Bhagya

Balbharti Maharashtra State Board Class 11 Secretarial Practice Solutions Chapter 6 Directors and Key Managerial Personnel of a Company Textbook Exercise Questions and Answers.

Maharashtra State Board Class 11 Secretarial Practice Solutions Chapter 6 Directors and Key Managerial Personnel of a Company

1A. Select the correct answer from the options given below and rewrite the statements.

Question 1.
_____________ comprises of a team of Directors.
(a) Board of Directors
(b) Board of Trustees
(c) Board of Managers
Answer:
(a) Board of Directors

Question 2.
_____________ can be a director.
(a) An Individual
(b) A Firm
(c) A Body corporate
Answer:
(a) An individual

Question 3.
Upto _____________ as maximum directors are allowed to a company.
(a) five
(b) fifteen
(c) fifty
Answer:
(b) fifteen

Question 4.
A maximum of _____________ Directorships is allowed to a person.
(a) two
(b) ten
(c) twenty
Answer:
(c) twenty

Question 5.
A maximum of _____________ Directorships of a public company is allowed to a person.
(a) one
(b) ten
(c) twenty
Answer:
(b) ten

Question 6.
_____________ is a unique identification number required to be a Director.
(a) PIN
(b) DIN
(c) TIN
Answer:
(b) DIN

Question 7.
_____________ powers are the powers given to Board under the Act.
(a) Statutory
(b) Managerial
(c) Administrative
Answer:
(a) Statutory

Question 8.
Director represents company in his role as _____________
(a) Agent
(b) Managing Partner
(c) employee
Answer:
(a) Agent

Question 9.
Managing Director is appointed for a period of _____________ years
(a) 5
(b) 10
(c) 15
Answer:
(a) 5

Question 10.
_____________ is required to work under superintendence, control, guidance of the Board.
(a) Government
(b) ROC
(c) Managing Director
Answer:
(c) Managing Director

Question 11.
_____________ is an employee of the company.
(a) Alternate director
(b) Non-executive Director
(c) Whole-time director
Answer:
(c) Whole time Director

Question 12.
_____________ need not be a director of the company.
(a) Manager
(b) Managing Director
(c) Whole-time director
Answer:
(a) Manager

Question 13.
_____________ needs a whole time director.
(a) Listed company
(b) Partnership
(c) OPC
Answer:
(a) Listed company

Question 14.
To provide guidance to Board is _____________ duty of Company Secretary.
(a) Personal
(b) General
(c) Statutory
Answer:
(c) Statutory

Question 15.
Only a member of _____________ can be a practicing Company Secretary.
(a) ICAI
(b) ACCA
(c) ICSI
Answer:
(c) ICSI

Question 16.
_____________ is to be prepared in prescribed form MR-3.
(a) Annual Report
(b) Auditors Report
(c) Secretarial Audit Report
Answer:
(c) Secretarial Audit Report

1B. Match the pairs.

Question 1.

Group ‘A’	Group ‘B’
(a) Board of Directors	(1) Nominated by the Board
(b) Managing Director	(2) Assists and advises the Board
(c) Company Secretary	(3) Automatic Appointment
(d) First Directors	(4) Appointed by ROC
(e) Alternate Director	(5) Extensive Powers of management
	(6) Substantial Powers of management
	(7) Appointed by Promoter
	(8) Assist and Advises the Government
	(9) Negligible Powers of management
	(10) Nominated by Council

Answer:

Group ‘A’	Group ‘B’
(a) Board of Directors	(5) Extensive Powers of management
(b) Managing Director	(6) Substantial Powers of management
(c) Company Secretary	(2) Assists and advises the Board
(d) First Directors	(7) Appointed by Promoter
(e) Alternate Director	(1) Nominated by the Board

Question 2.

Group ‘A’	Group ‘B’
(a) Public company	(1) Arises due to death of Director
(b) Private company	(2) Collective Powers
(c) Secretarial Auditor	(3) Individual Powers to Directors
(d) Casual Vacancy of a Director	(4) Arises due to additional work
(e) Powers of the Board	(5) Appointed by Managing Director
	(6) At least 2 (two) Directors
	(7) At least 3 (three) Directors
	(8) At least 15 (fifteen) Directors
	(9) At least 1 (one) Director
	(10) Appointed by the Board

Answer:

Group ‘A’	Group ‘B’
(a) Public company	(7) At least 3 (three) Directors
(b) Private company	(6) At least 2 (two) Directors
(c) Secretarial Auditor	(10) Appointed by the Board
(d) Casual Vacancy of a Director	(1) Arises due to death of Director
(e) Powers of the Board	(2) Collective Powers

1C. Write a word or a term or a phrase that can substitute each of the following statements.

Question 1.
The organization with distinct features of separate ownership and management.
Answer:
Joint-stock company

Question 2.
The officer is responsible for the company’s finances.
Answer:
Chief Financial Officer

Question 3.
The body of elected representatives of the company.
Answer:
The Board of Directors

Question 4.
The officer is a statutory and administrative officer and also acts as co-ordinator of the company.
Answer:
Company Secretary

Question 5.
Qualification required to be a Company Secretary.
Answer:
Member of ICSI

Question 6.
Agents, Trustees, and Managing Partners of the company.
Answer:
The Board of Directors

Question 7.
The audit which checks compliances of different legislations.
Answer:
Secretarial audit

Question 8.
This KMP signs documents of the company requiring authentication by the company.
Answer:
Company Secretary

Question 9.
The nature of the relationship of Directors with the company.
Answer:
Fiduciary

Question 10.
Name the Secretarial Standard – 1.
Answer:
Secretarial Standards on meetings of the BOD

Question 11.
Name the Secretarial Standard – 2.
Answer:
Secretarial Standards on General Meeting

Question 12.
Name the Secretarial Standard – 3.
Answer:
Secretarial Standards on Dividend

1D. State whether the following statements are True or False.

Question 1.
A large number of shareholders necessitates the company to have a separate managerial body.
Answer:
True

Question 2.
The maximum number of Directors allowed to a company is 15 (fifteen).
Answer:
True

Question 3.
A public company should have a minimum of 10 (ten) directors.
Answer:
False

Question 4.
DIN is required for Secretaryship.
Answer:
False

Question 5.
Executive Director is called an outside Director.
Answer:
False

Question 6.
The promoter of a company cannot be the Independent Director.
Answer:
True

Question 7.
Only individuals can be directors.
Answer:
True

Question 8.
The casual vacancy of the Board is filled by the members.
Answer:
False

Question 9.
To function as per Articles of Association of the company is the statutory duty of the Board.
Answer:
True

Question 10.
A Director is an employee of the company.
Answer:
False

Question 11.
The Managing Director is appointed by a resolution.
Answer:
True

Question 12.
The minimum and maximum age to be a Managing Director is 21 and 70 respectively.
Answer:
True

Question 13.
A company may appoint more than one M.D.
Answer:
True

Question 14.
Indian companies prefer a Managing Director over a Manager.
Answer:
True

1E. Find the odd one.

Question 1.
Woman Director, Promoter, Executive Director.
Answer:
Promoter

Question 2.
Absent at Board Meeting, failure to disclose an interest, DIN.
Answer:
DIN

1F. Complete the sentences.

Question 1.
Separate ownership and management is a unique feature of _____________
Answer:
Company

Question 2.
Minimum number of Directors for a private company should be _____________
Answer:
Two

Question 3.
Minimum number of Directors for a public company should be _____________
Answer:
Three

Question 4.
Minimum number of Directors for an OPC should be _____________
Answer:
One

Question 5.
First Directors of a company are appointed by _____________
Answer:
Promoter

Question 6.
At least one Woman Director is required by _____________ company.
Answer:
Listed Company

Question 7.
Casual vacancy on Board is filled by _____________
Answer:
Board

Question 8.
Director is the guardian of interest of company as _____________
Answer:
Trustees

Question 9.
First Secretary is appointed by _____________
Answer:
Promoters

Question 10.
The audit which checks the compliance of Companies Act is called as _____________
Answer:
Secretarial Audit

1G. Select the correct option from the bracket.

Question 1.

Group ‘A’	Group ‘B’
(1) Rotational Director	…………………..
(2) ……………………….	Alternate Director
(3) Woman Director	…………………..
(4) ……………………….	First Director

(Every Listed Company, Appointee by Promoters, Appointed in Place of a director who is absent, Retire by Rotation)
rotation)
Answer:

Group ‘A’	Group ‘B’
(1) Rotational Director	Retire by Rotation
(2) Appointed in Place of a director who is absent	Alternate Director
(3) Woman Director	Every Listed Company
(4) Appointee by Promoters	First Director

1H. Answer in one sentence.

Question 1.
Who is the officer responsible for the company’s financial plan?
Answer:
Chief Financial Officer is responsible for the company’s financial plan.

Question 2.
What is the importance of Secretarial Standards?
Answer:
The main aim of Secretarial Standards is to standardize all diverse secretarial practices prevailing in the corporate world.

Question 3.
Who provides guidance to the Board of Directors?
Answer:
Company Secretary provides guidance to the Board of Directors.

Question 4.
What is the tenure of ‘Managing Director?
Answer:
The tenure of the Managing director is Five Years.

1I. Correct the underlined word and rewrite the following sentences.

Question 1.
A public company must have a minimum of 15 directors.
Answer:
A public company must have a minimum of 03 directors.

Question 2.
First Directors are appointed by ROC.
Answer:
First Directors are appointed by Promoters.

Question 3.
Secretarial Standards are given by the Companies Act, 2013.
Answer:
Secretarial Standards are given by the Institute of Company Secretaries of India.

2. Explain the following terms/concepts.

Question 1.
Director
Answer:
Director is a person appointed to manage, direct and supervise the company. According to Sec-2(34) of the act, “Director means a director appointed to the Board of the company”.

Question 2.
Managing Director
Answer:
Managing Director is a director appointed by virtue of an agreement with the company; or by passing a resolution in the general meeting or by its Board of Directors or by virtue of Memorandum of Associations or Articles of Association. He is entrusted with substantial powers of management of the affairs of the company. He is appointed for a period of 5 years.

Question 3.
Independent Director
Answer:
As per section 149 of the Companies Act, 2013, any director other than a managing director, whole-time director, or a nominee director is termed as an independent director.

Question 4.
Executive Director
Answer:
Executive Director is also called as ‘Whole Time Director’, He is in full-time employment with the company. He plays an important role in the day-to-day management of the company.

Question 5.
Non-Executive Director
Answer:
Non-Executive Director is known as ‘Outside Director’. Non-Executive Director is not involved in the day-to-day management of the company. He is appointed to get second opinions from the board.

Question 6.
Alternate Director
Answer:
Alternate Director is a director who is nominated by the board in the place of absence director. He is appointed for a minimum of 3 months.

Question 7.
Casual vacancy of Director
Answer:
The casual vacancy is created due to the death of a director, which is filled by the board at the board meeting. It is valid till the vacating director’s incomplete term.

Question 8.
Chief Financial officer
Answer:
An officer responsible for the company’s finances is called Chief Financial Officer. He need not be a director of the company. He has to compulsory sign the audited financial statements of the company.

Question 9.
Company Secretary
Answer:
The company secretary is appointed to perform functions of the company and he is appointed by a resolution of the Board. He has to follow the terms and conditions decided by the board. He should be a member of ICSI.

Question 10.
Secretarial Standard
Answer:
It is formulated by ICSI and approved by Central Government through the Ministry of Corporate Affairs (MCA). The main purpose of setting Secretarial Standards is to standardized fine corporate government practices prevailing in companies.

Question 11.
Secretarial Audit
Answer:
It is an audit that monitors the compliance requirements of the company. The main aim of such an audit is to detect errors and mistakes in compliance with the rules and regulations of the Companies Act. It builds confidence among regulators, management, and shareholders of the company.

Question 12.
The Board of Directors
Answer:
Representatives elected by the Equity Shareholder in their Annual General Meeting are called as Board of Directors. They are allotted certain powers to control and manage the business of the firms.

3. Study the following case/situation and express your opinion.

1. Mr. A is a commerce graduate. He has vast experience in the field of finance and the financial market. He wishes to become a director of PQR Co. Ltd.

Question (a).
Is he required to obtain DIN?
Answer:
He was required to obtain DIN. It is compulsory to acquire DIN for every Director.

Question (b).
Can PQR Co. Ltd. object to his directorship on lack of specialized qualification?
Answer:
The company act has not prescribed any academic or professional qualification for directors, so he can obtain directorship.

Question (c).
If he is appointed as director of PQR Co. Ltd, is he entitled to remuneration?
Answer:
The managerial position entitles him to get managerial remuneration so if Mr. A is appointed as director of PQR Co. Ltd then he is entitled to remuneration.

2. Mr. Z is a member of the Institute of Company Secretaries of India.

Question (a).
Can Mr. Z be appointed as pro-tem Secretary of LMN Ltd. which is under formation?
Answer:
Yes, Mr. Z can be appointed as pro-tem secretary of LMN Ltd. which is under formation. The First Secretary is appointed by the promoters of the company.

Question (b).
Can Mr. Z work as Secretarial Auditor?
Answer:
Yes, Mr. Z can work as Secretarial Auditor because he is a member of ICSI.

Question (c).
Mr. Z wishes to be employed as whole time Secretary in companies ABC Ltd. and OPC Ltd. Is he allowed?
Answer:
Mr. Z, as a whole-time secretary, cannot hold office in more than one company. So, Mr. Z can be employed either in ABC Ltd or One Person Company and not in both.

3. Mr. M wishes to be the Managing director of QRS Ltd.

Question (a).
The age of Mr. M is 30 years. Can he be appointed as MD of a company?
Answer:
Yes, Mr. M is 30 years old and the age required to be completed for MD’s post is 21 years. So he can be appointed as MD of a Company.

Question (b).
Is it necessary that Mr. M should be one of the directors on the Board of QRS Ltd?
Answer:
Yes, It is necessary that Mr. M should be one of the directors on the board of QRS Ltd. He should be appointed by the board.

Question (c).
For how long a period QRS Ltd. can appoint Mr. M. as a Managing Director?
Answer:
QRS Ltd can appoint Mr. M. as a managing director for a period of 5 years.

4. Distinguish between the following.

Question 1.
Director and Managing Director
Answer:

Basis	Director	Managing Director
1. Meaning	Director is the elected representative of the shareholders of the company.	The managing director represents the board in the day-to-day activities of the business.
2. Appointment	He is elected at the Annual General Meeting by the members of the company.	He is appointed by the board of directors.
3. Tenure	Directors of public companies retire by rotation. Maximum tenure is of 3 years, 1/3 of Independent Director is not liable to retire by rotation.	The tenure of managing director is for a term of five years.
4. Remuneration	Remuneration for services is given as per specific provisions. The director is given sitting fees to attend the board meeting which may extend up to ₹ 1 lakh plus remuneration.	M.D is entitled to either a monthly salary or 5 % of the net profit. If more than one M.D. is appointed then maximum remuneration cannot be more than 10% of the net profit.
5. Status	Directors are elected representatives of the shareholders managing company in absence of shareholders. They can be agents of the company but not employees of the company.	Managing Director has dual status i.e. a director and a manager (employee).
6. Positions held	Director is the only member or person on the board.	The managing director is the director on the Board. M.D. is the whole time manager in the company.
7. Number of companies	Director can work in 20 companies at a time wherein a maximum of 10 public companies at a time.	A person can be an M.D. of a maximum of 2 companies at a time.

Question 2.
Managing Director and Manager
Answer:

Basis	Managing Director	Manager
1. Meaning	The Managing Director is appointed by the Board to look after the day-to-day administration of the company.	The manager is in charge of the whole management affairs of the company.
2. Appointment	The managing director is appointed by an agreement with the company or by resolution passed by the company in a Board meeting or by virtue of its Articles of Associations of the company.	The manager is appointed under a contract of service.
3. Remuneration	MD is entitled to either a monthly salary or 5% of net profit. If there is more than one managing director, the maximum remuneration payable is 10% of the net profit.	Maximum remuneration to a manager cannot be more than 5% of the net profit.
4. Number of posts	A company may have more than one Managing Director. He can be M.D. in maximum of 2 companies.	The company can have only one post of manager.
5. Power	He is given substantial powers of management.	He is entrusted with whole powers of management.
6. Position held	The managing director must be the director of the company.	The manager need not be a director of the company.

Question 3.
Managing Director and Whole Time Director
Answer:

Basis	Managing Director	Whole Time Director
1. Meaning	The managing director represents the board in the day-to-day management of the company.	The whole time director devotes whole time to the working of the company.
2. Powers	The Managing Director is given substantial powers of management.	A whole-time director does not have the power to take decisions on policy matters.
3. Number of posts	A person can be an M.D. of a maximum of 2 companies at a time.	More than one whole-time directorship is not possible at a time.
4. Performance	He manages the affairs and business of the company.	He performs important administrative functions of the company.

5. Answer in brief.

Question 1.
What is DIN?
Answer:

• It means Director Identification Number.
• DIN is a Unique Identification Number for an existing director or person intending to be the director of a company.
• It is compulsory to acquire DIN by Director.
• It helps in the detection and handling of offenses committed by a director.
• It is obtained through an online process by filing an application.

Question 2.
State any four powers of the Board of Directors.
Answer:

• Director is a person appointed to manage, direct and supervise the affairs of the company.
• The power of the Board of Directors are as follows:
• To appoint or remove key managerial personnel: The Board of Directors has the power to appoint and remove key managerial personnel.
• To recommend dividend: The board of directors recommends the dividend to the shareholders.
• To fill a casual vacancy in the Board: Casual vacancy in the board arises due to different reasons such as the death of a director who is filled by the Board at the Board meeting.
• To issue securities whether in India or abroad: Board of Director’s issue securities means shares, debentures, bonds) in India and abroad also.

Question 3.
Mention any four ways in which the office of a director becomes vacant.
Answer:
The office of a Director shall automatically become vacant in the following ways:

• Any disqualification: A person cannot be appointed as a director if he is of unsound mind or insolvent or convicted by the court.
• Absentee at Board meeting: Director who has been absent in the meeting of the board of directors held during the period of 12 months with or without taking leave of absence of the Board.
• Disqualification by Court or Tribunal: Director has to vacate office if he has been disqualified by an order of a court or the Tribunal.
• Provision of the Act: Director has to vacate office if he is removed under the provisions of the Companies Act.

Question 4.
State the powers of a Managing Director.
Answer:
As it is stated in the definition itself the Managing Director is entrusted with the substantial powers of management, which clearly indicates that he has been given certain important powers of routine business matters of a company.
The powers exercised by him are fellows:

• To act as a link between the Board of Directors and the managerial staff.
• To look after the management and administration of a company.
• To appoint the company employees.
• To participate in policymaking as well as policy execution.
• To sign contracts on behalf of a company.
• To decide about the investment of funds of a company.
• To receive remuneration from a company.

Question 5.
State the statutory duties of a company secretary.
Answer:
Secretary is an employee of the company. He enjoys the power and advises the management.
Statutory duties of a company secretary are as follows:

• To organize meetings and be present at all the meetings of the company.
• To maintain the minutes of all meetings.
• To issue notices and circulars to the members of the company.
• To maintain and update the Register of members and debenture holders and other books of the company.
• To file all necessary returns with the Registrar of Companies.
• To communicate with the shareholders on various matters.

6. Justify the following statements.

Question 1.
Directors are managing partners.
Answer:

• Directors have to work as a team as Board of Directors, not as an individual.
• The powers by Board are subject to provisions of the Companies Act and Memorandum and Articles of Associations.
• Director is required to perform his functions.
• He represents shareholders to conduct and manage the business of the company on their behalf.
• They are entrusted with vast powers of management and perform several functions which are proprietary in nature like allotment of shares, raising of loans, investing funds of the company.
• This is because they themselves are significant shareholders of the company.
• In fact, they are the most active shareholders of the company.
• Thus, Directors are the managing partners of the company.

Question 2.
A Director is an agent of the company.
Answer:

• Since the company is an artificial person, it needs to be represented by the Director.
• They deal on behalf of the company.
• Directors should deal skillfully, carefully, and diligently.
• Directors are held liable as an, while company is held liable as the principal.
• A Director is an agent as he acts between the company and shareholders.
• Thus, a director is an agent of the company.

Question 3.
The company has a distinct feature of separate ownership and management.
Answer:

• The company has a unique feature of separate ownership and management.
• Shareholders are its owner and Directors are its managers.
• Being an artificial person, it needs a human agent to manage and control the working of the company.
• Shareholders are scattered all over therefore management of the company by them is not possible.
• Also, the shareholders are not interested in the management of such a big organization.
• The company as an artificial person having no physical existence needs humans to control its affair.
• Thus, the company has a distinct feature of separate ownership and management.

Question 4.
DIN helps investors of the company.
Answer:

• DIN is a unique identification number for an existing director or person intending to be the director of the company.
• It is compulsory to acquire DIN by every Director.
• Din is Pre-require for e-filling of company’s documents.
• It helps the investors of the company to make a more accurate and informed decisions because they get to known the composition of the top management of the company.
• It also helps to handle the problems created due to a company after collecting or raising money from the public.
• Thus, I agree with the given statement.

Question 5.
Directors have to work as a team.
Answer:

• Directors have to work as a team of “Board of Directors” and not individually.
• He exercises the power as a Board which is subject to provision of the Act.
• Director is a representative of shareholders so he has to work collectively in the best interest of the company and its shareholders.
• He cannot take decisions alone on behalf of the company.
• Thus, directors have to work as a team.

Question 6.
Directors play a triple role.
Answer:

• Directors play a triple role i.e. in the form of an agent, as a managing partner, and as a trustee.
• As an agent, the director deals skillfully, carefully, and elegantly while representing the company with outsiders.
• As a managing partner, the director acts as a representative of the shareholder and manages the company on their behalf.
• As a trustee, the director acts as a guardian of the interest of shareholders and a company.
• They use the company’s funds in the most appropriate manner and cautiously.
• They are also the trustee of all the assets of the company.
• Thus, directors play a triple role.

Question 7.
Company Secretary plays a triple role.
Answer:

• Company Secretary plays a three-fold role in the form of – as a statutory officer, as a coordinator, and as an administration officer.
• As a statutory officer, the secretary signs the document for authentication, files annual returns to ROC, maintains various statutory registers and ensures compliance with the law.
• As a coordinator, the secretary acts as a network between the Board of Directors and other executive officers at different levels. He acts as an internal as well as external coordinator for the company.
• As an administrative officer, the secretary ensures the implementation of various policies of the company and also supervises and controls the functioning of various departments of the company.
• Thus, Company Secretary plays a triple role.

Question 8.
A director cannot be called an employee of the company.
Answer:

• Directors are elected representatives of the company’s shareholders.
• The status of an employee is within the limits of his contract and service.
• His employer holds the ultimate control to guide his activities and functions.
• These limits of an employee cannot be applied to a director.
• So a director cannot be called an employee of the company.
• Thus, a director cannot be called an employee of the company.

Question 9.
The managing Director has substantial powers of management.
Answer:
As it is stated in the definition itself the Managing Director is entrusted with the substantial powers of management, which clearly indicates that he has been given certain important powers of routine business matters of a company.
The powers exercised by him are as follows:

• To act as a link between the Board of Directors and the managerial staff.
• To look after the management and administration of a company.
• To appoint the company employees.
• To participate in policymaking as well as policy execution.
• To sign contracts on behalf of a company.
• To decide about the investment of funds of a company.
• To receive remuneration from a company.

Question 10.
Indian companies prefer to appoint a Managing Director than a Manager.
Answer:

• Indian company prefers to appoint managing director rather than manager because Managing Directors holds dual authorities and he is able to influence the board of director in a better way.
• Manager need not be a director of a company while the managing director has to be director of a company,
• The company cannot have more than one manager, while it can have more than one managing director.
• Thus, Indian companies prefer to appoint a managing director than a manager.

Question 11.
Pro-tem secretary is helpful to the company.
Answer:

• The first secretary of the company is appointed by the promoters of the company.
• The first secretary is called as ‘pro-tem’ secretary.
• Pro-tem secretary appointed by promoters may or may not be appointed as full-time or regular Secretary.
• Pro-tem secretary helps in fulfilling different formalities during the formation of the company.
• Thus, the Pro-tem secretary is helpful to the company.

Question 12.
Secretarial Standards should be in conformity with the Act.
Answer:

• The Secretarial Standards are formulated by the Institute of Company Secretaries of India and approved by the Central Government through the Ministry of Corporate Affairs.
• The Companies Act, 2013, makes compliance with the Secretarial Standard mandatory.
• It leads to provide better monitoring of compliances of law, strengthening the process of the Board, and create confidence in investors.
• The Secretarial Standards aim at achieving integrating, harmonizing, and standardizing fine corporate governance practices across all companies.
• Thus, Secretarial Standards should be in conformity with the Act.

Question 13.
Secretarial Standards lead to better legal compliance.
Answer:

• Companies follow diverse practices based on differing business cultures and varied usages over a period of time.
• The Secretarial Standards aim at achieving integrating, harmonizing, and standardizing fine, corporate governance across all companies
• It leads to provide better monitoring of compliance of the law, strengthening the process of the Board, and create confidence in investors.
• Secretarial Standards are reviewed by Secretarial Standard Board (SSB) once a year or whenever changes are made in the law.
• Thus, Secretarial Standards lead to better legal compliance

Question 14.
A secretarial Audit is required under the laws.
Answer:

• It is an audit that checks the compliance of various legislation including the Companies Act, other Corporate Acts, and economic laws.
• It aims at detecting errors and mistakes in the compliance mechanisms.
• It gives confidence to regulators, management authorities, and shareholders that the company is following a disciplined approach of evaluation and improve effectiveness and risk management.
• Thus, Secretarial Audit is required under the laws.

7. Answer the following questions.

Question 1.
Explain the Role of Directors.
Answer:
Director is a person appointed to manage, direct and supervise the affairs of the company.
The elected representatives of the shareholders are called Directors.

Role of the Directors:

• He helps the investors to take accurate decision.
• He has to fill casual vacancies on the board.
• He has to recommend dividends.
• He has to issue securities in India or abroad.
• He manages a company on behalf of the shareholder.
• He appoints the first auditor of the company.
• He can appoint or remove Key Managerial Personnel.
• He can borrow the money on behalf of the company.
• His role is full of trust, loyalty, care, and good faith.
• Directors act as a trustee, agent and managing partner for the company.

Question 2.
Explain the duties of a Director.
Answer:
A director’s relationship with a company is regarded as fiduciary in nature. It means his duty is full of trust, care, and good faith.
The duties of directors can be categorized into two heads:

1. Statutory Duties:
   • To file a return of Allotment.
   • To act in accordance with the Articles of the company.
   • To disclose an interest in a transaction.
   • To attend Board meetings.
   • To appoint first Auditors of the company.
2. General Duties:
   • Duty of good faith i.e. he must act in the best interest of the company.
   • Duty of care i.e. he must take utmost care in the performance of work assigned.
   • Duty not to delegate i.e. he is required to perform his function personally. He may delegate in case of emergency.

Question 3.
Explain the Managing Director.
Answer:
Definition: The Companies Act, has defined a Managing Director as “A Director who by virtue of an agreement with the company or of a resolution passed by a company in the general meeting or by its Board of Directors or by virtue of its Memorandum or Articles of Association, is entrusted with substantial powers of management of the company”.

Disqualification:

• Any person less than 21 years of age and more than 70 years of age.
• A person who is an undischarged insolvent person or has at any time been adjudged as an insolvent.
• A person who has suspended payment to his creditors or made a composition with them.
• A person who is, or has been convicted by a court of an offense with a sentence of more than 6 months period.

Appointment:
A Managing Director may be appointed by any one of the following ways:

• by an agreement with a company.
• by the resolution passed at the general meeting.
• by the Board of Directors.

Term of office:
The term of office of the Managing Director cannot exceed 5 years at a time, but he can be reappointed as such for a further period of five years.

The number of Managing Directorship:
A Managing Director can not act as such for more than two companies at the same time.

Remuneration:
The remuneration paid to the Managing Director is subject to the maximum limit of 5% of the net profit of a company or a monthly salary. If a company has more than one Managing Director then total remuneration paid to them (all) shall not exceed 10% of the net profit.

Powers of a Managing Director:

• To act as a link between the Board of Directors and the managerial staff.
• To look after the management and administration of a company.
• To appoint the company employees.
• To participate in policymaking as well as policy execution.
• To sign contracts on behalf of a company.
• To decide about the investment of funds of a company.
• To receive remuneration from a company.

Duties of a Managing Director:

• To act on behalf (agent) of the Board of Directors.
• To implement the decision of the Board.
• To supervise, direct, control, and guide the day-to-day affairs of the business.
• To guide the senior executives in their administrative work.
• To report to the Board about programmes made or any problem faced by a company.
• To chair the Board meetings and general meetings, if necessary.
• To manage routine work of a company.
• To sign all the contracts and documents on behalf of the company.

Question 4.
Explain the Company Secretary.
Answer:
Meaning:

• Secretary is an employee of the company and he is appointed to perform functions of a company secretary,
• He should be a member of the Institute of Company Secretaries of India (ICSI).
• The first secretary is appointed by the promoter of the company and he is called a ‘pro-tem’ secretary.
• He holds liable for non-compliance with the provisions of the Act.

Duties of a Company Secretary:
It is categorized as (A) Statutory Duties and (B) General Duties.

(A) Statutory Duties:

• To organize and attend meetings of the company.
• To prepare minutes of meetings.
• To communicate with shareholders on various matters.
• To issue notices and circulars to the members of the company.
• To maintain various Registers and books of the company
• To file returns with the ROC.

(B) General Duties:

• To provide guidance to the Board of Directors as needed.
• To discharge duties towards regulators and authorities of the company.
• To assist the Board of Directors in conducting the business of the company.
• To perform duties allotted by the Board.

Rights of a Secretary:

• To control and supervise the working of departments of the company.
• To get indemnified by the company, if any loss is suffered by the secretary.
• To sign documents requiring authentication.
• To get remuneration from the company.

Question 5.
Explain the role of the Company Secretary.
Answer:
The company secretary plays a crucial and important role in the administration of the company.
The emphasis on good governance has increased the role of the secretary in protecting the interest of investors.

Role of Company Secretary:

• Secretary as a Statutory officer:
• To sign documents for authentication.
• To sign and deliver Annual Returns and other documents and to the Registrar of Companies.
• To maintain different statutory registers like
  • Minutes of General and Board meetings of the company.
  • Registers of Members and Debenture holders Register of Directors and KMP and their shareholdings.
• To ensure compliance with the law

(ii) Secretary as a Co- ordinator:

• To implement policies framed by the Board.
• To act as a link between the Board and other executives at different levels.
• To act as a mouthpiece or spokesperson of the Board.
• To act as an internal and external coordinator.

(iii) Secretary as an Administration officer:

• To ensure implementation of the policies of the company.
• To supervise and control the functioning of different departments of the company.
• To take an overall view of different aspects of the company’s administration and develop a strong and efficient organizational setup.
• To contribute to the administration of the company.

Balbharti Maharashtra State Board Class 11 Secretarial Practice Solutions Chapter 5 Members of a Company Textbook Exercise Questions and Answers.

Maharashtra State Board Class 11 Secretarial Practice Solutions Chapter 5 Members of a Company

1A. Select the correct answer from the options given below and rewrite the statements.

Question 1.
____________ is a person whose name is entered in the Register of Members.
(a) Member
(b) Creditors
(c) Registrar
Answer:
(a) Member

Question 2.
A person can be called as a Member when the name is entered in ____________
(a) Register of charges
(b) Register of Members
(c) List of Members
Answer:
(b) Register of Members

Question 3.
A ____________ cannot be a member of a company.
(a) foreigner
(b) woman
(c) minor
Answer:
(c) minor

Question 4.
When a person buys shares of a company by filling up an application form, a person becomes a member by ____________
(a) Application and Allotment of shares
(b) Subscribing to Memorandum
(c) Transmission of Shares
Answer:
(a) Application and Allotment of shares

Question 5.
____________ means a person ceases being a member of the company of membership.
(a) Termination of membership
(b) Acquisition of membership
(c) Subscription to membership
Answer:
(a) Termination of membership

Question 6.
A member has right to participate in General Meetings means, he has a right to ____________
(a) receive dividends
(b) receive notice and agenda of a meeting
(c) to transfer his shares
Answer:
(b) receive notice and agenda of a meeting

1B. Match the pairs.

Question 1.

Group ‘A’	Group ‘B’
(a) Insane person	(1) Transfer of shares by operation of law
(b) Foreigner	(2) Cannot be a member
(c) Transmission of shares	(3) Cessation of membership
(d) Surrender of shares	(4) To get copies of Auditor’s, Directors’ Report, etc.
(e) Right of Members	(5) Can be a Member
	(6) To attend a board meeting
	(7) Duties of member
	(8) Surrendering all assets to the company
	(9) Demand or claim money from the company
	(10) Transfer of shares by order of Secretary

Answer:

Group ‘A’	Group ‘B’
(a) Insane person	(2) Cannot be a member
(b) Foreigner	(5) Can be a Member
(c) Transmission of shares	(1) Transfer of shares by operation of law
(d) Surrender of shares	(3) Cessation of membership
(e) Right of Members	(4) To get copies of Auditor’s, Directors’ Report, etc.

1C. Write a word or a term or a phrase that can substitute each of the following statements.

Question 1.
End of membership of a person.
Answer:
Termination of membership

Question 2.
A person whose name is entered in the Register of Members.
Answer:
Member

Question 3.
Book in which names of all members are entered.
Answer:
Register of Members

Question 4.
Becoming a member of a company.
Answer:
Acquisition of membership

Question 5.
The subscribers of this document are considered Members of the company.
Answer:
Memorandum of Association

1D. State whether the following statements are True or False.

Question 1.
Buying shares is the most common way to become a Member of the company.
Answer:
True

Question 2.
Both individuals and body corporates can be members of the company.
Answer:
True

Question 3.
Legal competency to enter into contracts is one of the criteria to become a member of the company.
Answer:
True

Question 4.
Limited Liability Partnership cannot be a member of the company.
Answer:
False

Question 5.
Karta of HUF can be a member of the company.
Answer:
True

Question 6.
Member of the company is conferred with several rights.
Answer:
True

Question 7.
Member is entitled to profits of the company when a dividend is declared.
Answer:
True

Question 8.
Members of the company can attend general and Board meetings of the company.
Answer:
False

Question 9.
The right to appoint Director is given to Members.
Answer:
True

Question 10.
Minor can be a member of the company.
Answer:
False

1E. Find the odd one.

Question 1.
Subscribing to Memorandum, Forfeiture of Shares, Application, and allotment of shares.
Answer:
Forfeiture of shares

Question 2.
Death or insolvency of member, Application, and allotment of shares. Surrender of shares.
Answer:
Application and Allotment of shares

1F. Complete the sentences.

Question 1.
A person whose name is entered in the Register of Member of a company is called ____________
Answer:
Member

Question 2.
In case of death or insolvency of a member, he will cease to be a ____________
Answer:
Member of a Company

Question 3.
Members have a right to appoint and remove the ____________
Answer:
Director

1G. Select the correct option from the bracket.

Question 1.

Group ‘A’	Group ‘B’
(1) Minor	……………………..
(2) Co-operative society	………………………
(3) ……………………	Can hold shares in the name of partners

(Partnership firm, Cannot become a member of a company, Can become a member of a company)
Answer:

Group ‘A’	Group ‘B’
(1) Minor	Cannot become a member of a company
(2) Co-operative society	Can become a member of a company
(3) Partnership Firm	Can hold shares in the name of partners

1H. Answer in one sentence.

Question 1.
Which individuals cannot become a member of a company?
Answer:
Minor, insolvent, insane, or lunatic cannot become a member of a company.

Question 2.
What is the common way of becoming a member of a company?
Answer:
Buying shares is the common way of becoming a member of a company.

1I. Correct the underlined word and rewrite the following sentences.

Question 1.
A Minor can be a member of a company.
Answer:
A Guardian/Mai or person can be a member of a company.

Question 2.
Partnership Firm can be a member of the company.
Answer:
The Partnership firm cannot be a member of a company.

2. Explain the following terms/concepts.

Question 1.
Member
Answer:
A person who is a subscriber to the Memorandum of Association of a Company is called a member.
OR
A person whose name is entered in the Register of Members of the company is called a member of a company.

Question 2.
Transmission of shares
Answer:
Transmission of shares refers to the transfer or passing of property or titles in shares by the operation of law from a member to his legal representative. When transmission of shares takes place the membership of the original shareholder is terminated.

Question 3.
Cessation of Membership
Answer:
Cessation of Membership of a company means the discontinuation of membership. The name of the old member is removed from the Register of the member.

Question 4.
Acquisition of Membership
Answer:
Any person who is competent to contract can become a member after fulfilling certain requirements for the membership of the company.

Question 5.
Eligibility of Membership
Answer:
Buying shares amount to making a contract, so any entity i.e. person/organization competent to make contact can be a member of the company.

3. Study the following case/situation and express your opinion.

1. Mrs. & Mr. A work in a Bank. They have a daughter named Ms. Z who is 11 years old.

Question (a).
Can Mrs. & Mr. A invest in shares of the company?
Answer:
Yes, Mrs & Mr. A can invest in shares of the Company.

Question (b).
Can they buy shares in the name of their daughter Ms. Z?
Answer:
Yes, Mrs. A and Mr. A can buy shares in the name of their daughter Ms. Z.

Question (c).
Justify your answer in (a) & (b) in one sentence only.
Answer:
Justification:
Mrs. A and Mr. A can invest in shares of the Company as they are major citizens.
Similarly, they can buy shares on behalf of their daughter as they are guardians of Ms. Z.

2. M/s. ABC is a Partnership firm owned by Dr. A, Dr. B, Dr. C. The doctors want to invest the profits of ABC in the shares of a company.

Question (a).
Can M/s ABC buy the shares of the company?
Answer:
Yes M/s ABC can buy the shares of the company.

Question (b).
Can profits of M/s. ABC be invested in shares held in the names of Dr. A or Dr. B or Dr. C?
Answer:
They can invest profit of M/s ABC in the names of Dr. A or Dr. B or Dr.C.

Question (c).
Are the doctors eligible to invest in shares of the company?
Answer:
Yes, doctors are eligible to invest in shares of the company.

3. ZEN Limited has some investible profits. Please guide Zen limited with respect to the following?

Question (a).
Can ZEN Limited invest in the shares of itself?
Answer:
No, ZEN Limited cannot invest in the shares of itself.

Question (b).
Can ZEN Limited invest in the shares of TEN Limited?
Answer:
Yes, ZEN Limited can invest in the shares of TEN Limited.

Question (c).
Justify your answers in (a) & (b) in one sentence only.
Answer:
Justification:
ZEN limited being a legal person can be a member of another company TEN Limited. It cannot be a member of its own company as per the Companies act.

4. Answer in brief.

Question 1.
State any four ways of acquiring membership of a company.
Answer:
Any person who is competent to contract can become a member after fulfilling certain requirements for membership in a company.
The different ways to acquire membership of a company are explained below:
(i) By Subscription:

• The subscriber to the Memorandum of Association of a company, who are signatories to the Memorandum of the company is deemed to have agreed to become the members of the company.
• When the company is registered, their names are entered as the members in the Register of Members. In this case, neither an application nor the allotment of shares is important to become a member.

(ii) By Application and Allotment of shares:

• This is one of the methods of acquiring membership. An application for shares is made by an applicant in response to the invitation given by the company through its prospectus.
• The company then allots the shares as an acceptance to his application and offers the shares. The applicant then becomes the shareholder and his name is entered in the ‘ Register of Members’.

(iii) By Transfer of shares:

• After acquiring the shares by way of sale or gift, the buyer (transferee) is required to get the shares registered in his name in the Register of Members of the company.
• For this an instrument of transfer signed by the buyer and the seller accompanied by the share certificate is to be lodged (sent to) with the company.
• When the company approves the transfer, the name of the transferee is entered in the Register of Members and thus, be becomes a member of a company. The name of the earlier member is struck off from the Register.

(iv) By Transmission of shares:

• In the event of the death or lunacy of a member, his legal heir or representative automatically becomes the shareholder.
• He is entitled to have his name entered in the Register of Members. He can do so by making an application to the company, supported by legal evidence of his title.
• When the company approves the title the name of the legal representative is entered in the Register of Members and thus, he becomes a member of a company.
• This transfer of shares by the operation of law is called the transmission of shares.

Question 2.
State any four ways of cessation of membership of a company.
Answer:

• Cessation/Termination of a member means the discontinuation of membership. His relationship with the company comes to an end.
• The name of the members is removed from the Register of Members as cessation.
• The original member is thus prevented from exercising his rights of membership.

The membership of a person may be terminated in any one of the following ways:

• Winding up of a company: When a company is ‘winding up’ or exists no more due to the process of law, the membership of all the members stands terminated or cessation automatically.
• Surrender of shares: When the company accepts surrender of partly paid-up shares, if permitted by its Articles, the membership of the shareholder is terminated.
• Transmission of shares: Transmission of shares refers to the transfer or passing of property or titles in shares by the operation of law from a member to his legal representatives. Such an automatic transfer of shares takes place in the event of the death or lunacy of a shareholder. When the transmission of shares takes place, the membership of the original shareholder is terminated.
• Transfer of shares: The transfer of shares is effected by registering an instrument called ‘Instrument of Transfer’ with the company. When the company approves the transfer, the Secretary cancels the name of the seller from the Register of Members and thus the membership of the shareholder is terminated.
• Forfeiture of shares: When the company forfeits the shares on account of non-payment of call money, the membership of the shareholder whose shares are forfeited comes to an end.

Question 3.
State the rights of members with regard to participation in general meeting.
Answer:
As an integral part of a company, a member enjoys certain rights and has to fulfill certain duties and liabilities.
Following are the rights of members:

• Right to receive the notice and agenda of all general meetings, attend them in person or appoint a proxy, speak and vote at the meeting, demand to call Extra-Ordinary General meeting and pass resolutions.
• Right to receive the copy of annual reports, auditors’ reports, statutory reports, and the annual account are on his registered address.
• Right to transfer shares, if any, imposed by the Article of Association.
• Right to receive bonus shares whenever issued by the company.
• Right to get the name entered in the Register of members and be registered as a member of the company,
• Right to receive a share in the surplus property and assets of the company on winding up of the company after all other claims have been paid.

5. Justify the following statements.

Question 1.
Member and Shareholder are interchangeable terms.
Answer:

• A person whose name is entered in the register of members of a company is called a member and a person who owns shares of a company and holds actual possession of shares is called a shareholder of a company.
• A shareholder becomes a member of a company only when his name is recorded in the Register of Members. A person who buys a share in an open market is a shareholder. But he cannot be called a member until the procedure of transfer of shares in his name is completed.
• In the case of death, or lunacy of a member of a company, his legal representative becomes the shareholder but he cannot be called a member until the procedure for transmission of shares in his name is completed.
• A shareholder who transfers his share to another person is not a member until the transfer is registered and the name of the transferee is recorded in the Register of Members.
• A person who subscribes to the Memorandum of Association may not be called a member until the shares are actually allotted to them. Thus, I agree with the above statement.

Question 2.
A foreigner can invest in shares of an Indian company.
Answer:

• A foreigner can enter into contract.
• Foreigners can buy shares and become a member of an Indian company, subject to provisions of FEMA Act 1999.
• ‘FEMA’ aims at facilitating external trade and promote the foreign exchange market in India.
• Foreigner falls under the category of individual eligibility to be a member of a company.
• Thus, I agree with the above statement.

Question 3.
The insolvent person ceases to be a member of the company.
Answer:
Yes, I agree with the statement.

• On, becoming insolvent, a person’s beneficial rights of shareholders passes to Official Receiver or Assignee.
• Thus, the insolvent person stops being a member of the company on his insolvency.
• Official Receiver is an officer appointed by the court, to deal with the property and assets of the insolvent person.
• On being insolvent a member ceases to be a member of the company and thus he can neither attend Annual General
• Meeting nor can he vote on matters of the company.
• Thus, I agree with the above statement.

Question 4.
The Co-operative Society is eligible to be a member of the company.
Answer:

• The Co-operative Society falls under the category of Organizations eligible for membership of a company.
• Co-operative Societies are registered under the State Co-operative Societies Act of respective states.
• A Co-operative Society is a registered entity, it can become a member of the company.
• Thus, it can invest in shares of the company and also enjoys all the rights of membership.
• It also has a right to receive notice of meeting, attend the meeting, vote in meeting, etc.
• Thus, I agree with the above statement.

Question 5.
Subscribers to the Memorandum of Association are the first members of the Company.
Answer:

• There are different ways for the acquisition of membership in a company.
• Subscribing to Memorandum of Association is one is of the way of acquiring membership in a company,
• Subscribers to the Memorandum of Association of companies are different in different cases i.e. Seven (7) members in the case of a Public Company, Two (2) members in the case of a Private company, and One (1) in case of One Person Company.
• Thus, I agree with the above statement.

Question 6.
The nominee of the member of OPC becomes its member on the death of the member.
Answer:

• In an acquisition of membership, there are different ways to become a member of the company.
• In the case of One Person Company, the name of the nominee is given beforehand in the Memorandum of One Person Company.
• So, in case of the death of a member, his nominee automatically becomes the sole owner of the company.
• But he cannot be called as a member of the company until all procedure of transmission of shares is completed.
• Thus, I agree with the above statement.

Question 7.
Members of the company are entitled to several rights.
Answer:

• Being an integral part of a company, members enjoy certain rights and have to fulfill the duties and liabilities.
• Member has the right of accessing books and documents of a company. He can make copies of the Memorandum and Article of Association. He has the right to appoint Auditors and Directors and decide their salary and remuneration.
• He can inspect the Register of Members and Debentureholders register.
• He has right to make a Fundamental Corporate Decision like – Change of Registered office of the company, increase authorized capital, change in the object of the company, make amendment in Articles of Association, right of winding up the company, etc.
• He has the right to receive the notice and agenda of a meeting. He can attend the Annual General Meeting in personal or he can send his proxy to attend the meeting.
• Thus, I agree with the above statement.

Question 8.
Members of the company have some fundamental corporate decision-making rights.
Answer:

• Members hold powers to decide at meetings on important matters.
• He has certain fundamental rights like a change of registered office of the company.
• He can increase the authorized capital of the company.
• He can change the objects of the company because he is a member of the company as well as the owner of the company.
• He also has a right to amend the Articles of Association.
• He also has a right to acquisitions, mergers, and takeovers by the company. He can appoint sole selling agents for the company.
• He also has a fundamental right to close or wind up the company.
• Thus, I agree with the above statement.

Question 9.
Transfer of shares results in termination of membership.
Answer:

• On termination of membership, the name of the member is removed from the Register of Members.
• Companies Act empowers every shareholder to transfer his share in the manner laid down in the Articles and in accordance with the provisions of the law.
• A transfer of share takes place when a registered shareholder transfers his shares by sale or gift to another person voluntarily.
• Transfer of shares by operation of law in event of death or insolvency of members is called the transmission of shares. The legal representative/heir in case of death, official receiver in case of insolvency, and administrator in case of insanity replaces the concerned member.
• When the company approves the transfer, the Secretary cancels the name of the seller i.e. (transferor) from the Register of Members, and the membership of the shareholder stands terminated after transferring the shares.
• Thus, I agree with the above statement.

6. Answer the following questions.

Question 1.
Explain the circumstances when Member is not a shareholder and vice-versa.
Answer:
An organization is formed for purpose of education, sports, health, business with well-defined objectives and relationships. The organization is by ‘members’ and ‘only for members.’
“Member means a person whose name is entered in the Register of Members of the company and are the holder of equity shares and are a beneficial owner in the records of Depository.
Buying shares is the most common and easy way where a person becomes a member of the company.

Following are different circumstances when Member is not a shareholder:

• Member without being a shareholder:
  • Signatories to the Memorandum of Association: They are members of the company but not shareholders till the shares are not allotted to them.
  • Company Limited by Guarantee Amount: This company does not have any share capital. Therefore, it has only members, not the shareholders.
  • Transfer of shares: Transferor (seller) of shares continue to be a member of the company, till his name is removed from the Register of Members and is replaced by transferee’s (buyer)name.
  • On the death of a member: On the death of a member, his legal heir becomes the holder of deceased member shares. But he is not a member of a company until the procedure of transmission of shares is completed.
  • On insolvency of member: Shares of insolvent member are held by court-appointed Official Receiver.
    So the insolvent person continues to be a member but not the shareholder.
• Shareholder without being a member: The buyers of the shares, Official Receiver in case of insolvency; legal heir in case of death as explained above are shareholders but not the members of the company.

Question 2.
Explain the eligibility of memberships of a company.
Answer:

• The organization is formed and managed by persons termed as ‘Member’.
• So it is rightly said organization is by ‘member’ and ‘only for members’.
• Any entity i.e. person or organization who is competent to make a contract can become a member of the company.
• Subject to provisions of the Companies Act, 2013, Memorandum of Association, and Articles of Association, any person who is legally competent to manage their own affairs (‘Sui-Juris) can become a member of the company.

Eligibility Criteria:
(A) Individuals:

• Major person: Any person domiciled (staying) in India, having completed 18 years of age, having a sound mind, and not be disqualified by law can become a member of the company.
• Minor: A minor cannot be a member of a company but a guardian can be a member of a company on behalf of a minor.
• Insolvent: Insolvent person cannot be a member of a company as his beneficial rights of shareholding are held by the Official Receiver, an officer appointed by the court.
• Insane/Lunatic: Insane/Lunatic person is unable to enter into a contract which makes him ineligible to be a member of a company.
• Foreigner: A foreigner or Non-resident Indian can become a member of a company, subject to provisions of FEMAAct, 1999.

(B) Organizations:

• Company: A company being a legal person can be a member of another company if authorized by its Memorandum of Association. It cannot be a member of its own company.
• Co-operative Society: Since co-operative societies are registered entity, they can be a member of the company.
• Limited Liability Partnership (LLP): Such, firms are treated as a juristic person, hence it can be a member of the company.
• Hindu Undivided Family: HUF firm is prohibited to be a member of a Company, but ‘Karta’ can buy a share in his name on behalf of Hindu Undivided Family firm.
• Partnership Firm: Since the partnership firm is not a registered entity. It cannot be a member of the company. But partners themselves can buy shares in their individual names.
• Trust: Registered trust can become a member of a company in its own name.

Question 3.
Explain different ways to acquire membership of the company briefly.
Answer:
Any person who is competent to contract can become a member after fulfilling certain requirements for membership in a company.
The different ways to acquire membership of a company are explained below:
(i) By Subscription:

• The subscriber to the Memorandum of Association of a company, who are signatories to the Memorandum of the company is deemed to have agreed to become the members of the company.
• When the company is registered, their names are entered as the members in the Register of Members. In this case, neither an application nor the allotment of shares is important to become a member.

(ii) By Application and Allotment of shares:

• This is one of the methods of acquiring membership. An application for shares is made by an applicant in response to the invitation given by the company through its prospectus.
• The company then allots the shares as an acceptance to his application and offers the shares. The applicant then becomes the shareholder and his name is entered in the ‘ Register of Members’.

(iii) By Transfer of shares:

• After acquiring the shares by way of sale or gift, the buyer (transferee) is required to get the shares registered in his name in the Register of Members of the company.
• For this an instrument of transfer signed by the buyer and the seller accompanied by the share certificate is to be lodged (sent to) with the company.
• When the company approves the transfer, the name of the transferee is entered in the Register of Members and thus, be becomes a member of a company. The name of the earlier member is struck off from the Register.

(iv) By Transmission of shares:

• In the event of the death or lunacy of a member, his legal heir or representative automatically becomes the shareholder.
• He is entitled to have his name entered in the Register of Members. He can do so by making an application to the company, supported by legal evidence of his title.
• When the company approves the title the name of the legal representative is entered in the Register of Members and thus, he becomes a member of a company.
• This transfer of shares by the operation of law is called the transmission of shares.

(v) By holding shares in the Dematerialized form:
The person holding shares in dematerialized form and has his name as a beneficial owner in the records of Depository is treated as a member of the company.

(vi) Nominee of One Person Company (OPC):
In the case of One Person Company, the name of the nominee is given beforehand in the Memorandum of One Person Company. He becomes the sole owner of the shareholdings of the deceased member.

(vii) By Acquiescence:
If a person is wrongly entered in the Register of Members or holds or allows his name as the Register of Members without informing the company about its mistake, he is treated and made liable as a member in the event of liquidation of a company.

Question 4.
Explain how membership of the company terminates.
Answer:
Cancellation of membership of a shareholder is called Termination or Cessation of membership. On termination of membership, all rights of a member are canceled.

Following are the ways of Termination of membership:
(i) Transfer of shares: Transfer of shares is effected by registering an instrument called Instrument of Transfer with the company. The secretary cancels the name of the seller from the Register of Members and thus the membership of the shareholder is terminated.

(ii) Transmission of shares: Transmission of shares refers to the transfer of shares by operation of law. This is an automatic transfer of a share in the event of death or lunacy of a shareholder. When the transmission of shares takes place, the membership of an original shareholder is terminated.

(iii) Winding up: When a company is winding up, the membership of all the members stands terminated automatically.

(iv) Forfeiture of shares: When a company forfeits the shares on account of non-payment, of calls on shares, shareholder’s shares are forfeited and he ceases to be a member of the company.

(v) Surrender of shares: When a company accepts surrender of partly paid-up shares if permitted by its Articles, the membership of the shareholder is terminated.

(vi) Redemption of Preference shares: When the redeemable preference shares are redeemed (repaid) to the shareholder by the company as per the terms of issue, the membership comes to an end.

(vii) Right of lien as shares: When a shareholder has some obligation towards the company, it is said to be lien on shares by the company. It means shareholders cannot sell their shares until they clear their dues or obligations if any. In case of his failure to pay his dues company cancels his shares and his membership comes to an end.

Question 5.
Explain the Rights of a Member of a company.
Answer:
Being a part of a company, a member enjoys certain rights and has to fulfill certain duties.
Right of members are as follows:

1. Right of accessing books and documents: A member can get copies of Memorandum and Articles of Association, Auditors and Directors Reports, Balance Sheet and Profit and Loss A/c. Members can also check the Register of members.
2. Right to participate in General meetings: Members have the right to receive notice and agenda of all general meetings, attend the meeting personally or appoint a proxy, vote at the meeting, etc.
3. Right to appoint and remove a Director: Member of a company has the right to appoint and remove the directors.
4. Shareholding rights: Shareholders have the right to receive a share certificate, transfer his shares, to get right issue and bonus issue shares.
5. Right to Class Action Suit: The Act confers the right of Class Action Suit to members against the company or their directors in the time of any unlawful or wrongful act. They can file a petition to wind up the company.
6. Right to receive surplus assets: In the event of the winding-up of the company, the member has the right to get a share in surplus assets of the company.
7. Right with respect to the company’s accounts and its audit: Members have the right to approve the annual accounts at the Annual General Meeting. He can appoint auditors, fix their salary, and has a right to remove the auditors.
8. Right to participate in the profit of the company: Members invest money in the company and expect a certain return in form of dividends. They have the right to receive dividends within 30 days of its declaration in the Annual General Meeting.
9. Right to make Fundamental Corporate Decision: Members hold powers to decide at a meeting on important matters like a change of Registered office of the company, increase authorized capital of the company, change the objects of the company, to amend an Articles of Association, right of acquisitions, mergers and takeovers by the company, appoint a sole selling agents for the company, rights to close or wind up the company.

Activity (Textbook Page No. 72)

Find the composition of shareholding of a listed public company.
Answer:
“Listed Public Companies” means a public company that has any of its securities listed in any recognized stock exchange. One of the advantages to the shareholder(s) of a Public Company is free transferability of shares and in the case of Listed Companies such free transferability also ensures quick liquidity of the investment. However, such liquidity is only possible when there is an existence of buyers and sellers in the market. In many Listed Companies, a large chunk of the paid-up capital is held by the promoter group which reduces the public shareholding to a great extent.

The promoter group usually refrains from trading in their shares which in turn reduces the number of buyers and sellers in the market and the liquidity factor also gets affected. In order to ensure a minimum level of Public Shareholding in Listed Public Companies and to provide liquidity to the investors, the Ministry of Finance amended the Securities Contracts (Regulation) Rules, 1957 [SCCR, 1957] twice in the year 2010. The press note released by the Ministry of Finance upon the first amendment of SCCR, 1957 stated “A dispersed shareholding structure is essential for the sustenance of a continuous market for listed securities to provide liquidity to the investors and to discover fair prices”.

Balbharti Maharashtra State Board Class 11 Secretarial Practice Solutions Chapter 4 Documents Related to Formation of a Company Textbook Exercise Questions and Answers.

Maharashtra State Board Class 11 Secretarial Practice Solutions Chapter 4 Documents Related to Formation of a Company

1A. Select the correct answer from the options given below and rewrite the statements.

Question 1.
___________ is a primary document of the company which contains the aims and objectives of the company.
(a) Memorandum of Association
(b) Articles of Association
(c) Prospectus
Answer:
(a) Memorandum of Association

Question 2.
___________ describes the relationship between company and outsiders.
(a) Memorandum of Association
(b) Articles of Association
(c) Prospectus
Answer:
(a) Memorandum of Association

Question 3.
The ___________ clause describes the range of activities a company can undertake.
(a) Name
(b) Capital
(c) Object
Answer:
(c) Object

Question 4.
Any act done by the company beyond the Powers of Memorandum is called as ___________
(a) Doctrine of indoor management
(b) Ultra-Vires
(c) Mis-statement
Answer:
(b) Ultra-Vires

Question 5.
___________ acts are void or legally ineffective.
(a) Object clause
(b) Main object
(c) Ultra Vires
Answer:
(c) Ultra Vires

Question 6.
___________ clause contains the details of liability of the members.
(a) Name
(b) Liability
(c) Object
Answer:
(b) Liability

Question 7.
___________ clause states the amount of Authorised capital with which the company is registered.
(a) Liability
(b) Object
(c) Capital
Answer:
(c) Capital

Question 8.
___________ contains rules and regulations for internal management of the company.
(a) Articles of Association
(b) Prospectus
(c) Memorandum of Association
Answer:
(a) Articles of Association

Question 9.
Articles establishes relationship between company and ___________
(a) members
(b) outsiders
(c) ROC
Answer:
(a) members

Question 10.
___________ is an invitation to the public to subscribe for shares of the company.
(a) Memorandum
(b) Prospectus
(c) Articles of Association
Answer:
(b) Prospectus

Question 11.
For making multiple issue of shares within a year, a company can prepare a ___________ Prospectus.
(a) Abridged
(b) Shelf
(c) Red Herring
Answer:
(b) Shelf

Question 12.
___________ is an incomplete prospectus.
(a) Red Herring Prospectus
(b) Shelf Prospectus
(c) Abridged Prospectus
Answer:
(a) Red Herring Prospectus

1B. Match the pairs.

Question 1.

Group ‘A’	Group ‘B’
(a) Capital clause	(1) Details of capital structure of a company
(b) Liability clause	(2) Used for multiple issues of shares
(c) Acts beyond the Powers of Memorandum	(3) Abridged Prospectus
(d) Red Herring Prospectus	(4) Describes main objectives
(e) Shelf Prospectus	(5) Used for Right Issue
	(6) Incomplete Prospectus
	(7) Ultra-Vires
	(8) Doctrine of Indoor management
	(9) Extent of liability of members
	(10) Articles of Association

Answer:

Group ‘A’	Group ‘B’
(a) Capital clause	(1) Details of capital structure of a company
(b) Liability clause	(9) Extent of liability of members
(c) Acts beyond the Powers of Memorandum	(7) Ultra-Vires
(d) Red Herring Prospectus	(6) Incomplete Prospectus
(e) Shelf Prospectus	(2) Used for multiple issues of shares

1C. Write a word or a term or a phrase that can substitute each of the following statements.

Question 1.
The primary document of a company states the aims and objectives of a company.
Answer:
Memorandum of Association

Question 2.
The document establishes the company’s relationship with outsiders.
Answer:
Memorandum of Association

Question 3.
The document states the limits within which a company has to operate.
Answer:
Memorandum of Association

Question 4.
The document contains Name Clause, Registered Office Clause, Capital Clause, etc.
Answer:
Memorandum of Association

Question 5.
The document is subordinate to the Memorandum of Association.
Answer:
Articles of Association

Question 6.
The document contains rules and regulations for internal management.
Answer:
Articles of Association

Question 7.
A term used for acts beyond the scope of the Memorandum of Association.
Answer:
Ultra-Vires

Question 8.
The clause describes the main activities a company can undertake.
Answer:
Object Clause

Question 9.
The clause gives details of Authorized Capital or Registered Capital.
Answer:
Capital Clause

Question 10.
The clause describes the extent of liability of members.
Answer:
Liability Clause

Question 11.
The last clause of the Memorandum contains the name, signature, and other details of all the subscribers of the Memorandum.
Answer:
Association or Subscription Clause

Question 12.
The document establishes a relationship between a company and its members.
Answer:
Articles of Association

Question 13.
Document issued by public company inviting the public to subscribe to its shares.
Answer:
Prospectus

Question 14.
Prospectus attached with every share application form.
Answer:
Abridged Prospectus

Question 15.
Prospectus used for multiple issues of shares within a year.
Answer:
Shelf Prospectus

Question 16.
It is an incomplete prospectus.
Answer:
Red Herring Prospectus

Question 17.
This prospectus does not contain information about the quantum of shares to be issued or the price at which shares will be issued.
Answer:
Red Herring Prospectus

1D. State whether the following statements are True or False.

Question 1.
A Memorandum of Association and Articles of Association are prepared at the time of incorporation of a company.
Answer:
True

Question 2.
Memorandum of Association describes the nature and character of the company.
Answer:
True

Question 3.
Memorandum establishes the relationship between Company and Members.
Answer:
False

Question 4.
Any act done by the company beyond the Powers of Memorandum is Ultra-Vires.
Answer:
True

Question 5.
Articles of Association can have provisions that contradict the Memorandum.
Answer:
False

Question 6.
Memorandum need not have a Liability Clause.
Answer:
False

Question 7.
Articles of Association are subordinate to Memorandum.
Answer:
True

Question 8.
A memorandum contains rules and regulations for the internal management of a company.
Answer:
False

Question 9.
Every subscriber who signs the Memorandum must also sign the Articles.
Answer:
True

Question 10.
Entrenched Articles cannot be easily altered.
Answer:
True

Question 11.
Prospectus can be issued by a private company.
Answer:
False

Question 12.
Only public companies can issue Prospectus.
Answer:
True

Question 13.
The prospectus must be issued within 1 year from the date of filing it with the ROC.
Answer:
False

Question 14.
Actions can be taken against a company or its officers for misstatements in the prospectus.
Answer:
True

Question 15.
Every company has to issue a shelf prospectus every time it offers shares to the public.
Answer:
False

Question 16.
Red Herring prospectus does not contain details of the price at which shares will be sold by the company.
Answer:
True

Question 17.
Letter of the offer is issued at the time of Rights Issue.
Answer:
True

1E. Find the odd one.

Question 1.
Name Clause, Rights of Board of Directors, Object Clause.
Answer:
Rights of Board of Directors

Question 2.
Rights of shareholders, Appointment and remuneration of Directors, Liability clause.
Answer:
Liability Clause

Question 3.
Shelf prospectus, Abridged Prospectus, Articles of Association.
Answer:
Articles of Association

1F. Complete the sentences.

Question 1.
The documents which state the aims and objectives of a company is called as ___________
Answer:
Memorandum of Association

Question 2.
Any act done by the company which goes beyond the powers of Memorandum of Association will be called as ___________
Answer:
Ultra-Vires

Question 3.
The document which is subordinate to the Memorandum of Association is called ___________
Answer:
Articles of Association

Question 4.
The document which contains the rules and regulations governing the internal management of a company is called ___________
Answer:
Articles of Association

Question 5.
The document issued by a company to invite investors to buy its securities is called as ___________
Answer:
Prospectus

1G. Select the correct option from the bracket.

Question 1.

Group ‘A’	Group ‘B’
(1) …………………….	Memorandum of Association
(2) Liability clause	………………………….
(3) Incomplete Prospectus	………………………….
(4) ………………………	Establishes relationship between the company and its members

(Articles of Association, Red Herring Prospectus, Primary document, Details of liability of members)
Answer:

Group ‘A’	Group ‘B’
(1) Primary Document	Memorandum of Association
(2) Liability clause	Details of liability of members
(3) Incomplete Prospectus	Red Herring Prospectus
(4) Articles of Association	Establishes relationship between the company and its members

1H. Answer in one sentence.

Question 1.
Which document contains the aims and objectives of the company?
Answer:
Memorandum of Association contains the aims and objectives of the company.

Question 2.
What does the capital clause describe?
Answer:
The capital clause states the amount of capital with which the company is registered and the division of it into shares of a fixed amount.

Question 3.
When is Abridged Prospectus issued?
Answer:
Abridged Prospectus is issued only in case of a public offer made by a company.

1I. Correct the underlined word and rewrite the following sentences.

Question 1.
Articles of Association states the aims and objectives of the company.
Answer:
Memorandum of Association states the aims and objectives of the company.

Question 2.
The prospectus is subordinate to the Memorandum of Association.
Answer:
Articles of Association are subordinate to Memorandum of Association.

Question 3.
The prospectus contains a liability clause.
Answer:
Memorandum of Association contains a liability clause.

1J. Arrange in proper order.

Question 1.
(a) Subscription clause
(b) Name clause
(c) Object clause
Answer:
(a) Name clause
(b) Object clause
(c) Subscription clause

2. Explain the following terms/concepts.

Question 1.
Memorandum of Association
Answer:

• It is a secondary document.
• A Memorandum of Association is a primary document of a company.
• It states the objects for which the company is formed.
• A Memorandum of Association of a company is a charter or constitution of a company.
• It describes the range of activities a company can undertake.
• No company can be registered without a Memorandum of Association.
• Memorandum establishes a relationship between the company and an outsider.

Question 2.
Articles of Association
Answer:

• Articles of Association is a secondary document.
• It contains rules and regulations that govern the internal management of the company.
• Articles of Association is also known as Bye-laws of a company.
• It defines the powers, duties, and rights of managers officers, and board of directors.
• It establishes a relationship between the company and its members.
• This document is subordinate to Memorandum.

Question 3.
Name Clause
Answer:

• This clause contains the name of the company.
• The name of the company should not be identical to any existing company.
• If it is a private company, then it should have the word Private Limited at the end.
• And in the case of a public company, then it should add the word limit at the end of its name.
• For eg ABC Private Limited in the case of the private and ABC Ltd for a public company.

Question 4.
Object Clause
Answer:

• This clause states the objective with which the company is formed.
• It is the most important clause of the Memorandum of Association.
• The clause defines the scope and limitations of the activities of the company.
• The objects must be clearly defined keeping in mind the following conditions.
  • The objects of the company must be legal.
  • The objects should not be against the provisions of any law.
  • The objects must not be immoral.

Question 5.
Liability Clause
Answer:

• This clause defines the liability of the members of the company.
• In the case of companies limited by shares, the liability of the members is limited to the extent of unpaid shares.
• In the case of a company limited by guarantee, the liability is limited to the amount of guarantee given by each member.
• In the case of an unlimited liability company with or without share capital, this clause states that the liability of its members is unlimited.

Question 6.
Capital Clause
Answer:

• This clause states the amount of capital with which the company is registered.
• The capital with which the company is registered is called registered capital or authorized capital.
• A company can issue only that number of shares that are authorized by its memorandum.
• The company has to alter the capital clause if the company wants to issue more shares than authorized capital.

Question 7.
Registered Office Clause
Answer:

• This clause contains the name of the state in which the registered office of the company is to be situated.
• Every company must have a registered office within 30 days of its incorporation.
• A registered office is a place where all the important documents of the company are kept.
• The registered office clause determines the jurisdiction of the Registrar of Companies and of the court.

Question 8.
Ultra Vires act
Answer:

• The word Ultra means beyond and the word Vires means the powers.
• Thus Ultra-Vires means beyond the powers of Memorandum.
• The doctrine of ultra-vires states that any activity done by a company that is beyond the powers of the company will be null and void.
• The purpose of the Doctrine of Ultra-Vires is to protect all the stakeholders.
• The stakeholders have the right to see that the company uses their money for the objects mentioned in Memorandum.

Question 9.
The doctrine of Indoor Management
Answer:

• The doctrine of Indoor Management states that persons entering into a contract with the company need not inquire whether the company or its officers have properly followed the internal proceedings.
• It is assumed that the company acts as per its Memorandum and Articles of Association.
• The doctrine of Indoor Management protects the interest of outsiders when they act based on the Memorandum of Association and Articles of Association.

Question 10.
Prospectus
Answer:

• A prospectus is any document that invites deposits or offers from the public for the purchase of any shares or debentures of a company.
• When a public company is collecting capital by issuing shares to the public has to issue a prospectus.
• The prospectus must be true and factual as investors decide to invest based on the information given in the prospectus.
• The types of the prospectus issued by a company are:
  • Abridged Prospectus
  • Shelf Prospectus
  • Red Herring Prospectus
  • Letter of offer
  • Offer Letter

Question 11.
Mis-statements in Prospectus
Answer:

• Mis-statements means:
  • The statement is misleading in form or content.
  • Where any inclusion of statement or omission is likely to mislead the reader.
• If the investor has purchased shares based on the misleading information in the prospectus he can take action against the company.
• The company and persons will be responsible for issuing mis-statement prospectus and have to face liability.

Question 12.
Abridged Prospectus
Answer:

• Abridged Prospectus contains the main contents of a prospectus in brief.
• It is attached with the application form issued by the company while offering securities.
• The abridged prospectus is issued only in case of a public offer made by a company.
• It contains all the salient features of a prospectus.

Question 13.
Shelf Prospectus
Answer:

• The company instead of preparing a fresh prospectus for every issue prepares a shelf prospectus.
• Shelf Prospectus can be used for all issues made by the company for up to one year.
• An Information Memorandum has to be filed with ROC every time during the validity period of one year of the shelf prospectus.
• Information Memorandum contains latest material facts such as new charges, changes in financial position, etc.

Question 14.
Red Herring Prospectus
Answer:

• A red herring prospectus is a kind of incomplete prospectus as it does not include complete particulars of the quantity/price of the securities.
• It is usually issued at the time of IPO (Initial Public Offer).
• A red herring prospectus shall have the same obligations that are applicable to the prospectus.
• A company must file a Red Herring Prospectus with ROC at least 3 days prior to the opening of the subscription list and the offer.

3. Study the following case/situation and express your opinion.

1. The Articles of a company stated that while borrowing any money from outsiders, the document must have the signatures of the Managing Director (MD) and any one of the Director. The Articles of Association clearly stated the procedure to be followed while borrowing money. The Managing Director did not follow all the procedures but still borrowed money from Mr. X. Mr. X assumed that the MD has followed the required procedures.

Question (a).
Can the MD be held punishable for his act?
Answer:
He can be held liable for his actions and can be insisted to pay back the loan amount.

Question (b).
Under which Doctrine can Mr. X take action against the company?
Answer:
Under Doctrine of Indoor Management.

Question (c).
Explain the Doctrine.
Answer:

• According to this doctrine, persons dealing with the company need not inquire whether internal proceedings relating to the contract are correctly followed.
• They are satisfied that the transactions are in accordance with the memorandum and articles of association.
• If there are any internal irregularities then the company will be liable as the person has acted in good faith and he did not know about the internal arrangement of the company.
• Similarly with X as he has acted in good faith and lent money to the managing director, but the managing director did not follow the procedure. So there is an irregularity that can make the director liable for his actions.

2. Mr. A entered into a contract with Star Limited Company and as advance payment gave a cheque of ₹ 1 lac to a Director Mr. Sam. Mr. Sam is not the Managing Director. Articles state that only the MD is authorized to sign any contracts or receive any payments on behalf of the company.

Question (a).
Did Mr. Sam have the authority to accept the cheque? Why?
Answer:
Sam did not have the authority to accept the cheque because usually, individual directors do not have the authority to act on the company’s behaviour unless expressly authorized.

Question (b).
Can Mr. Sam’s action be called as Ultra-Vires? Why?
Answer:
Mr. Sam’s action cannot be called ultra-vires because any act done by him beyond the powers of the memorandum is called Ultra-Vires.

3. The Object clause of Memorandum of a Company stated the main object as manufacturing of plastic chairs and tables and any other activity in furtherance of achievement of its main activity. The Board of Directors wants also to produce T.V. Serials and feels that the shareholders may give their permission.

Question (a).
Can the company with immediate effect start producing T.V. serials? Why?
Answer:
No, a company cannot start producing T.V. serials with immediate effect. A company cannot indulge in activities other than those provided in the object clause. The activities carried outside the scope drawn by the Memorandum of Association are called Ultra-Vires activities.

Question (b).
How can the object clause of the company be altered?
Answer:
A special resolution must be passed in the General Meeting for altering the object clause.

4. A public limited company has issued all the shares mentioned in its Memorandum as Authorised Capital. Now the company wants to make a public issue of 10,000 shares at a face value of ₹ 100 per share, to raise more funds for its expansion activities.

Question (a).
Which clause of Memorandum needs to be altered?
Answer:
The capital clause of the memorandum needs to be altered.

Question (b).
In which meeting the alteration can be approved?
Answer:
A capital clause is altered by passing an ordinary resolution in a general meeting of the company.

Question (c).
Which document should the company issue to invite the public to buy its shares?
Answer:
The prospectus is the document issued to invite the public to buy its shares.

5. A Company stated in its prospectus that it has been making profits for the last 5 years. However, Mr. X., an investor found out that two years back the company had not made any profit. The prospectus was filed with ROC on 1st January 2017 and was issued to the public on 10th February 2018.

Question (a).
Can Mr. X state that there was mis-statement in the prospectus?
Answer:
Yes, Mr. X can state mis-statement in the prospectus.

Question (b).
If found guilty which two types of liability will the company and its officers face?
Answer:

• Civil liability (Pay compensation for loss suffered by the investor)
• Criminal liability companies or their officers will be fined or imprisoned or both.

Question (c).
Can the prospectus be valid for the issue to the public on 10th February 2018?
Answer:
No, the prospectus will not be valid for the issue to the public on 10th February 2018.

6. A Company plans to offer Rights Issues.

Question (a).
Which document must it send to its shareholders for offering the rights issue?
Answer:
Letter of the offer must be sent to its shareholders for offering the rights issue.

Question (b).
Instead of the rights issue, if the company wants to issue shares to the public which document must it issue for inviting the public to subscribe to it.
Answer:
The prospectus is the document to be issued by the company if it wants to issue shares to the public instead of rights issues.

Question (c).
Name the document which is called an incomplete prospectus.
Answer:
Red Herring prospectus is called an incomplete prospectus.

4. Distinguish between the following.

Question 1.
Memorandum of Association and Articles of Association.
Answer:

Basis	Memorandum of Association	Articles of Association
1. Meaning	Memorandum of Association is a document that contains all the fundamental information which are required for the incorporator of the company.	Articles of Association is a document containing all the rules and regulations that govern the company.
2. Defined in	Section 2(56)	Section 2(5)
3. Types of information contained	Powers and objects of the company.	Rules for internal management of a company.
4. Status	It is subordinate to companies Act.	It is subordinate to Memorandum.
5. Retrospective effect	The memorandum of the company cannot be amended retrospectively.	The Articles of Association can be amended retrospectively.
6. Major contents	A memorandum must contain 6 clauses.	The Articles can be drafted as per the choice of the company.
7. Filing with registrar	Memorandum of Association must be filed with Registrar of Company by all types of companies.	Filing of Articles of Association is optional for a public company as it may adopt Table (A).
8. Alteration	Alteration can be done after passing special resolution in Annual General Meeting and previous approval of central government or company law board is required.	Alteration can be done in the Articles by passing special Resolution at Annual General Meeting.
9. Relation	Define the relationship between company and outsider.	Regulates the relationship between company and members.
10. Acts done beyond the scope	Absolutely void.	Can be satisfied by shareholders.

5. Answer in brief.

Question 1.
State any four clauses of Memorandum of Association.
Answer:
Memorandum of Association is a basic document, which gives information about the aims and objects of the company. It is also a charter of a company.

The following are four clauses of Memorandum of Association:
(i) Name Clause:

• This clause state the company’s proposed name.
• It must end with the word limited if its a public company or private limited if its a private company.
• It can’t be identical to any existing company’s name.
• It can’t resemble any registered Trade Mark.
• It should not be misleading in any way.

(ii) Registered office clause:

• The registered office clause lists the name of the state where the company’s registered office is physically located.
• The registered office’s physical location determines which jurisdiction the Registrar of companies and which court the company would fall under.
• It also confirms the company’s nationality .
• The registered office’s full address must be provided to the Registrar of companies to simplify further communications.

(iii) The object clause:

• This clause defines the objects for which a company is formed. It indicates the range of activities a company can undertake. This clause states in detail the main object for which the company is to be incorporated.
• The objects of the company must not be illegal, immoral or against the public policy.
• A company cannot do anything beyond or outside the scope of its objects.

(iv) Liability clause:

• The liability clause explains what liability each of the company’s member faces. If the company is limited by shares the liability that each member faces can be no more than the face value of share.
• If the company is limited by guarantee, this clause must define how much liability each individual company member holds.

Question 2.
State any four contents of Articles of Association.
Answer:
Articles of Association is a document which contains rules and regulations that governs the internal management.
The following are the four contents of Articles of Association:

• Share capital – Shares and their value and their division into different types of shares.
• Rights of each class of shareholders and procedure for variation of their rights.
• Procedure relating to allotment of shares, making of calls and forfeiture of shares.
• Rules relating to transfer and transmission of shares and the procedure to be followed.

Question 3.
State the statutory requirements in relation to Prospectus.
Answer:
Prospectus is an invitation to public to purchase its share and debentures. It is issued after the formation of company.
The following are the statutory requirements in relation to Prospectus:

• Draft Prospectus to be made Public: A draft prospectus filed with SEBI by the company should be made available to the public and to the stock exchange where the company wants to lists its shares.
• Signed by Director’s: Prospectus must be signed by all directors or by duly authorised attorney.
• Registration of Prospectus: A copy of the prospectus must be registered with ROC before issuing it to the public.
• Dating of Prospectus: A prospectus has to be dated. The date on the prospectus is considered as the date of publication of prospectus.
• Issuing Prospectus to Public: Prospectus must be issued to the public within 90 days from the date of registering a copy with the ROC.

6. Justify the following statements.

Question 1.
Memorandum of Association defines the limitations of the powers of the company.
Answer:

• The Memorandum of Association is a basic or fundamental or primary document of a company.
• It contains the following clauses: Name clause, Address clause, Object clause, Liability clause,Capital clause, Association of subscription clause.
• The entire business centres around its object clause.
• Object clause of the Memorandum of Association defines the area beyond which the company cannot do anything.
• It determines the powers of the company.
• It helps the stakeholders to know what is its permitted range of operation.
• A company is governed by Memorandum of Association and any act beyond it shall be considered as ultra-vires.
• Hence, Memorandum of Association defines the limitations of the power of the company.

Question 2.
Ultra-vires acts are null and void.
Answer:

• A Memorandum of Association of a company is a basic charter of the company.
• If a company departs from its Memorandum of Association such an act is ultra-vires.
• The doctrine of ultra vires is a fundamental rule of company law.
• An act legally in itself but not authorized by the object clause of Memorandum of Association of a company is ultra-vires.
• Hence if the company does an act or enters into a contract beyond the powers of the company then the act is said to be null and void.
• The company cannot sue on an ultra-vires transaction or it cannot be sued.
• Thus, I agree with the above statement.

Question 3.
Contents of Articles can be altered.
Answer:

• As per section 2(2) of the companies Act, 1956 ‘Articles’ means Articles of Association of a company as originally framed or as altered from time to time in pursuance of any previous companies’ law or of this Act.
• The Articles regulate the internal management of a company.
• It states the relationship between the company and its members.
• The articles, being the internal regulations of a company can be altered easily.
• The articles are required to be altered from time to time as per changes made by the government in the company law or as per changing situations in the corporate sector.
• Thus, the Articles of Association can be altered by passing a ‘Special Resolution’ at a general meeting.

Question 4.
The doctrine of Indoor Management protects outsiders who are unaware of the correctness of the internal proceedings of a company.
Answer:

• The doctrine of Indoor Management states that a person entering into a contract with the company need not inquire whether the company has followed the internal processing.
• It is assumed that the company acts as per the Memorandum of Association and Articles of Association.
• Because certain information which is internal to a company cannot be known to outsiders.
• So the doctrine of Indoor Management protects the interest of the outsider when the act is based on the Memorandum of Association and Articles of Association.

Question 5.
A prospectus is an important document issued by a public company.
Answer:

• A prospectus usually is in the form of a statement giving all material information about the company and showing its future prospectus.
• It aims at inviting investors to subscribe to its shares and debentures.
• It is a must for every public company to prepare its prospectus.
• It is through the prospectus that the prospective investors know the details of the shares offered by the company.
• Otherwise, the investors would have no idea of the shares that a public company is selling.
• All detailed information about a company like its business management, financial structure, etc., are provided in the prospectus.
• The main idea to issue a prospectus is to collect capital for the company from the general public.
• It should contain true, fair, and correct information.
• Hence, the prospectus is very important for a public company.

Question 6.
Company and officers responsible for issuing Prospectus are liable for mis-statements in Prospectus.
Answer:

• The prospectus is a written document giving an invitation to the public to purchase shares or debenture of the company.
• It provides all the necessary information about a company, its business, the management, financial structure, etc., of a company.
• A prospectus must be prepared very carefully and accurately.
• It should contain true and correct information and honest disclosure of facts.
• A company and all those officials can be held responsible for any mis-statement in the prospectus.
• These people have to face severe consequences.
• The shareholder can cancel the contract.
• Persons authorizing the issue of prospectus containing mis-statement are punishable with imprisonment of two years and a fine up to ₹ 5,000.
• Thus, I agree with the above statement.

7. Answer the following questions.

Question 1.
Briefly explain the clauses of the Memorandum of Association.
Answer:

• The Memorandum of Association is the principal document of a company.
• It is considered the charter of the company.
• It contains the powers and objectives of the company.
• It can be altered only according to the provisions made in the companies act regarding its alterations.
• Memorandum of Association provides information to the outsiders.

The Memorandum of Association contains the following clauses:
1. Name clause:

• This clause contains the complete name of the company.
• The company can choose any name subject to the following restrictions.
• The name of the company must end with the word limited in the case of a public limited company and with the word private limited in the case of a private limited company.
• The name should not be similar or identical to the name of any other company.
• The name should not contain the word cooperative.
• The name should not convey any connection or link of the company with the government department.

Alteration of name clause: A company can change its name by passing a special resolution and by obtaining approval from the central government.

2. Address clause:

• This clause contains the name of the state in which the registered office of the company is to be located.
• It is necessary because a company gets the registration from that state only.
• A registered office is a place where all the important documents are kept.
• A company must have a registered office when it starts its business activities or within 30 days whichever is earlier.

Alteration of address clause: A company may change its Registered office from

• One place to another place within the same city or town.
• One town or city to another town or city within the same state.
• One state to another state.
• In both these cases, a special resolution is to be passed in General Meeting.

3. Object clause:

• It is the most important clause of the Memorandum of Association.
• It contains the main object of the company.
• This clause defines the scope and limitations of the activities of the company.
• The objects must be defined keeping in mind the following conditions:
• the objects of the company must be legal.
• the objects should not be contrary to the provisions of any law.
• the objects must not be immoral.

Alteration in object clause: In order to alter its object clause, a company must pass a special resolution.

4. Liability clause:

• This clause defines the liability of the members of the company.
• In the case of a company limited by shares, the liability of the members is limited to the extent of the unpaid amount of share capital.
• In the case of a company limited by guarantee, the liability is limited to the amount of guarantee.

Alteration of liability clause: If a company wants to make any alteration in its liability clause then it must pass a unanimous resolution in a meeting.

5. Capital clause:

• The clause specifies the amount of share capital with which a company is to be registered.
• The capital with which a company is registered is called registered capital.
• A company can issue only that number of shares that are authorized by its memorandum.

Alteration of the capital clause: A company can alter its capital clause by passing a special resolution and by obtaining approval from the company law board.

6. The Association clause or Subscription clause:

• A company is an association of persons, who subscribe to its capital.
• For a public company minimum of 7 persons must subscribe to a memorandum by signing it and giving their undertaking that each one shall buy at least one share of a company.
• For a private company minimum of 2 persons must subscribe to the Memorandum of Association by signing it and they also give an undertaking that each one shall buy at least one share of a company.
• Each subscriber has to put his name address and occupation in the presence of at least one witness who shall also put in his details.

Question 2.
Define Memorandum of Association. Explain briefly its features.
Answer:
Definition:
As per section 2(28) of the companies Act 1956 “Memorandum of Association means the Memorandum of Association of a company as originally framed or altered from time to time in pursuance of any previous company laws or of this Act”.
As such this definition does not state exactly the scope, use, and importance of memorandum in a company.

• Lord Cairns observed that – “The memorandum of association is a charter and defines the limits of the powers of a company. The memorandum contains the fundamental conditions upon which alone the company is allowed to incorporate”.
• Lord Macmillan states that – “The purpose of the memorandum is to enable the shareholders, creditors and those who deal with the company to know what is its permitted range of enterprise”.

Meaning:
In simple words, the Memorandum of Association of a company means

• a basic or fundamental primary document of a company.
• a charter or constitution of a company
• no company can be incorporated without the Memorandum of Association.
• It lays down the range of its activities.
• It is a public document and can be inspected by those who deal with the company.

Features of Memorandum of Association:
The following are the features of the Memorandum of Association:

• Memorandum of Association states the nature of business activities to be conducted by the company.
• It informs about the scope of activities of the company.
• It is prepared by promoters of the company.
• It is signed by at least 7 persons in the case of a public company and 2 persons in the case of a private company.
• It is submitted to the registrar of companies for registration.
• All companies must prepare their own Memorandum of Association.
• It defines the relationship between the company and outsiders.
• It is an unalterable charter of the company.
• It is a public document.

Question 3.
What are Articles of Association? Explain briefly its content.
Answer:
Articles of Association contain rules and regulations regarding the management of the company’s internal affairs.

• It defines the powers, duties, and rights of managers, officers, and the board of directors.
• It establishes a relationship between the company and its members.

Contents of Articles of Association:

• The amount of share capital and different classes of shares
• Rights of each type of shareholders
• Procedure for making allotment of shares
• Procedure for issuing share certificates
• Procedure for transfer of shares
• Procedure for forfeiture of shares
• Procedure for reissue of forfeited shares
• Procedure for conducting meetings
• Procedure for appointment and removal of directors
• Duties powers and remuneration of directors
• Procedure for declaration and payment of dividend
• Procedure regarding the keeping of books of accounts and their audit
• Procedure regarding winding up of the company
• Seal of the company

Alteration of Articles of Association:

• A company may change its Article of Association by passing a special resolution.
• A company can alter its Articles of Association in the following ways:
  • by the adoption of a new set of an Articles
  • by deletion of an article
  • by addition or insertion of a new article
  • by substitution of an article
  • by amendment of an article

Question 4.
Define Prospectus. Explain its contents.
Answer:
Definition: “Sec 2(70) of Companies Act, 2013 defines prospectus as any document described or issued as a prospectus and includes 32a Red Herring Prospectus or shelf prospectus or/and notice, circular advertisement or other document inviting offers from the public for the subscription or purchase of any securities of a body corporate”.

Meaning: Prospectus is a document that contains information about various aspects of the company and invests the investors to buy the securities offered by the company.

Contents of Prospectus:
A prospectus must contain the following:
(i) Information and Reports:
As per the Companies Act, the prospectus must contain information such as the name of the issuing company its full registered office address with phone numbers, email address, nature, number and price of securities being offered, details of a lead merchant banker, registrar to the issue, name of the stock exchange where the shares are listed.

• It must also have listed a clause of general risk date of opening and closing of issue etc.
• It must also have reported on financial information.

(ii) Declaration:
There should be a declaration by the company saying that all the provisions of the Companies Act have been complied with and that the prospectus does not contain anything contrary to the provisions of the Companies Act.

(iii) Statement of an Expert:
A prospectus may contain a statement made by an expert like Company Secretary, Chartered Accountant, Cost Accountant, Valuer, Engineer, etc., relating to matters that they have looked into.

• Any other matter as may be prescribed by the Companies Act.
• The expert has to give written consent to issue the prospectus.

(iv) Any other matter as may be prescribed by the Companies Act.

Balbharti Maharashtra State Board Class 11 Secretarial Practice Solutions Chapter 3 Formation of a Company Textbook Exercise Questions and Answers.

Maharashtra State Board Class 11 Secretarial Practice Solutions Chapter 3 Formation of a Company

1A. Select the correct answer from the options given below and rewrite the statements.

Question 1.
A company is ____________
(a) a human being
(b) an artificial person created by law
(c) a natural individual
Answer:
(b) an artificial person created by law

Question 2.
____________ are the persons who undertake the process of formation of a company.
(a) Promoters
(b) Directors
(c) Registrar of companies
Answer:
(a) Promoters

Question 3.
A ____________ company needs minimum two or more members.
(a) Public
(b) Private
(c) One person Company
Answer:
(b) Private

Question 4.
In a public company there must be minimum ____________ or more members.
(a) one
(b) two
(c) seven
Answer:
(c) seven

Question 5.
____________ refers to contracts entered into by the promoters on behalf of a proposed company.
(a) Pre-incorporation/Prehminary contracts
(b) Fiduciary contracts
(c) Memorandum of Association
Answer:
(a) Pre-incorporation/Preliminary contracts

Question 6.
A Director must have a ____________ to be appointed as a Director of a company.
(a) PAN
(b) DIN
(c) CIN
Answer:
(b) DIN

Question 7.
____________ has 21 digit alpha-numeric code which is a unique number assigned to every company at the time of
Incorporation.
(a) DIN
(b) PIN
(c) CIN
Answer:
(c) CIN

Question 8.
____________ is a document that invites the public to buy the shares of a company.
(a) Articles of Association
(b) Prospectus
(c) Certificate of Incorporation
Answer:
(b) Prospectus

1B. Match the pairs.

Question 1.

Group ‘A’	Group ‘B’
(a) Minimum 7 members	(1) Persons who conceive the idea of setting up a company
(b) DIN	(2) Public company
(c) Preliminary contracts	(3) Promoters
(d) Fiduciary duties towards the company	(4) Eight Digit alpha-numeric number
(e) CIN	(5) Private company
	(6) Unique number assigned to each Director
	(7) ROC
	(8) 21 digit alpha-numeric code number
	(9) One Person Company
	(10) Contracts entered by Promoters with third parties

Answer:

Group ‘A’	Group ‘B’
(a) Minimum 7 members	(2) Public company
(b) DIN	(6) Unique number assigned to each Director
(c) Preliminary contracts	(10) Contracts entered by Promoters with third parties
(d) Fiduciary duties towards the company	(3) Promoters
(e) CIN	(8) 21 digit alpha-numeric code number

1C. Write a word or a term or a phrase that can substitute each of the following statements.

Question 1.
A term which means registering a company as per provisions of Companies Act, 2013.
Answer:
Incorporation

Question 2.
Persons who undertake the necessary steps to set up a company.
Answer:
Promoters

Question 3.
The term refers to contracts entered into by Promoters with third parties on behalf of the proposed company.
Answer:
Preliminary contracts

Question 4.
The Birth Certificate of a company.
Answer:
Certificate of Incorporation

D. State whether the following statements are True or False.

Question 1.
A company is an artificial person.
Answer:
True

Question 2.
To form a Public company, there must be minimum of 2 persons/promoters.
Answer:
False

Question 3.
Promoters are persons who take the necessary steps to set up a company.
Answer:
True

Question 4.
Promoters can make secret profits while setting up a company.
Answer:
False

Question 5.
In India, companies have to be incorporated as per the provisions of the Companies Act, 2013.
Answer:
True

Question 6.
DSC is needed by Directors when they have to sign documents for e-filing.
Answer:
True

Question 7.
A company can be registered even without submitting a Memorandum of Association and Articles of Association.
Answer:
False

Question 8.
Every Director has to quote his DIN while giving his consent to be a Director of a company.
Answer:
True

Question 9.
ROC issues CIN only to certain companies.
Answer:
False

Question 10.
All companies need a Certificate of Incorporation.
Answer:
True

Question 11.
All companies need a Certificate of Commencement of business.
Answer:
False

1E. Find the odd one.

Question 1.
CIN, DIN, PAN
Answer:
PAN

Question 2.
Promoter, Prospectus, Incorporation of a company
Answer:
Prospectus

1F. Complete the sentences.

Question 1.
Promoters are the persons who undertake the process of ____________
Answer:
Formation of a company

Question 2.
The document issued by the Registrar of Companies when a company is incorporated is called as ____________
Answer:
Certificate of Incorporation

Question 3.
On incorporation of a company the ROC allows a unique identity number called as ____________
Answer:
Corporate Identity Number (CIN)

Question 4.
On behalf of a proposed company, preliminary contracts with third parties are entered by ____________
Answer:
Promoters

1G. Select the correct option from the bracket.

Question 1.

Group ‘A’	Group ‘B’
(1) Promoter	……………………
(2) …………………….	Certificate of Incorporation
(3) CIN	……………………
(4) RUN is used for	…………………..

(Corporate Identity Number, Reserving name of a company, Formation of a company, Birth certificate of a company)
Answer:

Group ‘A’	Group ‘B’
(1) Promoter	Formation of a company
(2) Birth Certificate of a company	Certificate of Incorporation
(3) CIN	Corporate Identity Number
(4) RUN is used for	Reserving name of a company

1H. Answer in one sentence.

Question 1.
Who is a Promoter?
Answer:
A person/a group of persons who take initiative efforts for a formation of a company is/are called as ‘Promoter/s’.

Question 2.
What is CIN?
Answer:
It is the Corporate Identity Number, issued by ROC at the time of incorporation of the Company.

Question 3.
Which company needs a Certificate of Commencement of Business?
Answer:
Public and Private companies having share capital and which are incorporated after 2nd November 2018 need a Certificate of Commencement of Business.

Question 4.
What are Preliminary Contracts?
Answer:
Promoter entering into a contract with third parties on behalf of the company before incorporation is called as Preliminary Contracts.

1I. Correct the underlined word and rewrite the following sentences.

Question 1.
ROC prepares draft Memorandum and Articles of Association.
Answer:
Promoter prepares draft Memorandum and Articles of Association.

Question 2.
Certificate of Commencement of Business is like a birth certificate of a company.
Answer:
Certificate of Incorporation is like a birth certificate of a company.

1J. Arrange in proper order.

Question 1.
(a) Appoint First Directors
(b) Prepare Draft Memorandum of Association and Articles of Association.
(c) Come up with the business idea
Answer:
(a) Come up with the business idea
(b) Appoint first Directors
(c) Prepare draft Memorandum of Association and Article of Association.

Question 2.
(a) Incorporation of a company
(b) Commencement of a company
(c) Promotion
Answer:
(a) Promotion
(b) Incorporation of a company
(c) Commencement of Business

2. Explain the following terms/concepts.

Question 1.
Promoters
Answer:
A person who take lead to form the company is called a “Promoter”. As per Companies Act, 2013; Section 2(69) Promoter is defined as,

• A person, who has been named in the prospectus or identified by the company in Annual Return or
• Who has control on company’s affairs directly or indirectly whether as a shareholder, director or otherwise or
• In accordance with whose advice, directions, or instructions, the Board of Directors is accustomed to act.

Question 2.
Promotion
Answer:
It is the first stage of Company formation. It means taking necessary steps to incorporate a company as per the provisions of the Companies Act, 2013.

Question 3.
Certificate of Incorporation
Answer:
It is a certificate issued by the ROC, after verifying all the documents and information provided by the promotors. It is like the Birth Certificate of the company. The company becomes a legal person or a body corporate having perpetual succession on getting incorporation certificate.

Question 4.
Simplified Proforma for Incorporating Company Electronically (SPICe)
Answer:
As per new rule 38 of Companies (Incorporation) (Fourth Amendment) Rules, only one form like FORM INC-32 (SPICe) needs to be submitted at the time of incorporation.
SPICe is to be filed for applying for:

• Reservation of Name of Company
• Incorporation of the new company
• DIN for Directors
• PAN and TAN for a new company.

Question 5.
Corporate Identity Number (CIN)
Answer:
The company needs to incorporate with the Registrar of Companies. Such ROC gives CIN to the company. It is a unique identity number. CIN is a 21 digit alphanumeric code. It is to be quoted in every form and correspondence. CIN includes details of the company like listed or unlisted, industry code, state of the location, year of registration, type of ownership, and registration number.
E.g. CIN of Air India Ltd. – U62100DL1992GOI048581

3. Study the following case/situation and express your opinion.

1. Mr. Ram, Mr. Sam, and Mr. Tom who are partners have come together to convert their business into a company. They have finalized all the details about the business they want to do, the capital needed, etc. However, they do not know how to proceed with the legal formalities. Hence they appoint Mr. Shah who is a Practicing Company Secretary to help them prepare documents needed for incorporating the proposed company.

Question (a).
Can Mr. Ram, Mr. Sam, and Mr. Tom convert their partnership firm into a company?
Answer:
Mr. Ram, Mr. Sam, and Mr. Tom can convert their partnership firm into a company easily.

Question (b).
Name 2 most important documents needed to incorporate a company.
Answer:
Memorandum of Association and Articles of Association are the two most important documents for the Incorporation of the Company.

Question (c).
Will Mr. Shah be considered a Promoter of the Company? Why?
Answer:
Mr. Shah will not be considered a Promoter. Mr. Shah is an advising company secretary and will help to prepare documents needed for incorporation. Promoter means a person or group of persons who take initiative efforts for the formation of the company. Here Mr. Ram, Mr. Sam, and Mr. Tom are in the role of Promoter.

2. Mr. T along with his 5 friends have submitted all the necessary documents for incorporation of TRIM private limited company.

Question (a).
How many minimum promoters are needed to incorporate a private company?
Answer:
Minimum 2 promoters/persons are needed to incorporate a private company.

Question (b).
When can TRIM Private limited company be said to have come into existence?
Answer:
After getting Incorporating Certificate, TRIM Private limited company be said to have come into existence.

Question (c).
Name the two most important documents that must be submitted at the time of Incorporation of a company.
Answer:
There are various documents, which are needed for the Incorporation of a company like Memorandum of Association, Articles of Association, Director’s consent, etc.

3. Sagar company limited got its Certificate of Incorporation on 1st September 2018. The application for Incorporation was submitted on 16th August 2018. There were 10 promoters who took the steps to incorporate the company.

Question (a).
State the date on which Sagar company limited came into existence legally?
Answer:
Sagar Company Limited came into existence legally after receiving an incorporation certificate on 1st September 2018.

Question (b).
On which date will the company get its Corporate Identity Number?
Answer:
At the time of issuing the Incorporation Certificate, ROC allows a CIN to the company, which is 1st September 2018.

Question (c).
How many minimum promoters are needed for incorporating a public company?
Answer:
There are three types of companies like Public Company, Private Company and One Person Company, in which Public Company needs minimum 7 Promoters/Persons for incorporating.

4. Answer in brief.

Question 1.
State the contents of the Certificate of Incorporation.
Answer:
Contents of Certificate of Incorporation:

• The name of the company.
• Date of issue of Certificate of Incorporation.
• Corporate Identity Number (CIN).
• Permanent Account Number (PAN) and Tax Deduction and Collection Account Number (TAN) of the company.
• Signature of Registrar with the date and his seal.

Question 2.
State the importance of the Certificate of Incorporation.
Answer:
Importance of Certificate of Incorporation:

• Certificate of Incorporation is like a Birth Certificate of a Company.
• It is proof by which company comes into existence.
• After getting an Incorporation Certificate, the company becomes a legal person distinct from its members.
• It is a document that gives status to the company about its perpetual succession from its date of Incorporation.
• After getting such a certificate, the company can sue and be sued by others.

Question 3.
Write a note on – Role of the Promoter.
Answer:
Role of Promoter:

• To conceive (discover) the idea of forming a business.
• To decide aims and objects of business, amount of capital, scale/size of business, etc.
• Drafting the ‘Memorandum of Association’ and ‘Articles of Association’.
• Drafting Prospectus to invite investors.
• To appoint first directors and first subscribers to Memorandum of Association and Articles of Association.
• To enter into ‘Preliminary Contract’ like hiring office premises, preparing and drafting Memorandum of Association and Articles of Association.

Question 4.
Draw the flow chart of steps in the promotion of a company.
Answer:
Steps in promotion of a company:

5. Justify the following statements.

Question 1.
Certificate of Incorporation is like a Birth Certificate of a company.
Answer:

• Certificate of Incorporation is issued by ‘Registrar of Companies, after successful completion of the Incorporation step of formation.
• It is proof by which company comes into existence.
• An incorporation Certificate brings legal status to the company.
• After getting the Incorporation Certificate company achieves the status of ‘Perpetual Succession’.
• The company can sue and can be sued after getting an Incorporation Certificate.
• The company can enter into various contracts.
• After getting an Incorporation Certificate, the company is considered an artificial person.
• Thus, a Certificate of incorporation is like a Birth Certificate of a company.

Question 2.
Every Company on incorporation gets a CIN.
Answer:

• CIN means Corporate Identity Number.
• ROC allots CIN to every company at the time of issue of Incorporation Certificate after completion of all formalities.
• It is a unique identification number that is given to every company.
• It shows details like whether a company is listed or unlisted, industrial code, state-wise location, year of incorporation, type of ownership, and registration number.
• All correspondence with ROC is conducted on basis of such CIN.
• It is compulsory given to all types of companies.
• Thus, every company gets CIN on incorporation.

Question 3.
Promoters play important role information of a company.
Answer:

• Promoter discovers the idea of business formation.
• Promoter decides aims and objects of business, amount of capital, scale/size of business.
• Drafting the ‘Memorandum of Association’ and ‘Articles of Association’.
• Drafting prospectus to invite investors.
• To appoint first directors and first subscribers of Memorandum of Association and Articles of Association,
• To enter into ‘Preliminary Contracts’ like hiring office premises, etc.
• To protect and promote the interest of the proposed company.
• Thus, promoters play important role in theformation of a company.

6. Answer the following questions.

Question 1.
Explain briefly the steps involved in the incorporation of a company.
Answer:
(i) Obtaining Digital Signature Certificate (DSC): Promoters and the proposed first directors has to obtain a DSC for e-filing.

(ii) Register DSC in the name of the Director with MCA: DSC has to be registered with MCA (Ministry of Corporate Affairs). MCA maintains details of every Director including their DIN, personal details, etc.

(iii) Obtain Director Identification Number (DIN): Proposed first Directors must apply for DIN in electronic form SPICe-32 at the time of incorporation. Every director must have DIN.

(iv) Apply for Reservation of Name: Promoter has to get the name of company approved from Central Registration Centre (CRC) by filling form RUN (Reserve Unique Name) along with prescribed fees on MCA portal. Promoters have to suggest more than one name in order of their preference. CRC will approve the name within 20 days from the date of application.

(v) Finalize Memorandum of Association and Articles of Association: It states the aims and objectives of the business. It contains legal and technical information. The promoter should finalize it. The promoters finalize both the documents with the help of the Company Secretary, legal experts, etc.

(vi) Signing, Stamping, and Dating of Memorandum and Articles of Association: Both documents must be signed by each subscriber and shall add his name, detailed address, occupation, etc. The signature of at least one witness is needed. Due stamp duty as per the Indian Stamp Duty Act, 1899 is required to be paid at the time of incorporation.

(vii) Preparation of other necessary documents for incorporation:

• Consent of Directors: Directors should give written consent in the prescribed format, about their approval to act as a director.
• Details of manager, secretary, etc Articles of Association include the names of the manager, secretary, etc.
• Declaration by subscribers to the Memorandum and First Directors: A declaration by first Directors should be taken who has subscribed to Memorandum of Association stating that he is not convicted of any offense in connection with the promotion, formation of company and has not found guilty of any fraud, etc.

(viii) Address for communication and notice of Registered office address: A company is required to have a Registered office within 30 days of incorporation. The promoter has to provide an address for communication at the time of incorporation.

(ix) Obtain a statutory declaration from Declaration by Company Secretary, Chartered Accountant, advocates, etc. is also necessary to be obtained along with Director, manager, etc. declaration status that all necessary requirements are fulfilled related to incorporation.

(x) Filing of application and document for incorporation of a company: Finally, after preparation of all documents, it has to be submitted to ROC in the prescribed form along with necessary prescribed fees for incorporation.

Question 2.
Promoters play an important role in the formation of a company. Explain.
Answer:
Promoters:
A person who take lead to form the company is called a “Promoter”.
As per Companies Act, 2013; Section 2(69) Promoter is defined as.

• A person who has been named in the prospectus or identified by the company in Annual Return or
• Who has control on company’s affairs directly or indirectly whether as a shareholder, director or otherwise or
• In accordance with whose advice, directions, or instructions, the Board of Directors is accustomed to act.

Role of Promoters:

• To conceive (discover) the idea of forming a business.
• To decide aims and objects of business, amount of capital, scale/size of business, etc.
• Drafting the ‘Memorandum of Association’ and ‘Articles of Association’.
• Drafting Prospectus to invite investors.
• To appoint first directors and first subscribers to Memorandum of Association and Articles of Association.
• To enter into ‘Preliminary Contract’ like hiring office premises, preparing and drafting Memorandum of Association and Articles of Association.

Activity (Text Book Page No. 42)

From the following CIN, identify the type of companies:

Question 1.
U74999TN20140PC098340
Answer:

Question 2.
L28920MH1945PLC004520
Answer:

Question 3.
U72900KA2003PTC033028
Answer:

Balbharti Maharashtra State Board Class 11 Secretarial Practice Solutions Chapter 2 Joint Stock Company Textbook Exercise Questions and Answers.

Maharashtra State Board Class 11 Secretarial Practice Solutions Chapter 2 Joint Stock Company

1A. Select the correct answer from the options given below and rewrite the statements.

Question 1.
A sole proprietorship has ______________ owner/owners.
(a) one
(b) two
(c) five
Answer:
(a) one

Question 2.
The head of Joint Hindu Family Business is called as ______________
(a) Proprietor
(b) Director
(c) Karta
Answer:
(c) Karta

Question 3.
Indian Partnership Act was passed in the year ______________
(a) 1923
(b) 1932
(c) 1956
Answer:
(b) 1932

Question 4.
The members of Hindu Undivided Family Business are called ______________
(a) Karta
(b) partners
(c) co-parceners
Answer:
(c) co-parceners

Question 5.
The liability of shareholders in the public limited joint stock company is ______________
(a) Limited
(b) Unlimited
(c) Collective
Answer:
(a) Limited

Question 6.
The minimum number of members required for a co-operative society is ______________
(a) 10
(b) 20
(c) 50
Answer:
(a) 10

Question 7.
The ______________ is/are elected representative of shareholders who manage affairs of company.
(a) Secretary
(b) Directors
(c) Auditors
Answer:
(b) Directors

Question 8.
State Bank of India is the example of ______________ Company.
(a) Chartered
(b) Statutory
(c) Foreign
Answer:
(b) Statutory

1B. Match the pairs.

Question 1.

Group ‘A’	Group ‘B’
(a) Sole Trading concern	(1) 1932
(b) Joint Hindu Family Business	(2) Partner
(c) Partnership Act	(3) Artificial person
(d) Joint Stock Company	(4) 1923
(e) Co-operative Society	(5) Karta
	(6) Natural person
	(7) Single Ownership
	(8) Equal voting rights
	(9) Multiple ownership
	(10) Minimum 9 members

Answer:

Group ‘A’	Group ‘B’
(a) Sole Trading concern	(7) Single Ownership
(b) Joint Hindu Family Business	(5) Karta
(c) Partnership Act	(1) 1932
(d) Joint Stock Company	(3) Artificial person
(e) Co-operative Society	(8) Equal voting rights

Question 2.

Group ‘A’	Group ‘B’
(a) Private company	(1) 51% share capital held by Government
(b) Public company	(2) Bank of England
(c) Government company	(3) Maximum 200 members
(d) Statutory Company	(4) Minimum 7 members
(e) Limited Liability Partnership	(5) Maximum 100 members
	(6) Minimum 5 partners
	(7) 40% share capital
	(8) Minimum 5 members
	(9) Life Insurance Corporation
	(10) Minimum 2 partners

Answer:

Group ‘A’	Group ‘B’
(a) Private company	(3) Maximum 200 members
(b) Public company	(4) Minimum 7 members
(c) Government company	(1) 51% share capital held by Government
(d) Statutory Company	(9) Life Insurance Corporation
(e) Limited Liability Partnership	(10) Minimum 2 partners

1C. Write a word or a term or a phrase that can substitute each of the following statements.

Question 1.
The owner is the sole manager and decision-maker of his business.
Answer:
Sole Trader

Question 2.
The senior-most family member of Joint Hindu Family Business.
Answer:
Karta

Question 3.
The members of Joint Hindu Family Business.
Answer:
Co-parceners

Question 4.
An artificial person created by law.
Answer:
Joint Stock company

Question 5.
The persons who have entered into an agreement of partnership.
Answer:
Partners

Question 6.
A person who purchases shares of a Joint Stock Company.
Answer:
Shareholder

Question 7.
The official signature of Joint Stock Company.
Answer:
Common seal

Question 8.
Name a company that is created by special legislation of parliament or state assembly.
Answer:
Statutory company

1D. State whether the following statements are True or False.

Question 1.
A Joint Stock company is a voluntary association of persons.
Answer:
True

Question 2.
A Joint Stock company is a formal form of business organization.
Answer:
True

Question 3.
Registration of a Joint Stock company is compulsory.
Answer:
True

Question 4.
A Joint Stock company is a natural person.
Answer:
False

Question 5.
A Joint Stock company does not enjoy independent legal status.
Answer:
False

Question 6.
The liability of shareholders of a public limited company is limited.
Answer:
True

Question 7.
A Joint Stock company has a long and stable life.
Answer:
True

Question 8.
There is no separation of ownership and management in a Joint Stock company.
Answer:
False

Question 9.
Board of Directors manages the Company.
Answer:
True

1E. Complete the sentences.

Question 1.
A company is a creation of law, hence it is called as ______________
Answer:
Legal Person or Artificial Person

Question 2.
A company which is incorporated under a Special Act is called as ______________
Answer:
Statutory Company

Question 3.
A company which has only one member is called as ______________
Answer:
One Person Company

Question 4.
A listed company must follow the provisions of Companies Act and ______________
Answer:
SEBI Guidelines

1F. Select the correct option from the bracket.

Question 1.

Group ‘A’	Group ‘B’
(1) Private company	……………………
(2) Public company	……………………
(3) ……………………..	Member has unlimited liability
(4) Incorporated Outside India	……………………..
(5) ……………………..	service-oriented organization

(Foreign Company, Minimum 7 members, Maximum 200 members, Co-operative society, Unlimited Liability Company)
Answer:

Group ‘A’	Group ‘B’
(1) Private company	Maximum 200 members
(2) Public company	Minimum 7 members
(3) Unlimited Liability Company	Member has unlimited liability
(4) Incorporated Outside India	Foreign Company
(5) Co-operative society	service-oriented organization

1G. Answer in one sentence.

Question 1.
How many member/s can be there in a One Person company?
Answer:
There can be only one member in a Person Company.

Question 2.
What is a Holding company?
Answer:
A company that holds more than one-half of the total share capital of another company or carries the power to appoint or remove all or majority of directors of another company is called a Holding Company.

Question 3.
What is meant by a Foreign company?
Answer:
A company incorporated outside India, but conducting business in India, called a foreign company.

1H. Correct the underlined word and rewrite the following sentences.

Question 1.
Statutory companies are registered under the Companies Act.
Answer:
Statutory companies are registered under Special Act passed by Central or State legislative.

Question 2.
A Subsidiary company holds more than half of the total share capital of another company.
Answer:
A Holding company holds more than half of the total share capital of another company.

Question 3.
A private company must have a minimum of 7 Members.
Answer:
A private company must have a minimum of 2 members.

Question 4.
A public company can have a maximum of 200 members.
Answer:
A private company can have a maximum of 200 members.

2. Explain the following terms/concepts.

Question 1.
Dormant company
Answer:

• It is registered for future projects.
• It has not made any accounting transactions in the last two years.
• It has not submitted a financial statement or annual report in the last two years.
• Section 455 of Companies Act, 2013 is applicable to a Dormant Company.

Question 2.
Holding company
Answer:

• A company holds more than half of the share capital of another company.
• Such a company may have the power to appoint a director of another company.
• It has the power to remove directors of another company.

Question 3.
Foreign company
Answer:

• A company that is incorporated/registered outside India.
• It may conduct business in India.
• Bata India Limited, Nestle India Limited, Whirlpool Corporation, etc. are examples of foreign companies.

Question 4.
Company limited by guarantee
Answer:

• Such a company is formed under Section 2(21).
• This company may or may not have share capital.
• Member promises to pay a fixed amount at the time of liquidation.
• This fixed amount is mentioned in the Memorandum of Association.
• This amount is used to pay debts and liabilities.

Question 5.
Associate company
Answer:

• The firm over which another firm exercises control, which is less than the degree of control exercised over a subsidiary company.
• A company in which another company has a significant influence.
• It means control of at least 20% of total capital or of decisions under an agreement.

Question 6.
Limited Liability
Answer:

• The liability of shareholders is limited in Joint Stock Company.
• Personal property cannot be used to pay the debts of the company.
• Liability is limited to the unpaid part of the face value of shares held by a shareholder.
• Shareholders are not liable to pay debts and liability of the company.

Question 7.
Perpetual Succession
Answer:

• It means continuous existence.
• Joint Stock Company has perpetual succession.
• The life/existence of the company is not affected by the death, insolvency, or retirement of any member or director.
• The company enjoys long and stable life.

Question 8.
Listed company
Answer:

• It means a company that has any of its securities listed on any recognized stock exchange.
• A public company may be a listed or unlisted company.
• The listed company needs to follow the guidelines of SEBI.
• They have to follow the Companies Act.

Question 9.
One Person company
Answer:

• In this company, only one person is a member.
• It should follow all rules and formalities of a private company.
• It is conducted by one promoter with limited liability.
• Such a business organization is better as compared to a sole trader.

Question 10.
Government company
Answer:

• More than 51% of paid-up share capital is held by the Government.
• The government may be Central or State Government or partly Central Government and partly one or more State Government.
• It may be a subsidiary company of a Government company.
• It may be a Private company or a Public company.

3. Study the following case/situation and express your opinion.

1. Two promoters got ‘Super Drinks Pvt. Ltd.’ incorporated on 18th January 2018. The company has 100 members as of 31st March 2019.

Question (a).
What is the maximum number of members this company can have?
Answer:
The maximum number of members for this company is 200 because this is a private company.

Question (b).
Can this company invite the general public to subscribe for shares?
Answer:
This company cannot invite the general public to subscribe for shares.

Question (c).
Can the shareholders of the company sell its shares to outsiders?
Answer:
Being a private company, there are restrictions to shareholders to sell these to outsiders.

2. Kali VFX Ltd. was incorporated on 1st January 2019 as a public limited company.

Question (a).
How many minimum numbers of members must be there in this company?
Answer:
A minimum number of members must be 7 in this company because it is a Public company.

Question (b).
Can the members of this company sell their shares to outsiders?
Answer:
Being a Public company member can sell its shares to outsiders. There is no restriction on the transferability of shares.

Question (c).
How many maximum numbers of members can this company have?
Answer:
In a public company, there is no limit for the number of maximum members as it is a Public company.

3. Sunset Printers Pvt. Ltd. was incorporated on 5th December 2015 as per the provisions of the Companies Act, 2013. Mr. Manoj was the only subscriber to the Memorandum and Articles of Association and he was also the only member of the company.

Question (a).
Is this company a One Person company?
Answer:
Yes, this is a One Person company, because only one/single person is a member of this company.

Question (b).
Will the liability of Mr. Manoj be limited or unlimited?
Answer:
The liability of Mr. Manoj is limited.

Question (c).
Will the company close down on the death, insanity, or insolvency of Mr. Manoj?
Answer:
No, Company will not close down on the death, insanity, or insolvency of Mr. Manoj.

4. On 1st January 2018 Mr. John bought 100 shares of TIPS Paints Ltd. The face value of each share was ₹ 10. Mr. John paid the full amount of ₹ 1,000. In December 2018 the company suffered a loss of ₹ 10 crores.

Question (a).
Can the company ask Mr. John to pay any further money to the company?
Answer:
No, Company cannot ask Mr. John for further payment, because, he has already paid the full amount of face value.

Question (b).
Which feature of a Joint Stock company is referred to in this example?
Answer:
‘Limited Liability is a feature, which is referred to in this example.

Question (c).
Explain the feature briefly.
Answer:
As per ‘Limited liability’ member of the company is not liable to debts of the company. Member is liable only up to the unpaid amount of share capital. Members’ personal property will not be used for the liability of a company.

4. Distinguish between the following.

Question 1.
Sole Trading Concern and Joint Hindu Family Business.
Answer:

Basis	Sole Trading Concern (STC)	Joint Hindu Family Business (JHFB)
1. Meaning	It is a business organization owned, financed, and managed by a single person.	It is a business organization owned and managed by members of the Joint Hindu Family.
2. Number of members	Only one or single person.	There is no limit on the minimum and maximum number of members.
3. Liability	Liability is unlimited.	Karta has unlimited liability while co-parceners have limited liability.
4. Secrecy	It ensures maximum business secrecy.	It maintains more business secrecy.
5. Management	A sole trader is responsible for the management of the business.	Karta is responsible for the management of the business.

Question 2.
Sole Trading Concern and Partnership Firm
Answer:

Basis	Sole Trading Concern (STC)	Partnership Firm (PF)
1. Meaning	It is a business organization owned, financed, and managed by a single person.	It is a business organization owned, financed, and managed by two or more persons collectively.
2. Number of members	Only one or single person is required to form Sole Trading Concern.	Minimum 2 and maximum 50 members are required for general business.
3. Registration	Registration is not necessary.	Registration is not necessary. But it is compulsory in Maharashtra.
4. Liability	The liability of a sole trader is unlimited.	Partners carry unlimited liability and joint and several.
5. Capital	Comparatively, it requires limited capital.	Compared to Sole Trading concern and Joint Hindu Family business it requires more capital.
6. Secrecy	It ensures maximum secrecy.	Secrecy may be shared by partners.
7. Management	A sole trader is responsible for the management of the business.	All partners are equally responsible for the management of the business.
8. Government Control	There is less government control.	There is limited government control on the working of the firm.

Question 3.
Partnership Firm and Joint Stock Company
Answer:

Basis	Partnership Firm (PF)	Joint Stock Company
1. Meaning	It is a business organization owned, financed, and managed by two or more persons collectively.	It is an association of persons formed under the Companies Act, to run a business.
2. Number of members	Minimum 2 and maximum 50 members are required for general business.	For Private company minimum 2 and maximum 200. For Public company minimum 7 and maximum unlimited.
3. Registration	Registration is not necessary. But is compulsory in Maharashtra.	Registration is compulsory under the Companies Act, 2013.
4. Liability	Partners carry unlimited liability, joint, and several.	The liability of all members is limited, to the extent of shares held by him.
5. Stability	It has no stability. Death or insolvency of a partner may affect stability.	It has a stable business. Death or insolvency of a member does not affect the stability.
6. Capital	Compared to Sole Trading concern and Joint Hindu Family business it requires more capital.	It requires a huge amount of capital.
7. Secrecy	Secrecy may be shared by partners.	It maintains less business secrecy.
8. Management	All partners are equally responsible for the management of the business.	The Board of Directors is responsible for the management of the Joint Stock Company.
9. Government Control	There is limited government control on the working of the partnership firms.	There is more government control on working of Joint Stock companies.

Question 4.
Joint Stock Company and Co-operative Society
Answer:

Basis	Joint Stock Company	Co-operative society
1. Meaning	It is an association of persons formed under the Company Act, 2013 to run a business.	It is a voluntary association of individuals which is formed for providing services to members.
2. Number of members	Private Company minimum 2 and maximum 200. Public company minimum 7 and maximum unlimited.	Minimum 10 and maximum no limit.
3. Registration	Registration is compulsory under the Indian company Act 2013.	Registration is compulsory under State Societies Act.
4. Capital	It requires a huge amount of capital.	Compared to Sole Trading concern and Joint Hindu Family business it requires more capital but less than Joint Stock Company.
5. Management	The Board of Directors is responsible for the management of Joint Stock company.	Managing Committee is a managing body for a Cooperative society.

Question 5.
Private Company and Public Company
Answer:

Basis	Private Company	Public Company
1. Definition	A company, which by its articles restricts the right to transfer of shares and limits maximum membership up to 200 is called a Private Company.	A company that is not a private company is called a Public Company.
2. Number of members	Minimum 2 and maximum 200 members.	Minimum 7 and maximum ‘No limit’ on membership.
3. Number of directors	Minimum 2 directors are essential, in Private Company.	Minimum 3 directors are essential in a Public Company.
4. Right to transfer shares	Shares of Private companies are not transferable.	Shares of public companies are freely transferable.
5. Issue of prospectus	A private company cannot issue a prospectus.	Public companies can issue prospectus.
6. Ending words	Name of the Private Company compulsory ends with “Private Limited.”	Name of Public company compulsory ends with “Limited”.

5. Answer in brief.

Question 1.
How is LLP different from a partnership firm?
Answer:
LLP and Partnership Firm both look alike but are separate and have separate features:

• Legal base: Limited Liability Partnership is based on “Limited Liability Partnership Act, 2008” and regular partnership is based on “Partnership Act, 1932”.
• A number of partners: In a Partnership firm, a minimum of two partners and a maximum of fifty partners are allowed and in LLP minimum of two partners and a maximum no limit.
• Liability: In LLP, partners have limited liability while in a partnership firm, partners have unlimited liability.
• Transfer of ownership: There is no restriction on joining and leaving the LLP, but in a partnership firm, partners cannot transfer their shares without the permission of other partners.

Question 2.
Explain the different types of companies on the basis of the liabilities of members.
Answer:
There are three types of companies on the basis of liabilities of members which are explained as under:
(i) Companies Limited by Shares: Such companies are formed as per Section 2(22) of the Companies Act, 2013. Such companies have to share capital and their members have limited liabilities up to unpaid part of the face value of shares held by them. At the time of winding up of the company, the personal property of shareholders is not used. They are liable only for the unpaid part of the number of shares purchased.

(ii) Company Limited by Guarantee: As per Section 2(21), such companies may or may not have share capital. Every Member promises to pay a specific amount for liabilities and debts of the company at the time of liquidation. Such amount is mentioned in Memorandum. Member simply gives guarantee and carries a specific amount of liability. Generally, such companies work for the promotion of sports, art, culture, charity, etc.

(iii) Unlimited Liability Company: As per section 2(92), members of these companies have unlimited liability. Members are fully liable to liabilities and debts of the company. It may be a private, public, or one-person company.

Question 3.
What are holding and subsidiary companies?
Answer:
Holding company:

• A company holds more than half of the share capital of another company.
• Such a company may have the power to appoint a director of another company.
• It has the power to remove directors of another company.

Subsidiary company:

• Such companies are controlled by holding companies.
• Holding company purchases more than half of the total share capital of the Subsidiary company.
• Holding Company has the power to appoint or remove all or a majority of its directors.
• A subsidiary company is just the opposite of a Holding company.

6. Justify the following statements.

Question 1.
Registration of Joint Stock Company is compulsory.
Answer:

• In India, the Joint Stock Companies are governed by the Companies Act, 2013.
• Every company has to be registered under the Companies Act, 2013.
• Registration gives birth to a company.
• On registration, the company gets a separate legal entity/identity.
• Without registration, no company can come into existence.
• After getting a registration certificate, it becomes a corporate body.
• So, the registration of a Joint Stock Company is compulsory and not optional.
• Thus, registration of a Joint Stock Company is compulsory.

Question 2.
A Joint Stock Company is an artificial person.
Answer:

• A Joint Stock Company is an incorporated association, which is an artificial person created by law, having a separate name, a separate legal entity, and perpetual succession.
• It is an artificial person because it is the creation of law.
• It does not have a physical existence but has legal existence.
• It enjoys certain rights and also conducts business like any human being.
• A company is an artificial person because it is not developed by the process of a natural person.
• It is the law of the land that gives birth to a company, hence, it is an artificial but legal person.
• A company has a distinct name and a common seal.
• It can make contracts, appoint staff, borrow money, open an account in the bank, acquire assets and conduct other business activities by its office bearers and staff.
• It can sue and be sued by others. So, a Joint Stock Company is an artificial person, created by law.
• Thus, a Joint Stock Company is an artificial person.

Question 3.
The liability of shareholders of the company is limited.
Answer:

• The liability of shareholders of the company is always limited.
• It is limited to the extent of the unpaid part of the face value of the shares held by them. Personal property of shareholders will not be taken or sold to pay the creditors or loan of the company.
• Shareholders are not concerned with other liabilities of the company.
• eg. If a shareholder has bought 100 shares of ₹ 10/- each, then he is liable only for ₹ 1000/- and not more.
• Thus, the liability of shareholders of a Joint Stock Company is limited.

Question 4.
The ownership and management are separated in Joint Stock Company.
Answer:

• A Joint Stock Company is a voluntary association of individuals for profit, having its capital divided into transferable shares, the ownership of which is the condition of membership.
• The members of a joint-stock company are many and they are scattered all over.
• It becomes very difficult for them to manage the business of the company.
• Lots of time may be wasted as all the shareholders are not able to come together at one place at the same time and as a result, there is a delay in decision making.
• To avoid these problems, the shareholders elect their representatives known as “Board of Directors”.
• The Board of Directors handles the business of the company on behalf of the shareholders.
• But, all important decisions pertaining to the company are not taken without the consent of all the shareholders.
• The owners of the company are the shareholders.
• The managers of the company are the Board of Directors.
• So, there is a separation of ownership and management in Joint Stock Company.
• Thus, the ownership and management are separated in Joint Stock Company.

Question 5.
The Joint Stock Company collects huge capital from the public.
Answer:

• A company requires large capital to carry out its activities.
• This capital is being collected from the public as it is not possible for an individual to contribute such a big amount.
• A company issues shares, debentures, bonds and also accepts public deposits for raising its capital.
• A company can also take loans from banks and financial institutions.
• a Large number of members bring in a large number of funds that can be profitably invested in the expansion of the company.
• So, for a large-scale business, large capital is collected by the Joint Stock Company.
• Thus, the Joint Stock Company collects huge capital from the public.

Question 6.
There is more Government control and supervision over the working of a Joint Stock company.
Answer:

• A Joint Stock Company is controlled and supervised by the Government.
• A company has to follow numerous provisions of the Companies Act and other Acts.
• The company has to follow all rules and regulations of the Government.
• If any of the legal provisions are violated, various charges are levied on the company.
• Government control protects the financial interest of a large number of investors.
• If any of the business of a company is carried out illegally, strict actions are taken by the Government authorities on the working of the company.
• So, there is more Government control and supervision over the working of Joint Stock companies.

7. Answer the following questions.

Question 1.
State the features of Sole Trading Concern.
Answer:
Features of Sole Trading Concern.

• No separate law: There is no separate law or act for sole trading concern. But, while conducting the business, it should follow routine laws which are applicable.
• Ownership: In a sole trading concern, only one person is the ail owner.
• Capital: Capital is contributed by the owner and an owner is a single person. Hence, capital is collected by a single person. So the size of capital is very small.
• Division of earnings: A sole trader is a single person, so there is no division of profit or loss. All profit is enjoyed by the owner and also bears all the losses of the business.
• Management: The business activities of Sole Trading Concern are managed by a single owner. Such an owner is a decision-maker.
• Secrecy: Sole Trader can ensure maximum business secrecy. The owner is not required to discuss the business matter with any outsider. Thus, maximum secrecy can be maintained.
• Liability: The liability of Sole Trader is unlimited. The owner’s personal property can be used for debts and liabilities of the business concern.
• Legal Status: Sole Trading Concern does not enjoy a separate legal status. There is no business registration by law. So, it does not have legal status.
• Suitable for small-scale business: Sole Trading Concern is suitable for small-scale business activity. Sole Traders can collect limited capital and thus cannot undertake large-scale business activity.
• Government control: There is no much government control over such type of business.

Question 2.
State the features of Joint Hindu Family Business.
Answer:
Features of Joint Hindu Family Business:

• Membership: Membership of Joint Hindu Family business is possible only by birth. Every child born in a family is considered a member of the Joint Hindu Family business.
• Karta: ‘Karta’is the head of the family. Generally, a senior person of the family plays the role of Karta in the Joint Hindu Family business.
• Co-parceners: ‘Co-parceners’ are the members of the family, rather than ‘Karta’. They play a supporting role in the family and have limited liability.
• The number of members: There is no limit on the minimum and maximum number of members.
• Liability: Liability of ‘Karta’ is unlimited, while the liability of ‘Co-parceners’ is limited in Joint Hindu Family business.
• Decision making: Being ahead of a Joint Hindu Family business, ‘Karta’ is the sole decision-maker. Thus, quick decision-making is possible in such type of business.
• Management: ‘Karta’ is head of Joint Hindu Family business activity, so such person is considered as manager, controller, and co-ordinator of business.
• Profit-sharing: The profit-sharing ratio keeps on changing in the Joint Hindu Family business. This ratio depends on the number of family members, which keeps on changing on birth and death in a family member.
• Legal Act: Joint Hindu Family business is governed by Hindu Succession Act, 1956. But, it does not need any registration. There is less government control on the Joint Hindu Family business.

Question 3.
State the features of the Partnership Firm.
Answer:
Features of Partnership Firm:

• Meaning: The business organization, which is owned, managed, and controlled by two or more persons under Partnership Act, 1932 is called a partnership firm.
• Registration: As per Partnership Act, 1932, registration is not compulsory. But, registration has been made compulsory in the state of Maharashtra.
• A number of members: The minimum number of members is 2 partners and a maximum of 50 partners for general business.
• Capital: The capital of a partnership firm is contributed by all the partners.
• Liability: In a partnership firm, the liability of partners is unlimited and is joint and several. The personal property of partners can be used to pay off the liabilities and debts of the partnership firm.
• Legal status: Partners of partnership firm enter into business with an agreement which is made as per Partnership Act, 1932. But, such firms do not enjoy separate legal statuses.
• Transfer of shares: In a partnership firm, partners cannot transfer their shares without the permission of other partners.
• Management: The business of a partnership firm is conducted, managed and controlled by all the partners. They are the joint owners and joint managers of a firm.
• No separation of ownership and management: As per the Partnership Act, 1932 all partners of the firm are owners, and as such it is the responsibility of all the partners to manage the business. So there is no separation of ownership and management.
• Profit-sharing: Being an owner of a firm, all the partners share profits and losses as per the ratio which is mentioned in the partnership deed.

Question 4.
State the features of Co-operative Society.
Answer:
Features of Co-operative Society:
(i) Meaning: Co-operative society is a voluntary association of persons, formed to provide services and economic welfare to its members.
(ii) Registration: The registration of a Co-operative society is compulsory in the state of Maharashtra, under Maharashtra State Co-operative Societies Act, 1960.
(iii) Membership: Membership of a Cooperative Society is open to all. Any person of sound mind can enter in Cooperative society.
(iv) Number of Membership: Minimum ten members are required and maximum there is no limit to join Co-operative Society.
(v) Liability: Members of the Cooperative society carry limited liability. The personal property of a member cannot be used for liability or debts of the society.
(vi) Aim of society: Generally, another form of business organization has its aim as profit. But, a Cooperative society has no aim of maximization of profit. They are formed with an aim of providing service and economic welfare to the members.
(vii) Legal status: Co-Operative societies are formed under a specific act, so they enjoy independent legal status different from its members.
(viii) Management: Management in a Cooperative society is based on the principle of ‘Democracy’. Shareholder/member enjoys equal voting right to decide management authority. ‘One Person One Vote’ principle is followed by the Cooperative society.
(ix) Government control: There is strict Government control and supervision on working of Co-operative society. Generally, the state Government controls the activity of Cooperative society.

Question 5.
State the features of a Limited Liability Partnership.
Answer:
Features of Limited Liability Partnership (LLP):

• Meaning: It is a combination of features of a partnership firm and a Joint Stock company. The liability of all partners in such a partnership firm is limited.
• Legal entity: Limited Liability Partnership has a separate legal entity. Partners and Limited Liability Partnership are distinct from each other i.e. it is a body corporate.
• the number of members: In a Limited Liability Partnership, a minimum of two partners are required. There is no limit on a maximum number of partners in a Limited Liability partnership.
• Capital: The capital of a business organization is collected from all partners. There is no requirement for minimum capital contribution.
• Business operation: It is simple to form and easy to operate.
• (vi) Liability: Limited Liability Partnership carry limited liability. The liability of each partner is limited to his share as written in the agreement.
• Cost of formation: As compared to a Joint Stock Company, the formation of a Limited Liability Partnership is very simple and easy. It has a low cost of formation.
• Transfer of share: In a Limited Liability Partnership, there is no restriction on the transfer of ownership/shares, except to follow rules of the partnership agreement, In short, there is less restriction on joining and leaving the Limited Liability Partnership.
• In a Limited Liability Partnership, double taxation is avoided and there is no tax on share in profit.

Question 6.
Define Joint Stock Company and explain its features.
Answer:
Definition of Joint Stock Company:

• As per Section 2(20) of the Companies Act, 2013: “Company means a company incorporated under this Act or under any previous company law”.
• According to Prof. H.L.Haney: “A Joint Stock Company is a voluntary association of individuals for profit, having its capital divided into transferable shares, the ownership of which is the condition of membership”.

Features of Joint Stock Company:
(i) Voluntary association: It is a voluntary association of individuals. Membership is open to all. Any person can join and leave the company subject to rules of the Articles of Association of the company.

(ii) Incorporated Association: Company is an association of persons formed and incorporated/registered under the Companies Act, 2013. Registration is compulsory. After incorporation, an association obtains the status of a Joint Stock Company.

(iii) Separate legal entity: The company enjoy a separate legal status different from its members and directors. Though the members are the owners, yet they are not liable for the actions of the company.

(iv) Artificial person: A company is a creation of law. A company does not have a physical existence, but it can conduct various activities like a human being.
E.g. enter into a contract, open a bank account, purchase or sell assets, appoint employees, etc. The company has corporate existence.

(v) Perpetual succession: A company has a perpetual succession means continuous existence. The company can enjoy a long and stable life. It is not affected by the death, insolvency, or retirement of any member.

(vi) Common seal: A company has a common seal of its own and all its activities are conducted under this seal. A company is an artificial person, its seal is the substitute for its signature. This seal is a name or any other recognition of a company.

(vii) Limited liability: The liability of members/shareholders of the company is limited. It is limited up to the unpaid part of the face value of shares held by shareholders. The personal property of a shareholder cannot be used for repayment of debts of the company.

(viii) Separation of ownership and management: As per the Companies Act, shareholders are the owners of the company, but they are unable to manage the day-to-day business activities as they are large in number, scattered and they keep on transferring shares. So, they appoint directors for management purposes. Thus, ownership and management are separate in the case of a Joint Stock Company.

(ix) Transferability of shares: The shares of a public company are transferable. They can be transferred freely whenever shareholder desires to sell. Shares of private companies are not freely transferable.

(x) Number of members: A company is owned by a large number of members. For private companies, minimum of 2 members and a maximum of 200 members are required and for the public company a minimum of 7 members and a maximum no limit.

(xi) Capital: Due to a large number of members, a huge amount of capital can be collected by the company in the form of shares, debentures, bonds, public deposits, etc. It can also borrow loans from banks and financial institutions.

(xii) Government control: There is strict control and supervision by the Government on the working of the company. The company has to follow the regulations and file Profit and Loss Account, Balance Sheet, and other financial statements with the Registrar. It should maintain all required books of accounts.

Question 7.
Define a ‘company’. Explain the types of companies on the basis of the liability of members.
Answer:
Definition of Joint Stock Company:

• As per Section 2(20) of the Companies Act, 2013: “Company means a company incorporated under this Act or under any previous company law’.
• According to Prof. H.L.Haney: “A Joint Stock company is a voluntary association of individuals for profit, having it’s capital divided into transferable shares, the ownership of which is the condition of membership”.

Types of Companies on the basis of liability of members:
(i) Companies Limited by Shares: Such companies are formed as per Section 2(22) of the Companies Act, 2013. Such companies have to share capital and their members have limited liabilities up to unpaid part of the face value of shares held by them. At the time of winding up of the company, the personal property of shareholders is not used.

(ii) Company Limited by Guarantee: As per Section 2(21) of Companies Act, 2013 such companies may or may not have share capital. Every Member promises to pay a specific amount for liabilities and debts of the company on liquidation. Such amount is mentioned in the Memorandum of Association. Members give guarantees and they carry a specific amount of liability. Generally, such companies work for the promotion of sports, art, culture, charity, etc.

(iii) Unlimited Liability Companies: As per Section 2(92) of the Companies Act, 2013 such companies have members with unlimited liability. Members are fully liable to liabilities and debts of the company. It may be a private, public, or one-person company.

Question 8.
Explain any four types of companies.
Answer:
Following are the types of companies:
(A) On the basis of Incorporation:

• Statutory Company: Statutory companies are incorporated by Special Act. Such Act is passed in Central or State legislation.
• E.g. Reserve Bank of India, State Bank of India, Unit Trust of India, Life Insurance Corporation, etc.
• Registered Company: Such companies are formed under the Companies Act, 2013 or any previous company law.

(B) On the basis of Number of Members:
(i) Private Company: It is a company having minimum paid-up capital as prescribed by its Articles. Such companies restrict the rights of their members to transfer their shares and also restrict the maximum number of its members up to 200. Such companies are also prohibited to invite the public to subscribe to their securities or deposits.

(ii) Public Company: It is a company having a minimum paid-up share capital as prescribed by its Articles. Such companies do not restrict the rights of their members to transfer their shares. It requires minimum of 7 members to form a company and there is no limit on the maximum number of members. Such companies can
invite the public to subscribe for its securities or deposits.

(iii) One Person Company: It is a company, in which one person is a member. Such a company is managed by a single person, having limited liability. It should follow the rules of a private company. It may have one or more directors.

(C) One the basis of Liability of Members:
(i) Companies Limited by Shares: Such companies are formed as per Section 2(22) of the Companies Act, 2013. Such companies have to share capital and its members have limited liabilities up to unpaid part of the face value of shares held by them. At the time of winding up of the company, the personal property of shareholders is not used.

(ii) Company Limited by Guarantee: As per Section 2(21) of Companies Act, 2013 such companies may or may not have share capital. Every Member promises to pay a specific amount for liabilities and debts of the company on liquidation. Such amount is mentioned in the Memorandum of Association. Members give guarantees and they carry a specific amount of liability. Generally, such companies work for the promotion of sports, art, culture, charity, etc.

(iii) Unlimited Liability Companies: As per Section 2(92) of the Company Act, 2013 such companies have members with unlimited liability. Members are fully liable to liabilities and debts of the company. It may be a private, public, or one-person company.

(D) On the basis of Control:
(i) Holding Company: A company holding more than half of the share capital of another company is called a Holding Company. This company has the power to appoint directors of another company and remove directors of another company.

(ii) Subsidiary Company: The company which is controlled by a holding company is called a Subsidiary Company.

Activity (Text Book Page No. 25)

Identify the type of following companies:

1. Bajaj Auto Limited
2. Coal India Limited
3. Microsoft India
4. Kirloskar Foundation

Answer:

1. Bajaj Auto Limited – Public Limited Company
2. Coal India Limited – Government Company
3. Microsoft India – Subsidiary Company of American Software Company Microsoft Corporation
4. Kirloskar Foundation – Company Not for Profit (Corporate Social Responsibility)

Balbharti Maharashtra State Board Class 11 Secretarial Practice Solutions Chapter 1 Secretary Textbook Exercise Questions and Answers.

Maharashtra State Board Class 11 Secretarial Practice Solutions Chapter 1 Secretary

1A. Select the correct answer from the options given below and rewrite the statements.

Question 1.
The word Secretary is derived from the Latin word ____________ which means a confidential writer.
(a) Amatya
(b) Scribae
(c) Secretarius
Answer:
(c) Secretarius

Question 2.
Only ____________ can be appointed as a Secretary.
(a) an Individual
(b) a Partnership firm
(c) a Joint-stock company
Answer:
(a) an individual

Question 3.
A Secretary is a custodian of ____________ information.
(a) confidential
(b) individual
(c) investigative
Answer:
(a) confidential

Question 4.
The Secretary of a Joint-stock company should be a member of ____________
(a) IPS
(b) ICSI
(c) IAS
Answer:
(b) ICSI

Question 5.
____________ is the oldest type of Secretary.
(a) Company Secretary
(b) Personal Secretary
(c) Secretary of Government Department
Answer:
(b) Personal Secretary

Question 6.
The main objective of a co-operative society is to ____________ the interest of its members.
(a) neglect
(b) takeover
(c) protect
Answer:
(c) protect

Question 7.
Secretary of Government department must be a member of the ____________
(a) ICSI
(b) IAS
(c) ICWA
Answer:
(b) IAS

Question 8.
____________ means correctness in doing a work.
(a) Accuracy
(b) Loyalty
(c) Courteous
Answer:
(a) Accuracy

1B. Match the pairs.

Question 1.

Group ‘A’	Group ‘B’
(a) Amatya	(1) Government department
(b) Ministry of Finance	(2) Paid employee
(c) Personal Secretary	(3) Appointed by busy persons
(d) Loyalty	(4) Roman Empire
(e) Financial duties	(5) Maintenance of books of accounts
(f) Secretary	(6) Faithfulness
	(7) Reveals information
	(8) Appointed by Co-operative societies
	(9) Ancient Indian history
	(10) Correspondence
	(11) Free service
	(12) Joint Stock company

Answer:

Group ‘A’	Group ‘B’
(a) Amatya	(9) Ancient Indian history
(b) Ministry of Finance	(1) Government department
(c) Personal Secretary	(3) Appointed by busy persons
(d) Loyalty	(6) Faithfulness
(e) Financial duties	(5) Maintenance of books of accounts
(f) Secretary	(2) Paid employee

1C. Write a word or a term or a phrase that can substitute each of the following statements.

Question 1.
The term was used in the Roman empire was for a person who was a professional letter writer.
Answer:
Scribae

Question 2.
The sports club is an example of this type of organization.
Answer:
Non-profit association

Question 3.
A Secretary appointed by an individual.
Answer:
Personal Secretary

Question 4.
The quality that a Secretary should possess is to be faithful to his organization.
Answer:
Loyalty

Question 5.
The Latin word for a Secretary.
Answer:
Secretarius

Question 6.
The Company Secretary must be a member of this organization.
Answer:
ICSI

Question 7.
The Secretary of a Co-operative organization in Maharashtra must have knowledge of this Act.
Answer:
Maharashtra State Co-operative Societies Act, 1960

Question 8.
An association that aims to protect the interest of its members.
Answer:
Co-operative society

1D. State whether the following statements are True or False.

Question 1.
A Secretary is responsible only for typing letters.
Answer:
False

Question 2.
The Secretary of a Government department is the oldest type of Secretary.
Answer:
False

Question 3.
The Secretary should remain confidential about his organization.
Answer:
True

Question 4.
A Secretary also looks after routine and administrative duties.
Answer:
True

Question 5.
A Secretary is a paid employee.
Answer:
True

Question 6.
Chitnis is a term used in the ancient Roman period.
Answer:
False

Question 7.
A Secretary need not have knowledge of computers.
Answer:
False

Question 8.
Cultural Association is an example of a Government department.
Answer:
False

1E. Find the odd one.

Question 1.
Secretarius, Scribae, ICSI, Chitnis
Answer:
ICSI

Question 2.
Leadership, IAS, Tactfulness
Answer:
IAS

1F. Complete the sentences.

Question 1.
In Latin language, a confidential writer was called as ____________
Answer:
Secretarius

Question 2.
The oldest type of Secretary is ____________ secretary.
Answer:
Personal Secretary/Personal Assistant

Question 3.
A company secretary must be a member of ____________
Answer:
ICSI (Institute of Company Secretaries of India)

1G. Select the correct option from the bracket.

Question 1.

Group ‘A’	Group ‘B’
(1) …………………	Personal Secretary
(2) Secretary of Government Department	………………………….
(3) ICSI	………………………….
(4) …………………	Scribae
(5) Custodian of secret	…………………….

(IAS, Appointed by busy individuals, Secretary, Roman Empire, Company Secretary)
Answer:

Group ‘A’	Group ‘B’
(1) Appointed by busy individuals	Personal Secretary
(2) Secretary of Government Department	IAS
(3) ICSI	Company Secretary
(4) Roman Empire	Scribae
(5) Custodian of secret	Secretary

1H. Answer in one sentence.

Question 1.
Who can appoint a personal secretary?
Answer:
Personal Secretary can be appointed by busy individuals, eg. Doctors, Lawyers, Engineers, Chartered Accountants, Actors, Politicians, Leaders, Ministers, etc.

Question 2.
Which company should appoint a full-time company secretary?
Answer:
Listed companies and all other companies with a paid-up share capital of five crores or more should appoint a full-time company secretary.

Question 3.
A Cultural Club is an example of which type of organization?
Answer:
A Cultural Club is an example of a Non-profit association.

Question 4.
The knowledge of which Act is a must for a secretary of Co-operative Society?
Answer:
A secretary of a co-operative society should have a good knowledge of the Co-operative Societies Act.

1I. Correct the underlined word and rewrite the following sentences.

Question 1.
Personal Secretary is appointed by a Joint Stock Company.
Answer:
Personal Secretary is appointed by a busy individual.

Question 2.
Busy individuals appoint Company Secretary.
Answer:
Busy individuals appoint Personal Secretary.

Question 3.
The Secretary of a Government Department must be a member of ICSI.
Answer:
The Secretary of a Government Department must be a member of IAS.

Question 4.
The term Chitnis was used in Roman Empire.
Answer:
The term Chitnis was used in Ancient Indian history.

2. Explain the following terms/concepts.

Question 1.
Secretary
Answer:
An individual employed to handle general administration, office management, correspondence, and confidential information of an organization.

Question 2.
Confidential officer
Answer:
Secretary is entrusted with the secret and confidential information of his employer and of the business itself.

Question 3.
Compliance officer
Answer:
A secretary must stick to or comply with various sets and its provisions that are applicable to the business like maintaining books, filing returns, etc.

Question 4.
Tactfulness
Answer:
An ability of a person to handle a situation in the right manner. Secretary must handle the different situations and people insensible way.

Question 5.
Loyalty
Answer:
Loyalty means faithfulness. As a confidential officer, a secretary should not share secret matters with anyone.

3. Study the following case/situation and express your opinion.

1. Rajiv and Sanjiv have applied for the post of Company Secretary at Pharma India Pvt. Ltd. Rajiv has experience of 10 years as a Personal Secretary. He later worked as a Secretary at Venus Co-operative Bank for 2 years. Sanjiv has passed his CS examination and is a member of ICSI. He has no working experience. Rajiv is only a commerce graduate.

Question (a).
Who is better suited for the above post? Justify your answer.
Answer:
Sanjiv is suited for the post as he has passed his CS exams and is a member of ICSI which is the basic qualification for a company secretary according to the Companies Act, 2013.

Question (b).
Can Rajiv be selected as a Personal Assistant for one of the Directors?
Answer:
Yes, Rajiv has experience of 10 years as a personal secretary, hence he can be able to assist the director.

Question (c).
Can Rajiv be appointed as Secretary to Pharma India Pvt Ltd.?
Answer:
No, Pharma India Pvt. Ltd. is a private company that can appoint a Company Secretary for its work. Rajiv has experience as a personal secretary so he cannot be appointed as a secretary to Pharma India Pvt. Ltd.

2. Harshada has cleared her CS examination and intends to make her career as a Secretary at the Government department.

Question (a).
Can she apply for the post of Secretary at Government Department?
Answer:
No, a secretary of the Government department must have a clear Civil Services Examination and must be in Indian Administrative Services.

Question (b).
Can she be appointed as the Secretary of ABC Ltd.?
Answer:
Yes, she can be appointed as the secretary of ABC Ltd which is a company, and shehasclearedherCS examination.

Question (c).
As a Company Secretary will Harshada be considered as an employee?
Answer:
Yes, a company secretary is a full-time employee and gets a salary as determined by the Board of Directors.

4. Distinguish between the following.

Question 1.
Personal Secretary and Company Secretary
Answer:

Basis	Personal Secretary	Company Secretary
1. Meaning	An individual appointed by a busy person to assist him.	An individual appointed by the Board of directors to carry out various duties in a Joint Stock Company.
2. Appointment	Personal Secretary is appointed by a busy person or professionals.	Company Secretary is appointed by the Board of Directors.
3. Qualification	There is no prescribed qualification for a personal secretary.	The company secretary must be a member of ICSI.
4. Legal Status	A personal secretary has no legal status.	The company secretary possesses legal status.
5. Powers	The personal secretary has limited powers as given by the employer.	The company secretary has statutory and managerial powers.
6. Purpose	To assist a busy person in his day-to-day work.	To assist the Board of directors in taking decisions and executive functions.
7. Position	The personal secretary is an assistant of the employer.	The company secretary is one of the members of Key Managerial Personnel.

Question 2.
Secretary of Co-operative Society and Secretary of Government Department
Answer:

Basis	Secretary of Co-operative Society	Secretary of Government Department
1. Meaning	Secretary of Co-operative Society is one of the members of the managing committee appointed to carry out the working of the society.	An officer who works under the guidance of the minister or the department.
2. Appointment	He is appointed by the managing committee.	He is appointed by the State or Central government.
3. Qualification	There is no prescribed qualification.	He must have passed an IAS exam.
4. Position	The secretary is a member of society.	The secretary is the administrative head of his department.
5. Purpose	He has to protect the interest of his members.	He has to carry out administrative work under the control of the minister.
6. Remuneration	He is a member of the managing committee and gets an honorarium.	He gets salary and perks as per the Government rules.

Question 3.
Company Secretary and Secretary of a Government Department
Answer:

Basis	Company Secretary	Secretary of Government Department
1. Meaning	Secretary appointed by the Board of Directors to carry out statutory and managerial duties.	Secretary appointed by State or Central government to handle the work of different government departments.
2. Qualification	He must be a member of ICSI.	He must have passed an IAS exam.
3. Appointment	He is appointed by the Board of directors.	He is appointed by the Central or State government.
4. Powers	He has administrative and managerial powers.	He has statutory powers as per the ministry.
5. Purpose	He has to assist the Board of directors in taking decisions.	He has to assist the ministers in carrying out administrative work.
6. Remuneration	He is paid a salary as decided by the Board of Directors.	He is paid salary and perks as per government rules.

Question 4.
Secretary of Non-profit Association and Secretary of Co-operative Society.
Answer:

Basis	Secretary of Non-profit Association	Secretary of Co-operative Society
1. Meaning	A person appointed to look after the working of the association.	Secretary is one of the members of the managing committee appointed to look after the working of the society.
2. Appointment	Secretary is appointed by the managing committee of the association.	Secretary is appointed by the managing committee of the society.
3. Legal Status	The secretary has no legal status.	Secretary has legal status as per the Co-operative Societies Act.
4. Power	He has limited powers.	He has power as per the Co-operative Societies Act.
5. Compulsory	It is not compulsory. It is optional to appoint a secretary.	The appointment of a secretary is compulsory as per the Act.
6. Object	The main objective is to promote social, cultural, and sports activities.	The main objective is to protect the interest of its members.

5. Answer in brief.

Question 1.
Describe any four qualities of a Secretary.
Answer:
Qualities of a Secretary are as follows:

1. Accuracy: A secretary must be accurate in his work like accuracy in office work, record keeping, drafting letters, reports, etc.
2. Loyalty: A secretary should be loyal. He is a custodian of secret information about his business. He should not disclose the secret of the business to outsiders.
3. Adaptability: There are many changes that take place within the business and outside the business. A secretary must adapt himself to every situation and should be ready for every challenge.
4. Leadership: As a leader, a secretary should be able to guide, advise and direct the subordinates. He should create team spirit among his subordinates.

Question 2.
State any four functions of a Secretary.
Answer:
The functions of a Secretary are as follows:

1. Correspondence: It is a basic function of the secretary. He drafts letters, handles inward and outward mails, types letters, files important correspondence. He must handle correspondence well so as to maintain the goodwill of the business.
2. Reception functions: A secretary courteously attends to the visitors, telephone calls, arrange meetings, fix appointments, etc.
3. Financial functions: Secretary handles the financial transactions and maintains proper books of accounts. He handles banking transactions like depositing money, withdrawing money from the bank, issuing cheques and demand drafts, etc.
4. Administrative functions: Secretary performs administrative functions like supervising and controlling the activities of the business, effective coordination, training, orientation, promotion of employees.

Question 3.
Mention any four features of a Secretary.
Answer:
Features of a Secretary are as follows:

1. Individual: Only an individual can be appointed as a secretary. A partnership firm, corporate body, or institution cannot be appointed as a secretary.
2. Employee: Secretary is a paid employee of the business. He is given a salary or honorarium for the work or task done by him.
3. Confidential officer: A secretary is the custodian of the secret or confidential information of his employer and business.
4. Appointment: A secretary can be appointed by a busy person, Co-operative society, Non-profit association, Government, Joint Stock company, etc.

6. Justify the following statements.

Question 1.
A secretary should be courteous and have a pleasing personality.
Answer:

1. A secretary should be courteous as he deals with people within and outside the organization.
2. As he gets the plans executed in the business he must be kind and polite with fellow workers.
3. As a secretary represents the business to outsiders and as a leader within the business, he must have a pleasing personality with confidence and the ability to tackle challenging situations.
4. Thus, a secretary should be courteous and have a pleasing personality.

Question 2.
A secretary is considered a paid employee.
Answer:

1. A secretary is a paid employee of the business.
2. He works as a secretary and receives a salary or honorarium in return.
3. He is not the owner but works for them.
4. Thus, a secretary is considered a paid employee.

Question 3.
Only individuals can be secretaries.
Answer:

1. A secretary is always an individual.
2. Only a person can perform the work of a secretary.
3. A corporate body, institution, or partnership firm cannot be appointed as a secretary.
4. Thus, only individuals can be secretaries.

Question 4.
A secretary is a link between the staff and members.
Answer:

1. With the help of effective communication, the secretary strikes a balance between the staff and members.
2. The plans, policies, and decisions made by the top-level are communicated to the staff, which helps inefficient working of the business.
3. Thus, a secretary is a link between the staff and members.

Question 5.
A personal secretary is appointed by busy individuals.
Answer:

1. A personal secretary is appointed by busy persons to handle their day-to-day work.
2. Professionals and busy persons appoint a secretary so that routine work is handled by the secretary and they can focus on other important work.
3. Thus, a personal secretary is appointed by busy individuals.

7. Answer the following questions.

Question 1.
Define a Secretary and explain the importance of a secretary.
Answer:
According to Oxford Dictionary “A person whose work is to write for others, especially one who is employed to conduct correspondence, keep records and to transact various other business for another person or for a society or corporation or public body.”

The importance of a secretary are:
(i) Provide guidance and advice:
The secretary provides guidance to the management for efficient working and achieving goals. He also gives advice to the superior on important matters and helps them to take the correct decision.

(ii) Custodian of secret information:
The secretary is closely connected with top management and has access to all the secret and confidential information about the business. He safeguards confidential documents and decisions of the business.

(iii) Correspondent:
Secretary handles all the inward and outward mails of the business. He conducts correspondence with members, directors, registrar, bank, government authorities, etc.

(iv) Conducting meetings:
Secretary carries out all formalities before, during, and after the meeting. He prepares notice, agenda, minutes, etc., and makes all the arrangements for the meetings.

(v) Administrator:
Secretary handles office administration and routine management work efficiently. On behalf of the employer, he looks after the working of day to day work of the business.

(vi) Legal officer:
Secretary performs various statutory duties. He prepares books, reports, registers, documents as prescribed by the Companies Act, 2013.

(vii) Link between management and staff:
The secretary is a link between management and staff. He maintains a balance between management and staff through effective communication and proper coordination.

Question 2.
Explain the features of a secretary.
Answer:
The features of a secretary are as follows:

1. Individual: Only an individual can be appointed as a secretary. An organization, firm, society, or corporate body cannot be appointed as a secretary.
2. Employee: Secretary is not the owner of the business. He is a paid employee. Secretary works in the business and expects salary or honorarium for the work done by him.
3. Custodian of secret information: The secretary has custody of all the secret information of the business as he is closely connected with the top-level management.
4. Appointment: Secretary can be appointed by busy persons, professionals, non-profit associations, co-operative society, or Joint Stock companies.
5. Qualities: In order to perform his duties efficiently a secretary must possess qualities like intelligence, accuracy, loyalty, Courtesy, etc.

Question 3.
Describe the qualities of a secretary.
Answer:
The qualities of a secretary are as follows:

1. Accuracy: It means correctness. While corresponding, preparing reports and records, books of accounts, and register the secretary must be accurate in his work.
2. Adaptability: Secretary must have the ability to adjust with the change within and outside the business like change in management rules and policies, change in government policies, etc.
3. Loyalty: Secretary has access to all the secret information of the business. He must be faithful and not disclose the information to anyone.
4. Cooperative: Secretary works with the people and through the people. He should instill the feeling of team spirit and oneness.
5. Punctuality: Secretary must have a sense of time. He must complete the work on time. If the work is delayed it would affect the growth of the business.
6. Piteasing personality: Secretary must have an impressive and confident personality. With decent behaviour, a good temper, and a positive approach, he can gain respect from others.
7. Tactful: A secretary handles different people and situations. He should be able to handle situations wisely and deal with people in a sensible way.

Question 4.
Explain briefly the various types of Institutional secretaries.
Answer:
Types of Institutional secretaries:
(i) Secretary of a Non-profit Association:
The non-profit association is formed to provide service and not to earn profits. The managing committee looks, after the working of Non-profit association. The Secretary of a Non-profit association is appointed by the managing committee on a salary or honorarium basis. There is no prescribed qualifications of the secretary of the Non-profit association however, knowledge of correspondence, banking transactions, knowledge of computers are expected in these associations.

(ii) Secretary of a Co-operative Society:
It is a voluntary organization formed for the welfare of its members. Managing committee handles or manage the working of the society. One of the members of the managing committee is appointed as a secretary. Secretary of Co-operative society can be appointed as a full-time employee. Secretary must have full knowledge of all the provisions of the Co-operative Societies Act.

(iii) Secretary of a Government Department:
The Secretary of a Government department is appointed by the Central or State Government. Secretary handles the work of various government departments on behalf of the ministers and act as an administrative head of the department. The secretary of the government department should be a graduate and be in Indian Administrative Services [IAS].

(iv) Secretary of a Joint Stock Company:
The Secretary of a Joint Stock company holds a key managerial position and handles the business on behalf of the members. Secretary of a Joint Stock Company is appointed by the Board of Directors. According to the Companies Act, 2013 the Companies Secretary must be a member of the Institute of Company Secretaries of India (ICSI). Joint Stock Company works on a large scale, hence, full-time secretary handles day-to-day work on behalf of the Board of directors.

Activity 1. (Textbook Page No. 9)

Find out the following:

1. Company Secretary of Mahindra and Mahindra Ltd.
2. Principal Secretary of Prime Minister of India.
3. Chief Secretary, Maharashtra State.
4. Secretary, School Education Department, Government of Maharashtra.

Answer:

1. Narayan Shankar
2. Pramod Kumar Mishra
3. Sitaram Kunte
4. Vishal Solanki (IAS)

Activity 2. (Textbook Page No. 9)

Atmaram Bendre is a Secretary of Gokulghar Housing Society, Enlist his duties.
Answer:
Duties of a Secretary performed by Atmaram Bendre residing at Gokulghar Housing Society, Malad (W), Mumbai are as follows:

1. To hold a monthly meeting of Managing Committee.
2. To prepare notice along with agenda and issue to members of the managing committee.
3. To record and maintain minutes book of the managing committee.
4. To assist the chairman before, during, and after the meeting.
5. To issue a Share certificate to members of the Co-operative Housing Society.
6. To transfer Share certificate within a given period of time.
7. To maintain books relating to the resignation and transfer of members of society.
8. To examine the documents related to transferring flats.
9. To take appropriate actions against default members by giving legal notice, if any.
10. To maintain accounting records required for auditing.
11. To finalize the audit report.
12. To utilize the sinking fund of the society with prior approval of members of society for repair, maintenance internal leakage problem, etc.
13. To give No Objection Certificate for flat agreement of sale or any kind of loans on flat.
14. To abide bye-laws as guided by Co-operative Housing Society Act, 1960.
15. To maintain all correspondence records, files, documents, etc.
16. To issue notice to the member who breaches the bye-laws of the society.
17. To maintain records for the societies such as account records, statutory records, and membership records.
18. To produce records as and when required by the government authorities with the consent of members.
19. To issue allotment or cancellation letter as required by the members of the society.
20. To take contingency meetings as and when required in the event of an emergency.