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Wednesday, December 05, 2018


Term-End Examination
December, 2015
Time : 2 hours Maximum Marks : 50
(Weightage : 70%)
Note : Answer any five questions.
1. What is a company ? Explain its main features. 2+8
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.

2. What is Memorandum of Association ? Distinguish between Memorandum of Association and Articles of Association. 3+7
3. What is meant by certificate of incorporation ? What are the effects of registration of a company ?                     3+7
4. (a) When can a company issue shares at a discount ? 5+5
Ans: As per sec. 53 of the Companies Act, 2013, issue of shares at a discounted price is prohibited. This prohibition applies to all companies, public or private. Any issue of share at a discounted price shall be void. But a company can issue sweat equity shares to its directors or employees as a reward to them for their contributions or conversion of debt into shares. Sweat equity shares are those which are issued by a company at a discounted price or for consideration other than cash.
According to Section 54 of company act 2013, a company is permitted to issue sweat equity shares provided the following conditions are satisfied:
a)      The issue of shares at a discount is authorised by a resolution passed by the company in its general meeting and sanctioned by the Central Government.
b)      The resolution must specify the maximum rate of discount at which the shares are to be issued but the rate of discount must not exceed 10 per cent of the nominal value of shares. The rate of discount can be more than 10 per cent if the Government is convinced that a higher rate is called for under special circumstances of a case.
c)       A company can issue sweat equity shares at any time after the registration of the company.
d)      The shares are of a class, which has already been issued.
e)      The shares are issued within two months from the date of sanction received from the Government.
(b) Distinguish between a share certificate and a share warrant.
Ans: Difference between Shares warrant and share certificate
a)      A share warrant can be issued only by pubic companies. A share certificate, on the other hand may be issued be pubic as well as private companies.
b)      Issue of share warrant requires provision in the articles and also approval from the C.G., It is not necessary in case of share certificate.
c)       A share warrant can be issued only with respect to fully paid up shares. Whereas a share certificate can be issued at any stage.
d)      The holder of share certificate is a member of the company. Holder of share warrant is not member of the company unless article authorized him for particular purpose.
e)      A share warrant can be transferred by mere delivery and no registration of transfer with the company is required, transfer of shares in not complete unless reregistered by the company.

5. Discuss the liabilities of directors of a company. 10
6. Explain the requisites of a valid meeting. 10
7. On what grounds can a court order a winding up of a company ? Discuss.                          10
8. How can the secretary of a company be removed ? List five statutory duties of a company secretary.                 5+5
9. Write short notes on any two of the following : 5+5
(a) Statement in lieu of prospectus: A public company, which does not raise its capital by public issue, need not issue a prospectus. In such a case a statement in lieu of prospectus must be filed with the Registrar 3 days before the allotment of shares or debentures is made. It should be dated and signed by each director or proposed director and should contain the same particulars as are required in case of prospectus proper.
(b) Modes of becoming member of a company
Ans: A person may become a member or shareholder of the company in any one of the following ways:-
1)      By subscribing to the Memorandum of Association: The subscriber to the Memorandum of a company are deemed to have agreed  to become a member of the company and on the registration of the company their names are entered as members on the register of members
2)      By agreeing to take qualification Shares: According to the section 266 directors of the company on delivering to registrar a written undertaking to take their qualification shares and to pay for them become the members of the company and they are in same position as if they were subscribers to the Memorandum.
3)      By transfer of shares: Shares in a company are movable property and are transferable in the same way as provided in the Articles of the company. Thus one person possesses the right to transfer his shares to another person. On the registration of transfer the transferee becomes the member of the company.
4)      By application and allotment of shares: A person may become a member of a company by an application for shares to the formal acceptance by the company. On valid allotment, the name of the shareholder is entered in the register of members
5)      By succession: On the basis of the succession certificate the legal heirs of the deceased member/shareholder get the right to be a member of the company. The company on this basis enters their name in the register of members.
(c) Doctrine of Indoor Management
(d) Proxy: The term ‘proxy’ is used to refer to the person who is nominated by a shareholder or a member of a company to represent him at a general meeting of the company. It also refers to the instrument through which such a nominee is named and authorised to attend the meeting. Any person whether he is a member or not can be appointed as a proxy. Every proxy has the right to attend the meeting and vote in the meeting. Proxy is always appointed in the written form and should be signed by the member and duly stamped.

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