Previous Year Short & Long Questions With Answers: Formation of a Company | Business Studies (BST) Class 11 - Commerce PDF Download

Short Answer Type Questions

Q1: At which stage does a company’s formation interact with SEBI?
Ans: A corporation must communicate with the Securities and Exchange Board of India (SEBI) during the capital subscription stage. The contact is necessary since the company is currently trying to obtain funds from the public by issuing shares and debentures. Before issuing shares or moving forward with capital subscription, SEBI clearance is required since the company must follow guidelines established by SEBI for issuing such shares.

Q2: Experts who help promoters in the promotion of a company are also called promoters. True or False?
Ans: False. A promoter has the idea for starting a business and takes the necessary steps to make it materialise. Conversely, experts who help promoters advertise a company are not referred to as promoters. They are only there to support the sponsors.

Q3: Describe how a company is formed.
Ans: A company must go through several legal formalities and processes throughout its complex formation. Three steps make up the creation process for a company: promotion, incorporation, and subscription. In contrast to limited public corporations, private businesses cannot solicit money from the public, and they are not required to publish a prospectus to fulfil the formalities.

Q4: What is a prospectus? Is it necessary for every company to file a prospectus?
Ans: A prospectus is a company’s invitation to the public outlining the possibility of subscribing to or purchasing shares and debentures issued by the company. Initial Public Offering, or IPO, is a method of acquiring money from the public. However, as private corporations are prohibited from issuing IPOs, there is no need to file a prospectus in the case of a private company. If raising cash from the public is the goal, a prospectus can be necessary. Private businesses are exempt from submitting prospectuses.

Q5: Name the stages in the formation of a Company.
Ans: Major steps in the formation of a company are as follows:

• Promotion: This phase focuses on developing and implementing ideas as a business.
• Incorporation: Application for and receipt of a certificate of incorporation is the first step in this process, doing business as a legal person in the eyes of the law.
• Capital subscription: At this stage, money is raised by selling bonds and stocks to the general public.
• Beginning of business: At this point, all procedures are finished, and the business is officially launched.

Q6: What is the meaning of “Certification of Incorporation”?
Ans: A company becomes a legal entity on the date printed on the Certificate of Incorporation. After the incorporation certificate is final, a firm can enter legal contracts. It serves as proof of a company’s legitimacy and the accuracy of its incorporation.
After receiving a certificate of incorporation, a business acquires legal status. A private company can begin operations immediately and obtain money from friends, family, or other arrangements. Still, a public corporation must go through two other processes to finalize its establishment.

Long Answer Type Questions

Q1: What are the categories of Promoters. ?
Ans:The following categories of promoters exist:

• Entrepreneur Promoter: An entrepreneur is a person who comes up with the concept for a new company and makes all the effort to get it off the ground. He still runs and oversees the company he has promoted. Entrepreneurs support small businesses like sole proprietorships and partnerships. He takes on the risk and is proactive in promoting the business.
• Professional Promoter: These promoters are experts in promoting start-up businesses. Experts frequently endorse large-scale businesses. These professionals have the abilities and expertise required for advancement. They present a company as a continuing concern before offering to sell it, transfer control of the company’s management, or both.
• Financial Promoters: These promoters list new firms when the securities market is advantageous. Due to their background in the financial industry, banks and other financial institutions also carry out the task of promotion. Investment bankers become active in the promotion sector when the securities market can accommodate the fresh issuance of equity shares. In India, industrial concerns are fostered through the Industrial Development Bank of India and other financial organisations.
• Occasional Promoters: Instead of doing so frequently, some promoters only do so occasionally. After marketing a company, they return to their primary employment because promotion is not their primary responsibility. For instance, a technical specialist or engineer may encourage a firm to utilise a patent or idea he has developed financially. Even after the firm has been incorporated, they continue to oversee its affairs.
• Government: In modern times, the government has taken the lead in the promotion. For instance, the Indian government has built several fundamental, strategic, and defence industries to hasten the nation’s economic growth. Large-scale businesses in industries including iron and steel, coal, shipping, fertilisers, electronics, engineering, insurance, tourism, and hotels have benefited from its promotion.

Q2: Discuss the stages in the formation of a company?
Ans: A company is formed when it is registered or incorporated with the state’s registrar of corporations in the state where its registered office will be situated.
The stages of a company’s formation are as follows:

Promotion:

• Promotion of a company refers to performing all required actions to establish a company in accordance with the Act’s provisions. Someone first comes up with the concept for the possible business.
• Promoters are the people who carry out the duty of promotion. An individual, a partner, a business, an association, or a syndicate can all be promoters.
• He performs the following role:
• Recognising a business opportunity
• Possibility analysis
• Approval of a name
• Putting together the Signatories of the Memorandum of Association.
• The appointment of experts
• Preparing the required paperwork

Incorporation:

• The promoters choose whether to incorporate a public company or a private corporation based on the company’s objectives, the scope of operations, required money, etc.
• The Registrar of Companies where the firm’s business office will be located shall receive the application for registration of a company.
• The start of a company’s legal existence is the date listed on the Certificate of Incorporation.
• It acquires legal status and eternal succession on that day. It obtains the capacity to sign contracts that are enforceable by law.
• The indisputable evidence of a company’s legal establishment is the Certificate of Incorporation.

Beginning of a Business:

• After receiving the Certificate of Incorporation from the Registrar of Companies, a public or private company without share capital may start operating immediately.
• If a business wants to raise money from the public, SEBI approval is necessary. Businesses must send a copy of the prospectus or a statement to the Registrar of Companies. There is employment of bankers, brokers, underwriters, and other experts.
• Businesses must contact the stock exchange if they want to deal in shares or debentures.
• The business must also submit documentation to the registrar proving the location of its registered office.

Q3: ‘Statement instead of Prospectus’ What does it mean?
Ans: Statement instead of Prospectus: Public companies with a share capital may occasionally elect not to solicit funding from the public because they may be confident they can secure the funding privately. In this situation, it will need to submit a “Statement instead of a Prospectus” to the registrar. According to the “Schedule III” information of the Companies Act, a “Statement in place of a Prospectus” is written. It provides details that are comparable to those in a prospectus.
Businesses must submit a copy of it to the registrar at least three days before the allocation of the shares, and each of the directors must duly sign this copy. A private corporation must, however, submit either a “Statement in the Lie of Prospectus” or a “Prospectus” to the registrar. Each director’s date and signature must be on the “Statement instead of Prospectus.” There shouldn’t be any false or deceptive statements in it. Untrue information in a statement instead of a prospectus is subject to the provisions addressing the penalty for releasing a false prospectus. A private corporation is not allowed to solicit money. Hence it is not necessary to submit a prospectus or a statement instead of a prospectus.

Q4: List the documents required for the incorporation of a company.
Ans: The following documents are required for incorporation registration:

• Memorandum of Association: The properly stamped, signed, and witnessed Memorandum of Association. A minimum of seven members must sign it in the event of a public business. However, two members’ signatures are necessary for a private business.
• Articles of Association: The Articles of Association should be officially stamped and attested, just as the Memorandum. This document, which outlines the potential methods for achieving the goals of the MOA, is equally crucial for the organisation.
• Director’s Approval: Written consent of the prospective directors to serve as directors and an agreement to acquire the Qualifying Shares. Also required is the consent of the proposed Managing Director, Manager, or whole-time director.
• List of Directors: The people who have consented to serve as directors are included, along with their names, residences, and other pertinent information.
• Registrar’s Letter: A duplicate of the registrar’s letter authorising the business’s name.
• Statutory Declaration: A statutory declaration confirming the fulfilment of all registration criteria. It must be correctly signed.
• Documentary Evidence: Proof in writing that the registration costs have been paid.
• Prospectus: Prospectus is also required if a corporation plans to raise money from the public.

Q5: What is meant by the term ‘Promotion’. Discuss the legal position of promoters concerning a company promoted by them.
Ans: Promotion is the first stage in a company’s establishment. Taking the required actions to incorporate a business by the provisions of the Company Act, 2013 is referred to as “promotion of the company.” Promoters are the people who carry out the duty of promotion. An individual, a partner, a business, an association, or a syndicate can all be promoters.

Regarding a business they have promoted, promoters are in the following legal positions:

• The people forming the company, or the “promoters,” are neither its trustees nor its agents. Promoters are the ones who have the first company concept.
• If any profits were gained through the contracts he signed on behalf of the business, he represents; they must be disclosed.
• They oversee creating the necessary paperwork for a company’s establishment.
• Promoters are eligible for nomination as the company’s first directors.
• They aren’t permitted to get an unreported profit while marketing a business.
• In exchange for their services, a company may decide to grant them shares.

Q6: What is a “Memorandum of Association”? Briefly explain its clauses.
Ans: A company’s primary document, the Memorandum of Association, outlines the organisation’s goals. The Memorandum is a document that outlines the company’s bylaws and any rights or privileges it may have. The following clauses are among those included in the Memorandum of Association:

The MOA’s clauses are:

• Name Clause: The name of the business that has already received approval from the Registrar of Companies is included in this section.
• Registered Office Clause: The intended location of the company’s registered office is specified, along with the state. Although it is not necessary to submit a precise address, the registrar must receive it within thirty days of the company’s creation.
• Object’s Clause: This details the motivation for the company’s founding. A company is not allowed by law to do any activity unrelated to the goals outlined in this section.
• Liability Clause: By this provision, the members’ liability is limited to the outstanding debt on the shares they possess.
• Capital Clause: The maximum amount of capital that the company may raise via the issuing of shares is determined by this provision. The permissible share capital of the new company is specified, as well as how many shares would have a set face value.
• Subscription Clause: The MOA’s sixth and final clause, the subscription provision, requires the subscribers to express their desire to incorporate the business and accept the number of shares specified in the Memorandum.