Past Year Questions: The Companies Act, 2013 | Business Laws for CA Foundation PDF Download

Q 1. (i) State with reasons whether the following companies can be treated as Small Companies with reference to the provisions of The Companies Act, 2013: (4 Marks, May 2025)

1. STS Pvt. Ltd., having a turnover of ₹ 10 crores and the paid-up capital of ₹ 1 crore (1,00,000 equity shares of ₹ 100 each). Out of these 60,000 equity shares are held by UV Infratech Pvt. Ltd.

2. ZX Ltd., having a paid-up capital of ₹ 3 crores and turnover of ₹ 35 crores.

Answer: (i) According to Section 2(85) of the Companies Act, 2013, Small company means a company, other than a public company-

(a) paid-up share capital of which does not exceed four crore rupees or such higher amount as may be prescribed which shall not be more than ten crore rupees; and
(b)  turnover of which as per profit and loss account for the immediately preceding financial year does not exceed forty crore rupees or such higher amount as may be prescribed which shall not be more than one hundred crore rupees:

Exceptions: This clause shall not apply to: 
(A) a holding company or a subsidiary company;   
(B) a company registered under section 8; or 
(C) a company or body corporate governed by any special Act. 

In the instant case, 
(a) STS Pvt. Ltd. though is a small company taking into account its turnover and paid up share capital (i.e. ` 10 crores and ` 1 crore respectively), but since it is the subsidiary c.ompany of UV Infratech Pvt. Ltd. (UV Infratech Pvt. Ltd. holds ` 60,00,000 equity share capital of STS Pvt. Ltd.), hence STS Pvt. cannot be considered as small company.   
(b) ZX Ltd. cannot be considered as a small company since it is a public company. 

(ii) The paid-up equity share capital of ACD Ltd. is ₹ 80 crores & preference share capital of ₹ 20 crores. B Ltd. holds equity shares in ACD Ltd. worth ₹ 15 crores and preference shares worth ₹ 10 crores. Can B Ltd. be considered as an Associate Company of ACD Ltd.?
(3 Marks, May 2025)

Answer: (ii) As per Section 2(6) of the Companies Act, 2013, an Associate Company in relation to another company, means a company in which that other company has a significant influence, but which is not a subsidiary company of the company having such influence and includes a joint venture company.   

The term “significant influence” means control of at least 20% of total voting power, or control of or participation in business decisions under an agreement.   

In the given case, the paid up share capital of ACD Ltd. is ` 80 crores. B Ltd. holds equity share capital of ` 15 crore in ACD Ltd. i.e. less than 20% significant influence. Therefore ACD Ltd. cannot be considered as an Associate Company of B Ltd. 

Q 2.  Doctrine of indoor management allows all those who deal with the company to assume that the officers of the company have observed the provisions of the articles. In light of the above statement, explain the doctrine of indoor management and its exceptions, if any, according to provisions of The Companies Act, 2013.
(7 Marks, May 2025)

Answer: Doctrine of Indoor Management: According to the “doctrine of indoor management” the outsiders, dealing with the company though are supposed to have satisfied themselves regarding the competence of the company to enter into the proposed contracts are also entitled to assume that as far as the internal compliance to procedures and regulations by the company is concerned, everything has been done properly.   

They are bound to examine the registered documents of the company and ensure that the proposed dealing is not inconsistent therewith, but they are not bound to do more. They are fully entitled to presume regularity and compliance by the company with the internal procedures as required by the Memorandum and the Articles. Thus, the doctrine of indoor management aims to protect outsiders against the company. 

The above-mentioned doctrine of Indoor Management has limitations/exceptions of its own. That is to say, it is inapplicable to the following cases, namely:
(a) Actual or constructive knowledge of irregularity: The rule does not protect any person when the person dealing with the company has notice, whether actual or constructive, of the irregularity.   
(b) Suspicion of Irregularity: The doctrine in no way, rewards those who behave negligently. Where the person dealing with the company is put upon an inquiry, for example, where the transaction is unusual or not in the ordinary course of business, it is the duty of the outsider to make the necessary enquiry.   
(c) Forgery: The doctrine of indoor management applies only to irregularities which might otherwise affect a transaction, but it cannot apply to forgery, which must be regarded as nullity. 

Q 3. (i) The Object clause of Memorandum of Association of ABC Pvt. Ltd. authorized the company to carry on the business of trading in property in Gurgaon. Since the company was not doing well, the Directors of the company in a recent board meeting planned to diversify the business and enter into Construction business. For this purpose, they borrowed a sum of ₹ 5 crores from Magnum Finance Ltd. But the members of the company did not approve the decision of the board hence, company refused to repay the loan. According to provisions of The Companies Act, 2013 what is the recourse available to Magnum Finance Ltd. for recovery of the loan?
(4 Marks, May 2025)

Answer: (i)  It is a fundamental rule of Company Law that the objects of a company as stated in its memorandum can be departed from only to the extent permitted by the Act, thus far and no further. In consequence, any act done or a contract made by the company which travels beyond the powers not only of the directors but also of the company is wholly void and inoperative in law and is therefore not binding on the company.   

On this account, a company can be restrained from employing its funds for purposes other than those sanctioned by the memorandum. Likewise, it can be restrained from carrying on a trade different from the one it is authorised to carry on. The impact of the doctrine of ultra vires is that a company can neither be sued on an ultra vires transaction, nor can it sue on it.   

Since the memorandum is a “public document”, it is open to public inspection. Therefore, when one deals with a company one is deemed to know about the powers of the company. If in spite of this you enter into a transaction which is ultra vires the company, you cannot enforce it against the company.   

In the instant case, ABC Pvt. Ltd. was authorised to trade in property only, so taking loan for construction business was ultra virus the power of the company. 

Therefore, Magnum Finance Ltd. cannot enforce against ABC Pvt. Ltd. for recovery of the loan. But,
(a) It can recover the money to the extent it has been utilised in meeting lawful debt of the company, then it steps into shoes of the debtor paid off and consequently it would be entitled to recover the loan to that extent from the company. 
(b) if the money is not spent, it may stop ABC Pvt. Ltd. from spending by means of injunction and recover the unspent amount. 

​(ii) SNM Ltd. was registered in 2021 with a share capital of ₹ 50 Lakh divided into 5 lakhs equity share of ₹ 10 each under Section 8 of the Companies Act, 2013 for promotion of art in Jaipur. Company earned huge profits during the financial year ending on 31st March 2025 due to boom in the market. On 10th May 2025, 75% members of the company demanded to distribute 10% dividend to the equity shareholders. For this purpose, they passed special resolution in EGM. With reference to provisions of The Companies Act, 2013 decide whether SNM Ltd. can declare dividend @ 10% to equity shareholders for the year ending 31st March 2025.
(3 Marks, May 2025)

Answer: (ii) Formation of companies with charitable objects etc. (Section 8 company): 
Section 8 of the Companies Act, 2013 deals with the formation of companies which are formed to   
• promote the charitable objects of commerce, art, science, sports, education, research, social welfare, religion, charity, protection of environment etc.   
• Such company intends to apply its profit in promoting its objects and   
• prohibiting the payment of any dividend to its members. 

In the instant case, SNM Ltd. cannot declare dividend @10% to equity shareholders for the year ending 31st March, 2025 as it is a Section 8 company which are specifically prohibited from paying dividend. The profits of a section 8 company must be applied towards promoting its objects. Therefore, the special resolution passed in the EGM to declare a dividend is invalid. 

Q 3. (i)  "Harmony Foundation" is a newly incorporated company focused on promoting education and healthcare services in rural areas. The company is registered as a section 8 company with a clear plan to reinvest all profits into its activities, and a license has been accorded by the Central Government. For the financial year ending on 31st March, 2024, the company earned a substantial profit and transferred some amount to M/S LMP Associates (a Partnership firm and one of the member of the Harmony Foundation). Subsequently, on the complaint of one of the members, the Central Government, after giving an opportunity of being heard, directed the company to be wound up on the ground that a partnership firm cannot be a member of the section 8 company and it cannot transfer any part of profit to the firm. Explain, in the light of the provisions of The Companies Act, 2013, whether the ground taken for winding up is sufficient.
(4 Marks, Jan 2025)

Answer: Formation of companies with charitable objects etc. (Section 8 company): 

Section 8 of the Companies Act, 2013 deals with the formation of companies which are formed to  
• promote the charitable objects of commerce, art, science, sports, education, research, social welfare, religion, charity, protection of environment etc.   
• Such company intends to apply its profit in 
• promoting its objects and   
• prohibiting the payment of any dividend to its members. 

The Section 8 company operates under a special licence from Central Government and the Licence revoked if conditions are contravened. 

On revocation, Central Government may direct it to 

• Converts its status and change its name
• Wind–up
• Amalgamate with another company having similar object. 

A partnership firm can be a member of Section 8 company. 

In the instant case, “Harmony Foundation” a section 8 company transferred some amount to M/S LMP Associates (a Partnership firm and one of the members of the Harmony Foundation).   

The Central Government, after giving an opportunity of being heard, directed the company to be wound up on the ground that a partnership firm cannot be a member of the Section 8 company and it cannot transfer any part of profit to the firm. 

Hence, the ground for winding up taken on the basis of transfer of any part of profit by Harmony Foundation to the M/S LMP Associates is correct and sufficient. However, M/S LMP Associates can become a member of Section 8 company. Therefore, this ground is not correct hence not sufficient.  

(ii) Justice Private Limited has 9 directors on its Board of Directors. The company's Articles of Association currently state that the quorum for board meetings shall be 1/3rd of the total strength or 2 directors, whichever is higher. The company now intends to amend this article to specify that the quorum for board meetings shall be 1/3rd of the total strength or 4 directors, whichever is higher. Advise the company on the procedure for including this entrenchment provision in its Articles, in accordance with the provisions of The Companies Act, 2013. Would your advice differ if the company were a public company?
(3 Marks, Jan 2025)

Answer: Section 5(4) and (5) of the Companies Act, 2013 contains the following provisions: 

Manner of inclusion of the entrenchment provision: The provisions for entrenchment shall only be made either on formation of a company, or by an amendment in the articles agreed to by all the members of the company in the case of a private company and by a special resolution in the case of a public company.   

Notice to the registrar of the entrenchment provision: Where the articles contain provisions for entrenchment, whether made on formation or by amendment, the company shall give notice to the Registrar of such provisions in such form and manner as may be prescribed.   

In the instant case, Justice Private Limited can follow the above procedure i.e. with the consent of all the members and notice to the registrar to include the entrenchment provision in its Articles. 

Yes, the advice will differ, if the company is public company, since it has to pass Special Resolution and also inform to the registrar. 

Q 4. (i) The extract of the major shareholders holding paid-up share capital in Rural Development Fin. Corp. Ltd., are as follows:
Central Government: 26%
State of Maharashtra: 18%
State of Tamilnadu: 24%
Public: 32%
Whether the company would be considered as a Public Financial Institution (PFI) under the provisions of The Companies Act, 2013? Explain in brief about various institutions regarded as 'Public Financial Institutions' under the Companies Act, 2013.
(5 Marks, Jan 2025)

Answer: Conditions for an institution to be notified as PFI (Section 2(72) of the Companies Act, 2013: No institution shall be so notified unless-
(A)  it has been established or constituted by or under any Central or State Act other than this Act or the previous Companies Law; or 
(B)  not less than fifty-one per cent of the paid-up share capital is held or controlled by the Central Government or by any State Government or Governments or partly by the Central Government and partly by one or more State Governments. 

In the instant case, the major shareholders holding paid-up share capital in Rural Development Fin. Corp. Ltd. by the Central Government and State Governments is 68% (i.e. Central Government: 26%, State of Maharashtra: 18% and State of Tamilnadu: 24%), hence it will be regarded as ‘Public Financial Institution’ under the Companies Act, 2013. 
By virtue of Section 2(72) of the Companies Act, 2013, the following institutions are to be regarded as public financial institutions: 
(i) the Life Insurance Corporation of India, established under the Life Insurance Corporation Act, 1956; 
(ii) the Infrastructure Development Finance Company Limited,   
(iii) specified company referred to in the Unit Trust of India (Transfer of Undertaking and Repeal) Act, 2002; 
(iv institutions notified by the Central Government under section 4A(2) of the Companies Act, 1956 so repealed under section 465 of this Act; 
(v) such other institution as may be notified by the Central Government in consultation with the Reserve Bank of India. 

(ii) Whether it is mandatory to have common seal for the company? If not, then what are the other options available as per The Companies Act, 2013?
(2 Marks, Jan 2025)

Answer: (ii) No, it is not mandatory to have common seal for the company. 
​In case a company does not have a common seal, the authorization shall be made by two directors or by a director and the Company Secretary, wherever the company has appointed a Company Secretary.

Q 5. (i) Kamal, a Chartered Accountant started his e-commerce business by incorporating a One Person Company (the OPC) on 1st October, 2023. He, being a sole member of the OPC, named his brother Sudhakar, with his consent, as his nominee in the Memorandum of Association of the OPC. Now, Kamal intends to replace Sudhakar and to nominate any one of the following shortlisted friends as a nominee with effect from 1st January, 2024:
(1) Robert, an Indian citizen, and a resident in India shifted his residence to the USA on 31st May, 2022 and has not returned to India till 1st January, 2024.
(2) Dinkar, an Indian citizen, and non-resident in India came for employment in India on 1st April, 2023 and have been continuously staying in India since then.
Referring to the provisions of The Companies Act, 2013, advise Kamal regarding eligibility of his short-listed friends to be appointed nominee and the procedure to be followed for changing the name of the nominee as per the provisions of The Companies Act, 2013.
(4 Marks, Sep 2024)

Answer: As per Rule 3 of the Companies (Incorporation) Rules, 2014:   

Only a natural person who is an Indian citizen whether resident in India or otherwise 
(a) shall be eligible to incorporate a One Person Company; 
(b shall be a nominee for the sole member of a One Person Company. 
Here, “resident in India” means a person who has stayed in India for a period of not less than one hundred and twenty days during the immediately preceding financial year. 

In the instant case,   
(i) Robert cannot be appointed as a nominee in the OPC by Kamal as his stay in the preceding F/Y 2022-23 is only for 61 days which is less than 120 days. 
(ii) Dinkar can be appointed as a nominee in the OPC by Kamal as he is an Indian Citizen and non-resident in India. 

​​(ii) XYZ Ltd. was incorporated to hold the patent for a new product. The company is expecting to start its commercial production within the next two years. In the meanwhile, for timely installation, the company has placed the purchase order for plant and machinery with a down payment of ₹ 1 crore. Referring to the provisions of The Companies Act, 2013 examine, whether the company can go for acquiring the status of a dormant company?
(3 Marks, Sep 2024)

Answer: According to Section 455 of the Companies Act, 2013, where a company is formed and registered under this Act for a future project or to hold an asset or intellectual property and has no significant accounting transaction, such a company or an inactive company may make an application to the Registrar in such manner as may be prescribed for obtaining the status of a dormant company.   

In the instant case, XYZ Ltd. has made a significant accounting transaction (down payment of ₹1 crore for plant and machinery), it does not meet the criteria of a dormant company under Section 455 of the Companies Act, 2013. 

Therefore, XYZ Ltd. cannot acquire the status of a dormant company. 

Q 6. Referring to the provisions of the Companies Act, 2013, answer the following:
(i) "Corporate veil sometimes fails to protect the members of the company from the liability connected to the company's actions." Explain any three instances.
(5 Marks, Sep 2024)

Answer: "Corporate veil sometimes fails to protect the members of the company from the liability connected to the company's actions." 
The following are the cases where company law disregards the principle of corporate personality or the principle that the company is a legal entity distinct and separate from its shareholders or members: 
(1) To determine the character of the company i.e. to find out whether co-enemy or friend: It is true that, unlike a natural person, a company does not have mind or conscience; therefore, it cannot be a friend or foe. It may, however, be characterised as an enemy company, if its affairs are under the control of people of an enemy country. For this purpose, the Court may examine the character of the persons who are really at the helm of affairs of the company. 
(2) To protect revenue/tax: In certain matters concerning the law of taxes, duties and stamps particularly where question of the controlling interest is in issue.   
(i) Where corporate entity is used to evade or circumvent tax, the Court can disregard the corporate entity. 
(ii) Where the company was not a genuine company at all but merely the assessee himself disguised under the legal entity of a limited company. 
(3) To avoid a legal obligation: Where it was found that the sole purpose for the formation of the company was to use it as a device to reduce the amount to be paid by way of bonus to workmen, the Supreme Court upheld the piercing of the veil to look at the real transaction (The Workmen Employed in Associated Rubber Industries Limited, Bhavnagar vs. The Associated Rubber Industries Ltd., Bhavnagar and another).   
(4) Formation of subsidiaries to act as agents: A company may sometimes be regarded as an agent or trustee of its members, or of another company, and may therefore be deemed to have lost its individuality in favour of its principal.  Here the principal will be held liable for the acts of that company.   
(5) Company formed for fraud/improper conduct or to defeat law: Where the device of incorporation is adopted for some illegal or improper purpose, e.g., to defeat or circumvent law, to defraud creditors or to avoid legal obligations. 

​(ii) What is the effect of the Memorandum and Articles when registered?
(2 Marks, Sep 2024)

Answer: Effect of Memorandum and Articles:  As per Section 10 of the Companies Act, 2013, where the memorandum and articles when registered, shall bind the company and the members thereof to the same extent as if they respectively had been signed by the company and by each member, and an agreement to observe all the provisions of the memorandum and of the articles.

All monies payable by any member to the company under the memorandum or articles shall be a debt due from him to the company. 

Q 7. ​(i) JV Limited borrowed a secured loan of ₹ 5 crore from Star Bank Limited (the bank) to meet its working capital requirement. However, the borrowing powers of the company, under its Memorandum of Association, were restricted to ₹ 1 crore. The bank released the loan amount in two instalments of ₹ 1 crore and ₹ 4 crore. On the due date for repayment of the loan, the company refused to accept the liability of ₹ 5 crore on the ground that the borrowing was ultra vires the company. The company's books of account show that the company has utilised the loan amount of ₹ 3 crore for repayment of its lawful debts. The utilisation of the remaining ₹ 2 crore cannot be traced. Referring to the doctrine of ultra-vires under the Companies Act, 2013, examine the validity of the decision of the company denying the repayment of the loan and explore the remedy, if any, available to the bank for recovery of the loan.
(4 Marks, Sep 2024)

Answer: Doctrine of ultra vires: The meaning of the term ultra vires is simply “beyond (their) powers”. It is a fundamental rule of Company Law that any act done or a contract made by the company which travels beyond the powers not only of the directors but also of the company is wholly void and inoperative in law and is therefore not binding on the company.   

The impact of the doctrine of ultra vires is that a company can neither be sued on an ultra vires transaction, nor can it sue on it. Since the memorandum is a “public document”, it is open to public inspection. Therefore, when one deals with a company one is deemed to know about the powers of the company. If in spite of this you enter into a transaction which is ultra vires the company, you cannot enforce it against the company.   

In the instant case, borrowing more than ₹1 crore was clearly beyond JV Limited’s powers as per its MoA, making the loan transaction ultra vires to the extent of the excess amount over ₹1 crore. 

Hence, the decision of the company denying the repayment of the loan being ultra virus the company shall be valid for ` 4 crore.   If the funds have been applied for legitimate business purposes (such as repaying lawful debts), the lender steps into the shoes of the debtor paid off and consequently he would be entitled to recover his loan to that extent from the company. 

Therefore, JV Limited cannot deny repayment of ₹3 crore, as it was utilised for lawful purposes, despite the ultra vires nature of the loan. 

Ultimately, the company has no remedy available to recover the balance amount of loan of ` 1 crore as the spending thereof is not traceable.

​(ii) After incorporation of Goodwill Private Limited (the company) on 15th May, 2024 the share certificates were issued to Amit, Sumit and Sumati being subscribers to the Memorandum of Association of the company without affixing the common seal thereon and under the signature of Amit and Sumit, the directors of the company. The company has yet to appoint a company secretary. On objection raised by Sumati, a director, about the validity of the share certificate signed by other two directors, Amit and Sumit, clarified that since the company has opted not to have the common seal for the company the share certificates (i.e. the document) signed by two directors are valid. Referring to the provisions of the Companies Act, 2013, examine the correctness of the objection raised by one of the directors and in response, the clarification offered by other directors. Would your answer be different, if the company had a company secretary?
(3 Marks, Sep 2024)

Answer: The documents which need to be authenticated by a common seal will be required to be so done, only if the company opts to have a common seal.   

In case a company does not have a common seal, the authorisation shall be made by two directors or by a director and the Company Secretary, wherever the company has appointed a Company Secretary.

In the instant case, the objection of Sumati is not valid as the share certificate was signed by two directors Amit and Sumit as the company secretary was not appointed. 

If the company had a company secretary, then the share certificate has to be signed by a director and the Company secretary.   

Hence, yes, the answer will be different.

Q 8. A company, ABC limited as on 31.03.2023 had a paid-up capital of ₹ 1 lakh (10,000 equity shares of ₹ 10 each). In June 2023, ABC limited had issued additional 10,000 equity shares of ₹ 10 each which was fully subscribed. Out of 10,000 shares, 5,000 of these shares were issued to XYZ private limited company. XYZ is a holding company of PQR private limited by having control over the composition of its board of directors.
Now, PQR private limited claims the status of being a subsidiary of ABC limited as being a subsidiary of its subsidiary i.e. XYZ private limited. Examine the validity of the claim of PQR private limited.
State the relationship if any, between ABC limited & XYZ private limited as per the provisions of The Companies Act, 2013.
(7 Marks)  

Answer: As per Section 2(46) of the Companies Act, 2013, holding company in relation to one or more other companies, means a company of which such companies are subsidiary companies.   
Section 2(87) defines “subsidiary company” in relation to any other company (that is to say the holding company), means a company in which the holding company
(i) controls the composition of the Board of Directors; or   
(ii) exercises or controls more than one-half of the total voting power either at its own or together with one or more of its subsidiary companies. 

In the instant case, as on 31.03.2023, ABC Limited had a paid-up capital of ` 1 lakh (10,000 equity shares of ` 10 each). In June 2023, ABC Limited issued additional 10,000 equity shares, which was fully subscribed. Post issue, the total paid-up capital of ABC Limited is ` 2 lakhs (20,000 equity shares of `10 each).   

Out of these, 5,000 shares were issued to XYZ Private Limited. Since XYZ Private Limited holds only 25% of the shares in ABC Limited, it does not have control of more than one-half of the total voting power of ABC Limited. Hence, XYZ Private Limited cannot be considered as a subsidiary company of ABC Limited in terms of the second criteria stated above, that of controlling of voting power. 

XYZ Private Limited is the holding company of PQR Private Limited by having control over the composition of its Board of Directors. But since XYZ Private Limited cannot be termed as a subsidiary company of ABC Limited, PQR Private Limited cannot claim the status of being a subsidiary of ABC Limited in terms of the first criteria, that of controlling of the composition of directors.

As per section 2(6) of the Act, Associate Company in relation to another company, means a company in which that other company has a significant influence, but which is not a subsidiary company of the company having such influence and includes a joint venture company.   

The expression “significant influence” means control of at least twenty per cent of total voting power, or control of or participation in business decisions under an agreement. 

In terms of the above provision, the relationship between ABC Limited and XYZ Private Limited can be of an Associate Company.   

Since XYZ Private Limited holds more than 20 percent of voting power in ABC Limited, it can be considered as an Associate Company of ABC Limited.  

Q 9. Ram wants to incorporate a company in which he will be the only member. According to provisions of The Companies Act, 2013, what type of company can be incorporated? What are the salient features of this type of company?
(7 Marks)

Answer: Section 2(62) of the Companies Act, 2013 defines one person company (OPC) as a company which has only one person as a member.   Ram wants to incorporate a company in which he will be the only member. Hence, he can incorporate an One person Company.   

According to section 3(1)(c) of the Companies Act, 2013, OPC is a private limited company with the minimum paid up share capital as may be prescribed and having one member.   

OPC (One Person Company) - salient features 
♦ Only one person as member. 
⬥ Minimum paid up capital – no limit prescribed. 
⬥ The memorandum of OPC shall indicate the name of the other person, who shall, in the event of the subscriber’s death or his incapacity to contract, become the member of the company. 
⬥ The other person whose name is given in the memorandum shall give his prior written consent in prescribed form and the same shall be filed with Registrar of companies at the time of incorporation. 
⬥ Such other person may be given the right to withdraw his consent. 
⬥ The member of OPC may at any time change the name of such other person by giving notice to the company and the company shall intimate the same to the Registrar. 
⬥ Any such change in the name of the person shall not be deemed to be an alteration of the memorandum. 
⬥ Only a natural person who is an Indian citizen whether resident in India or otherwise and has stayed in India for not less than 120 days during the immediately preceding financial year. 
a. shall be eligible to incorporate an OPC;   
b. shall be a nominee for the sole member of an OPC.
♦ No person shall be eligible to incorporate more than one OPC or become nominee in more than one such company. 
♦ No minor shall become member or nominee of the OPC or can hold share with beneficial interest. 

♦ Such Company cannot be incorporated or converted into a company under section 8 of the Act. Though it may be converted to private or public company in certain cases. 
♦ Such Company cannot carry out Non-Banking Financial Investment activities including investment in securities of any body-corporate.   
⬥ If One Person Company or any officer of such company contravenes the provisions, they shall be punishable with fine which may extend to ten thousand rupees and with a further fine which may extend to one thousand rupees for every day after the first during which such contravention continues. 

Here, the member can be the sole member-cum-director.

Q 10. (i) XYZ is a company incorporated under The Companies Act, 2013. The paid-up share capital of the company is held by others as on 31.03.2024 is as under:
(1) Government of India: 20%
(2) Life Insurance Corporation of India (Public Institution): 8%
(3) Government of Tamil Nadu: 10%
(4) Government of Rajasthan: 10%
(5) ABC Limited (owned by Government Company): 15%
As per above shareholding, state whether XYZ limited be called a government company under the provisions of The Companies Act, 2013.
(4 Marks)

Answer: Under the Companies Act, 2013, a Government company is defined in Section 2(45) as a company in which not less than 51% of the paid-up share capital is held by: 
• The Central Government, or 
• Any State Government or Governments, or 
• Partly by the Central Government and partly by one or more State Governments, 
and includes a company which is a subsidiary company of such a Government company. 

In the instant case, total Government Shareholding is 40% [i.e. 20% (Government of India) + 10% (Government of Tamil Nadu) + 10% (Government of Rajasthan)] = 40%

The holding of the Life Insurance Corporation of India i.e. 8% and ABC Limited i.e. 15%, total amounting to 23% cannot be taken into account while counting the prescribed limit of 51%. 

Since the total shareholding held by the Central Government and State Governments combined is 40%, which is less than 51%, XYZ Limited does not qualify to be a Government company under the provisions of the Companies Act, 2013. 

​(ii) M and N holding 70% and 30% of the shares in the company. Both died in an accident. Answer with reference to the provisions of the Companies Act, 2013, what will be the legal effect on the company as both the members have died?
(3 Marks)​

Answer: One of the features of a company is that it has perpetual succession. As per this feature, members may die or change, but the company goes on till it is wound up on the grounds specified by the Companies Act, 2013. The shares of the company may change hands infinitely but that does not affect the existence of the company.   Since a company is an artificial person created by law, law alone can bring an end to its life.  Its existence is not affected by the death or insolvency of its members. 

In the instant case, on the death of M and N, who are holding 70% and 30% shares in the Company, the existence of the company is not affected, since the shares held by M and N will be legally transmitted to their legal heirs.