Formation of a Company- 3 - Free MCQ Practice Test with solutions, Grade

The given problem states that the par value of a security is Rs10 and it is issued at Rs15. We need to determine the amount by which the security is issued above its par value, which is Rs5. This additional amount is known as the premium.
Explanation:
- Par value: The par value of a security is the nominal or face value assigned to it at the time of issuance. In this case, the par value is Rs10.
- Issued value: The issued value is the price at which the security is sold or issued to investors. In this case, the security is issued at Rs15.
- Premium: The premium is the difference between the issued value and the par value. It represents the additional amount that investors pay for the security above its par value.
- In this case, the premium is Rs5 since the security is issued at Rs15 and its par value is Rs10.
Therefore, the correct answer is option D: Premium.

Dividend Payable to Shareholders - Explanation
To understand the dividend payable to shareholders, let's break down the options and their meanings:
A. Equity:
- Equity shareholders are the owners of a company and have a residual claim on the company's assets and earnings.
- They are entitled to receive dividends, but the amount is not fixed or predetermined.
- Dividends for equity shareholders can vary based on the company's profitability and the decisions of the board of directors.
B. Non-preference:
- Non-preference shareholders are shareholders who do not have any special rights or preferences.
- Similar to equity shareholders, the dividend payable to non-preference shareholders is not fixed or predetermined.
- The amount can vary based on the company's profitability and the decisions of the board of directors.
C. Preference:
- Preference shareholders are shareholders who have preferential rights over equity and non-preference shareholders.
- They are entitled to receive a fixed dividend amount or a percentage of the company's profits before any dividend is paid to other shareholders.
- Preference shareholders have priority in receiving dividends, and their dividends are generally fixed or predetermined.
D. All of the above:
- This option is incorrect because not all shareholders receive dividends on a fixed figure or percent.
- Equity and non-preference shareholders do not have a fixed dividend amount, while preference shareholders do.
Conclusion:
- The correct answer is option C: Preference shareholders.
- Dividends payable to preference shareholders are fixed or determined as a percentage of the company's profits.

To understand the answer to this question, we need to break down the options and analyze them one by one:
A: Prospectus:
- A prospectus is a formal document that provides information about a company to potential investors.
- It contains details about the company's business, financials, and investment opportunities.
- A prospectus is usually prepared when a company plans to raise capital from the public through an initial public offering (IPO) or a public issue of securities.
- However, if the company can arrange for capital privately, a prospectus may not be necessary.
B: Statement in lieu of Prospectus:
- When a company chooses to raise capital privately, it may need to prepare a statement in lieu of a prospectus.
- This statement contains similar information to a prospectus but is designed for private investors rather than the general public.
- It provides relevant details about the company's operations, financials, and investment opportunities to potential private investors.
C: Certificate of Prospectus:
- A certificate of prospectus does not exist in the context of preparing a prospectus or statement in lieu of a prospectus.
- Therefore, this option is incorrect.
D: None of the above:
- This option is incorrect as it does not provide a specific alternative to the prospectus.
Based on the analysis, the correct answer is B: Statement in lieu of Prospectus. When a company can raise capital privately, it is required to prepare a statement in lieu of a prospectus to provide relevant information to potential private investors.

Private Company and Paid-up Capital
A private company is a type of company that is privately owned by individuals or a small group of shareholders. It is not listed on the stock exchange and its shares are not available for public trading. In order to be classified as a private company, there are certain requirements that need to be fulfilled, including a minimum paid-up capital.
Definition of Paid-up Capital
Paid-up capital refers to the total amount of money that has been invested by the shareholders of a company. It represents the actual funds that have been received by the company from its shareholders in exchange for the shares they hold. This capital is used by the company to finance its operations and investments.
Minimum Paid-up Capital for a Private Company
In the given question, we are asked to determine the minimum paid-up capital required for a private company. Let's analyze the options provided:
- Option A: 1,00,000
- Option B: 5,00,000
- Option C: 50,00,000
- Option D: none of the above
The correct answer is Option B: 5,00,000.
According to the Companies Act, 2013 in India, the minimum paid-up capital for a private company is 5,00,000 rupees. This means that a private company needs to have at least 5,00,000 rupees as its paid-up capital in order to meet the legal requirements and operate as a private company.
Therefore, Option B is the correct answer as it represents the minimum paid-up capital required for a private company.

Liability of the members of the company can be limited by:
There are two ways in which the liability of the members of a company can be limited:
1. Share:
- Members can limit their liability by holding shares in the company.
- The liability of the members is limited to the amount they have invested in the shares of the company.
- If the company faces financial difficulties or becomes insolvent, the members are not personally liable for the company's debts beyond the value of their shares.
2. Guarantee:
- Members can also limit their liability by providing a guarantee.
- In this case, the members agree to be liable for a specific amount in case the company is unable to meet its obligations.
- The guarantee can be in the form of a fixed amount or a percentage of the company's debts or liabilities.
- The liability of the members is limited to the guaranteed amount, and they are not personally liable for any additional debts or liabilities of the company.
Both options, share and guarantee, can be used by members to limit their liability in a company.

To change the name of a company that resembles the name of an existing company, the company can follow the following steps:
1. Passing an ordinary resolution:
The company can change its name by passing an ordinary resolution in a general meeting. This resolution should be approved by the shareholders of the company.
2. Obtaining permission from the central government:
In some cases, especially if the existing company has a similar name and there is a possibility of confusion among the public, the company may be required to obtain permission from the central government. This permission is usually granted by the Ministry of Corporate Affairs or the relevant regulatory authority.
3. Drafting and filing the necessary documents:
Once the resolution or permission has been obtained, the company needs to draft the necessary documents, including a new Memorandum of Association and Articles of Association, reflecting the change of name. These documents need to be filed with the Registrar of Companies.
4. Updating official records and documents:
After the change of name has been approved and the new documents have been filed, the company needs to update its official records and documents, including its bank accounts, legal contracts, licenses, and permits, to reflect the new name.
5. Informing stakeholders and the public:
It is important for the company to inform its stakeholders, such as employees, customers, suppliers, and investors, about the change of name. This can be done through official announcements, website updates, and other communication channels.
By following these steps, the company can successfully change its name without infringing on the rights of the existing company and ensuring clarity and transparency for its stakeholders.

Explanation:
The correct answer is D: Paid-up capital.
Definition:
Paid-up capital refers to the total amount of called-up share capital that has been paid by the shareholders to the company.
Explanation:
When a company is formed, it issues shares to raise capital. The shareholders are required to pay the amount of capital they have subscribed to. The amount of capital that has been paid by the shareholders is called paid-up capital.
Here are some key points to understand about paid-up capital:
- Paid-up capital represents the actual funds that have been received by the company from its shareholders.
- It is the portion of the share capital that has been paid by the shareholders and is available for the company to use for its operations and investments.
- Paid-up capital can be in the form of cash, assets, or other forms of consideration that the shareholders have provided to the company.
- The amount of paid-up capital determines the financial strength and stability of the company.
- Paid-up capital can increase or decrease over time as shareholders make additional contributions or receive refunds.
In summary, paid-up capital is the total amount of called-up share capital that has been paid by the shareholders to the company, representing the actual funds available for the company to use.

Explanation:
The correct answer is Nominal Capital.
Here is a detailed explanation of each option:
A: Full capital
- Full capital refers to the total amount of money invested in a business or project.
- However, in the context of the question, it does not specifically refer to the sum mentioned in the capital clause of the Memorandum of Association.
B: Maximum capital
- Maximum capital refers to the upper limit of the capital that a company can raise or the maximum amount that can be invested in a business.
- It is not directly related to the sum mentioned in the capital clause of the Memorandum of Association.
C: Share capital
- Share capital refers to the total value of shares issued by a company.
- While it is an important concept in company law, it does not specifically refer to the sum mentioned in the capital clause of the Memorandum of Association.
D: Nominal capital
- Nominal capital refers to the sum mentioned in the capital clause of the Memorandum of Association.
- It represents the authorized capital or the maximum amount that a company is allowed to raise through the issuance of shares.
Therefore, the correct answer is Nominal Capital as it specifically refers to the sum mentioned in the capital clause of the Memorandum of Association.

Explanation:
In order to understand the concept of a Government Company, let's break down the given options and their meanings:
A. Central Government:
- The Central Government refers to the national government or the federal government of a country.
- If a company is held by the Central Government and not less than 51% of its paid-up share capital is owned by the Central Government, then it can be considered a Government Company.
B. State Government:
- The State Government refers to the government of a specific state within a country.
- If a company is held by the State Government and not less than 51% of its paid-up share capital is owned by the State Government, then it can be considered a Government Company.
C. Both a & b:
- If a company is held jointly by both the Central Government and the State Government, with not less than 51% of its paid-up share capital being owned by them collectively, then it can be considered a Government Company.
D. Neither a nor b:
- If a company does not fulfill the criteria of being held by either the Central Government or the State Government, with not less than 51% ownership by either of them, then it cannot be considered a Government Company.
Conclusion:
From the above analysis, it can be concluded that the correct answer is option C: Both a & b. A Government Company is a company in which not less than 51% of the paid-up share capital is held jointly by the Central Government and the State Government.

Statutory company
Statutory companies are those companies that are created by a special act of the legislature. Here is a detailed explanation:
Definition:
A statutory company is a type of company that is established by a specific law or statute enacted by the government. It is created for a specific purpose and has its own set of rules and regulations that govern its operations.
Key Points:
- Statutory companies are created through a special act of the legislature, which means that they have legal recognition and authority.
- These companies are usually established for public utility purposes, such as providing essential services like water supply, electricity, transportation, etc.
- They are typically owned and controlled by the government or a public authority.
- Statutory companies have a separate legal identity from their owners or shareholders.
- They are subject to specific regulations and oversight by the government or regulatory authorities.
- The management and governance structure of statutory companies are defined by the legislation that created them.
- They may have a specific mandate or objectives that they are required to fulfill.
- Statutory companies often enjoy certain privileges, exemptions, or powers that are granted to them by the governing law.
Example:
Some examples of statutory companies include public utilities like water boards, electricity boards, nationalized banks, railway companies, etc.
In conclusion, statutory companies are those that are created by a special act of the legislature for a specific purpose. They have their own set of rules and regulations and are subject to government oversight.

Answer:
The answer is option C: 30 days.
Explanation:
When a company changes its registered office within the same city, it is required to inform the registrar of companies within a certain period of time. In this case, the company must intimate the registrar within 30 days of the change.
Here is why the correct answer is option C:
- The Companies Act, which governs the regulations and procedures for companies in many countries, including India, states that any change in the registered office address within the city must be notified to the registrar.
- This notification must be made within a specified time period, which is 30 days.
- Failure to comply with this requirement may result in penalties or legal consequences for the company.
Therefore, when the registered office of a company is changed within a city, it is important to notify the registrar within 30 days of the change to ensure compliance with the legal requirements.

Answer:
The number of clauses in the Memorandum of Association is 6.
Explanation:
The Memorandum of Association is a legal document that sets out the objectives, powers, and scope of a company. It is one of the fundamental documents required for the incorporation of a company. The number of clauses in the Memorandum of Association varies depending on the jurisdiction and the specific requirements of the company's governing laws. However, in general, the Memorandum of Association typically consists of the following clauses:
1. Name Clause: This clause states the name of the company, which should be unique and not similar to any existing company.
2. Registered Office Clause: This clause specifies the address of the registered office of the company, which is the official address of the company for all legal and official communications.
3. Object Clause: This clause outlines the main objectives and purposes for which the company is being established. It defines the activities that the company is authorized to undertake.
4. Liability Clause: This clause states the extent of liability of the members or shareholders of the company. It specifies whether the liability is limited or unlimited.
5. Capital Clause: This clause details the authorized capital of the company, which is the maximum amount of capital that the company can raise from its shareholders.
6. Association Clause: This clause contains the signatures of the subscribers to the Memorandum of Association, who are the initial members or shareholders of the company.
Therefore, based on the above explanation, the number of clauses in the Memorandum of Association is 6.

The documents that are not mandatory to be submitted to the registrar along with the incorporation application by a private company are as follows:
- Address of Registered office & undertaking: This document is not required to be submitted to the registrar along with the incorporation application.
The following documents are mandatory to be submitted along with the incorporation application:
- Undertaking and statement of capital: This document is mandatory to be submitted to the registrar. It includes the undertaking by the company that it will comply with all the requirements of the Companies Act and the statement of capital, which specifies the amount of share capital and the number of shares that the company has.
- Statement of capital & list of directors: This document is also mandatory to be submitted to the registrar. It includes the statement of capital, which specifies the amount of share capital and the number of shares that the company has, and the list of directors of the company.
- List of directors and statement of capital: This document is mandatory to be submitted to the registrar. It includes the list of directors of the company and the statement of capital, which specifies the amount of share capital and the number of shares that the company has.
Therefore, among the given options, the document that is not mandatory to be submitted to the registrar along with the incorporation application by a private company is the Address of Registered office & undertaking.

Explanation:
The articles of association are an important legal document that outlines the rules and regulations for the internal management and operation of a company. When it comes to signing the articles of association, there are certain requirements that need to be followed. In this case, the correct answer is option C, which states that the subscribers of the memorandum need to sign the articles of association.
Here is a detailed explanation of each option:
A: All proposed directors:
- While it is common for proposed directors to be involved in the drafting and preparation of the articles of association, their signatures are not necessarily required for its signing.
B: Registrar:
- The registrar, who is responsible for maintaining the official records of companies, does not need to sign the articles of association.
C: Subscribers of memorandum:
- The subscribers of the memorandum are the individuals or entities who initially invest in the company and agree to become its members. These individuals are usually the shareholders or guarantors of the company. Their signatures are required to validate and authenticate the articles of association.
D: None of the above:
- This option is incorrect as the subscribers of the memorandum are indeed required to sign the articles of association.
In conclusion, the articles of association need to be signed by the subscribers of the memorandum.

In order to provide a detailed solution, let's break down the question and the options provided:
Question: If the proposed nominal capital is more than 25 lakh at the time of incorporation, then the company needs to submit ____ along with the application.
Options:
A: statement of capital
B: certificate of incorporation
C: certificate of capital
D: certificate of corporation
To determine the correct answer, let's analyze each option:
A: statement of capital - This option refers to a document that provides details about the company's capital structure and the distribution of shares. However, it is not a requirement for submission if the proposed nominal capital is more than 25 lakh.
B: certificate of incorporation - This option refers to a document issued by the Registrar of Companies after the company is successfully incorporated. While it is a mandatory document, it is not specifically related to the proposed nominal capital.
C: certificate of capital - This option refers to a document that certifies the capital amount proposed by the company. As the question states that the proposed nominal capital is more than 25 lakh, this option seems to be the most appropriate answer.
D: certificate of corporation - This option refers to a document that does not exist in the context of company incorporation.
Considering the above analysis, the correct answer is option C: certificate of capital.