BACHELOR'S
DEGREE PROGRAMME
Term-End
Examination
December,
2015
ELECTIVE
COURSE : COMMERCE
ECO-8
: COMPANY LAW
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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