Test: Companies Act- 2 - CA Foundation MCQ

Definition of Company under Companies Act, 2013

Section 2(20): Company means a company incorporated under this Act or under any previous company law.

Definition of Body Corporate under Companies Act, 2013

Section 2(11): Body Corporate or Corporation includes a Company incorporated outside India, but does not include-

i. A co-operative society registered under any law relating to co-operative societies; and

ii. Any other body corporate (not being a company defined in this act), which the Central Government may by notification specify in this behalf.

- A company is considered registered when it receives a certificate of incorporation from the Registrar of Companies.
- This certificate is a legal document that signifies the company's official formation and existence.
- Filing the Memorandum of Association and Articles of Association is part of the registration process but doesn't complete it.
- The certificate for commencement of business and starting business operations occur after registration.
- Thus, option B is correct because it marks the official registration and existence of the company.

- A private limited company can commence business after obtaining the certificate of incorporation.
- The certificate of incorporation is a legal document issued by the Registrar of Companies.
- This certificate confirms that the company is legally registered under the Companies Act.
- Once incorporated, the company becomes a separate legal entity.
- Unlike public companies, private limited companies do not require a certificate to commence business.
- Thus, option B is correct as the company can start its operations post-incorporation.

- A private company is generally restricted in the number of members it can have, excluding employee members.
- According to the Companies Act, 2013, in India, the maximum number of members allowed in a private company is 200.
- This exclusion of employee members means that employees holding shares are not counted towards this limit.
- The purpose of this restriction is to maintain the private nature of the company by limiting the spread of ownership.

- A subsidiary is defined by control, which typically means:
- Control over more than 50% of the voting power.
- This is because owning the majority of voting shares allows a company to influence decisions and policies.
- Option B is correct as it aligns with the standard definition of a subsidiary.
- Options A, C, and D do not provide the required level of control.
- A significant influence (20%) often relates to an associate, not a subsidiary.

- The first directors of a public company are typically appointed by the promoters.
- Promoters are individuals or entities involved in setting up the company. They carry out initial steps to form the company and ensure it is ready for business.
- They often select the initial board to guide the company’s early development and establish its strategic direction.
- This appointment occurs before shares are offered to the public or shareholders, making promoters the initial decision-makers.

- The Companies Act, 1956, stipulates that a private limited company must have at least two directors.
- Private limited companies are structured to have a minimum of two directors and a maximum of fifteen, unless increased by a special resolution.
- This requirement ensures that the company has adequate governance and oversight through the board of directors.
- Having a minimum of two directors helps in decision-making and provides checks and balances within the company's management.

- Board of Directors' Powers: The Board of Directors has various powers under the Companies Act, which include managing the company's affairs and making key financial decisions.

- Power to Make Calls: The power to make calls refers to the authority to demand payment from shareholders on unpaid amounts of their shares, as per the terms of issue. This is a routine operational decision that the board can make.

- Other Options: Selling the company’s undertakings or borrowing money in excess of paid-up capital generally requires shareholders' approval. Reappointing an auditor typically involves both the board and shareholders. Hence, "B: Power to make call" is correct.

- Only an individual can be appointed as a director of a company.
- A director is responsible for managing the company's affairs and making crucial decisions.
- A body corporate, firm, or association cannot be appointed as a director because they are not natural persons who can perform the duties required of a director.
- The law requires directors to take personal responsibility and accountability, which only individuals can fulfil.

- According to Section 255 of the Companies Act, directors are appointed by the company in a general meeting.
- This process ensures that shareholders, who are the true owners of the company, have a say in who manages their investment.
- The general meeting provides a platform for shareholders to vote on and approve the appointment of directors.
- This democratic approach maintains transparency and aligns the directors' interests with those of the shareholders.