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Company Law

Description: Practice questions on the concept of company, kinds of companies, memorandum of association etc
Number of Questions: 25
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Tags: Concept of company kinds of companies allotment of shares etc Kinds/ Formation of Companies Prospectus Memorandum and Articles of Association Company Law Shares Membership in a Company Company Management
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Which of the following is not a feature of a company?

  1. Incorporated entity

  2. Separate legal identity

  3. Artificial personality

  4. Unlimited liability


Correct Option: D
Explanation:

Unlike the partnership firm, a company does not have unlimited liability on its members. The liability of members is limited. 

Life Insurance Corporation is an example of

  1. Statutory Companies

  2. Registered Companies

  3. Private Companies

  4. None of the above


Correct Option: A
Explanation:

 Corporations created under the Special legislations of Parliament or State Legislatures are called statutory companies. Life Insurance Corporation of India is an example of a Statutory Company as it was created under a special legislation of Parliament. The act is Life Insurance Corporation of India, 1956.

It is not compulsory to put common seal on which document of the company?

  1. Share Certificates

  2. Share Warrants

  3. Deeds executed in any place in India

  4. Memorandum of Association


Correct Option: D
Explanation:

 It is not necessary to put common seal on memorandum of association. It is like  constitution of company with name clause, objects clause etc..

How much is the maximum penalty for use of word 'Private Limited' per day in contravention of law?

  1. Rs. 400

  2. Rs. 500

  3. Rs. 600

  4. Rs. 700


Correct Option: B
Explanation:

 The fine may extend to Rs 500 per day by an entity in contravention of law as per section 631 of the Companies Act, 1956. 

Which of the following documents is not required to be submitted to the Registrar for registration by a foreign company?

  1. Document having full address of the registered office of the company

  2. A list of directors and secretary of the company

  3. Statement in lieu of prospectus

  4. A certified copy of the memorandum of association


Correct Option: C
Explanation:

 Statement in lieu of prospectus  for invitation of share capital from the private sources is not required to be submitted for registration. Statement in lieu of prospectus is issued only after registration of the company.

Prospectus is required to be issued in which of the following cases?

  1. When it is a private company

  2. When a public company intends to raise its share capital from the public

  3. When a public company intends to raise its capital from private sources

  4. When shares are offered to existing members by way of rights issue


Correct Option: B
Explanation:

 A prospectus is required to be issued when a public company intends to raise or invites subscription to its share capital from public. 

Which of the following priveleges is not available to a private company?

  1. It need not hold a statutory meeting and file a statutory report

  2. It need not keep an index of members

  3. It need not appoint directors

  4. It can proceed to allot shares without having to wait for 'minimum subscription'


Correct Option: C
Explanation:

 This privelege is not available to a private company. Whether the company is private or public, it must appoint directors. 

When a private company takes its members beyond 50, it is conversion of a private company into a public company by

  1. default

  2. operation of law

  3. choice

  4. none of these


Correct Option: A
Explanation:

 When a private  company takes its members beyond 50, it is conversion by default. According to Sec3(1)(iii) if a private company takes its members to more than 50, it automatically becomes a public company and it has to fulfill the obligations of a public company.

Which of the following is not a stage in the formation of any type of company?

  1. Promotion

  2. Floatation

  3. Incorporation

  4. Issuing of prospectus


Correct Option: D
Explanation:

 Issuing of prospectus is not a stage of formation of a company. A company issues prospectus only after it is formed. Secondly only the public company issues prospectus to raise its capital from the public. Private company does not issue prospectus.

What is not required to convert a public company into a private company?

  1. To pass a special resolution for conversion

  2. To seek the approval of the Central Government

  3. To seek approval of the court

  4. To alter the Articles of Association


Correct Option: C
Explanation:

 In order that a public company must become a private company, it is not necessary that the permission of court must be taken. The conversion can take place without the approval of court. 

Which of the following is not a clause of Memorandum of Association?

  1. Name Clause

  2. Dividend Clause

  3. Registered Office Clause

  4. Objects Clause


Correct Option: B
Explanation:

Dividend clause is not a clause of Memorandum of Association. The provision relating to payment of dividends to shareholders is mentioned in the Articles of Association.  

What are the types of companies on the basis of management control?

  1. Statutory and Registered Companies

  2. Private Company and Public Company

  3. Company limited by shares and Unlimited Company

  4. Holding and Subsidiary company


Correct Option: D
Explanation:

 Holding and subsidiary company is the type of classification on the basis of control of management. A company is a Holding Company in relation to another company if it possesses control over another company. A company is said to be a subsidiary company if the other controls its composition of Board of Directors, or when the other company holds more than half of its nominal value of equity shares.

When a prospectus is issued by a public company for one or more securities, it is called

  1. Statement in lieu of prospectus

  2. Prospectus

  3. Shelf Prospectus

  4. None of these


Correct Option: C
Explanation:

 A shelf prospectus is issued when a public company intends to raise money for one or more securities. It is a difficult and expensive task to issue a prospectus every time it seeks to raise money from the public. So a shelf prospectus is issued which allows for more than issue of securities within a year from the date of its first offer.

CIN stands for

  1. Corporate Identity Number

  2. Corporate Investigation Number

  3. Corporate Identity Names

  4. None of the above


Correct Option: A
Explanation:

 CIN stands for corporate identity number. This scheme was started in the year 2000 and the registrar of companies  allots CIN, that is a unique number  to every company registered on or after November 1, 2000.

Facility of buy-back of shares is allowed in which of the following cases?

  1. Buy-back of shares is through any subsidiary company including its own subsidiary company.

  2. Buy-back of shares is through any investment company or a group of investment companies.

  3. Buy-back is by purchasing the securities issued to employees of the company.

  4. The company has defaulted in repayment of preference shares.


Correct Option: C
Explanation:

 The buy-back can be made by purchasing the securities issued to existing employees of the company. So the facility of buy-back of shares is allowed when the company intends to purchase its own shares from its employees.

In case of transfer of shares, the share certificate has to be issued within

  1. three months

  2. two months

  3. one month

  4. four months


Correct Option: B
Explanation:

 The share certificate is to be issued within two months from the date of transfer of such shares according to Sec. 113 of the Companies Act ,1956.

Share Warrant is a

  1. duplicate certificate

  2. share surrender certificate

  3. negotiable Instrument

  4. none of these


Correct Option: C
Explanation:

 Share Warrant is a negotiable instrument.  A share warrant shall entitle the bearer thereof to the shares therein specified and shares may be transferred by mere delivery of the warrant. 

Which of the following amounts to buy-back of shares by a company?

  1. Redemption of preference shares

  2. Forfeiture of shares

  3. When company's own shares are purchased from the open market, by the company

  4. Acceptance of valid surrender of shares


Correct Option: C
Explanation:

 When own shares are purchased by the company from the open market at the prevailing market price as any other person would purchase them, it means that the company has purchased its own shares and it amounts to buy-back of shares.

Lein on shares means

  1. a kind of security for a claim against a shareholder

  2. a kind of penal action against the shareholder

  3. a kind of legal obligation to be paid by the company

  4. a kind of negotiable instrument


Correct Option: A
Explanation:

 Lein is a right of a person over the goods of another person in the form of a security for a claim upon that person. A company may have some claim upon a shareholder in relation to shares, therefore, it may mark its lien on the shares, so lien on shares is a kind of security for a claim against the shareholder.

In which of the following cases, the membership of a shareholder is not terminated?

  1. When his shares are forfeited

  2. When he surrenders his shares

  3. When a shareholder's preference shares are redeemed

  4. When a share certificate is issued


Correct Option: D
Explanation:

 The membership of a shareholder does not come to an end when a share certificate is issued. A share certificate is a certificate which certifies that he is the holder of a specified number of stated shares in the company. 

Which of the following is not an individual right of a member?

  1. To vote in general meetings

  2. To receive notice of a general meeting

  3. To obtain share certificate

  4. To transfer shares


Correct Option: A
Explanation:

 To vote in general meetings is a collective right of a member, as this is a right in which many members vote collectively according to Sec. 87. So it is not an individual right of a member.

Equity shares issued by a company to employees in exchange of making available intellectual assets to the company are known as

  1. Sweat-Equity Shares

  2. Bonus Equity Shares

  3. Buy-back of Equity Shares

  4. None of these


Correct Option: A
Explanation:

 A company may attract outsiders to join the company and provide intellectual assets like patents, skills etc. in return of shares in the company. Such type of shares are known as sweat-equity shares.

Which of the following is not an offer to public?

  1. If offer is made to any section of public

  2. If the offer is made to the general public

  3. If the offer is made to fifty persons or more

  4. If the offer is made to the friends and relatives of the company management


Correct Option: D
Explanation:

 An offer to public would not be there if it is made to the friends or relatives of the company management. In this the offer is circulated not to the public but to the friends and relatives of company management.

A company enjoys status of a separate legal entity in which of the following cases?

  1. Issue of share certificates within three months after the allotment of shares

  2. Reduction of membership

  3. Formation of a subsidiary company to act as an agent

  4. None of these


Correct Option: A
Explanation:

A company enjoys status of a separate legal entity if it issues share certificates to its shareholders within three months after the allotment of shares according to Sec 113. The corporate veil is not lifted.

A person is eligible to be appointed as a director of a company if

  1. He is of unsound mind

  2. He is solvent

  3. He has not paid any of the calls in respect of shares of the company

  4. The court has disqualified him to be appointed as a director


Correct Option: B
Explanation:

 According to Sec. 274 of the Companies Act,  a person is eligible to be appointed as a director if he is solvent, that is not insolvent. This means that the person is not bankrupt and can pay his liabilities, so he is eligible to be appointed as a director.

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