COMPANY LAW

UNIT-I

1. Define the term “company”.

Section 2(20) of the 2013 Act defines the term “company” to mean”

a company incorporated under the companies Act 2013 or any

previous company law”

2. What is Private Company?

“Private Company “ means a company having a minimum paid up

share capital of one lakh rupees or such higher paid up share capital

as may be prescribed.

3. What are statutory companies?

A company formed by a special Act passed either by the Central or

State Legislature is called a statutory company. These companies are

usually formed to carry out some special public undertakings

requiring extraordinary powers and privileges

4. What are Registered Companies?

Companies registered under the companies Act 1956, is called

registered companies. Such companies come into existence when

they are registered under the companies Act, and a certificate of

incorporation is granted to them by the Registrar.

5. What is holding company?

Sec 4(4) a company shall be deemed to be holding company of

another it but only if that other is its subsidiary. Hence, a company

has control over another company; the controlling company is

known as holding company.

6. Who is a Company Secretary?

A company Secretary means “a person who is a member of the

Institute of company Secretaries of India”

Sec 2(45) of the companies Act 1956, ‘Secretary means any individual

possessing the prescribed qualifications, appointed to perform the

duties which may be performed by a secretary under this Act.

PART –B

1. Difference Private Company and Public Company.

Private Company

• Its minimum number of persons is two and the maximum is 50

• It makes the use of private limited after its name

• It can commence its business operation after getting certificate

if incorporation

• There is no legal restriction on director’s remuneration

Public Company-

• It’s minimum number of persons is seven and the maximum is

unlimited

• It makes the use of the word limited after the name

• It has at least 3 directors and they are subject to retire by

rotation

• The directors cannot draw remuneration more than 11 percent

of the net profit of the company.

2. What are the statutory provisions as to lifting of corporate veil?

A company is an artificial person different for its members and

directors. In the eyes of law it has a separate corporate personality. It

has its own corporate name. It works under that name. In normal

circumstances company cannot be considered as agent or trustee of

its members.

Company cannot work or think on its own. Its directors and members

are its mind and body. Therefore company can’t do anything wrong

own its own. Thus for any wrong act in the name of company,

members /directors can be held liable. This concept is called “Lifting

of Corporate Veil”

3. What are the restrictions on the powers of a Secretary?

A Company secretary enjoys certain rights and power but there are

some restrictions to his rights and power, which are given

Distribution and transfer of shares: A Company Secretary can’t

distribute or transfer any share if he is not authorised by the board

of directors.

Company Agent: company secretary cannot attend any meeting as a

company agent without any consent of board of directors. Here

requires authority from the board of directors to sign any contract on

behalf of the company.

Taking loan: A company secretary cannot take loan in the name of

the company. If he does so, company will not be liable for such loan.

4. Explain the qualities of a company Secretary.

� Honesty & Integrity

� Loyalty and courtesy

� Punctuality

� Tactfulness and cautiousness

� Sense of discipline and responsibility

� Professional minded

PART-C

1.Define a private company. State the special privileges of a private

company.

Private company

Section 2 (68) defines the private company means a company having

a minimum paid up share capital of one lakh rupees or such higher

paid up share capital as may be prescribed.

Members:

A private company can be started by two persons only,

whereas seven persons are required to start a public company.

Commencement of business:

A Private company can commence business immediately after its

incorporation. It is not required to obtain the certificate of

commencement of business

Prospectus:

A private company is not required to issue or file a prospectus

Statutory meeting:

A private company is not required to hold a statutory meeting or to

file statutory report with the registrar

Directors

A private company can have only two directors. It is exempted from

restrictions relating to the appointment, retirement of managerial

personnel.

2.Discuss the types of secretaries.

Private Secretary

A private secretary is a person who is employed for performing

some personal works of his employer.

Secretary of an association:

This type of secretary acts either as the chief executive officer of as

the representative or as the chief adviser of the association.

Secretary of embassy

Every embassy or high commission or foreign mission appoints a

secretary for performing some of its important functions. In absence

of the ambassador or high commissioner; he runs the embassy or

commission office.

Secretary of a cooperative society:

The managing committee of every cooperative society generally

appoints a secretary to

Administer the society on their behalf.

Secretary of local body

When a person is appointed as the executive head of any municipal

corporation or district board or of any local body.he is designated as

the secretary of that boday.

3.Discuss the rights and powers of a company secretary.

a.supervision and control

As a head of the office , a company secretary has the rights to

supervise, direct and control all office activities of subordinate

offices.

b.Signing authority:

Being a principal officer, a company secretary can sign contracts,

proceedings of the company meeting, files and documents on behalf

of the company.

C.Exercising power: He has the right to apply power as authorised by

the board of directors

d.Issuing testimonial:A Company secretary can issue testimonials to

employees on behalf of the company.

e. Claiming salary and damages:

As per contract, he has the right to claim his salary and other

allowances. He can also take legal action against the company if

there is any breach of contract.

F.Preferential creditor:

During winding up of a company, company secretary can claim his

legal dues as like as preferential creditor.

G.Distribution and transfer of shares:

A company secretary can’t distribute or transfer any share if he is

not authorised by the board of directors.

UNIT –II

PART-A

1. What is certificate of incorporation?

A certificate of Incorporation is registered firm’s birth certificate

showing its legal name and date of incorporation. It is also called

certificate of registration.

2. What is Incorporation?

Incorporation is the formation of a new corporation ( a corporation

being a legal entity that is effectively recognized as a person under

the law). The corporation may be a business, a non-profit

organization, sports club, or a government of a new city or town.

3. Define: Company Promoter.

A promoter is the one, who undertakes to form a company with

reference to a given object and sets it going and takes the necessary

steps to accomplish that purpose.

4. Define Memorandum of Association?

Memorandum of Association or MOA is the legal document that has

to be filed with the registrar of companies at the time of

incorporation of the company. It is often called as a memorandum

and is comprised of fundamental conditions on the basis of which a

company operates.

5. What is Ultra vires?

Ultra vires Acts, Any act that lies beyond the authority of a

corporation to perform.Ultra vires acts fall outside the powers that

are specifically listed in a corporate charter or state law.

PART-B

1.What are the duties of a promoter?

a.To conceive the idea of floating the company

b.To arrange for advertisement of prospect of the company in the

newspaper

c. To meet all the preliminary expenses for the forming of the

company

d. To disclose fully all the material facts relating to the information of

the company

e. To select the bank, where the account of the company is to be

kept and also the auditors, legal advisers and brokers for the

company

2. State the purpose of Memorandum of Association.

An important step in the formation of a company is to prepare a

document called memorandum of association. It is the charter of the

company and is very important document as it contains the basic

conditions on which the company is incorporated. The memorandum

contains the name, registered office, main and other objects of the

company, liability of the members and the authorised capital of the

company.

The main purpose of the memorandum is to limit the scope of

activities and powers of the company. Thus any act outside the

memorandum is ultra vires the company. Such an act is not

enforceable and directors involve personal liability for it

3. Difference between Memorandum and Articles of Association.

Memorandum of Association Articles of Association

Charter of the company, and

defines and also confines the

fundamental conditions and

objects for which company is

granted incorporation

Bye law or internal regulation

of the company

Subordinate to the Companies

Act

Subordinate to the

Memorandum

Principal document Secondary document

Specifies the scope of authority

and the objectives

Specifies the procedures to be

followed to carry out the

objectives stated in the

memorandum

Defines the relationship

between company and outsiders

Defines the relationship

between the company and its

members and between the

members inter se

Alteration is difficult Alteration is comparatively

easy

PART –C

1. What is meant by Doctrine of Indoor Management? What are its

exceptions?

DOCTRINE OF INDOOR MANAGEMENT

If the directors have powers and authority to bind the company but if

certain preliminaries are required to be gone through on the part of

the company before a power can be duly exercised then the person

contracting with the directors is not found to see that all those

preliminaries have been observed.

Exceptions:

A. Knowledge of irregularity: Under the rule o indoor

management the benefit cannot be claimed if a person dealing

with a company has the knowledge of the irregularity in in its

internal management.

B. No Knowledge

A person having no knowledge of Articles of association cannot

ask for protection under the indoor management.

C. Negligence: If the irregularities are discovered by the person

dealing with a company, on making proper inquiries, he cannot claim

the advantages of the rule of indoor management,

D. Act outsides the scope of apparent authority: If an officer of a

company enterers into a company with a third party and if the act of

the officer is beyond the scope of his authority, the company is not

bound.

2. Discuss the various stages in the formation of a company.

a. Promotion of a company

A business enterprise does not come into existence on its own. It

comes into existence as a result of the efforts of an individual or

group of people or an institution. That is, it has to be promoted by

some person or persons.

b. Registration of a company

It is that brings a company into existence. A company is properly

formed only when it a duly registered under the companies Act.

Procedure of Registration

• Memorandum of Association

• Articles of Association

• List of Directors

• Written consent of the Directors

• Notice of the Address of the Registered Office

• Statutory Declaration

C. Certificate of Incorporation

On the registration of Memorandum of Association, Articles of

Association and other document the Registrar will issue a certificate

known as the Certificate of Incorporation.

d. Certifiicate of commencement of business

As soon as a private company gets the certification of Incorporation ,

it can commence its business. A public company can commence its

business only after getting the certificate of commencement of

business.

UNIT –III

PART-A

1. What is prospectus?

It is an invitation to the public to subscribe to the share capital of the

company. The companies Act 1956 defines prospectus an any

document descried or issued as a prospectus and include any notice,

circular, advertisement or other documents inviting deposits from

the public or inviting offer from the public for the subscription of

shares.

2.What are the objectives of issuing a Prospectus?

� To invite the public to invest in the shares or debentures of a

market

� To give a bureau of a condition on which the public is invited to

invest in shares and debentures

3.What do you mean by statement of lieu of Prospectus?

The statement in lieu of Prospectus is a document filed with the

Registrar of the Companies when the company has not issued

prospectus to the public for inviting them to subscribe for shares.

PART-B

1. What is meant by Red herring prospectus?

� A company proposing to make an offer of Securities may issue

a red herring prospectus prior to the issue of a prospectus.

� A company proposing to issue a red herring prospectus under

sub section (1) shall file it with the Registrar at least three days

prior to the opening of the subscription list and the offer.

� 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.

2. What do you mean by deemed prospectus?

Sec (64) (1) Provides that where a company allots or agrees to allot

any shares or debentures with a view to these being offered for sale

to the public, any document by which the offer of sale to the public

is made shall for all purposes e deemed to be a prospectus issued

by the company.

A. That the offer of the shares or debentures for sale to the public

was made within six months after the allotment or agreement to

allot

B. That at the date when the offer was made, the whole

consideration to be received by the company in respect of the shares

or debentures had not been received by it.

PART-C

1. What are the rules/conditions regarding issue of Prospectus?

Legal requirement regarding issue of prospectus:

The companies Act have defined some legal requirements about the

issue and registration of a prospectus. The issue of the prospectus

would be deemed to be legal only if the requirements are met.

Issue after the incorporation:

As, a rule, the prospectus of a company can only be issued after its

incorporation. A prospectus issued by, or an behalf of a company, or

in relation to an intended company, shall be dated and that date

shall be taken as the date of publication of the prospectus

Registration of prospectus:

a. A Copy of the prospectus, duly signed by every person who is

named therein as a director or a proposed director of the

company must be filed with Registrar of companies before the

prospectus is issued to the public.

b. The following document must be attached:

*.Consent to the issue of the prospectus required under any

person as an expert confirming his written consent to the issue

thereof, and that he has not withdrawn his consent as aforesaid

appears in the prospectus.

*.The prospectus must have the written consent of all persons who

have been named as auditors, solicitors.

c. Every prospectus must have on the face of it, a statement that

i) A copy of the prospectus has been delivered to the Registrar for

registration.

ii) Specifies that any documents required to be endorsed by his

section have been delivered to the registrar.

d. A copy of the prospectus must be filed with the Registrar of

Companies.

i) The prospectus is dated. The date shall unless the contrary is

proved, be taken as the date of publication of the prospectus.

ii) The contents of prospectus conform to sec 56 of the Act

iii) The consent of the expert with respect to the issue of his

statement included in the prospectus has been obtained.

e.If a prospectus issued in contravention of the above stated

provisions then the company and every person who knows a party

to the issue of the prospectus shall be punishable with a fine.

UNIT-IV.

PART-A

1. What is equity capital?

The Equity capital refers to that portion of the organization capital,

which is raised in exchange for the share of ownership in the

company.These shares are called the equity shares.

2. What is Debenture capital?

A debenture is one of the capital marker instruments which are used

to raise medium or long term funds from public. A debenture is

essentially a debt instrument that acknowledges a loan to the

company and is executed under the common seal of the company.

3. What is reserve capital?

It is that part of capital which is not issued and can be issued only

when company goes under liquidation. To create reserve capital, is

not the necessity of a company.

4. Define Share.

The unit of ownership of accompany is usually referred to as a

shared. It is a single unit that represents equity in the company

capital structure. The owners are called shareholders. The

distribution of shares in a company indicates the distribution of

ownership in the company.

5. What do you mean by paid up capital?

The amount of capital (out of called up capital) against which the

company has received the payments from the shareholders so far.

Paid up capital=Called up capital-Calls in Arrears

6. What is underwriting agreement?

A contract between group f investment bankers who form an

underwriting group or syndicate and the issuing corporation of a new

securities issue.

7.What is forfeiture of shares?

If a share holder, who is called upon to pay any calls fails to pay the

amount even after sending several reminders, the company may

forfeit his shares. Forfeiture of shares results in a permanent

reduction of the share capital

PART-B

1What are the advantages of Equity shares?

A) Equity shares do not create any obligation to pay a fixed rate of

dividend

b) Equity shares can be issued without creating any charge over the

assets of the company

c) It is a permanent source of capital and the company has to repay it

except under the liquidation

d) Equity shareholders are the real owners of the company who have

the voting rights

e) In case of profits, equity shareholders are the real gainers by way

of increased dividends and appreciation in the value of shares.

2. State the guidelines for the issue of fresh capital.

a) A new company defines as one:

Which ha not completed 12 months of commercial operations and its

audited operative results are not available

Which is set up by the entrepreneurs without a track record, such a

company will be permitted to issue capital to public only at par.

b) Where the company is being set up by existing companies with at

5 year track record of consistent not less than 50% of the equity of

such a new company.

c) A draft prospectus containing the disclosures will be vetted by SEBI

to ensure adequacy of disclosures

d) No private placements of the promoters shall be made by

solicitation of share contribution from unrelated investors through

any kind of market intermediaries

3. Write a note on Certified Transfer.

a) When an instrument of transfer has been certified by the

company, it means that the important documents relating to the

transfer of shares have been deposited with the company

b) If the company has wrongly to the certified the instrument and

any person acts on this behalf the company will be liable for any loss

caused to the person acting on the basis of such instrument.

c) An instrument of transfer is deemed to be certified only when it

bears the words Certifies lodged.

PART-C

1. List out different kinds of Share Capital.

Types of Share capital

a) Authorised, registered, maximum or nominal capital

The maximum amount of capital, which a company is authorised to

raise from the public by the issue of shares, is known as authorised

capital. It is a capital with which a company is registered therefore it

is also known as registered capital.

b) Issued capital

Generally a company does not issue its authorised capital to the

public for subscription, but issued a part of it, so issued capital is a

part of authorised capital, which is offered to the public for

subscription including shares offered to the vendor for consideration

other than cash.

c) Subscribed capital

It can not be said that the entire issued capital will be taken up

or subscribed by the public. It may be subscribed in full or in

part.

d) Called up capital

It is that part of subscribed capital, which is called by the company

to pay on shares allotted. It is not necessary for the company to call

for the entire amount on shares subscribed for by shareholders.

e) Paid up capital

It is that part of called up capital, which actually paid by the share

holders. Therefore it is known as real capital of the company.

Whenever a particular amount is called and a shareholder fail to pay

the amount fully or partially it is known as unpaid calls.

f) Reserve Capital

It is that part of uncalled capital which has been received by the

company by passing a special resolution to e called only in the event

of its liquidation

2. Explain the different types of preference shares.

i) Cumulative preference shares

A Preference share is said to be cumulative when the arrears of

dividend are cumulative and such arrears are paid before paying any

dividend to equity shareholders. Suppose a company has 10,000 8%

preference shares of Rs 100 each. The dividends for 1987 and 1988

have not been paid so far. The directors before they can pay the

dividend to equity shareholders for the year 1989, must pay the

preference dividends of Rs.2,40,000 for the year 1987, 1988 and

1989 before making any payment of dividend to equity shareholders

for the year 1989

ii) Non-cumulative preference shares:

In the case of non-cumulative preference shares, the dividend is only

payable out of the profits of each year. If there are no profits in the

year, the arrear of dividend cannot be claimed in the subsequent

year.

iii) Participating preference shares:

Participating preference shares are those shares which are entitled in

addition to preference dividend at a fixed rate, to participate in the

balance of profits with equity shareholders after they get a fixed rate

of dividend on their shares.

iv) Convertible preference shares:

Convertible preference shares are those shares which can be

converted into equity shares within a certain period.

v) Non-convertible preference shares:

These are those shares which do not carry the right of conversion

into equity shares.

vi) Redeemable preference shares:

A company limited by shares, may if so authorised by its articles issue

preference shares which are redeemable as per the provisions laid

down in sec 80.

vii) Guaranteed preference shares:

These shares carry the right of a fixed dividend even if the company

makes no or insufficient profits.

UNIT –V

PART-A

1. Who is a member?

A share holder is a person who buys and holds shares in a

company having a share capital. They become a member once

their name is entered on the register of members. Many

companies limited by guarantee do not have a share capital,

and consequently their members are not shareholders.

2. Define member.

A person whose name is entered in the register of members of

accompany, is the registered member of the company. The

person who signs the memorandum of association with the

company becomes a member.

3. Who can be a member of a company?

All persons who are competent to contract may, in general

become members of company. There are however, some

special considerations to which reference must be made.

4. Can insolvent be a member of a company?

An insolvent may be member of the company, although the

beneficial interest in his shares will be with the official receiver.

He does not cease to be a member of the company on

becoming insolvent unless provided otherwise by the articles of

association.

5. What do you mean by Index of Members?

Every company having more than 50 members shall keep an

index in the form of a card Index of the names of members of

the company. The Index shall at all times be kept at the same

place as the register of members.

PART-B

1. What is the eligibility of membership in a company?

i) Competency to contract

ii) Must have completed 18 years of age

iii) Subscribes to the Memorandum of Association of a company

iv) Membership by qualifying shares

v) Membership by application and registration .

2. What are the liabilities of members in a company?

As a shareholder you are not liable for the company’s obligations

merely by reason of being a shareholder, unless the company

constitution provides that shareholder liability is unlimited. If the

constitution does not provide this, then your liability as a

shareholder is limited to

i) any amount unpaid on a share held by you

ii) any liability expressly provided for the constitution

Obligations to meet calls made by the company in relation to

the liability attaching to shares

former shareholders may be liable to the company for amounts

outstanding in respect of any shares or for any liability provided

for in either the Act or the constitution.

PART-C

1. What are the rights and liabilities of members?

The members of a company enjoy several rights and they are

the ultimate authority in the matters of the company and its

management.

Statutory Rights:

i) Rights to receive notice of meetings, attend, to take part

in the discussion and vote at the meetings

ii) Right to transfer the shares

iii) Right to receive copies of the Annual Accounts of the

company

iv) Right to inspect the documents of the company

v) Right to participate in appointments of directors and

auditors in the Annual general meetings.

Liabilities of members:

i) Any amount unpaid on a share held by you

ii) Any liability expressly provided for the constitution

iii) Any liability for breach of directors duties if the shareholders

are deemed to be directors

iv) Obligations to meet calls made by the company.

2. What are the cases in which membership may be terminated?

Enumerate.

i) When the transfers his shares and the transfer is duly registered in

the books of the company

ii) By forfeiture of shares for non-payment of calls, if articles so

provide

iii) By a valid surrender of shares. It is a short cut to forfeiture as

it involves no legal formalities

iv) When the company sells the shares in exercise of its right or

line over them, by giving a 14 days notice to a debtor

shareholder

v) When a shareholder dies and his shares stand transmitted to

his legal representative, upon registration of the share, in

the successors name

vi) When he is declared insolvent and the official assignee

disclaims the shares under his right of disclaimer of onerous

properly

vii) By repudiating the contract of membership on the ground of

misrepresentation in the prospectus or on the ground of

irregular allotment.