Unit – VII: Formation of a Company
Very Short answer Question
(One mark each):
Q.1. By whom the
qualification shares are subscribed?
Ans: The
directors of the company subscribe the qualification shares.
Q.2. How many
signatories are required for the Memorandum of Association of a public Limited
Company?
Ans: Seven members are required to sign the
Memorandum of Association of a public limited Company.
Q.3. How many
signatories are required for the Memorandum of Association of a Private
Company?
Ans: Two members are required for the
Memorandum of Association of a private company.
Q.4. When can a
private company commence business? 2015
Ans: A private company can commence
business after obtaining Certificate of Incorporation.
Q.5. When can a public
company commence business?
Ans: A public
company can commence business after obtaining certificate to commence business.
Q.6. What
documents specify the objectives of the company?
Ans: - Memorandum
of Association specifies the objects of the company.
Q.7. Which
document is issued by a company to invite public to purchase its shares? 2010
Ans: - Prospectus
is issued by a company to invite public to purchase its shares.
Q.8. What is a
company?
Ans: An
association of a number of individuals for the purpose of carrying on some
legitimate business.
Q.9. What document
specifies the objectives of the company?
Ans: Memorandum
of Association specifies the objects of the company.
Q.10. Name the document called
‘Doctrine of indoor management’.
Ans: Articles of association
Q.11. Name the document called
‘Charter of the Company’.
Ans: Memorandum of association
Q.12. Which Clause defines the powers
of the Company?
Ans: Object Clause
Q.13. Name the document which
contains rules and regulations for internal management of the company. 2008
Ans:
Articles of Association.
Q.14. What is meant
by Incorporation of a company?
Ans: Incorporation
of a company means the registration of company as a corporate body under the
provisions of Companies Act 1956.A Company comes into existence from the date
of incorporation.
Q.15. What is
certificate of Incorporation?
Ans: A certificate of Incorporation is a certificate issued by the
Registrar of the companies that company is incorporated. With this certificate
the company becomes a separate legal entity.
Q.16. What is the
difference between Certificate of Incorporation and Certificate of
Commencement?
Ans: Certificate
of Incorporation is the birth certificate of the company. A company is born on
the date mentioned on Certificate of Incorporation it becomes a separate legal
entity. The certificate of commencement of business is an evidence to start the
operations of the business. The company can start its functioning after getting
certificate of commencement.
Short answer type Questions
(Two/Three/five marks each):
Q.1. What are the
stages in the formation of a any company? 2007,
2017
Ans: There are
four stages in the formation of a company:
a)
Promotion
b)
Incorporation
c)
Subscription of Capital
d)
Commencement of Business.
There are four stages in the formation of a
company:
(1)
Promotion: Promotion refers to the process of
establishing new business enterprises .It is grabbing a business opportunity
& converting it into a new company. Promotion includes the preliminary work
incidental to formation of a company.
(2)
Incorporation: Incorporation of a company
means the registration of company as a corporate body under the provisions of
Companies Act, 2013.A Company comes into existence from the date of incorporation.
(3)
Subscription of Capital: After incorporation,
a company takes necessary steps to raise capital from public. For this purpose,
a company issue prospectus inviting public to invest in shares or debentures of
the company. Prospectus is the circular or invitation given to the general
public to subscribe to the shares of the company or invest money in the
company. If a company does not want to issue a prospectus to the public for
subscription of the shares, a statement in lieu of prospectus is required to be
issued to the public for necessary information. The nature of the information
of this document is more or less similar to that given in the prospectus.
(4)
Commencement of Business: The company can
start its functioning after getting certificate of commencement. The
certificate of commencement of business is an evidence to start the operations
of the business. A private company can commence business after obtaining
Certificate of Incorporation.
Q.2. What do you
mean by promotion? Mention the steps involved in promotion.
Ans: Promotion
refers to the process of establishing new business enterprises .It is grabbing
a business opportunity & converting it into a new company. Promotion
includes the preliminary work incidental to formation of a company.
Following are the steps of promotion:
a)
Discovery of Idea
b)
Finding the promoters to launch company
c)
Assembling the preposition
d)
preparing important Documents
e)
Formation or getting the company registered.
Q.3. Who is a
promoter of a company? What
are various types of Promoters? 2006, 2009
Ans: A promoter
is the person who does the required work before the formation of the company
for its incorporation. A promoter plans and organises the business and fulfills
all the legal formalities so that new company can come into existence. It may
be an individual, a firm, an association of persons.
Promoters may be classified into the following categories:
a) Professional Promoters
b) Entrepreneur Promoter
c) Occasional Promoter
d) Financial Promoter
e) Government Promoter
Q.4.What is the functions or role of promoters? 2007, 2008, 2010,
2016
Ans: The functions of promoters are:
a)
Identification of Business Opportunity: The
promoters identify an opportunity which can be taken by a business firm
b)
Detailed Investigation: Detailed examination to satisfy them
regarding profitability of the proposition
c)
Ensuring availability of resources: The
promoter arranges human resources, material, machinery and equipment etc. for
the company
d)
Preparing preliminary Documents: Prepares the
necessary documents required for obtaining the certificate of incorporation and
certificate of commencement of business.
e)
Entering into preliminary contracts: Enter into
contracts with different parties before incorporation of company.
f)
Naming a company: The promoters have to select a name of
the company.
Q.5. What are the
documents which are required for the Incorporation of a company? 2006,
2009, 2015, 2018
Ans: The documents which are required for
the Incorporation of a company:
a)
Memorandum of Association
b)
Articles of Association
c)
Prospectus
d)
Consent of proposed directors
e)
Agreement
f)
Statutory declaration
g)
Document evidence of payment evidence fees
Q.6. What is
Memorandum of association? Name the clauses of Memorandum of Association.
Mention its importance. 2008,
2016
Ans: Memorandum of association is the most
important document of a company which contains the fundamental on which a
company is incorporated. The company is bound to act according to the objects
and powers contained in its Memorandum of association. It also regulates the
relationship of the company with the rest of the world.
There are six clauses of Memorandum of
Association:
a)
Name Clause
b)
Registered office Clause
c)
Object Clause
d)
Liability Clause
e)
Capital Clause
f)
Association Clause
Importance of Memorandum of association:
a)
It is the foundation of a business which shows
the capacity to contract of a company.
b)
It is constitution of a company which relates
with the outside world.
c)
No company is allowed to do any act outside
the scope of activities as laid down in the memorandum.
Q.7. Explain various clauses of Memorandum of Association. 2010, 2016, 2019
Ans: Memorandum of Association is the
fundamental conditions on which the company is incorporated. It is the charter
of the company. Its clauses are:
a)
Name Clause: Under this clause the corporate name
of the company is stated with the name “limited” or “Private Limited” as the
last word in this name. The name should not be identical with the name of any
registered company.
b)
Registered office Clause: Under this clause the company is
required to mention the place in which the company is situated.
c)
Objects clause: The object clause must contain the
main object of the company and the other objects related with it for the
completion of main object. The company is not entitled to carry any of the
business which is not mentioned in the object clause.
d)
Liability Clause This clause stated that the liability
of members is limited to the amount unpaid on their shares.
e)
Capital Clause: It shows the amount of share capital
with which the company is going to be registered and its division.
f)
Association Clause: This clause signifies the desire of
the subscribers to form them into a body corporate.
Q.8. What is
Prospectus and a statement in lieu of prospectus? What is its
importance? Mention its contents. 2006, 2009
Ans: Prospectus
is the circular or invitation given to the general public to subscribe to the
shares of the company or invest money in the company. 2016
If a company does not want to issue a
prospectus to the public for subscription of the shares, a statement in lieu of
prospectus is required to be issued to the public for necessary information.
The nature of the information of this document is more or less similar to that
given in the prospectus.
Importance of Prospectus:
a)
It is an invitation to the public to subscribe
to the shares and debentures of the company.
b)
It informs about the background and future
prospects of the company.
c)
It informs the general public regarding the
business policies and programmes of the company.
Usually the following are contents of
prospects
a)
Company’s name and the address of its
registered office
b)
The main object of the company
c)
The number and classes of the shares
d)
Qualification shares of the directors
e)
The names and addresses of the Director,
Managing director or manager
f)
The minimum subscription
g)
The time of opening and closing of the
subscription list
h)
Registrar to the issue
i)
Underwriters to the issue
j)
Bankers to the issue
Q.9. What is Article
of Association? Mention its importance and Contents.
Ans: Article of
Association contains the rules & regulation for the internal management of
the company. These rules and regulations are framed to carry the objects of the
company as stated in the memorandum of association. The articles are
subordinate to Memorandum. 2007, 2010, 2017, 2019
Importance of
articles of association
a.
It defines the objectives of the company that are
to be achieved.
b.
This is the subsidiary document of the company.
c.
Articles define the relationship of the members
and the company.
Contents of Articles
of association
a)
Different classes of shares and their rights
b)
Procedure of making an issue of share capital
and allotment thereof
c)
Procedure of issuing share certificates
d)
Forfeiture of shares and the procedure of
their re-issue
e)
Procedure for transfer and transmission of
shares
f)
Conversion of shares into stock
g)
Alteration of share capital
h)
Borrowing powers of directors
Q.10. Distinguish
between Memorandum of Association & Article of Association. 2006, 2015, 2019
Ans: - The difference
between Memorandum of Association & Article of Association is given here:
|
BASIS OF DISTINCTION |
MEMORANDUM OF ASSOCIATION |
ARTICLE OF ASSOCIATION |
|
MEANING |
It is the constitution of a company .It defines limits, powers
and objects of the company. |
It contains rules and regulation for the internal management of
the company. |
|
OBJECTIVES |
It governs relationship of company with the external world. |
It governs internal relationship between the members of the
company. |
|
STATUS |
It is the primary document. It is the foundation of the company. |
It is the secondary document & it is based on the memorandum
of association. |
|
COMPULSION |
It is a compulsory document for all the companies. |
It is compulsory for private companies, unlimited companies and
companies limited by guarantee. |
|
ALTERATION |
Alteration can only be done by the permission of court. |
It can be altered according to the need of the management by
passing a resolution. |