to be monitored through periodic reporting

Question 10.
State the features of one person company.
Answer:
The following are the important features of the One Person Company (OPC):

  • One Person Company is one of the type of Company on the basis of number of members
  • One Person Company has only one person as a member/shareholder.
  • One Person Company is a Private Company
  • Minimum paid up share capital of One Person Company is one lakh rupees (Rs. 1,00,000)
  • One Person Company may be either a Company limited by share / a Company limited by guarantee/an unlimited Company
  • The words “One Person Company” should be mentioned in brackets below the name of the One Person Company
  • One Person Company shall indicate the name of the nominee/other person in the memorandum, with his prior written consent
  • The written consent above, shall be filed with the Registrar at the time of incorporation of the One Person Company along with its M&A {Memorandum and Articles)
  • The nominee/ other person can withdraw his consent at any time
  • The member/Shareholder of One Person Company may change the nominee/other person at any time, by giving notice to the other person and intimate the same to Company. Then the Company should intimate the same to the Registrar
  • In case of the death of member/shareholder or his incapacity to contract, then nominee/ other person become the member of the Company
  • Member/Shareholder of the One Person Company acts as first director, until the Company appoints director(s)
  • One Person Company can appoint maximum 15 directors, but minimum should be one director
  • One Person Company need not to hold any AGM (Annual General Meeting) in each year
  • Cash Flow Statement may not include in the financial statements of One Person Company
  • One Director is sufficient to sign the Financial Statements/Director’s Report
  • Within 180 days from the closure of the Financial Year, One Person Company should file the copy of the Financial Statements with Registrar
  • One Person Company should inform to the Registrar about every contract entered and also should record in the minutes of the meeting with in 15 days from the date of approval by the BOD (Board of Directors)

Question 11.
Distinguish between associate and’ subsidiary company.
Answer:
Associate Company as defined under Companies Act, 2013 as under “associate company”, in relation to another company, means a company in which that other company has a significant influence, but which is not a subsidiary company of the company having such influence and includes a joint venture company.”

Whereas a Subsidiary company means a Company in which holding company either:

  • controls the composition of the Board of Directors; or
  • exercises or controls more than one-half of the total share capital either at its own or together with one or more of its subsidiary companies:

Thus, an Associate Company, is a Company in which other company has a significant influence but such company is not a subsidiary than it will fall under “Associate Company” definition. To simplify the example, in general a company which holds more than 20% stake in other company falls under the category of Associate Company and once such control crosses 50% mark it will be a subsidiary company.