Company Law Solved Paper May' 2014 Semester Exam, Dibrugarh University B.Com 4th Semester

Company Law Solved Paper May' 2014 Semester Exam
Dibrugarh University B.Com 4th Semester

1.    Write true or false:           1x4=4
(a) A shareholder is an agent of the company.                                    False
(b) The power to issue shares at a premium need not be permitted by the Articles of Association.            True
(c)  A mortgage of land is an example of fixed charge.     True
(d) A member of company having no share capital can also appoint a proxy.              False
 2.    Fill in the blanks:              1x4=4

a)      A company incorporated in India but its all members are foreigners, then it will be a Indian company.
b)      Unregistered companies are not required to have any Memorandum or Articles of Association.
c)       The Board of directors may appoint an additional director.
d)      Share warrant is a negotiable instrument.
 3.    Write briefly (any four):                                                      4x4=16
a)      Memorandum of Association
Ans: Memorandum of association is the document which contains the rules regarding constitution and activities and objects of the company. It is fundamental charter of the company. Its relation towards the members and the outsiders are determined by this important document.
Section 2 (56) of the Companies Act, 2013 defines Memorandum as “Memorandum means the Memorandum of association of a company as originally framed or as altered from time to time in pursuance of any previous companies law or of this act”.
One of the essentials for the registration of a company is memorandum of association. It is the first step in the formation of a company. Its importance lies in the fact that it contains the fundamental clauses which have often been described as the conditions of the company’s incorporation.
b)      Reserve Capital
c)       Annual General Meeting
Ans: Every company must in each year hold an annual general meeting. Not more than 15 months must elapse between two annual general meetings. However, a company may hold its first annual general meeting within 9 months from the close of 1st financial year. In such a case, it need not hold any annual general meeting in the year of its incorporation as well as in the following year only. A notice of at least 21 days before the meeting must be given to members unless consent is accorded to a shorter notice by members, holding not less than 95% of voting rights in the company. The notice must state that the meeting is an annual general meeting. The time, date and place of the meeting must be mentioned in the notice.
The AGM must be held on a working day during business hours at the registered office of the company or at some other place within the city, town or village in which the registered office of the company is situated. The Central Government may, however, exempt any class of companies from the above provisions.
d)      Qualification Share
Ans: Qualification shares are those which a director must own for appointment as a director in a company. A director must posses qualification shares within 2 months from the date of appointment and the value of such share must not exceed Rs. 5,000. According to the section 270, the directors of the company may require to hold certain share in the company to be eligible to become director in the company such shares are called qualification shares. However, directors of private companies and directors appointed by the central government are not require to hold qualification shares.
e)      Share Certificate
f)       Floating Charge
 4. (a) Define Company. Discuss its major features.        2+10=12
Ans: Definition: A company is an artificial person created by law, having a separate legal entity, with a perpetual succession and a common seal. It is an association of many persons who contribute money or money’s worth to a common stock and employs it for a common purpose. The common stock so contributed is denoted in terms of money and is called capital of the company. The persons who contribute it or to whom it belongs are members. The proportion of capital to which each member is entitled is his share.
According to The Companies Act’ 2013 – “Company means a every association of person formed and registered under this Act or any companies enacted prior to the Companies Act, 2013.” [sec.2(20)]
Joint Stock Company has been defined by many eminent authors, jurists and institutions. Some of these definitions are given below:
According to L.H.Haney – “A company is an artificial person created by law, having a separate legal entity, with a perpetual succession and a common seal.”
According to Chief Justice Marshall – “A company is an artificial being invisible, intangible and existing only in the eyes of law.”
Characteristics of a Company
The system of joint stock organization is very useful for large undertakings for which large capital is required. It is an incorporated association created by law, having distinctive name, a common seal, perpetual succession, limited liability etc. formed to carry on business for profit. Some of the essential characteristics of a company are given below:
1) Artificial Person: A company is an artificial person, which exists only in the eyes of law. The company carries business on its own behalf. It has a right to sue and can be sued, can have its own property and its own bank account. It can also own money and be a creditor.
2) Created by law: A company can be formed only with registration. It has to fulfill a lot of formalities to be registered. It has also to fulfill a lot of legal formalities in order to be dissolved.
3) Separate Legal entity: A company has a separate legal entity and is not affected by changes in its membership.
4) Perpetual succession: A company has a continuous existence. Its existence does not affected by admission, retirement, death or insolvency of its members. The members may come or go but the company may go forever. Only law can terminate its existence
5) Limited Liability: The liability of every member is limited to the amount he has agreed to pay to the company on the shares held by him.
6) Voluntary Association: A company is a voluntary association. It cannot compel any one to become its member or shareholder.
7) Capital Structure: A company has to mention its maximum capital requirements in future in its memorandum of association. Its capital is divided into shares, which are easily transferable from person to person.
8 ) Transferability of Shares: The shares of the company are movable property. The shares of a company are freely transferable by its members except in case of a private company, which may have certain restrictions of such transferability. [ Sec.44 of the Companies Act, 2013]
9) Common Seal: As a company is an artificial person, so it cannot sign any type of contracts. For this purpose its requires a common seal which acts as the official signatories of the company. All the contracts prepared by its directors must bear seal of the company.
10) Democratic Ownership: The directors of a company are elected by its shareholders in a democratic way.
11) Maintenance of Books: A limited Company is required by law to keep a prescribed set of account books and failure in this regard may attract penalty.
12) Periodical audit: A Company has to get its accounts periodically audited through the chartered accountants appointed for this purpose by the shareholders.
(b) Define private company. Explain the procedure for conversion of a private company to a public company.  3+9=12
Ans: Private company [Sec.2(68)] - A private company is normally what the Americans call a ‘close corporation’. According to Sec.2(68), a private company means a company which has a minimum paid-up capital of Rs. 1,00,000 or such higher paid-up capital as may be prescribed by CG, and by its Articles:
a.       Restricts the right to transfer its shares, if any. The restriction is meant to preserve the private character of the company.
b.      Except in case of one person company, limits the number of its members to 200 not including its employee-members. Joint shareholders shall be counted as one member only.
c.       Prohibits any invitation to the public to subscribe for any securities. In other words, a private company shall not make a public issue of its securities.
A Private company may be:
a)      One Person company [Sec. 2(62)]: It means a company which has only one person as a member. All the provisions of a private company is also applicable to this company.
b)      Small Company [Sec. 2(85)]: A company shall be a small company only if it’s paid-up capital does not exceed Rs.50 lakhs or such higher amount as may be prescribed (not being more than Rs. 5 crores) and its turnover does not exceeds Rs. 2 crores or such higher amount as may be prescribed (not being more than Rs. 20 crores)
c)       Other that “One Person Company” and “Small Company”.

 5.    (a) Explain the provisions of the Companies Act relating to share transfer.                          11
(b) What is Share? What are the differences between Equity Share and Preference Share?                        4+7=11

6.    (a) Distinguish between Fixed charge and Floating charge. When Floating charges are converted to a Fixed charge? 6+5=11
(b) What is Charge? Which charges need compulsory registration?

7.    (a) What is Annual Return? Discuss the particulars needed to be furnished in Annual Returns.         3+8=11
(b) What are the particulars to be recorded in a register of members of a company? Under what circumstances and who can rectify register of members?
 8. (a) Discuss the procedure regarding removal of directors.          11
Ans: A director of a company can be removed by
(a) Shareholders (Sec. 169)
(b) The Tribunal (Sec. 242)
(a) Removal by shareholder: Section 169 empowers the company to remove a director by ordinary resolution before the expiry of his period of office except in the following cases:
(1) A director appointed by the tribunal under sec. 242;
(2) A nominee director of a public financial institution which is by its charter empowered to nominate a person as a director or to remove him notwithstanding any power contained in any other act;
(3) Director appointed in accordance with the principal of proportional representation, under section 163. This is to ensure that the directors appointed by the minority are not removed by a bare majority.
Special notice is required of any resolution to remove a director or to appoint somebody in his place at the meeting at which he is removed. On receipt of such notice, the company will immediately send a copy thereof to the director concerned. He may make any representation in writing and the copy of such representation may be sent by the company to every member. Where the copy of the representation is not sent to the members, in that case the director concerned may require the representation to be read at the meeting.
A vacancy created by the removal of a director as aforesaid can be filled up at the meeting at which he is removed provided special notice of the proposed appointment was also given. The director so appointed shall hold office till the date the director removed would otherwise have hold office. If the vacancy is not filled, it shall be filled up as casual vacancy except that the director removed shall not be re-appointed. The director so removed is entitled to claim compensation or damages for branch of contract.
(b) Removal by the Tribunal: On an application to the Tribunal for prevention of oppression and mismanagement, the tribunal may terminate or set aside or modify any agreement between the company and the managing director, or any other director or manager. On such termination, the director cannot serve the company in a managerial capacity for a period of five years from the date of the order of termination, without the permission of the tribunal. The director on removal cannot sue the company for damages or compensation for loss of office (Sec. 243).
Removal of a non-rotational director of a government company
Directors appointed by the state government as a nominee director can be removed by such government. The government is entitled to revoke the nomination as a matter of right, which flows from the articles of association. Revoking of the appointment by the government under the articles is not the same thing as removal of a director by the company under sec. 169. Hence, if the government revokes the nomination, there is no contravention of section 169.
(b) What is the position of a director in a company:
Ans: (i)      as an agent: Directors as Agent: Directors are, in the eyes of law, agents of the company for which they act. The company itself cannot act, it can act only through directors and by the reason of which a relation of principal and agent is established between the company and the directors. Wherever as agent is liable those directors would be liable; where the liability would attach to the principal and principal only, the liability is the liability of the company.
Where the directors make contracts on behalf of the company, they incur no personal liability provided they act within the scope of their authority. In such a case, the company alone would be liable. Directors incur a personal liability in the following circumstances:
a)      Where the contract in their own names.
b)      Where they use the company’s name incorrectly.
c)       Where director’s exceeds their powers.
But the position of directors differ from that of the agents because an agent can enter into a contract in his own name but a director cannot. Again an agent may not disclose the name of his principal but a director must disclose the name of his principal. Hence, the directors are not agents in the true sense.
(ii) as a trustee: Directors as trustees: The directors have also been described as trustees of the company. They are trustees of the company’s money or property which comes into their hands or which is actually under their control and of the powers entrusted to them. But in real sense, the position of directors is differ from that of the trustees because a trustee can’t be an employee of the trust but a director can be an employee of the company. Again, an artificial person can become a trustee but an artificial person cannot become a director. As, only individual can be a director. Hence, directors may better be considered as quasi trustee.
(iii) as a managing partner: Directors as managing partners: The directors are also sometimes described as managing partners because like a partner of a firm, they manage the affairs of the company and they are also usually important shareholders of the company. They do all proprietorial functions like allotting shares, making calls, forfeiting shares etc.
However, all the partners of a firm act on the principal of mutual agency. But it is not so in the case of directors. A director has no authority to bind the other directors and shareholders. Moreover, directors are subject to retirement by rotation whereas partners of a firm are not. Hence, the directors are not managing partners in the full sense.
Thus, directors are described as trustees, agents or managing partners. The board of directors are the brain and the only brain of the company which is the body and the company can act only through them.