Plus One Business Studies Chapter Wise Previous Questions Chapter 7 Formation of a Company

Kerala Plus One Business Studies Chapter Wise Previous Questions Chapter 7 Formation of a Company

Question 1.
It is drafted in accordance with the Schedule III of the Companies Act 1956. It is useful only to a public company which does not invite public subscription. Find out the document from the following : (June – 2008)
a) Prospectus
b) Table A
c) Articles of Association
d) Statement in line of prospectus
Answer:
Statement in lieu of prospectus

Question 2.
Arathi. Bindhu and Chandrika intend to promote a company. What are the important functions to be performed by them as promoters?   (June – 2008)
Answer:
Promotion :- Promotion is the first stage in the formation of a company. The identification of business opportunities, analysis of its prospects and initiating steps to form a joint stock company is called promotion.
The person who undertakes to form a company is called promoter.

Functions of a Promoter

1. Identification of business opportunity: The first and foremost activity of a promoter is to identify a business opportunity.

2. Feasibility studies: After identifying a business opportunity, the promoters undertake some feasibility studies to determine the viability and profitability of the proposed activity.

• Technical feasibility – To determine whether the raw materials or technology is easily available
• Financial feasibility – To determine the total estimated cost of the project
• Economic feasibility – To determine the I profitability of the proposed project

3. Name approval: After selecting the name of company the promoters submit an application to the Registrar of companies for its approval. The selected name is not the same or identical to an existing company.

4. Fixing up signatories to the Memorandum of Association: Promoters have to decide about the members who will be signing the Memorandum of Association of the proposed company.

5. Appointment of professional: Promoters appoint merchant bankers, auditors etc. to assist them in the preparation of necessary documents.

6. Preparation of necessary documents: The promoters prepare certain legal documents which are to be submitted to the Registrar of companies. They are

• Memorandum of Association
• Articles of Association,
• Consent of proposed Directors
• Agreement, if any, with proposed managing or whole-time director
• Statutory declaration

Position of Promoters

The promoter is neither an agent nor a trustee of the company. The promoter stands in the fiduciary relationship with the company. He should not make any secret profits out of the dealings. Any, such gains are to be disclosed. The promoter must act honestly, in good faith and in the best interest of the company.

The promoter is personally liable for all the preliminary contracts with the other parties before incorporation. The promoter is also liable for any omission of facts or false statements in the prospectus.

Question 3.
Memorandum of Association and Articles of Association are two important documents to be prepared in the formation of a company. Can you write any three differences between them? (March – 2009)
Answer:

Question 4.
“I disclose the purpose for which the share capital of the company will be utilized”. Who am I? (March – 2009)
a) Domicile clause
b) Capital clause
c) Name clause
d) Object clause
Answer:
Object clause

Question 5.
Kavya wishes to buy 500 shares of BSNL Ltd. which is open for public issues. A document issued by the company should help her to make a sensible investment. Identify the document and write its contents.  (March – 2009)
Answer:
Prospectus.
Prospectus:- Prospectus is a document issued by the public companies inviting the public to subscribe for shares or debentures of the company. It contains all information regarding the company’s affairs and its future prospects. A prospectus must be dated and signed by all the directors. A copy of the prospectus must be filed with Registrar before it is issued to the public.

Contents of prospectus

• Name and address of the registered office of the company.
• Main objects of the company.
• Classes of shares and debentures.
• Name, address and occupation of the signatories to the memorandum.
• Details of the borrowing powers of the company.
• Name, address and occupation of the directors and managing director.
• Name and address of the promoters.
• Minimum subscription.
• Time of opening and closing of subscription.
• The amount payable on application and allotment of each class of shares.
• Name of underwriters.
• Details of preliminary expenses.
• Companies which do not want to issue a prospectus may submit a statement in lieu of prospectus to the Registrar of Companies. It is a copy of the prospectus but is not issued to the public.

Question 6.
Memorandum of Association and Articles of Association are two important documents to be prepared in the formation of a company. Can you write any three differences between them? (March – 2009)
Answer:

Question 7.
From the following find out the odd man. Prospectus/Table A / Memorandum of Association / Articles of Partnership. (March – 2009)
Answer:
Articles of partnership

Question 8.
The details of a proposed limted company are given below (March – 2009)
a) Proposed name : Alliance grain products Co.Ltd.
b) Nature of business : Food processing
c) Registered office : Chennai
d) Nature of liability : Limited
e) Promoting firm : Prakash Associates
f) Maximum capital : One Crore
You are required to identify the above as to which clause of the Memorandum of Association they have to be rightly inserted.
Answer:
a) Name clause
b) Object clause
c) Situation / Domicile clause
d) Liability clause
e) Association / Subscription clause
f) Capital clause

Question 9.
“Memorandum of Association is the Magna Carta of the Company.” Elucidate the statement by stating three features. (March – 2010)
Answer:
Memorandum of Association:- It is the fundamental document of the company. It is the charter or magnacarta of the company. It defines the objects of the company and provides the framework beyond which the company cannot operate.
Its purpose is to enable the shareholders, creditors, and all others who deal with the company to know the scope of the company’s operation. It lays down the relationship of the company with outside world. Memorandum of Association must be printed, divided into paragraphs, numbered consecutively, and signed by the subscribers.

Question 10.
Mr. Basheer, a promoter of a public company approaches you for raising the capital from the public. Mention to him the document required for inviting the attention of prospective investors and its content. (March – 2010)
Answer:
Prospectus.
Prospectus:- Prospectus is a document issued by the public companies inviting the public to subscribe for shares or debentures of the company. It contains all information regarding the company’s affairs and its future prospects. A prospectus must be dated and signed by all the directors. A copy of the prospectus must be filed with Registrar before it is issued to the public.

Contents of prospectus

• Name and address of the registered office of the company.
• Main objects of the company.
• Classes of shares and debentures.
• Name, address and occupation of the signatories to the memorandum.
• Details of the borrowing powers of the company.
• Name, address and occupation of the directors and managing director.
• Name and address of the promoters.
• Minimum subscription.
• Time of opening and closing of subscription.
• The amount payable on application and allotment of each class of shares.
• Name of underwriters.
• Details of preliminary expenses.
• Companies which do not want to issue a prospectus may submit a statement in lieu of prospectus to the Registrar of Companies. It is a copy of the prospectus but is not issued to the public.

Question 11.
A group of 5 persons intends to start a private limited company, in the name of Jawaharlal Nehru traders Ltd. They submit an application to the Registrar with all documents. The Registrar did not give registration in this name. Can you justify this? Is so on what ground? (March – 2010)
Answer:
The decision taken by the Registrar is correct. A company cannot be registered by a name that is undesirable in the opinion of the Central Govt. i.e. the name must not suggest any connection with or patronage of a national hero.

Question 12.
Find the odd one out and give your justification: (March – 2011)
a) Promotion
b) Issue of debentures
c) Formation
c) Incorporation
Answer:
Issue of debentures

Question 13.
Which one of the following is different from the others? (March – 2011)
a) Articles of partnership.
b) Table A
c) Prospectus
d) Statement in lieu of prospectus
Answer:
Articles of partnership

Question 14.
There is a popular saying that Memorandum of Association is the elder brother and Articles of Association is the younger brother, in the family of a joint-stock company. But they differ in many respects. Explain any four differences between these two important documents. (March – 2011)
Answer:
Differences between Memorandum of Association and Articles of Association

Question 15.
Mr.Benny Thomas is interested in floating a public limited company. He is now entrusted with the task of preparing a document to invite offers from the public to purchase shares of the company. (March – 2012)
a) Name the document he is now preparing.
b) List the important matters to be included in this document.
Answer:
a) Prospectus
b) Contents of prospectus
Prospectus:- Prospectus is a document issued by the public companies inviting the public to subscribe for shares or debentures of the company. It contains all information regarding the company’s affairs and its future prospects. A prospectus must be dated and signed by all the directors. A copy of the prospectus must be filed with Registrar before it is issued to public.

Contents of prospectus

• Name and address of the registered office of the company.
• Main objects of the company.
• Classes of shares and debentures.
• Name, address and occupation of the signatories to the memorandum.
• Details of the borrowing powers of the company.
• Name, address and occupation of the directors and managing director.
• Name and address of the promoters.
• Minimum subscription.
• Time of opening and closing of subscription.
• The amount payable on application and allotment of each class of shares.
• Name of underwriters.
• Details of preliminary expenses.
• Companies which do not want to issue a prospectus may submit a statement in lieu of prospectus to the Registrar of Companies. It is a copy of the prospectus but is not issued to the public.

Question 16.
I inform the creditors and outsiders what the company is permitted to do. Who am I? (March – 2012)
a) Domicile clause
b) Capital clause
c) Objects clause
d) Liability Clause
Answer:
Objects clause

Question 17.
Mr. Shiju, the finance manager of a public company approaches you for raising the capital from the public. Mention to him the document required for inviting the attention or prospective investors. Mention its content.  (March – 2012)
Answer:
Prospectus.

Prospectus:- Prospectus is a document issued by the public companies inviting the public to subscribe for shares or debentures of the company. It contains all information regarding the company’s affairs and its future prospects. A prospectus must be dated and signed by all the directors. A copy of the prospectus must be filed with Registrar before it is issued to the public.

Contents of prospectus

• Name and address of the registered office of the company.
• Main objects of the company.
• Classes of shares and debentures.
• Name, address and occupation of the signatories to the memorandum.
• Details of the borrowing powers of the company.
• Name, address and occupation of the directors and managing director.
• Name and address of the promoters.
• Minimum subscription.
• Time of opening and closing of subscription.
• The amount payable on application and allotment of each class of shares.
• Name of underwriters.
• Details of preliminary expenses.
• Companies which do not want to issue a prospectus may submit a statement in lieu of prospectus to the Registrar of Companies. It is a copy of the prospectus but is not issued to the public.

Question 18.
Identify the term used to refer to the specialized person who undertakes all activities in the formation of a company. (October – 2013)
Answer:
Promoter

Question 19.
Blue Moon Ltd. started its business immediately after getting a certificate of incorporation. Is it legally valid? Give your comments.  (October – 2013)
Answer:
Not valid. A public company can start a business only after getting a certificate of commencement of business from the Registrar of companies.

Question 20.
Samudra Ltd. prepared two documents in the formation of the company. One is the constitution of the company and the other one lays down the rules and regulations for the management. (October – 2013)
a) Name these documents.
b) Also give any 4 differences between these two documents.
Answer:
a) Memorandum and Articles of Association.
b) Differences between Memorandum and Articles of Association.

Question 21.
Mr. Nassar, a Gulf returnee, intends to start a business in the form of a private limited company. But he has no idea about the formalities to be followed in the formation of a company. (March – 2014)
a) As a commerce student, can you suggest a specialized person who would undertake all activites for the formation of a company?
b) Explain the functions of those specialized persons.
Answer:
a) The person who undertakes to form a company is called a promoter.
Functions of a Promoter
Promotion:- Promotion is the first stage in the formation of a company. The identification of business opportunities, analysis of its prospects and initiating steps to form a joint-stock company is called promotion.
The person who undertakes to form a company is called a promoter.

Functions of a Promoter

1. Identification of business opportunity:-The first and foremost activity of a promoter is to identify a business opportunity.

2. Feasibility studies: After identifying a business opportunity, the promoters undertake some feasibility studies to determine the viability and profitability of the proposed activity.

• Technical feasibility – To determine whether the raw materials or technology is easily available
• Financial feasibility – To determine the total estimated cost of the project
• Economic feasibility – To determine the profitability of the proposed project

3. Name approval: After selecting the name of the company the promoters submit an application to the Registrar of companies for its approval. The selected name is not the same or identical to an existing company.

4. Fixing up signatories to the Memorandum of Association: Promoters have to decide about the members who will be signing the Memorandum of Association of the proposed company.

5. Appointment of professionals: Promoters appoint merchant bankers, auditors etc. to assist them in the preparation of necessary documents.

6. Preparation of necessary documents: The promoters prepare certain legal documents which are to be submitted to the Registrar of companies. They are

• Memorandum of Association
• Articles of Association,
• Consent of proposed Directors
• An agreement, if any, with proposed managing or whole-time director
• Statutory declaration

Position of Promoters

The promoter is neither an agent nor a trustee of the company. The promoter stands in the fiduciary relationship with the company. He should not make any secret profits out of the dealings. Any, such gains are to be disclosed. The promoter must act honestly, in good faith and in the best interest of the company.

The promoter is personally liable for all the preliminary contracts with the other parties before incorporation. The promoter is also liable for any omission of facts or false statements in the prospectus.

Question 22.
Memorandum of Association and Articles of Association are the two important documents of a company. As a commerce student, can you differentiate between these two documents? (March – 2014)
Answer:
Differences between Memorandum of Association and Articles of Association:

Question 23.
Name the person who carries out all the preliminary works to form a new company. Explain the functions performed by him. (August – 2014)
Answer:
Promoter.
Functions of promoter:
Promotion:- Promotion is the first stage in the formation of a company. The identification of business opportunities, analysis of its prospects and initiating steps to form a joint stock company is called promotion.
The person who undertakes to form a company is called promoter.

Functions of a Promoter

1. Identification of business opportunity:-The first and foremost activity of a promoter is to identify a business opportunity.

2. Feasibility studies: After identifying a business opportunity, the promoters undertake some feasibility studies to determine the viability and profitability of the proposed activity.

• Technical feasibility – To determine whether the raw materials or technology is easily available
• Financial feasibility – To determine the total estimated cost of the project
• Economic feasibility – To determine the I profitability of the proposed project

3. Name approval: After selecting the name of company the promoters submit an application to the Registrar of companies for its approval. The selected name is not the same or identical to an existing company.

4. Fixing up signatories to the Memorandum of Association: Promoters have to decide about the members who will be signing the Memorandum of Association of the proposed company.

5. Appointment of professionals: Promoters appoint merchant bankers, auditors etc. to assist them in the preparation of necessary documents.

6. Preparation of necessary documents: The promoters prepare certain legal documents which are to be submitted to the Registrar of companies. They are

• Memorandum of Association
• Articles of Association,
• Consent of proposed Directors
• Agreement, if any, with proposed managing or whole time director
• Statutory declaration

Position of Promoters

The promoter is neither an agent nor a trustee of the company. The promoter stands in the fiduciary relationship with the company. He should not make any secret profits out of the dealings. Any, such gains are to be disclosed. The promoter must act honestly, in good faith and in the best interest of the company. The promoter is personally liable for all the preliminary contracts with the other parties before incorporation. The promoter is also liable for any omission of facts or false statements in the prospectus.

Question 24.
I am the principal document of a company. Who am I? Is it compulsory for all the companies to prepare for me? Explain my contents. (August – 2014)
Answer:
Memorandum of Association: It is the charter or magnacarta of the company. It defines the objects of the company and provides the framework beyond which the company cannot operate. It lays down the relationship of the company with outside world. Memorandum of Association must be printed, divided into paragraphs, numbered consecutively. The Memorandum of Association must be signed by at least seven p’ersons in case of a public company and by two persons in case of a private company.

1. The name clause: Under this clause the name of the company is mentioned. A company can select any name subject to the following restrictions.

• The proposed name should not be identical with the name of another company
• A name which can mislead the public
• In case of a public company the name should end with the word ‘Limited’ and in case of a private company the name should end with the word ‘Private Limited’
• The name must not directly or indirectly imply any participation of the Central or State Govt.
• The name must not suggest any connection or patronage of a national hero
• It should not include the word cooperative.

2. Registered office clause: This clause contains the name of the state, in which the registered office of the company is proposed to be situated. It must be informed to the Registrar within thirty days of the incorporation of the company.

3. Objects clause: This is the most important clause of the memorandum. It defines the purpose for which the company is formed. A company is not legally entitled to undertake an activity, which is beyond the objects stated in this clause.

4. Liability clause: It states that the liability of members is limited to the face value of shares held by them or the amount guaranteed to be paid on winding up.

5. Capital clause: This clause specifies the maximum capital which the company will be authorised to raise through, the issue of shares.

6. Association clause: In this clause, the signatories to the Memorandum of Association state their intention to be associated with the company and also give their consent to purchase qualification shares.

Question 25.
A joint-stock company cannot be formed without a/ an ………… (March – 2015)
a) articles of association
b) memorandum of association
c) prospectus
d) Table A
Answer:
Memorandum of Association

Question 26.
State any three differences between Memorandum of Association and Articles of Association. (March – 2015)
Answer:

Question 27.
It is often said that the Memorandum of Association and Articles of Association are the important documents of the company. Differentiate between these two documents. (Say – 2015)
Answer:
Differences between Memorandum of Association & Articles of Refer 7.7

Question 28.
Mr. Nassar, a promoter wants to form a public company. What are the stages he has to follow for the formation of the company? Explain. (Say – 2015)
Answer:
Stages in the formation of the company

1. Promotion: It is the first stage in the formation of a company. The identification of business opportunities, analysis of its prospects, and initiating steps to form a joint-stock company is called promotion.

2. Incorporation: A Company comes into existence only when it is registered with the Registrar of Companies. For this an application must be given to Registrar along with necessary documents and registration fees. The Registrar after verifying all documents, issues a certificate called “Certificate of Incorporation”. It is the birth certificate of a company.

3. Capital Subscription: A public company can raise funds from the public by issuing shares and debentures. For this, it has to issue a prospectus and undergo various other formalities.

4. Commencement of business: A public company can commence business only after getting certificate of commencement of business from the Registrar. For this, the company must file certain documents to the Registrar. The Registrar, upon satisfaction, issues a certificate of Commencement of business.

Question 29.
Name that part of the Memorandum of Association of a company in which the following details are mentioned.
a) The purpose for which the company is formed. (March – 2016)
b) Name of the company.
c) Nominal capital of the company.
Answer:
a) Object clause
b) Name clause
c) Capital Clause

Question 30.
Apart from conceiving the business idea, a promoter has to do a wide variety of activities. Write any three of them. (March – 2016)
Answer:
1. Feasibility studies: After identifying a business opportunity, the promoters undertake some feasibility studies to determine the viability and profitability of the proposed activity.

• Technical feasibility
• Financial feasibility
• Economic feasibility

2. Name approval: After selecting the name of the company the promoters submit an application to the Registrar of companies for its approval. The selected name is not the same or identical to an existing company.

3. Identification of business opportunity:-
1. The first and foremost activity of a promoter is to identify a business opportunity.
2. Feasibility studies: After identifying a business opportunity, the promoters undertake some feasibility studies to determine the viability and profitability of the proposed activity.

• Technical feasibility – To determine whether the raw materials or technology is easily available
• Financial feasibility – To determine the total estimated cost of the project
• Economic feasibility – To determine the profitability of the proposed project

Question 31.
Which document is issued by a public company for inviting the public for subscribing its shares? (September – 2016)
a) Prospectus
b) Table A
c) Memorandum of Association
d) Articles of Association
Answer:
Prospectus

Question 32.
This is the most important document for the registration of a company. It is the constitution of the company. It defines the objectives of the company. (September – 2016)
a) Name the document.
b) Explain any five contents.
Answer:
a) Memorandum of Association
b) Memorandum of Association: It is the charter or magnacarta of the company. It defines the objects of the company and provides the framework beyond which the company cannot operate. It lays down the relationship of the company with outside world. Memorandum of Association must be printed, divided into paragraphs, numbered consecutively. The Memorandum of Association must be signed by at least seven persons in case of a public company and by two persons in case of a private company.

1. The name clause: Under this clause the name of the company is mentioned. A company can select any name subject to the following restrictions.

• The proposed name should not be identical with the name of another company
• A name which can mislead the public
• In case of a public company the name should end with the word ‘Limited’ and in case of a private company the name should end with the word ‘Private Limited’
• The name must not directly or indirectly imply any participation of the Central or State Govt.
• The name must not suggest any connection or patronage of a national hero
• It should not include the word co operative.

2. Registered office clause: This clause contains the name of the state, in which the registered office of the company is proposed to be situated. It must be informed to the Registrar within thirty days of the incorporation of the company.

3. Objects clause: This is the most important clause of the memorandum. It defines the purpose for which the company is formed. A company is not legally entitled to undertake an activity, which is beyond the objects stated in this clause.

4. Liability clause: It states that the liability of members is limited to the face value of shares held by them or the amount guaranteed to be paid on winding up.

5. Capital clause: This clause specifies the maximum capital which the company will be authorised to raise through, the issue of shares.

6. Association clause: In this clause, the signatories to the Memorandum of Association state their intention to be associated with the company and also give their consent to purchase qualification shares.

Question 33.
If a Public Limited Company is NOT preparing the Article of Association, it can adopt ………….. (March – 2017)
a) Table A
b) Table B
c) Table C
d) Table D
Answer:
Table A

Question 34.
…………. document shows the relationship of the company with outsiders.  (March – 2017)
a) Articles of Association
b) Memorandum of Association
c) Prospectus
d) Certificate of Incorporation
Answer:
Memorandum of Association

Question 35.
The two main documents required for the formation of a company are the Memorandum of Association and Articles of Association. What are the differences between them? (March – 2017)
Answer:

Plus One Business Studies Chapter Wise Previous Questions