Company Law MCQ Quiz - Objective Question with Answer for Company Law - Download Free PDF

The correct answer is 'Certificate of incorporation'

Key Points

• Certificate of incorporation:
  • This document is issued by the Registrar of Companies and serves as conclusive evidence that all the requirements of the Companies Act have been complied with in respect of the registration.
  • It signifies the legal creation of the company and marks its entry into the corporate world as a legal entity.
  • Without this certificate, a company cannot commence its business operations or enter into legal contracts.

Additional Information

• Memorandum of Association:
  • This is a foundational document of the company that outlines its scope of operations and defines its relationship with the outside world.
  • While it is essential for incorporation, it does not serve as evidence of compliance with the Companies Act.
• Articles of Association:
  • This document specifies the internal regulations and management of the company.
  • Similar to the Memorandum of Association, it is necessary for incorporation but does not prove compliance with the Companies Act.
• Certificate of commencement of business:
  • This certificate is required for public companies before they commence business operations.
  • It is issued after the Certificate of incorporation and the completion of certain other formalities, but it is not the initial evidence of compliance with the Companies Act.

The correct answer is Charter of the Company.

Key PointsCompany - The term is derived from the Latin word (“com” meaning “with” or “together”; “panis” that is “bread”) Section 2(20) of Companies Act 2013 states that a company means any association of person registered under the present or the previous companies act.

Important PointsMemorandum of Association - 

• A legal document known as the Memorandum of Association outlines the reason the firm was founded.
• It outlines the company's authority and the circumstances under which it must function.
• It is a document that outlines all the guidelines that direct how a business interacts with the outside world.

• It is a foundation on which the company is made.

• The entire structure of the company is detailed in the Memorandum of Association. 

• It is the company charter, a crucial document that outlines the fundamental terms on which the business was founded.

Answer: C (A company is liable to be prosecuted and punished for criminal offences. Earlier authorities state that the corporation cannot commit a crime; the generally accepted modern rule is that a corporation may be subject to indictment and other criminal processes, even if its agent has committed the criminal act. In Standard Chartered Bank vs. Directorate of Enforcement [supra], the Court ruled that the company can be prosecuted with a fine as a substantive sentence. The Court restricted itself to imposing a fine on the corporate body.)

The correct answer is Option 3.

Key PointsSection 396 in The Companies Act, 1956 :- Power of Central Government to provide for amalgamation of companies in [public interest]

• [Inserted by Act 31 of 1965, Section 51 (w.e.f. 15.10.1965). ] .-(1) Where the Central Government is satisfied that it is essential in the [public interest] [ Substituted by Act 65 of 1960, Section 152, for " national interest" (w.e.f. 28.12.1960).] that two or more companies should amalgamate, then, notwithstanding anything contained in sections 394 and 395 but subject to the provisions of this section, the Central Government may, by order notified in the Official Gazette, provide for the amalgamation of those companies into a single company with such constitution; with such property, powers, rights, interests, authorities and privileges; and with such liabilities, duties, and obligations; as may be specified in the order.

The correct answer is Option 1.

Key Points

• The Companies Act, 2013 ('Act') regulates the establishment and working of a public limited company. A public limited company offers shares to the general public and has limited liability.
• There are various rules and regulations prescribed under the Act for the formation of a public limited company.  Here is some keys when registering a public limited company:
  • Minimum 7 shareholders are required to form a public limited company.
  • Minimum of 3 directors is required to form a public limited company.
  • A minimum authorised share capital of Rs. 1 lakh is required.
  • Digital Signature Certificate (DSC) of one of the directors is needed while submitting self-attested copies of identity and address proof.
  • Directors of the proposed company will need a Director Identification Number (DIN).
  • The name of the company must be as per the provision of the Company Act and Rules.
  • Documents like the Memorandum of Association (MOA), Articles of Association (AOA) and duly filled Form DIR - 12 is needed.
  • Payment of the prescribed registration fees to the ROC is required.

The non-profit organizations registered under section 8 of the Act, 2013 are required to prepare their Income and Expenditure Accounts and Balance Sheet as per Schedule III of the Companies Act, 2013.

Key Points

Schedule III of the Companies Act 2013, provides the format of financial statements of companies complying with Accounting Standards (AS) and Ind AS.

• A company is referred to as Section 8 Company when it registered as a Non-Profit Organization (NPO) i.e. when it has the motive of promoting arts, commerce, education, charity, protection of the environment, sports, science, research, social welfare, religion and intends to use its profits (if any) or other income for promoting these objectives.
• As per Schedule III of the Companies Act 2013 the companies registered under section 8 of Co. Act, 2013 is required to prepare their Income and Expenditure Accounts and Balance Sheet as their financial statements.

The correct answer is Subscribers to Memorandum of Association.

Key Points

• Simply said, a company's charter or bylaws are contained in its memorandum of association.
• Memorandum is defined as "memorandum of organisation of a company as originally established or as revised from time to time in pursuance of any earlier company law or of this Act" under the Companies Act of 2013.

Important Points

• Each member must print and sign the memorandum of association (7 members in case of Public Company and 2 in case of Private Company and 1 in case of One Person Company).
• A minimum of one witness who will verify the subscribers' signatures must be present when the memorandum is signed.
• In the case of a one-person business (OPC), the Memorandum of Association must include the nominee's name. The nominee will take over as a member of the company in the event of death or incapacity.

Key Points

 Winding up:

• The process of winding up involves gathering and selling the company's assets in order to pay off any outstanding obligations.
• Debts, expenses, and charges are initially paid off and divided among the shareholders when a corporation is wound up.
• Once the Company is liquidated it is formally dissolved and the Company ceases to exist.
• Section 271 gives guidelines for Winding up by the Tribunal.

Important PointsWinding up process of a company by the tribunal:

1. Petition for winding up:

• The filing of a petition for winding up with the tribunal is the first stage in the winding up procedure.
• The corporation itself, its creditors, or its stockholders may file the petition.
• A description of the company's financial status, a statement of the reasons for winding up, and a list of its assets and liabilities should all be included in the petition.

2. Appointment of company liquidator:

• The tribunal will appoint a company liquidator to oversee the business's affairs during the winding-up procedure after it receives the winding-up petition.
• The liquidator's duties include taking possession of the company's assets, paying off its debts, and distributing any remaining monies to shareholders and creditors.

3. Submission of report by company liquidator:

• A report on the company's assets and liabilities will be written by the corporate liquidator and submitted to the tribunal.
• A summary of the company's financial position, including its assets, liabilities, and outstanding obligations, should be included in the report.

4. Direction of tribunal on report of company liquidator:

• The tribunal will provide instructions on how the firm's assets should be split among its creditors and shareholders after evaluating the report that the company liquidator has presented.
• The guidelines will consider the firm's financial standing, unpaid debts, and other pertinent elements.

5. Settlement of list of contributories and application of assets:

• The corporate liquidator will settle the contributory list and use the assets to settle the creditors' claims once the tribunal issues instructions on how the assets of the firm should be allocated.
• Any money that is left over will be divided among the shareholders by the liquidator.

Hence, the correct sequence is (C), (E), (B), (D), (A).

The correct answer is Memorandum of Association.

Key Points

• Memorandum of Association is the  company's principal constitutional document.
• When a corporation is established, one of at least two founder members must draw it up and sign it.
• It must include the name and address of the company's registered office, the reasons for the company's formation, the amount of authorised capital, if any, and, if applicable, whether the company is a limited (or public limited) company.

Important Points

1. The Memorandum of Association, which outlines information about the policies, plans, and securities issued by the firm, must be registered before it can be officially established.
2. Every firm must register its Memorandum of Association since it serves as the foundation for all businesses and outlines all of the important information about them, including their core values and motivations, which must be made clear prior to incorporation.
3. So, before the company is incorporated, a copy of the Memorandum of Association needs to be registered.

Additional Information

Article of Association: The "constitution of a firm" might be referred to as the articles of association (AoA).

• It specifies the guidelines that specify a company's internal operations.
• The organization's purpose and tactics for achieving its short- and long-term objectives are stated in the articles of association, which are also thought of as a user's guide for the organisation.
• The AoA typically contains information on a company's legal name, address, purpose, equity capital, organisational structure, financial provisions, and shareholder meeting provisions.

Prospectus: A prospectus is a written or printed statement made by or on behalf of a corporation that provides details about the character, nature, and intent of a share, bond, or other corporate securities offering and invites the public to buy the securities.

Key Points

Section 145 of the Companies Act, 2013

• The person appointed as an auditor of the company shall sign the auditor’s report or sign or certify any other document of the company in accordance with the provisions of sub-section (2) of section 141, and the qualifications, observations, or comments on financial transactions or matters, which have any adverse effect on the functioning of the company mentioned in the auditor’s report shall be read before the company in general meeting and shall be open to inspection by any member of the company.

Additional Information

•  Section 141 of the companies act deals with the eligibility and qualification to become an auditor of a company.

The non-profit organizations registered under section 8 of the Act, 2013 are required to prepare their Income and Expenditure Accounts and Balance Sheet as per Schedule III of the Companies Act, 2013.

Key Points

Schedule III of the Companies Act 2013, provides the format of financial statements of companies complying with Accounting Standards (AS) and Ind AS.

• A company is referred to as Section 8 Company when it registered as a Non-Profit Organization (NPO) i.e. when it has the motive of promoting arts, commerce, education, charity, protection of the environment, sports, science, research, social welfare, religion and intends to use its profits (if any) or other income for promoting these objectives.
• As per Schedule III of the Companies Act 2013 the companies registered under section 8 of Co. Act, 2013 is required to prepare their Income and Expenditure Accounts and Balance Sheet as their financial statements.

The correct answer is Subscribers to Memorandum of Association.

Key Points

• Simply said, a company's charter or bylaws are contained in its memorandum of association.
• Memorandum is defined as "memorandum of organisation of a company as originally established or as revised from time to time in pursuance of any earlier company law or of this Act" under the Companies Act of 2013.

Important Points

• Each member must print and sign the memorandum of association (7 members in case of Public Company and 2 in case of Private Company and 1 in case of One Person Company).
• A minimum of one witness who will verify the subscribers' signatures must be present when the memorandum is signed.
• In the case of a one-person business (OPC), the Memorandum of Association must include the nominee's name. The nominee will take over as a member of the company in the event of death or incapacity.

Key Points

 Winding up:

• The process of winding up involves gathering and selling the company's assets in order to pay off any outstanding obligations.
• Debts, expenses, and charges are initially paid off and divided among the shareholders when a corporation is wound up.
• Once the Company is liquidated it is formally dissolved and the Company ceases to exist.
• Section 271 gives guidelines for Winding up by the Tribunal.

Important PointsWinding up process of a company by the tribunal:

1. Petition for winding up:

• The filing of a petition for winding up with the tribunal is the first stage in the winding up procedure.
• The corporation itself, its creditors, or its stockholders may file the petition.
• A description of the company's financial status, a statement of the reasons for winding up, and a list of its assets and liabilities should all be included in the petition.

2. Appointment of company liquidator:

• The tribunal will appoint a company liquidator to oversee the business's affairs during the winding-up procedure after it receives the winding-up petition.
• The liquidator's duties include taking possession of the company's assets, paying off its debts, and distributing any remaining monies to shareholders and creditors.

3. Submission of report by company liquidator:

• A report on the company's assets and liabilities will be written by the corporate liquidator and submitted to the tribunal.
• A summary of the company's financial position, including its assets, liabilities, and outstanding obligations, should be included in the report.

4. Direction of tribunal on report of company liquidator:

• The tribunal will provide instructions on how the firm's assets should be split among its creditors and shareholders after evaluating the report that the company liquidator has presented.
• The guidelines will consider the firm's financial standing, unpaid debts, and other pertinent elements.

5. Settlement of list of contributories and application of assets:

• The corporate liquidator will settle the contributory list and use the assets to settle the creditors' claims once the tribunal issues instructions on how the assets of the firm should be allocated.
• Any money that is left over will be divided among the shareholders by the liquidator.

Hence, the correct sequence is (C), (E), (B), (D), (A).

A Memorandum of Association contains following clauses:

• Name Clause
• Registered Office Clause
• Object Clause
• Liability Clause
• Capital Clause

Registered Office Clause:

• This clause specifies the name of the state in which the registered office of the company is to be situated.
• It helps to determine the jurisdiction of the Registrar of Companies.
• The company is required to inform the Registrar of Companies about the registered office within 30 days from the date of incorporation or commencement of business.

Therefore, the registered office clause of the memorandum of association contains the name of the state in which the registered office of the company is to be situated.

Name Clause:

• This clause specifies the name of the company.
• The name should not be identical to any of the existing companies.
• If it is a private company then it should end with "Private Limited" and if it is a public company then it should end with "Limited'.

Object Clause:

• This clause specifies the objective with which the company was formed.
• It states the main business of the company or any other ancillary activities related to the achievement of the main objective. 

Liability Clause:

• This clause specifies the liability of the members of the company.
• The amount of liability differs according to the type of company i.e. in the case of an unlimited company, the liability of members is unlimited whereas, in the case of a company limited by share, the liability is limited to the amount unpaid of their share, etc.

Capital Clause:

• This clause specifies the maximum amount of capital the company can raise which is also called the nominal/authorized capital of the company.
• It also specifies the division of such capital of a fixed amount into the number of shares each.

A subsidiary company or a daughter company is a company that is owned or controlled by another company, which is called a holding company or a parent company.

A subsidiary of Government Company:

• A company is a Government Company in which the government or the state government holds 51% or more of the paid-up capital.
• A subsidiary of a Government Company is also treated as a Government Company.
• Those subsidiary companies are registered as Private Limited Companies through their management and their control vests with the Government.
• This is a type of organization where both the Government and Private Individuals are shareholders.

Therefore, a subsidiary of a Government Company is also treated as a Government Company.

Public Company:

• A public company is an organization whose ownership is distributed via shares of stock that are intended to be freely traded on a stock exchange or in an over-the-counter market.
• The minimum number of members required is seven and there is no limit for a maximum number of members.
• A public company must have a minimum paid-up capital of five lacs and there is no maximum limit.

Private Company:

• This type of company comes under the Company Act, 2013.
• The purpose to form a private company arises when the business is not very large but the management still wants to opt a company over a partnership firm.
• The minimum number of members required is two and there is no limit for a maximum number of members.
• A private company must have a minimum paid-up capital of one lacs and there is no maximum limit.