Test: Formation of a Company- 4 - Grade 11 MCQ

Answer:
The clause of the Memorandum of Association that cannot be altered is the "Liability" clause. This means that the liability of the members of the company cannot be changed once it is stated in the Memorandum of Association. The liability clause determines the extent to which the members of the company are personally responsible for the debts and obligations of the company.
Here is a breakdown of the clauses mentioned in the question:
Name:
- This clause specifies the name of the company. It can be changed with the approval of the shareholders and by following the necessary legal procedures.
Object:
- This clause outlines the objects and activities that the company is authorized to undertake. It can be altered with the approval of the shareholders and by following the necessary legal procedures.
Situation:
- This clause states the registered office address of the company. It can be changed with the approval of the shareholders and by following the necessary legal procedures.
Liability:
- This clause determines the liability of the members of the company. It cannot be altered once it is stated in the Memorandum of Association.
It is important to note that any alteration to the Memorandum of Association requires the approval of the shareholders and compliance with legal procedures set by the relevant company laws and regulations.

Undesirable Company Names
There are several reasons why a proposed company name may be considered undesirable. These reasons include:
1. Identical to an Existing Company
- If the proposed name is identical to the name of an existing company, it can create confusion among customers and stakeholders.
- It may also lead to legal issues, including trademark infringement and potential lawsuits.
2. Resembles Closely to an Existing Company
- If the proposed name closely resembles the name of an existing company, it can still create confusion and potential legal issues.
- Similarities in name, logo, or branding elements can mislead customers and dilute the reputation of the existing company.
3. Represents Official Government Emblems
- The use of emblems or symbols associated with the government of India, United Nations, or any other official organization can be considered undesirable.
- It may imply an unauthorized association with the government or mislead customers about the company's affiliation.
4. Any of the Above Reasons
- If the proposed name violates any of the aforementioned reasons, it can be considered undesirable.
- It is important to carefully consider the potential implications and legal consequences before finalizing a company name.
In conclusion, a proposed name for a company is considered undesirable if it is identical or closely resembles an existing company's name, represents official government emblems, or violates any other legal obligations. It is crucial to conduct thorough research and consult legal experts to ensure the proposed name is unique, distinctive, and compliant with regulations.

Explanation:
The given statement, "Men may come and men may go but the company exists" describes the characteristic of "Perpetual Succession" as per the Companies Act 1956. Let's break down the characteristics mentioned in the options:
A: Separate legal entity:
- Refers to the concept that a company is considered a separate entity from its owners or shareholders.
- It means that the company has its own legal rights and obligations, separate from its members or directors.
- This characteristic enables the company to enter into contracts, own property, sue or be sued in its own name.
B: Perpetual Succession:
- This characteristic implies that the existence of a company is not affected by the changes in its members or shareholders.
- It means that even if the members or shareholders change, the company continues to exist and operate.
- The company's existence is perpetual, independent of the individuals associated with it.
C: Capacity to sue:
- Refers to the ability of a company to file a lawsuit or take legal action against another party.
- This characteristic allows the company to protect its rights and interests by initiating legal proceedings.
D: None of the above:
- This option is incorrect as the statement clearly describes the characteristic of "Perpetual Succession."
Therefore, option B, "Perpetual Succession," is the correct answer as it accurately reflects the characteristic mentioned in the given statement.

Par value of shares means the face value of the shares.
The par value of shares refers to the nominal or face value assigned to each share of stock by the company at the time of issuance. It is important to understand the concept of par value in relation to shares:
Explanation:
- Par value: The par value is a predetermined value that is assigned to each share of stock when it is issued by a company. It is typically set at a low value, such as $0.01 or $0.10 per share, and represents the minimum amount for which the shares can be issued or sold.
- Face value: Par value is also referred to as the face value of the shares. It is the value stated on the stock certificate and represents the legal capital of the company.
- Actual value: The par value of shares does not necessarily reflect the actual or market value of the shares. The market value of shares is determined by supply and demand factors and can fluctuate based on various market conditions.
- Market value: Market value refers to the current price at which the shares are being traded in the stock market. It is influenced by factors such as company performance, industry trends, economic conditions, and investor sentiment.
- Dividend: Dividend refers to the portion of a company's profits that is distributed to its shareholders. While dividend payments may be influenced by the par value of shares, they are not directly related to it.
In conclusion, the par value of shares represents the face value or nominal value assigned to each share of stock by the company. It is important to note that the par value does not necessarily reflect the actual or market value of the shares.

Explanation:
When it comes to the repayment of dividend and capital, preference share capital has priority over other types of share capital. Here's a detailed explanation:
- Preference shares are a type of share capital that gives shareholders certain preferential rights over ordinary shareholders. These rights typically include a fixed dividend payment and priority in the repayment of capital in the event of liquidation.
- Equity shares represent ordinary share capital, which does not have any preferential rights. The dividend payment for equity shares is determined by the company's profitability and the discretion of the board of directors.
- Non-preference shares refer to shares that do not have any preferential rights or priority in dividend payment or capital repayment.
- When a company generates profits, it first pays dividends to preference shareholders before distributing any remaining dividends to equity shareholders.
- In case of liquidation or winding up of the company, preference shareholders have priority over equity shareholders in the repayment of capital. They are entitled to receive their capital back before equity shareholders receive any distribution.
Therefore, based on these points, it is clear that preference share capital has priority both in the repayment of dividend and capital.

The certificate of capital is issued by the Controller of Capital Issues. Here is a detailed explanation of the options given:
A: Registrar of Companies Act:
- The Registrar of Companies Act is responsible for the registration of companies in India.
- However, it does not issue the certificate of capital.
B: Controller of Companies Act:
- There is no such entity as the Controller of Companies Act.
- The Companies Act is a legislation that governs the functioning of companies in India, but it does not issue certificates of capital.
C: Registrar of Capital Issues:
- The Registrar of Capital Issues used to exist in India before the introduction of the Securities and Exchange Board of India (SEBI).
- However, the Registrar of Capital Issues did not issue certificates of capital.
D: Controller of Capital Issues:
- The Controller of Capital Issues was a regulatory body in India that was responsible for regulating and issuing certificates of capital.
- However, the Controller of Capital Issues was abolished in 1992 and its functions were transferred to SEBI.
Therefore, the correct answer is D: Controller of Capital Issues.

Explanation:
The correct answer is Public ltd company.
- A private ltd company is a privately held company where the shares are not freely transferable. The shares are usually owned by a small group of individuals or a family.
- A partnership is a type of business where two or more individuals share ownership and responsibility. However, partnerships do not have shares that can be freely transferred.
- A public ltd company is a company that offers its shares to the general public. In this type of company, the shares are freely transferable, meaning that shareholders can buy and sell their shares on the stock exchange.
Therefore, the correct answer is Public ltd company.

To find the amount in this scenario, we need to understand the concepts of par value and premium.
Par Value: Par value, also known as face value or nominal value, is the value assigned to a security when it is initially issued. It represents the amount that the issuer promises to repay to the investor at maturity.
Premium: Premium is the amount by which the market price of a security exceeds its par value. It is the additional amount that investors are willing to pay for the security.
In this example, the par value is Rs10 and the security is issued at Rs15. To find the amount, we need to subtract the par value from the issue price:
Amount = Issue Price - Par Value
= Rs15 - Rs10
= Rs5
Therefore, the amount in this scenario is Rs5.
Summary:
- Par value is the initial value assigned to a security at the time of issuance.
- Premium is the amount by which the market price of a security exceeds its par value.
- In this example, the amount is Rs5, which is the difference between the issue price (Rs15) and the par value (Rs10).

Section 12 of Companies Act 1956
Under the Companies Act 1956, Section 12 deals with the incorporation of companies. It outlines the requirements and procedures for the formation of companies in India. Here are the key points related to Section 12:
1. Incorporation: Section 12 provides guidelines for the process of incorporating a company, including the following aspects:
- Name Approval: The proposed name of the company needs to be approved by the Registrar of Companies (RoC).
- Memorandum of Association (MoA): The MoA needs to be prepared, which contains the fundamental details of the company, such as its name, objectives, registered office, and capital structure.
- Articles of Association (AoA): The AoA outlines the rules and regulations for the internal management of the company.
- Capital Structure: The authorized and subscribed share capital of the company needs to be determined and mentioned in the documents.
2. Share Capital: While Section 12 primarily focuses on the incorporation process, it indirectly covers aspects related to share capital, such as:
- Authorized Share Capital: The maximum value of shares that a company is authorized to issue.
- Subscribed Share Capital: The portion of the authorized share capital that is actually subscribed by shareholders during the incorporation process.
3. Number of Directors: Though not the main focus of Section 12, it indirectly affects the appointment of directors. The incorporation process requires the initial appointment of directors who will manage the affairs of the company.
4. Shareholders: Section 12 does not specifically cover the rights and obligations of shareholders, but the incorporation process involves the allotment of shares to the initial shareholders. Shareholders play a crucial role in the functioning and ownership of the company.
In conclusion, Section 12 of the Companies Act 1956 primarily deals with the incorporation of companies, including the necessary steps and requirements. It indirectly touches upon aspects related to share capital, the number of directors, and the involvement of shareholders in the incorporation process.

Explanation:
The articles of association are an important legal document that outlines the internal regulations and operations of a company. It is necessary for the articles of association to be signed by the subscribers of the memorandum. Here is a detailed explanation:
1. Articles of Association: The articles of association are a set of rules and regulations that govern the internal management and operations of a company. They define the rights and responsibilities of the company's members, directors, and officers.
2. Signing: The articles of association need to be signed by the subscribers of the memorandum. Subscribers are the individuals who have agreed to become members of the company and have signed the memorandum of association. They are also referred to as the initial shareholders or subscribers of the company.
3. Proposed Directors: While it is not necessary for all proposed directors to sign the articles of association, they may be required to provide their consent or agreement to the provisions mentioned in the document.
4. Registrar: The registrar is not involved in signing the articles of association. The registrar's role is to maintain the official records and documents of the company, including the articles of association, after they have been filed with the appropriate government authority.
5. Conclusion: In conclusion, the articles of association need to be signed by the subscribers of the memorandum, who are the initial shareholders of the company. The proposed directors may also be required to provide their consent or agreement to the provisions mentioned in the document. The registrar is not involved in the signing process.

Application for approval of name of a company is to be made to Registrar of Companies
To obtain approval for the name of a company, an application needs to be made to the Registrar of Companies. Here is a detailed explanation of the process:
1. Purpose of the application:
- The name of a company is an important aspect of its identity and must comply with certain legal requirements.
- The application is made to seek approval for the proposed name of the company.
2. Registrar of Companies (ROC):
- The ROC is a government office responsible for the administration and regulation of companies in a particular jurisdiction.
- Each state in India has its own ROC, and the application is made to the respective ROC of the state where the company is to be registered.
3. Procedure for making the application:
- The applicant needs to submit the prescribed application form along with the necessary documents to the ROC.
- The application form typically includes details such as the proposed name, the type of company, the main objects of the company, and the authorized capital.
- The necessary documents may include identity proof, address proof, and any other relevant documents as per the requirements of the ROC.
4. Name availability check:
- The ROC will conduct a thorough check to ensure that the proposed name is not identical or too similar to an existing company's name.
- The name should also not violate any trademark or intellectual property rights.
- If the proposed name is already in use or does not meet the specified criteria, the ROC may reject the application.
5. Approval and reservation of name:
- If the proposed name is found to be available and meets all the requirements, the ROC will approve and reserve the name for the applicant.
- The name reservation is generally valid for a specific period, during which the applicant needs to complete the necessary company registration formalities.
6. Incorporation of the company:
- Once the name is approved and reserved, the applicant can proceed with the incorporation process of the company.
- This involves submitting the required documents, such as the Memorandum of Association, Articles of Association, and other relevant forms, to the ROC.
It is important to note that the process and requirements for name approval may vary slightly depending on the jurisdiction and the type of company being registered. Therefore, it is advisable to consult the specific guidelines and regulations of the respective ROC before making the application.

Documents not mandatory to be submitted to the registrar along with incorporation application by a private company:
- The correct answer is option A: Address of Registered office & undertaking.
Reason:
- When submitting the incorporation application, the private company is not required to provide the address of the registered office and undertaking.
- This means that the private company does not need to submit the following documents:
1. Address of Registered office: The physical location of the company's registered office does not need to be disclosed at the time of incorporation application.
2. Undertaking: There is no requirement to provide an undertaking document along with the incorporation application.
Documents that are required:
- The other options mentioned (B, C, and D) all include documents that are mandatory to be submitted to the registrar along with the incorporation application by a private company. These documents are:
1. Statement of capital: This document provides information about the company's share capital, including details of the number and value of shares.
2. List of directors: This document includes the names and details of the directors appointed by the company.
3. Undertaking and statement of capital: This document includes an undertaking by the company and also provides information about the company's share capital.
It is important to note that the requirements may vary depending on the jurisdiction and specific regulations governing the incorporation process. It is always advisable to consult the relevant laws and regulations or seek professional advice when submitting an incorporation application.

Explanation:
The memorandum of association is a legal document that sets out the constitution and objectives of a company. It contains various clauses that define the rights, powers, and obligations of the company and its members. The correct answer is D: directors, as this is not a clause typically included in the memorandum of association.
The other clauses mentioned, A: situation, B: capital, and C: subscription, are commonly found in the memorandum of association and serve different purposes:
1. Situation: This clause specifies the registered office address of the company, which is the official address for correspondence and where legal documents can be served.
2. Capital: This clause outlines the amount of initial capital with which the company is registered. It specifies the authorized share capital of the company and the division of shares among the subscribers.
3. Subscription: This clause details the number of shares subscribed by each member of the company and the amount paid or agreed to be paid for those shares.
In summary, the memorandum of association is a crucial document that establishes the company's existence and provides important information about its structure and operations. While clauses like situation, capital, and subscription are commonly included, the directors are typically addressed in the articles of association, which is another important document that governs the internal management of the company.

Private Company and Minimum Paid-up Capital
Definition of a Private Company:
- A private company is a type of company that is privately held and not publicly traded.
- It is usually formed by a small group of individuals or by a family.
Minimum Paid-up Capital Requirement:
- The minimum paid-up capital requirement for a private company varies from country to country.
- In India, the minimum paid-up capital requirement for a private company is Rs. 1,00,000.
- This means that the company must have at least Rs. 1,00,000 as the initial capital investment.
Explanation of Options:
Option A: 1,00,000
- This option is correct as it is the minimum paid-up capital requirement for a private company in India.
Option B: 5,00,000
- This option is incorrect as it exceeds the minimum requirement.
Option C: 50,00,000
- This option is incorrect as it exceeds the minimum requirement.
Option D: None of the above
- This option is incorrect as the correct answer is option A.
Conclusion:
- A private company in India is required to have a minimum paid-up capital of Rs. 1,00,000.
- Therefore, option A is the correct answer.

Prospectus:
- A prospectus is a legal document that provides information about a company to potential investors.
- It contains important details about the company's business model, financials, management team, and future plans.
Issued by:
A prospectus is typically issued by a public company seeking investment from the public. This means that the correct answer is option B: a public company seeking investment from the public.
Explanation:
- A prospectus is an essential document for companies that want to raise capital through public offerings.
- It is a regulatory requirement for companies to provide potential investors with accurate and comprehensive information about their business before they invest.
- By issuing a prospectus, companies can attract potential investors by showcasing their business model, financial performance, and growth prospects.
- The prospectus helps investors make informed decisions about whether or not to invest in the company.
- It also protects investors by ensuring that they have access to all the necessary information to evaluate the risks and potential rewards of investing in the company.
Conclusion:
In conclusion, a prospectus is issued by a public company seeking investment from the public. It is a crucial document that provides potential investors with comprehensive information about the company and helps them make informed investment decisions.

Powers, Rights, Remuneration, Qualification, and Duties of Directors
The detailed solution is as follows:
1. Memorandum of Association:
- The Memorandum of Association is a legal document that outlines the company's objectives, powers, and scope of activities.
- It does not provide specific details about the powers, rights, remuneration, qualification, and duties of directors.
- The Memorandum of Association primarily focuses on the company's overall purpose and activities.
2. Articles of Association:
- The Articles of Association is a document that contains the internal rules and regulations of the company.
- It provides detailed information about the powers, rights, remuneration, qualification, and duties of directors.
- The Articles of Association outline the roles and responsibilities of directors, their appointment and removal procedures, and their authorities within the company.
3. Prospectus:
- A prospectus is a legal document issued by a company when it offers shares or debentures to the public.
- It provides information about the company's financials, business operations, management, and other relevant details.
- While a prospectus may mention the existence of directors, it does not specifically discuss their powers, rights, remuneration, qualification, and duties.
4. None of the above:
- This option implies that none of the mentioned documents (Memorandum of Association, Articles of Association, Prospectus) clearly discusses the powers, rights, remuneration, qualification, and duties of directors.
- However, it is important to note that the Articles of Association are the most appropriate document to find detailed information about these aspects of directors' roles and responsibilities.
In conclusion, the correct answer is Articles of Association (Option B) as it provides a comprehensive understanding of the powers, rights, remuneration, qualification, and duties of directors within a company.

Minimum number of members to form a public company is 7.

Here is a detailed explanation:

1. Legal requirements:
- According to the Companies Act, 2013 in India, a public company must have a minimum of 7 members.
- This is the minimum number of members required to incorporate a public company legally.
2. Definition of a public company:
- A public company is a type of company that can offer its shares to the public and has a separate legal entity from its members.
- It can issue shares to the general public through a stock exchange or other means.
3. Advantages of a public company:
- Access to capital: A public company can raise capital by issuing shares to the public.
- Limited liability: Shareholders are only liable for the amount they have invested in the company.
- Transferability of shares: Shares of a public company are freely transferable, allowing shareholders to easily buy or sell their ownership.
4. Process of forming a public company:
- Selecting 7 or more individuals who will become the initial members/shareholders of the company.
- Drafting and filing the necessary documents, such as the Memorandum of Association and Articles of Association, with the Registrar of Companies.
- Paying the required fees and complying with other legal formalities.
- Once the company is incorporated and registered, it can start its operations as a public company.
5. Additional requirements:
- Apart from the minimum number of members, a public company must also fulfill other requirements, such as having a minimum authorized capital, appointing directors, and complying with various statutory regulations.
In conclusion, the minimum number of members required to form a public company is 7. This ensures that the company has a sufficient number of shareholders to offer its shares to the public and comply with legal requirements.

The Prospectus must be issued to the public within 90 days of its date.
The correct answer is C: 90
- According to securities regulations, a prospectus is a legal document that provides information about an investment offering to potential investors.
- The prospectus must be issued to the public within a specific time frame after its date to ensure transparency and fairness in the investment process.
- The timeframe for issuing the prospectus is determined by securities regulators and may vary depending on the jurisdiction.
- In this case, the prospectus must be issued within 90 days of its date, as indicated by option C.
- Option A (30 days) is too short a timeframe for issuing the prospectus.
- Option B (60 days) is also too short a timeframe for issuing the prospectus.
- Option D (100 days) is longer than the required timeframe for issuing the prospectus.

Statement of Nominal Capital:
The statement of nominal capital refers to the declaration made by a company at the time of incorporation regarding the amount of share capital that the company intends to raise. This statement is required by law and is an important part of the company's incorporation documents.
Minimum Share Capital Requirement:
The Companies Act, 2013 in India sets certain minimum requirements for the share capital of different types of companies. The minimum share capital required for incorporation varies depending on the type of company.
Share Capital Requirement for Private Limited Companies:
Private limited companies are one of the most common types of companies in India. The Companies Act, 2013 sets the following minimum share capital requirements for private limited companies:
- The minimum authorized share capital should be Rs 1 lakh.
- The minimum paid-up share capital should be Rs 1 lakh.
Share Capital Requirement for Public Limited Companies:
Public limited companies have higher share capital requirements compared to private limited companies. The Companies Act, 2013 sets the following minimum share capital requirements for public limited companies:
- The minimum authorized share capital should be Rs 5 lakh.
- The minimum paid-up share capital should be Rs 5 lakh.
Answer:
In the given question, the share capital is less than 25 lakh, so the correct answer is option D: 25 Lakh. The statement of nominal capital must be given at the time of incorporation by the company when the share capital is less than 25 lakh.