1. Which of the following is a feature of a sole proprietorship?

A. Limited liability
B. Perpetual succession
C. Single ownership
D. Separate legal entity
Answer: C. Single ownership
2.Under Indian law, a company is considered a:
A. Natural person
B. Legal person
C. Resident of the state it operates in
D. Citizen of India
Answer: B. Legal person
3. Which of the following is NOT a type of company?
 A) Private Company
 B) Public Company
 C) Unlimited Company
 D) Sole Proprietorship
Answer: D) Sole Proprietorship
4. Which of the following is NOT a clause in the Memorandum of Association?
 A) Name Clause
 B) Objects Clause
 C) Audit Clause
 D) Capital Clause
Answer: C) Audit Clause
5. Which of the following best describes equity with differential rights?
 A) Shares that provide higher voting rights to the holders.
 B) Shares that provide differential rights regarding dividends and voting.
 C) Shares that offer fixed dividends and no voting rights.
 D) Shares that are exclusively issued to the employees of the company.
Answer: B) Shares that provide differential rights regarding dividends and voting.
6. Which of the following is NOT a type of debt capital?
 A) Debentures
 B) Bonds
 C) Preference Shares
 D) Loans
Answer: C) Preference Shares
7. Who is responsible for the appointment of directors in a company?
 A) Shareholders
 B) Board of Directors
 C) CEO
 D) Company Secretary
 Answer: A) Shareholders
8. Which of the following is NOT a duty of the Company Secretary?
 A. Maintaining the company's statutory books
 B. Preparing financial statements
 C. Organizing board meetings
 D. Filing annual returns with the regulatory authorities
Answer: B. Preparing financial statements
9. Which section of the Companies Act, 2013 deals with the borrowing powers of directors?

 A) Section 180
 B) Section 185
 C) Section 188
 D) Section 192

Answer: A) Section 180

10. Which form must be filed with the Registrar of Companies for acceptance of deposits
by a company?

 A) Form DPT-1
 B) Form DPT-3
 C) Form DPT-4
 D) Form DPT-5

Answer: B) Form DPT-3

11.a What are the main characteristics of a company as a business medium? Answer:

 Separate Legal Entity: A company is a separate legal entity distinct from its members.
 Limited Liability: Members have limited liability to the extent of their shares.
 Perpetual Succession: The company continues to exist irrespective of changes in
membership.

b. Question: How is a company considered a ‘person’ under law? Answer:

 Legal Recognition: A company is treated as a person for legal purposes.

 Rights and Obligations: It can enter into contracts, own property, and incur liabilities.
 Legal Actions: It can sue and be sued in its own name.

12.a. What are the key steps involved in the formation of a company?

Answer: The key steps involved in the formation of a company are:

1. Promotion: Identifying business opportunities, preparing necessary documents, and

securing initial capital.
2. Registration/Incorporation: Filing necessary documents with the Registrar of Companies
and obtaining the Certificate of Incorporation.
3. Subscription: Obtaining capital from shareholders through the issuance of shares.
4. Commencement of Business: Obtaining the Certificate of Commencement of Business
(for public companies) and starting operations.

b. What are the main purposes of the Articles of Association?

Answer: The main purposes of the Articles of Association are to:

 1. Define the company's internal management structure and rules.
2. Outline the rights, duties, and powers of directors and shareholders.
3. Regulate the conduct of company meetings and decision-making processes.
4. Provide guidelines for issuing and transferring shares.

13.a. What are the different types of shares a company can issue? A: A company can issue:

 Equity Shares: These represent the ownership in a company and come with voting
rights.
 Preference Shares: These provide a fixed dividend before any dividend is paid to equity
shareholders and usually don't carry voting rights.

b. What is the difference between share certificates and share warrants? A:

 Share Certificate: A document that certifies the ownership of shares in a company.

 Share Warrant: A document issued by a company giving the holder the right to
subscribe for the company’s shares at a later date.

14.a. What qualifications are typically required for an individual to be appointed as a

director of a company?

A2: The qualifications required for an individual to be appointed as a director typically include:

 Being of sound mind and capable of making decisions.

 Being at least 18 years of age.
 Not being disqualified under any law from being appointed as a director.
 Possessing a Director Identification Number (DIN).

b. What are some common powers granted to directors of a company?

A8: Common powers granted to directors include:

 Making decisions on the company’s strategic direction.

 Entering into contracts and agreements on behalf of the company.
 Managing the company’s finances, including the approval of budgets and financial
statements.
 Appointing and supervising senior management.

15.a What are the conditions under which the board of directors can exercise borrowing
powers exceeding the company's paid-up share capital and free reserves?

 The board of directors can exercise borrowing powers exceeding the company's paid-up
share capital and free reserves only with the approval of shareholders through a special
resolution passed in a general meeting as mandated by Section 180(1)(c) of the
Companies Act, 2013.
b. How are powers divided between the board of directors and general meetings? Answer: The board
of directors handles day-to-day management and operational decisions, while general meetings of
shareholders make significant decisions such as approving financial statements, electing directors, and
making changes to the company's constitution.

16.a. What are the different types of business enterprises? Discuss their nature and forms.

Answer:

Business enterprises can be classified into various types based on ownership, control, and size.
The main types of business enterprises include:

1. Sole Proprietorship:
o Nature: Single ownership, easy to establish and dissolve.
o Forms: Small retail shops, individual consultants.
2. Partnership:
o Nature: Owned by two or more individuals, shared responsibilities and profits.
o Forms: Law firms, medical practices.
3. Joint Hindu Family Business:
o Nature: Owned by family members, governed by Hindu law.
o Forms: Traditional family-owned businesses in India.
4. Cooperatives:
o Nature: Owned and operated by a group of individuals for mutual benefit.
o Forms: Agricultural cooperatives, credit unions.
5. Corporation/Company:
o Nature: Legal entity separate from its owners, limited liability, perpetual
succession.
o Forms: Private Limited Company (Ltd), Public Limited Company (PLC).

b. Explain the concept of a company as a person, resident, and citizen.

Answer:

Company as a Person:

 Definition: Legally, a company is treated as a 'person' which means it has rights, duties,
and obligations.
 Implications: It can own property, enter into contracts, and initiate or defend legal
actions.

Company as a Resident:

 Definition: A company's residency status is determined by its place of incorporation or

where it conducts its business.
 Tax Implications: Residency affects tax obligations; companies may be taxed on global
income if considered residents.
Company as a Citizen:

 Definition: While a company can be a legal person, it is not a citizen in the constitutional
sense.
 Limitations: Companies do not enjoy political rights such as voting but are subject to the
laws of the land where they operate.
 Rights and Privileges: Companies can enjoy certain economic rights, like entering trade
agreements, under international treaties.

17.a. Differentiate between a private company and a public company.

Answer: The differences between a private company and a public company are:

1. Number of Members: A private company can have a minimum of 2 and a maximum of

200 members, whereas a public company requires a minimum of 7 members with no
upper limit.
2. Share Transferability: Shares of a private company are not freely transferable, whereas
shares of a public company can be freely transferred.
3. Invitation to Public: A private company cannot invite the public to subscribe to its
shares or debentures, while a public company can invite the public to subscribe to its
shares.
4. Disclosure and Compliance: A private company has fewer disclosure requirements and
less stringent compliance norms compared to a public company.

b. What are the contents of the Memorandum of Association, and how can it be altered?

Answer: The Memorandum of Association contains the following clauses:

1. Name Clause: Specifies the name of the company.

2. Registered Office Clause: Indicates the state in which the registered office of the
company is situated.
3. Object Clause: States the objectives and scope of activities the company intends to
undertake.
4. Liability Clause: Defines the liability of the members, whether limited or unlimited.
5. Capital Clause: Specifies the authorized capital of the company.
6. Association Clause: Declares the intention of the subscribers to form the company and
agree to take shares in it.

Alteration: The Memorandum of Association can be altered by:

1. Name Clause: Requires a special resolution and approval from the Central Government.
2. Registered Office Clause: Requires a special resolution and confirmation by the
Regional Director if the change is to a different state.
3. Object Clause: Requires a special resolution and approval from the Registrar of
Companies.
4. Liability Clause: Requires a special resolution and consent of the members.
5. Capital Clause: Can be altered with the approval of shareholders and compliance with
the procedure laid down by the Companies Act.
18.a. Explain the procedure and regulations governing the issue of shares in a company.

Answer: The issue of shares involves several steps and regulatory compliances:

1. Board Approval: The board of directors must approve the decision to issue shares.
2. Prospectus: A detailed prospectus must be prepared and filed with the Securities and
Exchange Commission (SEC) or relevant regulatory body.
3. Subscription: The public or private investors subscribe to the shares offered.
4. Allotment: Shares are allotted to subscribers as per the company's allotment policy.
5. Listing: The shares are listed on a stock exchange for trading.

b. What is an Employee Stock Option Scheme (ESOS) and what are its benefits?

Answer: An Employee Stock Option Scheme (ESOS) is a program that gives employees the
option to purchase shares of the company at a predetermined price after a specified period.

Benefits:

 Attraction and Retention: Helps in attracting and retaining talented employees.

 Motivation: Aligns the interests of employees with shareholders by making them part-
owners.
 Performance Incentive: Encourages employees to work towards increasing the
company's value.

19.a. Explain the process of Appointment/Re-appointment of Directors in a company.

Answer: The appointment/re-appointment of directors in a company involves several steps:

1. Eligibility Check: Ensure the individual is eligible to be appointed as a director per the
Companies Act.
2. Consent: Obtain consent from the individual in writing using Form DIR-2.
3. Board Meeting: Hold a Board meeting to propose the appointment/re-appointment of the
director.
4. Approval: The appointment must be approved by the shareholders in the General Meeting
through an ordinary resolution (for regular directors) or a special resolution (for independent
directors or those who require special consideration).
5. Filing with ROC: File the necessary forms (such as DIR-12) with the Registrar of Companies (ROC)
within 30 days of the appointment.
6. Disclosure: The appointment must be disclosed in the company’s Annual Return.

b. Describe the Remuneration policies for Directors, Managing, and Whole-time Directors.

Answer: Remuneration for directors is determined by the company’s Articles of Association and
shareholder approval. Key points include:

1. Board Approval: The Board of Directors proposes the remuneration.

2. Shareholders’ Approval: Shareholders must approve the remuneration in the General Meeting.
3. Managerial Remuneration: According to the Companies Act, 2013, the total managerial
remuneration payable by a public company to its directors, including managing director and
 whole-time director, must not exceed 11% of the net profits of that company for that financial
year, except with the approval of the Central Government.
4. Inclusion: Remuneration may include salary, perquisites, commission, and other allowances.
5. Independent Directors: Independent directors and non-executive directors receive sitting fees
for attending meetings and may also be paid a percentage of profits or fixed remuneration as
decided by the board.

20.a. Explain the borrowing powers of directors under the Companies Act. Discuss the
limitations and procedures involved.

Answer:

Under the Companies Act, directors have the authority to borrow money on behalf of the
company, subject to certain limitations and procedures:

1. Authority to Borrow: The Articles of Association (AoA) of the company typically

define the borrowing powers of directors. If the AoA is silent, the Board of Directors can
exercise this power, but it must be within the limits approved by the shareholders in a
general meeting.
2. Limitations: Section 180(1)(c) of the Companies Act, 2013, stipulates that the Board
cannot borrow in excess of the aggregate of the company’s paid-up share capital, free
reserves, and securities premium account without the consent of the shareholders. This
approval must be obtained through a special resolution.
3. Procedures:
o Board Resolution: The Board must pass a resolution to approve the borrowing.
o Shareholders' Approval: If the borrowing exceeds the specified limits, a special
resolution must be passed in a general meeting.
o Disclosure: The company must disclose details of its borrowings in the balance
sheet and provide necessary information to stakeholders.
4. Types of Borrowings: Borrowings can be short-term or long-term, secured or unsecured.
Common instruments include loans, debentures, and overdraft facilities.
5. Compliance: Directors must ensure compliance with all statutory requirements,
including filing necessary forms with the Registrar of Companies (RoC).

b. Explain the concept of e-governance under the Companies Act, 2013. How has it improved
corporate governance and compliance?

Answer:

E-Governance under the Companies Act, 2013, refers to the use of digital platforms and
electronic means for corporate governance, compliance, and regulatory processes. The
introduction of e-governance has significantly improved transparency, efficiency, and
accountability in the functioning of companies:
 1. MCA21 Portal: The Ministry of Corporate Affairs (MCA) introduced the MCA21
portal, a comprehensive e-governance platform that allows companies to file statutory
documents, access information, and interact with the government.
2. Digital Filing and Compliance: Companies can now file forms, annual returns, and
financial statements electronically. This reduces paperwork, minimizes errors, and
ensures timely compliance.
3. Digital Signatures: The use of Digital Signature Certificates (DSCs) ensures the
authenticity and integrity of documents filed electronically.
4. Public Access: Stakeholders can access information about companies, such as financial
statements, directors' details, and charges, through the MCA21 portal, promoting
transparency.
5. XBRL Filing: The introduction of eXtensible Business Reporting Language (XBRL) for
financial reporting has standardized data formats, making analysis easier and more
reliable.
6. Ease of Doing Business: E-governance has streamlined various processes, such as
company incorporation, reducing the time and cost involved, and improving the ease of
doing business in India.
7. Real-time Updates: Companies receive real-time updates on compliance requirements
and deadlines, helping them stay compliant and avoid penalties.

21. Discuss the provisions and practical implications of Section 135 of the Companies Act, 2013,
regarding Corporate Social Responsibility (CSR). Include in your discussion the following
points:

1. Applicability of the CSR provisions.

2. CSR Committee constitution and responsibilities.
3. CSR policy formulation and implementation.
4. Reporting and disclosure requirements.
5. Consequences of non-compliance.
6. Practical challenges companies face in implementing CSR.

Answer

Introduction

Section 135 of the Companies Act, 2013, mandates that certain companies undertake Corporate
Social Responsibility (CSR) activities. This section aims to ensure that companies contribute to
the social and economic development of the community.

1. Applicability of CSR Provisions

CSR provisions apply to companies meeting any of the following criteria during any financial
year:

 Net worth of ₹500 crore or more

 Turnover of ₹1,000 crore or more
 Net profit of ₹5 crore or more
Such companies are required to spend at least 2% of their average net profits of the three
immediately preceding financial years on CSR activities.

2. CSR Committee Constitution and Responsibilities

Constitution:

 Companies meeting the CSR criteria must constitute a CSR Committee.

 The committee must have at least three directors, including at least one independent director.
 For private companies with only two directors, the CSR Committee can consist of those two
directors.
 For foreign companies, the CSR Committee should have at least two persons, including one
resident in India and another nominated by the foreign company.

Responsibilities:

 Formulate and recommend a CSR policy to the board.

 Recommend the amount of expenditure to be incurred on CSR activities.
 Monitor the CSR policy and its implementation regularly.
 Prepare an annual report on CSR activities.

3. CSR Policy Formulation and Implementation

Formulation:

 The CSR policy must outline the CSR activities to be undertaken by the company, in alignment
with Schedule VII of the Act.
 The policy should also detail the approach and direction given by the board, taking into account
the recommendations of the CSR Committee.

Implementation:

 CSR activities should be undertaken as per the CSR policy.

 The company can engage in CSR activities either directly or through trusts, societies, or Section 8
companies.
 Collaborations with other companies are allowed, provided the CSR Committees of respective
companies are able to report separately on such projects.

4. Reporting and Disclosure Requirements

Reporting:

 The board’s report must include an annual report on CSR activities, as per the format prescribed
in the Companies (Corporate Social Responsibility Policy) Rules, 2014.
 The report should detail the composition of the CSR Committee, the CSR policy, and the projects
undertaken.

Disclosure:

 The CSR policy must be disclosed on the company’s website.

  Details of CSR expenditure and projects must be included in the company’s annual report.

5. Consequences of Non-Compliance

If a company fails to spend the prescribed CSR amount:

 The board must specify the reasons for not spending the amount in its report.
 The unspent amount must be transferred to a specified fund (such as the Prime Minister's
National Relief Fund) within six months of the end of the financial year.

For willful failure to comply with CSR provisions:

 Companies are liable to pay a penalty of twice the amount required to be transferred to a
specified fund or ₹1 crore, whichever is lesser.
 Officers in default are liable to pay a penalty of one-tenth of the amount required to be
transferred to a specified fund or ₹2 lakh, whichever is lesser.

6. Practical Challenges in Implementing CSR

Identification of Appropriate Projects:

 Companies often face challenges in identifying suitable projects that align with their CSR policy
and the needs of the community.

Execution and Monitoring:

 Ensuring the effective execution and monitoring of CSR activities can be difficult, particularly for
companies operating in multiple locations.
 Collaborating with credible NGOs or partners and ensuring transparency in the utilization of
funds can be complex.

Measuring Impact:

 Measuring the impact of CSR initiatives on the community and the company’s stakeholders can
be challenging.
 Developing robust mechanisms to assess and report the outcomes of CSR activities requires
significant effort and resources.

Compliance and Reporting:

 Ensuring timely and accurate compliance with CSR reporting requirements can be burdensome.
 Keeping abreast of changes in CSR regulations and maintaining proper documentation are
critical but often resource-intensive tasks.