Corporate Law Short Question Answer Notes

Corporate Law Short Question Answer Notes

Corporate Law Short Question Answer Notes

Corporate Law Short Question Answer Notes :- Welcome to Sdak24.com. We are presented to you Corporate account notes in this article  you can find all corporate law and company law way how to prepare your exam and you communication skills . this course is specially for bcom . please share this article to your best friend and other for helps to other person.. In this post we have share you some topics like as Company An Introduction, Classification of Companies, Private Company , Company Promoter , Formation Incorporation of a Company , Memorandum And Articles of Association Prospectus Shelf Prospectus and Red Herring Prospectus, Management of Companies Corporate Law Notes, Company Meetings, Winding up of Companies, We have uploaded the Short Question and answer related to the Corporate Law and we have upload in this post Industrial Law some topic like as The Factories Act 1948, Industrial Disputes Act 1947, and some short question and answer related to factories act and many more study material. (Corporate Law Short Question)

Corporate Law Short Question
(Corporate Law Short Question

Ques 1 : Define a Joint Stock Company.

Ans:  According to Prof. Haney :- A company is an artificial person created by law, having separate entity, with a perpetual succession and a common seal.

According to Justice James:-  company is an association of persons united for a common object.

Section 2 (2()) of the Companies Act, 2013 define a company as “a company incorporated under this Act or under any previous company law.” A company incorporated under any previous company law means an existing company.

Ques 2 :  State any four features of a Joint Stock Company?

Ans:   A few significant characteristics of a company are as follows:

  1. Artificial Legal Person: A company is an artificial person as against a natural person. It is created by a process of law.
  2. Separate Legal Entity: A Company has a separate and distinct legal entity from its shareholders/ members. It can enter into contracts, sue and be sued in its own name by its members as well as outsiders.
  3. Limited Liability: The liability of the members for the debts of the company is limited to the amount unpaid on their shares howsoever heavy losses the company might have suffered. 
  4. Transferability of Shares: The shares in a public company are freely transferable subject to conditions prescribed by its articles. However, a private company has to restrict the right to transfer its shares by its articles.

Ques3 : What do you mean by perpetual succession of company?

Ans:-  Perpetual Succession : A company is a legal entity with perpetual succession. It is capable of surviving beyond the lives of its members. It never dies. Because, law creates it and law alone can dissolve Its existence is even not affected by the change, lunacy, retirement,  death or insolvency of its members. It may be noted that even in case of OPC (One Person Company), the feature of perpetual succession has been ensured. For this purpose, the Act provides that memorandum of OPC shall indicate the name of other person (Nominee) with his consent. This person shall in the event of subscriber’s (Member’s) death or his incapacity to contract, become member of the company. I Section 31 } Thus, even a OPC has the characteristics of perpetual succession. Members may come and go but a company goes on forever and remains the same entity. The company may  “be compared with a flowing risE where the water keeps on changing continuously sfll the identity of the remains the same. ntus, a company has perpetual existence, irrespective of changes in its membership.

Ques: 4. What is meant by Separate Legal Entity of Company?

 Ans: A has a legal entity distinct and separate from its constituent members (shareholders). It is an autonomous body, self-controlling self-governing. It has the right to own and transfer the title to poverty in any way it It can enter into contracts, open a bank account in its own name, sue and be sued by its members as well as outsiders. A member can not claim any ownership rights in the assets of the company either individually or jointly during the existence of the company or in its winding up. The property of the company is to be used for benefit of the company and not for the personal benefit of the shareholders. principle of separate legal entity of the company was judicially recognized by the House of Lords in 1867 in the case of Oakes Vs. Turquand and Hording (1867). It was then held that since an incorporated company has a legal personality distinct from that of its members, a creditor of such a company has remedy only against the company and not against an individual shareholder. Thus, a creditor of an incorporated company has remedy only against the company for his debts and not any of the members of whom it is composed. The position was further clarified by the House of Lords in the famous case of Salomon v. Salomon Co. Ltd. (1897).

Ques: 5 What is meant by the term ‘Body Corporate?

Ans:  Sub-section (11) of Section 2 of the companies Act, 2013 defines the expression ‘body corporate’ as follows, “body corporate” or “corporation” includes a company incorporated outside India, but does not include

  1. A co-operative society registered under any law relating to co-operative societies
  2. Any other body corporate (not being a company as defined in the Act) which the Central Government may notify. Thus, the words ‘body corporate’ are not equivalent to the words ‘incorporated company’. An .incorporated company is a body corporate but many bodies corporate are not incorporated companies. The expression ‘body corporate’ or ‘corporation’ is, thus, wider than the word ‘company’. The term ‘body corporate’ includes the following:
  3. Foreign companies.
  4. Corporations formed under Special Act of Central Government or State Government.
  5. Public Financial Institutions under Section 2 (72), e.g., LIC, CICI,t IDBI, GIC, Power Finance Corporation Ltd., Rural Electrification brporation Ltd., Infrasfructure Development Finance Company Ltd., etc.
  6. Nationalized Banks
  7. Limited Liability Partnership formed and registered under the Limited Liability Partnership Act, 2008.
  8. One Person Company.

Question 6 :-  What is meant by ‘Corporate Veil’? (Corporate Law Short Question)

Ans:- One of the fundamental principles of company law is that a company has personality that is distinct from that of its shareholders. once a company is formed and registered under the Act, it is a separate legal entity distinct from its members. It can sue and be sued in visit own name.This rule was laid down by the House of Lords in Salomon v. Salomon & Co., in 1897 in which it was held that even if one individual held almost all the shares and debentures in a company, and if the remaining shares were held on trust for him, the company is not to be regarded as a mere shadow that individual. The principle of separate entity is regarded as a curtain, a veil, or shield between the company and its members, thus protecting the later from the liability of the former. The veil is impassable as an iron curtain. This theory of corporate entity is still the basic principle on which the whole law of corporations is based.

Question 7 :- Describe the case ‘Salomon Vs. Salomon and Co. Ltd.

Ans:- In Salomon Vs. Salomon and Co. Ltd., Salomon was holding substantially the entire share capital in his name and to fulfill the statutory requirement of at least 7 members, his wife, a daughter and four sons joined him to form the company. The company ran into financial difficulties after sometime and went into liquidation. The creditors claimed priority over the debentures stating that Mr. Salomon and Salomon and Co. Ltd. were one and the same person, the company was only a facade to defraud the innocent creditors. It was held that the company had an independent existence distinct from its members. Therefore, Mr. Salomon was entitled to be paid his dues first as a secured creditors.

Question 8 :-  How many minimum and maximum number of members in a-private company?

Ans:- Except One Person Company, the minimum number of members required to form a private company is two and maximums number Of members is 200, excluding members who are or were in the employment Of the company. It may also be noted that if two or more persons hold shares jointly, such joint shareholders shall be treated a single member.

Question 9 :- How many minimum and maximum number of members in a public company?

Ans:-  A public Company must leave a oh 7 members. However, there is no restriction, on the, number! of members in a public company.

Question 10 :- What is meant by ‘Private Company?

Ans :- Company: as defined by section 2 (68) means a company having a minimum paid-up share capital as may be prescribed and by its articles of association

(i) Restricts the right of the members of the company to transfer its shares

(ii) Except in case of one person company, limits the number of its members to 200, excluding members who are or were in the employment of the company.

(iii) Prohibits any invitation to the public to subscribe for any securities of the company name of a private company must end with words ‘Private Limited’.

It is worth mentioning that prior to the commencement of the Companies (Amendment) Act, 2015, there existed a requirement of minimum paid up share capital I lakh for incorporation of a private company. The Amendment Act has omitted this requirement so that there may be ease of doing business.

Question :- 11. What is meant by ‘Public Company? (Corporate Law Short Question)

Ans:- Public Company : According to Section 2 (71) of the Companies Act, 2013, ‘Public Company’ means a company which is not a private company. It can invite the public to subscribe its shares and does not have any restriction on the transfer of shares. The minimum number of persons required to form a company is seven and there is no maximum limit. Subsidiary of a public company whether constituted as a private company or public company shall be regarded as public company. It is worth mentioning that prior to the commencement of the Companies (Amendment) Act, 2015, there existed a requirement of minimum paid up share capital of 5 lakhs for incorporation of a public company. The Amendment Act has omitted this requirement which would mean ease in incorporation of companies.

Question :-12. What are the kinds of company on the basis of members?

Ans :- On the basis of the number of members, a registered company may

(i) Private Company

(ii) Public Company ; And

(iii) One Person Company

Question 13:  What is meant by ‘One Person Company?

Ans:- One person company (OPC) is a new concept in India under the Companies Act, 2013. Section 2 (62) of the Companies Act, 2013 defines that Person Company” means a company which has only one person as a member. One person company is required to identify in its name in bracket as “One Person Company” after its name. Formation (Section 3 (1)1. A One Person Company (OPC) may be formed for any lawful purpose by one person, as a private company, by  subscribing his name to a Memorandum of AssoCiation and complying with the requirements of the Act in respect of registration. Section 3 (1) further provides that the Memorandum of Association of One Person Company shall indicate the name of the other person who shall become the member of the company in the event of subscriber’s death or his incapacity to contract due to insanity, etc. A written consent of such person would be required to be filed with the Registrar of Companies at the time of incorporation along with memorandum and articles. Such person can withdraw his consent. The name of such person can aiso be changed by the member at any time. Any change in the name of the person nominated by the member shall be intimated to the Registrar within such time and in such manner as may be prescribed. Any change in the name of the nominee shall not be deemed to be a change in the memorandum of the company.

Question 14 :  What do you mean by ‘Holding Company?

Ans :- Holding Company : “Holding company in relation to one or more companies means a company of which such companies are subsidiary (Section 2 (46)1 companies.” Thus, a holding company is the company which has one or more subsidiary company/companies. In simple words, where a company has direct or indirect control over another company or other companies, the controlling company is known as the holding company. Thus a company which controls other company or companies is called a holding company.

Question 15 :- What do you mean by ‘Subsidiary Company?

Ans:-  Subsidiary Company : The companies Act states that a subsidiary company means a company in which the holding company has control in any of the following ways :

(i) Control the composition of the Board of directors.

(ii) Exercises control on more than one-half of its total share capital either at its own or together with one or more of its subsidiary companies. It should be noted that a company shall be deemed to be a subsidiary company of a holding company even if the control is exercised by the (Section 2 (87)1 another subsidiary of the holding company.

(Corporate Law Short Question)

Question 16 :- What do you mean by ‘Government Company?

Ans:-  Government Company (Section 2 (45)1 : A government company means any company which has at least •51% of the paid-up share capital held either by the Central Government, or by any State Government or Governments or partly by the Central Government and partly by one or more State Governments, A Government Company also includes a company which is a subsidiary company of a Government Company. Such companies are formed to enable the Government to undertake business ventures and to Combine the operating flexibility of privately-organized companies with the advantage of State regulation and control in the public interest..  

Question 17 :- What do you mean by ‘Chartered Companies?

Ans :- Chartered Companies : If a company is incorporated under a special charter granted by the King or Queen, it is called a chartered company. The powers and nature of business of a chartered company are defined by the charter which incorporated it. The Companies Act did not apply to them. For example, The East India Company and The Bank of England was incorporated by the grant Of a special royal charter. Such companies are found only in England and find no place in India after independence.

Question 18 :- What do you mean by ‘Listed Companies?

Ans: Listed Companies : Listed company means a company which has any of its securities listed on any recognized stock exchange. (Section 2 (52)1 A listed company or a company intending to list its securities on a recognized stock exchange can issue a prospectus for inviting public for subscription of its securities. A listed company is regulated by the provisions of Companies Act and the rules and regulations framed under it by the Ministry of Corporate Affairs (MCA). However, all such companies are also liable to comply with all the regulations notified by the Securities Exchange Board of India (SEBI) more particularly with respect to the issue and transfer of securities (Section 24 (1)1 and non-payment of dividend. All other matters relating to prospectus, return of allotment, redemption of preference shares and any other matter specifically provided in this Act shall be governed by the Central Government, the Tribunal or (Explanation to Section 24 (1)1 the Registrar, as the case may be.

Question 19:- What do you mean by Unlisted Companies?

Ans:- Unlisted Companies : Unlisted companies are those companies which do not have any of its securities listed on any recognized stock exchange. They source their capital from their members and the friends and relatives of their members and directors. Such companies are not empowered to issue prospectus or red herring prospectus for inviting public for subscription of their securities. Such companies are not liable to comply with any regulations issued by the Securities and Exchange Board of India or SEBI. But they are liable to comply with the rules and guidelines issued by the Central Government or MCA. Their all matters are administered by the Central Government i.e. MCA.

Question 20 :- What do you mean by foreign companies? (Corporate Law Short Question)

Ans:- As per Section 2 (42) of the Companies Act, 2013 ‘foreign company’ means a company incorporated outside India which-

(a) has a place of business in India whether by itself or through an agent, physically or through electronic mode, and

(b) Conducts any business activity in India in any other manner.  However, where not less than 50 per cent of the paid-up share capital of a company incorporated outside India and having an established place of business in India, is held by one or, more citizens of India or by one or more bodies corporate incorporated in India, whether singly or in the aggregate, such company shall be regarded as if it were a company incorporated in (Section 379) India.

Question 21 :- What do you mean by Illegal Association?

Ans:- A body of persons for the achievement of some common object is called an “association”. An illegal association is an association of more than the prescribed number of persons which carries a business without being registered under any law. According to Section 464 of the Companies Act, 2013 and Rule 10 of the Companies (Miscellaneous) Rules, 2014, an association consisting of more than 50 persons carrying on any business for profits shall be termed as ‘illegal association’ if it is not registered as a company under the Companies Act or is not formed according to the provisions of under any other Indian Law. Section 464 further provides that the number of members which may be prescribed under the rules shall not exceed 100. (It may be noted that at present the number prescribed is 50).

Question 22:-  Distinguish between a Private and a Public Company?

Ans:- Distinction between a Private and a Public Company Following are the main points of distinction between a private and a public company:

  1. Minimum number of members. The minimum number of members required to form a private company is 2, whereas for a public company at least 7 members are needed.
  2. Maximum number of members. The maximum number of members in a public company is unlimited. But a privage companycannot have more than 200 members excluding the past and present employees of the company.

iii. Invitation to public. A private company is prohibited to invite public to subscribe to its share capital. it need not issue a prospectus. But a public company can invite the public to subscribe to its shares or purchase its shares.

  1. Transferability of shares. Articles of Association of a private company impose restrictions on the transfer of shares. But the shares of a I Section 2 (68) public company are freely transferable.

Question 23 :- Explain the procedure of conversion of a private company into a public company?

Ans:- Conversion of a Private Company into a Public Company A private company may convert into a public company by following the provisions Of Section 14 Of the Companies Act, 2013. The provisions  are:

(a) Passing of a special resolution to alter its articles of association to exclude the restrictions of private company viz. transfer-ability of shares, maximum number of members and prohibition on inviting the public for subscription of securities.

(b) Filing of altered articles of association along with a copy of special resolution in the prescribe form (INC 27) to the concerned Registrar of Companies within •15 days of passing of resolution. The company shall cease to be a private company as from the date of alteration of articles of association.

Q.24. Explain the procedure of conversion of a public company into a private company?

Ans:- Conversion of a Public Company into a Private Company A public company may convert into a private company by following the provisions of Section 14 of the Companies Act, 2013. The provisions are:

(a) Passing Of a special resolution to alter its articles of association to include the restrictions of private company viz. transferability of shares, maximum number of members and invitation to the public for subscription of securities.

(b) Approval of the Tribunal (not yet enforced as the Tribunal has not yet been constituted. Till that the approval from the Central Government is to be taken).

(c) Filing of a copy of order of the Tribunal approval, copy of the altered articles of association along with a copy of special resolution in the prescribed form to the concerned Registrar of Companies within 15 days of approval from the Tribunal. The company shall become a private company from the date of approval from the Tribunal.

Question 25:-  Who is a promoter? (Corporate Law Short Question)

Ans:- Promoter : Promoter is a person who conceives the idea of starting a business, plans the formation of a company and actually brings it into existence. He may be said to be “the father of the company who sees the prospects of gain in a business which he wishes to set up, and believes that he can persuade others too to think as he does.” A promoter ‘is ‘one who undertakes to form a company with reference to a given object and who takes the necessary steps to accomplish that purpose. Thus, a promoter discovers, formulates and assembles a business proposition• and brings about a company into existence for its development. A promoter may be an individual, a family, a firm, an association of person, a company or even the government.

Question 26:-  Define the term ‘Promoter’.  

Ans :- Section 2 (69) of the companies Act, 2013 defines the term (a) Who has been named as such in a prospectus or is identified by promoter as a person .

(a) the company in the annual return; or

(b) Who has control over the affairs of the company, directly or indirectly whether as a shareholder, director or otherwise; or

(c) In accordance with whose advice, directions or instructions the Board of Directors of the company is accustomed to act. This shall, however not apply to a person who is acting merely in a professional capacity.

This definition is purely a legal one. It ‘does not reveal the nature and role of a promoter in formation Of a company. It therefore, becomes imperative to go through certain other definitions of the term ‘promoter’. A few other definitions are as under : Justice C. Cockburn described a promoter as ‘ ‘one who undertakes to form a company with reference to a given project and to set it going, and who takes the necessary steps to accomplish that purpose. ‘ According to Palmer, “A person who originates a scheme for. the formation of the company, has the Memorandum and the Articles prepared, executed and registered and finds the first directors, settles the terms of preliminary contracts and prospectus (if any) and makes arrangement for advertising and circulating the Prospectus and placing the capital is a promoter.

Question 24:- Explain the functions of a Promoter. (Corporate Law Short Question)

Ans :- The Promoter performs the following functions:

  1. a) To conceive an idea of starting a business
  2. b) To collect the requisite number of persons,
  3. c) To decide about the name, object and capital,
  4. d) To get the documents of the proposed company,
  5. e) Consent of directors,
  6. f) To enter into preliminary contracts with the vendors,
  7. g) To arrange for filing the necessary documents with the registrar, 48. Preparation and filing of prospectus,
  8. h) To arrange the minimum subscription.

Question 28:-  What preliminary steps are taken for incorporation of a company?

Ans :- The promoters have to go through the following preliminary steps before applying for incorporation Of the proposed company:

(i) To ascertain from the Registrar of Companies whether the name by which the new company is to be started is available or not.

(ii) To obtain a Letter of Intent (to be converted later on into an Industrial License) under Industries (Development and Regulation) Act, 1951, if the company’s business comes within the purview of this Act.

(iii) To fix up. underwriters, brokers, solicitors, auditors and signatories of the memorandum.

(iv) To get Memorandum and Articles of Association prepared and printed. After taking the above mentioned preliminary steps, the promoter makes an application for registration of the company to the Registrar of Companies.

Question 29:-  Which documents are filed with the registrar for registration of a company?

Ans :- The following documents are to be filed to Registrar of Companies (ROC) to incorporate a company.

(i)The memorandum and articles of the company duly signed by all the subscribers to the memorandum in such manner as may be prescribed;

(ii) A declaration in the prescribed form as to compliance with legal requirement;

(iii) An Affidavit from each of the subscribers to the memorandum and from persons named as the first directors, if any, in the articles;

(iv) The address for correspondence till its registered office is established;

(v) The particulars of every subscriber to the memorandum along with identity, as may be prescribed;

(vi) The particulars of the persons mentioned in the articles as the first directors of company including proof of identity as may be prescribed;

(vii) The particulars of the interests of first directors in such form and manner as may be prescribed.

Quesiton 30 :- What do you mean by ‘Memorandum of Association?

Ans :- Memorandum of Association (Corporate Law Short Question)

The Memorandum of Association is the most important document of the company. In fact, it is the foundation on which the structure of a company is based. It is the charter of a company which contains the fundamental conditions upon which alone the company can be incorporated. It defines the company’s relations with the outside world. It lays down the powers and objects of a company and the scope of operations beyond which cannot do anything. Any action outside the scope of the Memorandum of Association will be ultra vires (beyond powers) of the company and so void.

Question 31 :-  Briefly explain the contents/clauses or subject-matter of Memorandum of Association.

Ans:- Section 4 of Companies Act, 2013 prescribes the contents of the memorandum. Memorandum of Association contains the following clauses :

(i) Name clause

(ii) Registered office clause or Situation clause,

(iii) Object clause,

(iv) Liability clause,

(v) Capital clause,

(vi) Association clause or Subscription clause.

Question 32 :- Is it compulsory to prepare/frame the ‘Memorandum Of Association’ for each and every company? Explain.

Ans:– The memorandum of association is one of the basic documents which is required to be originally framed by every company and filed with the Registrar for its registration. A company can not be registered without a memorandum of association and that is why it is sometimes called a life giving document. It sets out the constitution of company and as such it is the foundation upon which the structure of a company is build. As per Section 4(6), the memorandum of a company shall be in the respective forms specified in Tables A, B, C, D and E in Schedule I annexed to the Companies Act, 2013 as may be applicable to the Company.

Q.33. How the registered office of a company can be changed from one place to another place in the same state?

Ans:- (a) Changing Place within the same state under the jurisdiction of the same Registrar : In such case, passing of special resolution by the company authorising the change is required and notice Of said change along with the copy of special resolution shall be given to the Registrar within 15 days of the change, who shall record the same.

(b) Shifting of the registered office within the same state from the jurisdiction of one Registrar of Companies to the jurisdiction of another Registrar of companies requires passing of special resolution by the company and confirmation by the Regional Director on an application made by the company in this regard.

Q.34. What is Articles of Association?

Ans :- Articles of Association is an important document of a company.It contains rules, regulations and bye-laws for the internal administration of the company. Articles regulate the internal management of the company and also govern the relationship between the company and its constituent members by prescribing their rights and obligations. In short, the articles of association of a company contain the rules relating to the management of its intemal affairs. Section 2(5) of the Companies Act, 2013 defines articles of association as follows: “Articles means the articles of association as originally framed or as altered from time to time in pursuance of any previous company law or of this Act.”

Q.35. What do you mean by ‘Doctrine of Constructive Notice?

Ans:- When the memorandum and articles of association, have been registered with the Registrar of Companies, they are deemed to be public documents. Any person can examine these particulars and get their copies by paying the requisite fee, It is, therefore, assumed that any person who deals with the company is familiar with the contents of these documents.This is known as constructive notice. Under the doctrine of ‘constructive notice’, every person dealing with or proposing to enter into a contract with the company is assumed to have constructive notice of the contents of the memorandum and the articles of the company. Every person will be presumed to know the contents of the memorandum and articles of association. legal effect of this doctrine is that if a person deals with a company in a manner which is inconsistent with the provisions contained in its memorandum or articles (i.e. if a person enters into a contract which is beyond the powers of the company), he will not acquire any right under the contract against the company. For example, if the articles provide that a bill of exchange must be signed by two directors, a person who has a bill signed by only one director cannot claim payment upon such bill.

Q.36. Explain the ‘Doctrine of Indoor Management’.

Ans :- The ‘doctrine of indoor management’ lays down that the persons dealing with the company are bound to see that the proposed deals are in accordance with the provisions of the memorandum and articles 0 the company. But they are not bound to enquire into the regularity o internal procedure of the company. They are entitled to assume that everything has been in accordance with the procedure prescribed by the company’s articles. If the proposed deal is within the scope of these two documents, the company will be bound by the deal and the rights of the dealing parties will not be adversely affected in any way by the irregularity of the internal procedures. This rule was laid down in Royal British Bank Vs. Turquand. Therefore, this rule is also known as the ‘Turquand rule’. Illustration: The articles of a bank provided that the directors can borrow by issuing bond provided they were authorised by a resolution at the general meeting. The directors of the bank issued a bond to T without being authorised. Held, the Bank was bound by the bond and T was entitled to assume that the necessary resolution had been passed. (Royal British Bank vs. Turquand, (1856) 1 19 ER 8861

Q.37. Explain the “Doctrine of Ultra-Vires”.

Ans :- The word a/tra’ means ‘beyond’ and the word ‘vires’ means powers. Thus ultra vires’ a company means ‘beyond the powers of a company.’ The memorandum of a company defines its powers. Any activity of a company beyond its Memorandum is, therefore, ultra vires the company. Such an act is void and cannot be ratified even by unanimous resolution of all the shareholders. The doctrine of ultra vires has been established to provide security to the shareholders and creditors of the company. By it shareholders are assured that their investment is not spent on activities which they did not have in mind when they invested in the company. It also safeguards the interests of the creditors as the property of the company cannot be diverted to unauthorised objects.

Q.38. What is Prospectus?

Ans :- Meaning And Definition of Prospectus After the certificate of incorporation has been obtained, the promoters of a Public Company will have to take steps to raise the necessary capital for the company. A public company may invite the public to subscribe to its shares or debentures. This is done by issuing a document called prospectus’. The object of a prospectus is to arouse the interest of the potential investors in the company and induce them to invest in its shares and debentures. According to Section 2 (70) of the Companies Act, 2013, ‘Prospectus means any document described or issued as a prospectus and includes a red herring prospectus (referred to in Section 32) or shelf prospectus referred to in Section 31 or any notice, circular, advertisement or other document inviting offers from the public for the subscription or purchase of any securities of a body corporate”. In simple words, a prospectus is any document which is described or issued as a prospectus by a body corporate for inviting offers from public for subscription or purchase of its securities.

Q.39 Why prospectus is issued?

Ans :- After the certificate of incorporation has been obtained, the promoters and directors of a public company, if unable to raise the necessary capital for the company, invite the public to subscribe to its shares or debentures. This is done by issuing of a document called “Prospectus”. The object of a prospectus is to arouse the interest of the potential investors in the company and induce them to invest in its shares or debentures. Prospectus is the only window through which the potential investor can look into the soundness of the company’s venture. Hence the meanies Act intends to secure the fullest disclosure of all material and essential particulars in a prospectus. The Companies Act provides that every prospectus issued by or on behalf of a public company must state the matters and set out the reports specified in Section 26.

Q.40. What do you neon by ‘Shelf Prospectus?

Ans:- Shelf Prospectus  (Corporate Law Short Question)

The provisions of shelf prospectus have been incorporated in the Act for the convenience Of certain class or classes of companies such as the lic financial institutions, public sector banks or scheduled banks. With he introduction of the provisions of shelf prospectus, they will not be required to prepare prospectus for every issue of securities and file it with the Registrar. This will save a lot of money and time required for complying with many formalities. Definition: ‘Shelf Prospectus’ means a prospectus in respect of which the securities or class of securities included therein are issued for subscription in one or more issues over a certain period without the issue of a furthei (Explanation to Section 311 prospectus.

Q.41. What is meant by Prospectus by Implication or Deemed Prospectus?

Ans :- Prospectus by Implication/Deemed Prospectus As per the provisions of Section 25, where a company allots or agrees to allot any securities of the company with a view to these being offered by the allottees for sale to the public, the document by which such an offer for sale to the public is made, shall be taken as a prospectus by implication issued by the company if:

(a) the allottee (issue house or other person) offers these shares or debentures to the public for sale within six Months after the allotment or agreement to allot, or

(b) at the date of offer to the public the company has not received the whole consideration in respect of the shares or debentures. However, the responsibility of the company, its directors and promoters remains the same as that in the case of direct issue of prospectus by a company.

(Corporate Law Short Question)

Corporate Law Short Question Answer Notes
Corporate Law Short Question Answer Notes

Q.42. What do you mean by Book Building?

Ans:- Book building is essentially a process used by companies for raising capital through Public Offering-either Initial Public Offers (IPOs) or Follow-on Public Offers (FPOs) to aid price and demand discovery. The issuer sets a base price and a band within which the investor is allowed to bid for shares. 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. Book building process is a common practice used in most developed countries for marketing a public offer of equity shares of a company. Book building is a transparent and flexible price discovery method of initial public offerings (IPOs) in which price of securities is fixed by the issue company along with the Book Running Lead Manager (BRLM) on the basis of feedback received from the investors and market intermediary.

Q.43. What do you mean by ‘Red Herring Prospectus?

Ans :– Red-Herring Prospectus (Section 32) Red Herring. Prospectus means a prospectus which does not include complete particulars of the quantum or price of the securities included therein. The main provisions with respect to the red-herring prospectus are as follows:

  1. a) A company proposing to make an offer of securities may issue a red herring prospectus prior to the issue of a prospectus.
  2. b) A company proposing to issue a red herring prospectus shall file it with the Registrar at least three days prior to the opening of subscription list and the offer.

c). A red herring prospectus shall carry the same obligations as are applicable to a prospectus and any variation between the red herring prospectus and a prospectus shall be highlighted as variations in the prospectus.

d). Upon the closing of the offer of securities under this Section, the prospectus stating therein the total capital raised, whether by way of debt or share capital, and the closing price of the securities and any other details as are not included in the red herring prospectus shall be filed with the Registrar and the Securities and Exchange Board. It is relevant to note that the Companies Act, 2013, has sought to legally recognise the issue of securities through the “Book Building Process” by introducing the concept of “Red herring Prospectus”. However, this system can work perfectly only where majority of investors are market smart and not layman.

Q.44. Distinguish between Managing Director and a Whole-time Director.

Ans :– Difference between a Managing Director and a Whole-time Director Basis

  1. a) Power
  2. b) Number of Companies
  3. c) Manager in Director

A managing director is entrusted with substantial powers of management. A person can be a managing director of more than one company. Managing director and a be cannot manager appointed in one company at the same time. Whole-time Director A whole-time director does not have any discretionary power to take decisions re ardin olic matters. A person cannot be in the whole-time employment of more than one company at a time. Therefore, a person cannot have more than one whole-time directors A company can have a manager and , whole-time director, both at the same time.

Q.45 What is meant by Independent Director?

Ans:- Independent Director : The concept of “independent director” is being introduced for the first time in Company Law by the Companies Act, 2013. The purpose of appointing “independent director” on the Board of Directors of listed companies is to ensure adherence to good corporate governance standards. They are expected to ensure that Promoters/Management do not enrich themselves through unfair means, With a view to achieving this objective it is essential that “independent director” must be men of outstanding merit and integrity having no pecuniary relationship with the company, or its promoters or directors, so that they can really act independently and need not blindly to the line suggested by promoters/management.

Q.46. Distinguish between Managing Director and Manager? Difference between a Managing Director and Manager.

Ans :- (Corporate Law Short Question)

Ans:

 

 Manager

 

 

Managing Director

 

a) Manager may not be a director. Thus, -he may -not be a part of the Board of Directors.  

a) Managing director must be a director of the company. Thus, he is a part of the Board of Directors.

b) There can be only one manager in a company. b) There may be more than one Managing in director in a company.
c) Maximum remuneration payable to a manager cannot exceed. 5% of the net profits.  

c) Where there is more than one managing director, the maximum remuneration payable would be 10% of the net profits.

Q.47. What are the requisites of a valid meeting?

Ans:- www.sdak24.com  (Corporate Law Short Question)

Q.48. What is Annual General Meeting (AGM)?

Ans:- www.sdak24.com (Corporate Law Short Question)

Q.49. What is Extra-ordinary General Meeting?

Ans:- www.sdak24.com (Corporate Law Short Question)

Q.50. What is Class Meetings?

Ans:- www.sdak24.com (Corporate Law Short Question)

Q.51. Explain the ordinary and special businesses of annual general meeting of a company?

Ans:- www.sdak24.com

Q.52. What are the kinds of meetings of a company?

Ans:- Meetings of a company may be classified as follows .

I. Meetings of Members-Shareholders.: The members’ meetings may be of the following kinds.

1.Annual general meeting.
2. Extra-ordinary general meeting.
3. Class meetings of shareholders/members.

Il. Meetings of Directors/Board Meetings
Ill. Other Meetings :

1.Meeting of debenture-holders.
2, Meeting of creditors.
3. Meeting of contributories.

Q.53. What do you understand by Quorum?

Ans: – Minimum number of members required to constitute a valid meeting and to transact business there in is called ‘quorum’. No meeting can be valid without quorum. Any resolution passed at a meeting without quorum shall be invalid.

Section 103 (l) of companies Act, 2013 provides as follows: Unless the articles of the, company provide for a larger number:-

(a) In case of a public company:-

(i) 5 members personally present if the number of members as on the date of meeting is not more than 1,000;

(ii) 15 members personally present if the number of members as on the date of meeting is more than 1,000 but up to 5,000;

(iii) 30 members personally present if the number of members as on the date of the meeting exceeds 5,000;

(b) in the case of a private company, 2 members personally present, shall be the quorum for a meeting of the company.

Q.54. Can a single member constitute a valid meeting? Or When can one person constitute the quorum of company meeting?

Ans:- Ordinarily, a single member present cannot form a quorum, as a single member cannot constitute a meeting. This is because meeting prima facie means coming together of two or more than two persons. The Companies Act also uses the expression “members” which shows that more than one member is expected to be present at the meetings. However, under the following circumstances even a single member present may constitute the quorum and, therefore, a valid meeting:

  1. When the Tribunal calls or directs the calling of a general meeting, it has the authority to direct that one member present in person or by proxy shall be deemed to constitute a valid meeting (Section 97 and 98).
  2. When a class of members or creditors consists of one person, that member alone can constitute the meeting of that class and can pass a resolution by signing it, e.g., when all the shares of a particular class are held by one person only.

Q.55. What do you mean by ‘proxy’?

Ans :- The term ‘Proxy’ has two meanings:

(a) a personal representative of the member at a meeting i.e. the person authorized to act or vote for another at a meeting of the company, and

(b) the instrument by which a person is appointed to act for another at a meeting of the company, since a representative can be appointed only in writing.

Q.56. Distinguish between ordinary resolution and special resolution?

Ans –

Difference Between Ordinary Resolution and Special Resolution (Corporate Law Short Question)

Ordinary Resolution Special Resolution
l. It is passed by a simple majority  

l. It is passed by a special majority i.e. the support of three-fourth of votes casted.

2. Ordinary resolutions are not required to be registered with the registrar.  2. Special resolutions are required to be registered with the Registrar within 30 days of passing.
3. An explanatory statement is not required to be sent along the notice of the meeting.  

3. An explanatory statement giving all material facts about the matter, is required to be annexed to the notice of the meeting.

4. Usually, it falls in the category of ordinary business. 4. It always falls in the category of special business.

 Q.57. What are the kinds of shares?

Ans:- As per the Companies Act 2013, the kinds of shares which a company limited by shares (both public company and private company) may issue (Section 43) are:Equity Shares

  1. with voting rights; or
  2. with differential rights as to dividend, voting or otherwise in accordance with such rules and subject to such conditions as may be prescribed.  Preference shares.

Q.58. What are the kinds of debentures? Debentures may be of the following kinds:

Ans:- (i) Secured debentures;
(ii) Unsecured or naked debentures;
(iii) Registered debentures;
(iv) Bearer debentures;
(v) Redeemable debentures;
(vi) Irredeemable debentures;
(vii) Convertible debentures.  

Q.59. Write the name of methods of windings up of a company?

Ans:-  Section 270 of Companies Act, 2013 provides for winding up of a company in any of the following two ways:
(i) Winding up by the Tribunal (Section 272); or
(ii) Voluntary Winding up (Section 304)

Q.60. Differentiate between Winding up and Dissolution of a company?

Ans:-   Difference Between Dissolution and Winding up ( Corporate Law Short Question)

 

Winding up Dissolution
l. Winding up is one of the method by which dissolution of a com an is brou ht about. l. Dissolution is the end result of winding up.
2. Legal entity of the company continues at the commencement of the winding up. 2. Dissolution brings about an end to the legal entity of the company.
 

3. A company may be allowed to continue its business so far necessary for the beneficial winding up of the company.

3. Company ceases to exist on its dissolution.

Q.61. Who can apply to the Tribunal for compulsory winding up of a company?

Ans:- Under Section 272, a petition for compulsory winding up of a company may be filed in the Tribunal by any of following persons:

(i) Petition by the company itself;
(ii) Creditor’s petition;
(iii) Petition by the contributories;
(iv) Petition by the Registrar;
(v) Petition by any person authorized by the Central Government;
(vi) Petition by Central or State Government.

Q.62. Explain grounds for voluntary winding up?  

Ans:- www.sdak24.com

Q.63. Explain the grounds for compulsory winding up?

Ans:- As per Section 271 (l), Tribunal may order for the winding up of a company on a petition submitted to it on any of the following grounds:

(i) Passing of special resolution for the winding up;
(ii) Acting against the National Interest;
(iii) Tribunal’s Order under chapter XIX
(iv) Company’s affairs are being conducted in a fraudulent manner;
(v) Default in filing financial statements;
(vi) Inability to pay debts;
(vii) Just and Equitable reason for winding up.

Q.64. A brother and sister who were the only two members of a private company died in an accident. Does the company also comes to an end?

Ans :- Company will not come to an end on the death of a brother and sister who were the only two members Of a private company because under Section 56 of the companies Act, 2013, shares of the said company shall be transmitted to-their nominee or executor or successor. The company shall register the right to securities on receipt of intima ion of transmission. Transmission does not require any formal instrument nly intimation is to be given to the company along with the supporting proof of title.

 

Corporate Law Short Question Answer Notes

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