1 Company Formation and Conversion Chapter/New... · [Chapter """ 1] Company Formation and...

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Question upto Dec - 2008 are from CS Inter Gr. II Old Course and from June - 2009 onwardsare from CS Professional Programme New Course.

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Question upto Dec - 2008 are from CS Inter Gr. II Old Course and from June - 2009 onwardsare from CS Professional Programme New Course.

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1 Company Formation

and ConversionThis Chapter Includes

! Choice of form of business entity! Procedure for Incorporation of

companies, ! Procedure for Conversion of

Companies

! Procedure for Commencement ofbusiness

! Procedure for ratification of pre-incorporation agreements andcontracts

Marks of Short Notes, Distinguish Between, Descriptive & Practical Questions

SHORT NOTES

2006 - Dec [8] Write short notes on the following :(ii) Limited liability partnership. (4 marks)

Answer :Limited Liability Partnership (LLP) :

1.2 Solved Scanner Solved Scanner Solved Scanner Solved Scanner CS Prof. Prog. —I Paper - 1 (New Syllabus)

A Limited Liability Partnership (LLP) is a body corporation, with limited liability andperpetual succession and is a separate legal entity. LLP is an alternation corporatebusiness structure is intended to enable entrepreneurs, professionals and enterprisesto form commercially efficient vehicles. A key feature of the present partnership is thatliability of the partners is unlimited and this has been a serious concern in case oflitigation for claims against partners of firms. The LLP structure seeks to address thisconcern. In a LLP the liability of the partners is limited to their agreed contribution in theLLP. No partner is liable on account of the independent or authorized actions of otherpartners or their misconduct. The Ministry of company Affairs has brought out a concept paper on LLP Law.Accordingly for the purpose of incorporation of a LLP, inter alia :

(i) Two or more persons should subscribe their names to an incorporationdocument for carrying on a lawful business with a view to making profit.

(ii) Incorporation document should include the state in which the registered officeof LLP is to situate.

(iii) A statement in the prescribed form should be made and filed by an advocate ora company secretary or a chartered accountant to the effect that all therequirements of the Act have been complied with.

2009 - Dec [8] Write notes on the following :(i) One person company (4 marks)

Answer :One person company: One person company is totally a new concept for India but inUnited Kingdom and other developed countries this is already in existence. In theproposed Companies Bill, 2012 this concept is being brought in and introduced. It isalike a proprietorship firm but with limited liability of the company. Dr. J J IraniCommittee has made recommendations for this concept. This company will have atleast one director. The last word in the name must indicate the word "OPC" todistinguish it with others. The company will function more or less on the broad principlesof company type of organization in India with total independence. All the compliancesand regulations as applicable to other companies shall be also applicable to this OPC.

2013 - June [8] Write notes on the following:(i) Ministry of Corporate Affairs Circular No. 6/2011 dated 8th March, 2011 in the

matter of a foreign company establishing business in India. (4 marks)Answer:Ministry of Corporate Affairs vide Circular No. 6/2011 dated 8th March, 2011 hassimplified the procedure for a foreign company to establish a place of business in India.As per this circular, authorized representative of the foreign company which establisha place of business within India should deliver e-form 44 along with following documentsas attachments, to the Registrar of Companies within 30 days of the establishment ofthe place of business.

[Chapter """" 1] Company Formation and Conversion 1.3

The following documents must be attach:1. Charter, statutes or memorandum and articles of association or other instrument

constituting or defining the constitution of the company is to be attached.2. Particular of individual directors are to be attached.3. Approval letter from Reserve Bank of India for the setting up of business in India

is to be attached. 4. Power of attorney or board resolution in favour of the authorized representatives

is to be attached.5. Particular of Director’s - In case of body corporate, details containing name and

complete address of body corporate.6. Particulars of Secretary - if any.

DISTINGUISH BETWEEN

2006 - June [5] (b) Distinguish between —(i) ‘Public limited company’ and ‘private limited company’.(ii) ‘Certificate of incorporation’ and ‘certificate of commencement of business’.

(4 marks each)Answer :

(i)

Basis Public limited company Private limited company

(i) Minimum numberof members

The minimum number ofperson is required to form aPublic Company is 7.

It is two, in case of PrivateCompany.

(ii) Maximum numberof members

There is no restriction onmaximum number of membersin a public company.

The maximum number mustnot exceed 200.

(iii) Minimum paid-upcapital

Public company has to haveminimum paid-up capital of ` 5lakhs.

A Private Company has tohave a minimum paid-upcapital of ` 1 lakh.

(iv) Number of Direct-ors

A Public Company must haveat least 3 directors.

Here as a Private Companyit must have at least 2directors.

(v) Transferability ofShare

The Share and debenture arefreely transferable.

The right to transfer Share isrestricted by articles.

(vi) Quorum 5 Members are personallypresent to form the Quorum.

It is 2 in the case of PrivateCompany.


(vii) ManagerialRemuneration

In case of Public Companytotal managerial remunerationcannot exceed 11% of the Netprofit.

No such restriction apply toa Private Company.

(viii) Holding Statutorymeeting

Public Company must hold astatutory meeting and file aStatutory Report with theRegistrar.

Private Company need nothold the Statutory meeting.

(ix) Commencementof business.

A Public Company cancommence business only whenit receive the certificate ofcommencement of businessfrom the Registrar of company.

A Private Company cancommence business immed-iately after receiving thecertificate of Incorporation.

(x) Prospectus A Public Company may issueprospectus to invite the generalpublic to Subscribe for itsshares and debenture.

A Private Company cannotissue a prospectus.

(ii) Certificate of Incorporation and Certificate of Commencement of business.

1. A Certificate of incorporation is issuedto all types of companies.

A Certificate of Commencement ofbusiness is required only to a publiclimited company having a Share Capital

2. A Certificate of incorporationempowers a Private Company tocommence business.

While a Certificate of commencement ofbusiness empowers a public companyhaving a Share Capital to commencebusiness and exercise its borrowing.

3. A Certificate of incorporation iscompulsory for both private and PublicCompanies.

Whereas a certificate of commencementof business is required only by a publiclimited company having a Share Capital.

4. The Certificate of incorporation is thebirth Certificate of a Company.

The Certificate of commencement ofbusiness is a Certificate that theCompany is entitled to commencebusiness.

2012 - June [2] Distinguish between the following :(v) ‘A company limited by guarantee’ and ‘an unlimited liability company’.(4 marks)

Answer:


A company limited by guarantee: As per Section 12(2) (b), it is a company whereliability of members is limited by its memorandum of association as per the undertakingof respective members in the memorandum. This undertaking is for making contributionto company, asset in the event of winding up. Both the memorandum and the articlesmust state the number of members with which the company is proposed to beincorporated. A company limited to guarantee can have shares also but it is notmandatory. It can be incorporated even on the basis of guarantee. It can be a publiccompany or a private company.An unlimited liability company: As per Section 12(2)(c), an unlimited liability companyis one where the members’ liability is not limited. In the event of winding up, themembers shall have to pay from its personal property and the entire personal propertymay be used up. However, the liability of the members is only to the company and notto creditors/lenders and it is only the liquidator who can call for amounts from themembers to treat company’s debts and obligations. This type of companies can alsohave share capital. The Articles of this type of companies must have their distinctregulations and should mention the number of members with which they areincorporated. An unlimited liability company can get converted into a limited liabilitycompany in terms of Section 32 of the Act.

2013 - Dec [2] (c) Distinguish between the following:(i) ‘Holding company’ and ‘subsidiary company’. (2 marks)

DESCRIPTIVE QUESTIONS

2005 - June [4] (a) Elucidate the procedure to be followed for incorporation of a privatelimited company and outline the distinctive features of such a company under theCompanies Act, 1956. (8 marks)Answer:1. The incorporation of a private limited company requires at least two persons.2. Their first role is to formulate their business plans and agree upon an appropriate

name for the company. 3. Once approved by ROC, a name remains valid for a period of 2 months. 4. The distinctive features of private company are as follows :

(a) U/s 3(1)(iii), a private company must provide for; restrictions on no. ofmembers to 50, prohibition on subscription to shares or debentures by thepublic and prohibition on acceptance of deposits.

(b) The Minimum No. of persons required to form a private company is only two.(c) Obtaining certificate of commencement of business is not necessary.(d) It need not to have more than two directors. (e) Its name should be suffixed by word "Pvt. Ltd."


(f) Minimum required paid-up capital is ` 1 Lakh.

2005 - Dec [2] (a) State the procedure for incorporation of a private limited company.(8 marks)

Answer:The following procedural steps are require to be taken by the promoters for theincorporation of a private limited company:1. Selecting Name of the Company and Making Application to ROC

Promoters shall select at least six names for the proposed company and make anapplication to ROC of the state in which the proposed company is to beincorporated. The application in prescribed form 1A alongwith an application feeof ` 1,000 shall be made to Registrar.

2. Name Availability Where the Registrar of Companies intimates the company or the promoters of thecompany that the changed name or the name with which the proposed companyis to be registered, is not undesirable, such name shall be available for adoptionby the said company for a period of sixty days or by the said promoters of thecompany for sixty days from the date of intimation by the Registrar.

If within the stipulated period of sixty days, the company is not incorporatedwith the name made available by the Registrar or if the existing name of thecompany is not changed to the new name made available by the Registrar, thevalidity period of the name expires.

3. Drafting and Printing of Memorandum and Articles After ascertaining availability of name from the Registrar of Companies movesshould be taken to get the memorandum and articles of association for theproposed company drafted, printed and registered.

The provisions of Section 3 (1)(iii) of the Companies Act, 1956 should,however, be included while drafting the memorandum and articles of associationof a private limited company.

Before getting the memorandum and articles printed, it is advisable to havetheir drafts vetted by the concerned Registrar of Companies to avoid unnecessaryexpenditure of time and money in getting them printed and reprinted afterincorporating Alteration etc. that may be suggested by the Registrar.

4. Stamping and Signing of Memorandum and Articles The memorandum and articles should be got printed and stamped by theappropriate State Authority (Collector of Stamps) under the Indian Stamp Act.Thereafter, the memorandum and the articles should be signed by atleast twosubscribers. The signatures of all the subscribers shall also be witnessed.

5. Dating of Memorandum and Articles


The memorandum and articles are then dated, but the date must be a date ofstamping or later than the date of their stamping and not, in any case a date priorto the date of their stamping.

6. Filing of Documents and Forms for RegistrationThe documents and forms, which are prescribed under the Companies Act, 1956and the Companies (Central Government's) General Rules and Forms, 1956 arerequired to be prepared, signed and filed with the concerned Registrar ofCompanies for the purpose of getting the company incorporated.

7. Registration and Filling Fee Promoters must make sure to submit to the Registrar, along with the aboveforms/documents, the prescribed registration fee and fee for filing of forms.

8. Minimum Paid-up Capital It should be ensured that the minimum paid-up capital is ` 1 lakh.

9. Scrutiny of Documents and Forms by Registrar On receipt of the above mentioned documents, office of the Registrar ofCompanies shall scrutinise them and if found complete in all respects, theRegistrar will register the company and allot a Registration Number.

10. Issue of Certificate of Incorporation by Registrar After the registration of the company, the Registrar will issue under his hand andseal of his office, the Certificate of Incorporation in the name of the company.

2005 - Dec [7] Briefly answer the following:(i) A subscriber to the memorandum and articles of association of a company is

illiterate. How can he sign them? (2 marks)(ii) The promoters of Rosy Pvt. Ltd. prepare the memorandum and submit its

photocopies for incorporation. Would it be accepted? (2 marks)(v) Mention the documents to be submitted for the conversion of a public company

into a private company. (2 marks)Answer:

(i) As per the notification issued by DCA vide letter No. 8/31/15/80 CL-V dated31.3.1981, in the case of an illiterate subscriber to the memorandum and articlesof association, the thumb impression or mark duly attested by the person writingfor him should be given. The person attesting the thumb mark should make anendorsement on the document to the effect that it has been read and explainedin the same sense as is constructed from MOA & AOA to the subscriber.

(ii) Xerox copies of memorandum of association cannot be entertained for thepurpose of registration of companies vide Letter No. 8/31/15/80-CLV dt.30.4.1981. However, the computer printed copies are acceptable. Departmentvide Circular No. 7/93 dated 22.6.1993 provides that the Registrar of Companiesshall accept computer laser printed documents for purpose of registration


provided the documents are neatly and legibly printed and comply with otherrequirements of the Act.

(v) Documents to be submitted for conversion of public company into privatecompany1. Copy of memorandum and articles of association as altered for changing

name of the company.2. Copy of immediate audited Balance Sheets and Profit and Loss Account.3. Copy of special resolution and Form No. 23.4. Copy of public notice in newspaper intimating change of name, if the

Registrar so directs.5. Copy of minutes of same general meeting.6. Demand Draft proofing payment of requisite fees.7. Form No. 1B for approval of Central Government for conversion.

2006 - June [2] (a) Detail the procedure for conversion of Wholesome EntertainmentLtd. having 70 members (including 25 past and present employees) into a privatelimited company. (8 marks)Answer:As the number of members is 70, it is assumed that it is not a listed company. Theprocedure for conversion of a public company into a private company are:1. Hold a meeting of its Board of Directors to consider and approve the proposal for

conversion of public company into private company. The following resolutions mustbe passed at the meeting. (i) To approve the proposal for conversion of the company into private

company. (ii) To fix time, date and venue for holding an extraordinary General Meeting of

the company.(iii) To approve notice, for the General Meeting alongwith the explanatory

statement as required under Section 173(2) of the Act.(iv) To authorize Company Secretary or some competent officer to issue the

notice of General Meeting on behalf of the Board.2. Hold the General Meeting and pass the following resolutions:

(i) Special resolution for altering the articles of the company, as required underSection 31 of the Companies Act, 1956 so as to include therein restrictions,limitations and prohibition specified in Section 3(1) (iii) of the Act convertinga public company into a private company.

(ii) File Form No. 23 alongwith certified copy of the Special Resolution &Explanatory statement alongwith the filing fees within 30 days of passing ofthe special resolution with ROC.Also wherever free transferability of securities is mentioned in the Articles ithas to be suitably altered by putting restrictions on free transferability.


(iii) Get the fresh stationary printed. (iv) Also the sign Board be changed accordingly. (v) Issue public notice for such change. (vi) Make application to Central Government in form No. 1B alongwith the

following:(a) A copy of Special Resolution.(b) A printed copy of the unaltered copy of memorandum & Articles of

Associations(c) Certified true copy of the Audited Financial Statement of latest year. (d) Certified true copy of the Minutes of General Meeting at which Special

Resolution was passed.(e) Consent in writing from substantial creditors for conversion.

(vii) File altered copy of Articles duly approved by Central Government withRegistrar of Companies within one month.Surrender to Registrar, the certificate of incorporation and the Registrar thenissued fresh certificate for such conversion.

2006 - Dec [1] {C} (a) As a Company Secretary, what steps would you take for (i)incorporation; and (ii) commencement of business of a public limited company havingshare capital? (12 marks)Answer :Procedure of Incorporation of Companies1. An association of seven persons with at least three directors and paid up capital

of ` 5 lakhs can incorporates a public limited company.Any seven persons with a minimum of three directors and capital of rupees fivelakhs can incorporate a public limited company.

Pursuant to Section 20 of the Act read with rule 4A of the Companies (CentralGovernment's) General Rules and Forms, 1956, the promoter of a new companyunder a proposed name is required to make an application electronically in e-form1A alongwith fee of ` 1,000 only to the Registrar of Companies of State in whichthe registered office of the company is proposed to be situated and getconfirmation that the proposed name is not undesirable. On filing e-form 1A, the system will generate and provide Service Request Number(SRN), A user can check the status by entering the SRN. Once approval is granted,promoters required to submit the following incorporation documents online throughelectronic mode giving the reference of the aforesaid or above said SRN (ServiceRequest Number):1. E-form 1 (Application and declaration for incorporation of a Company)2. E-form 18 (Notice of situation or change of situation of registered office)3. E-form 32 (Particulars of appointment of managing director, director, manager

and secretary)


E-forms are need to be digitally signed by the Managing Director or Director orSecretary of the company (as named in Articles of Association of the company).Alongwith the electronic filing of above said documents, following documents arerequired to be sent to the concerned ROC office simultaneously: 1. The original stamped Memorandum of Association and Articles of Association duly

filled and signed by subscribers and witness of such particulars. A scanned copyof the Memorandum of Association and Articles of Association is also required tobe attached with the e-form 1.

2. Stamped power of Attorney duly signed by authorised person. On registration of the company, ROC will generate a Corporate Identity Number (CIN).Then, print out of certificate of incorporation can be obtained from the computer. Procedure for commencement of Business On registration, a public company cannot commence business unless it does not obtaincertificate of commencement of business. Section 149 of the Companies Act, 1956imposes certain restrictions on the commencement of business by a public companyhaving a share capital. Section 149 (1) of the Companies Act, 1956 specifies that a public company having ashare capital which has issued a prospectus (as per provisions of Schedule II to theCompanies Act, 1956) inviting the public to subscribe for its shares, shall not commenceany business or exercise any borrowing powers, unless- (a) minimum subscription is received.(b) every director of the company has paid to the company, on each of the shares

taken or contracted to be taken by him.(c) no money is, or may become, liable to be repaid to applicants for any shares or

debentures which have been offered for public subscription for any specifiedreasons.

(d) there has been filed with the Registrar, a duly verified declaration (on a non-judicialstamp paper of appropriate value as applicable in the State, where it is executed)by one of the Director or the Secretary or where the company has not appointeda Secretary, by a Secretary in whole-time practice, in the Form No. 19, that clauses(a), (b) and (c) of sub-section (1) have been complied with.

Section 149 (2) lays down that where a company having a share capital has not issueda prospectus inviting the public to subscribe for its shares, the company shall notcommence any business or exercise any borrowing power, unless:(a) there has been filed with the Registrar a statement in lieu of prospectus;(b) every director of the company has paid to the company on each of the shares

taken or contracted to be taken by him;(c) there has been filed with the Registrar, a duly verified declaration in e-form 20 by

one of the Director or Secretary (where the company has not appointed aSecretary, a Secretary in whole-time practice).


2007 - Dec [6] Outline the detailed procedure for formation of a public company andalso to obtain certificate of commencement of business in the present scenario of e-filing. (16 marks)Answer :Any two persons with a minimum of two directors and authorized capital of ̀ 1 lakh canincorporate a private limited company. Any seven persons with a minimum of threedirectors and authorized capital of rupees five lakhs can incorporate a public limitedcompany.

In pursuance of Section 20 of the Act read with rule 4A of the Companies (CentralGovernment's) General Rules and Forms, 1956, the promoter of a new company undera proposed name is required to make an application electronically in e-form 1Aalongwith fee of ` 1,000 only to the MCA and get the confirmation that the proposedname is not undesirable.

Once the proposed name is approved promoters are required to submit thefollowing incorporation documents electronically alongwith SRN (Service RequestNumber) of filing of e-form 1A:1. Declaration in e-form 12. E-form 183. E-form 32E-form 18 contains information of address of registered office and jurisdiction of thepolice station. The e-form needs to be pre-certified by certifying professionals. E-form 32 contains the particulars of directors and consent to act as a director.

The e-form 32 is required to be pre-certified by the certifying professional viz.,Chartered Accountant or Cost Accountant or Company Secretary (in whole-timepractice).Alongwith the electronic filing of aforesaid documents, following documents are requiredto be sent to the concerned ROC office, in physical form, simultaneously:1. The original stamped Memorandum of Association duly filled and signed by

subscribers and witness of such particulars. 2. The original stamped Articles of Association duly filled and signed by subscribers

and witness of such particulars. 3. Stamped power of Attorney duly signed by authority holder.

If the Registrar is satisfied that all the requirements have been complied with by thecompany and it is authorized to be registered under the Act, he shall register thememorandum and the articles. On registration of company, Registrar shall certifyunder his hand that the company is incorporated. ROC will generate a CorporateIdentity Number (CIN). Then, print out of certificate of incorporation can beobtained from the computer. Procedure for obtaining a Certificate for Commencement of business :

In the case of a public company having a share capital, which has issued aprospectus inviting the public to subscribe for its shares, the Registrar shall not


give certificate for commencement of business, so long the requirements stipulatedin Sub-section (1) of Section 149 are fulfilled.

Where a company having a share capital has issued a prospectus inviting thepublic to subscribe for its shares, a declaration is required to be filed in e-form 19with the Registrar of Companies under Section 149 (1) (d) to the effect that therequirements under clauses (a), (b) and (c) of Sub-section (1) of Section 149 havebeen complied with.

In the case of a public company having a share capital, not issuing aprospectus inviting the public to subscribe for its shares, the Registrar shall notgive this certificate, so long the requirements stipulated in Sub-section (2) ofSection 149 are fulfilled.

In such cases, a declaration is required to be filed with the Registrar ofCompanies in e-form 20 under Section 149 (2) (c) to the effect that “delete it" therequirements under clause (b) of Sub-section (2) of Section 149 has been compliedwith.

2008 - June [1] {C} Draft specimen resolutions with requisite explanatory statement,wherever necessary, for transacting the following items of business indicating the kindof meeting at which each resolution is to be passed and the type of resolution requiredfor : (iv) Adoption of common seal of the company. (5 marks)Answer :Adoption of common seal Kind of Meeting: Board MeetingType of Resolution: Resolution by Simple Majority "RESOLVED that the seal as per impression affixed in the margin of the minutesinitialed by the Chairman and placed at this meeting be and is hereby approved andadopted as the common seal of the company and that the said seal be placed in thecustody of the Secretary."

2008 - June [2] (c) Mrs. Rakhi is a member of ABC Producer company since itsinception. She was so involved in the activities of the company that she acquired fullestknowledge of its activities, processes, marketing, etc. After gaining confidence ofhighest order, she got incorporated another XYZ Producer Company with the sameobjects and commenced its operations.

At the meeting of the members of ABC Producer Company, other membersobjected to the continuation of the membership of Mrs. Rakhi. You are required toexplain whether the objection raised by other members is valid or not. (4 marks)Answer:In terms of the provisions of Section 581D of the Companies Act, 1956, no person, whohas business interest which conflicts with the business of the producer company, shallbecome a member of that Company and if subsequently, a member acquire any


business interest which is in conflict with the business of the producer company, heshall cease to be a member and be removed as a member in accordance with articles.

In view of the above, the objection raised by other members of ABC Producercompany on the continuing membership of Mrs. Rakhi is valid. In fact Mrs. Rakhi shallcease to be a member of ABC Producer company, the moment she got the permissionfor incorporation of XYZ Producer company.

2008 - June [7] (c) What are the contents of Form No. 1A relating to availability orchange of name? (4 marks)Answer :E-form 1A is an application form for availability or change of name in pursuance ofSections 20 and 21 of the Companies Act, 1956. The contents of the said form areunder mentioned:1. Application for Incorporation of New Company/Change of name of an existing

company.Part A - Availability of name:

(a) Name of applicant (b) Occupation(c) Address (d) e-mail id(e) Phone and Fax

2. Details of promoters.3. Name of the state in which the proposed company is to be registered.4. Name of the Registrar of Companies in which the proposed company is to be

registered.5. Whether the proposed company is public or private. 6. Proposed name of the company (6 name in order of preference). 7. Significance of the key or coined word(s), if any, in the proposed name(s) (in brief).8. Main objects of the proposed company (if the objects include banking, stock

exchange, Mutual fund etc. Then a copy of the in-principle approval of theappropriate authority should be enclosed).

9. Whether the proposed name(s) is in consonance with the principal object.10. Whether the proposed company is a government company.11. Particulars of director(s). 12. Particulars of other directorship held by Director(s) & if he is a promoter of any

other company, its detail. 13. Proposed authorised capital.14. Whether the proposed name(s) are based on a registered trade mark or is the

subject matter of an application pending for registration under the Trade Marks Act.Part B - In case of change of name 15. (a) CIN of company :


(b) Global location number (GLN) of company. 16. (a) Name of the company

(b) Address of the registered office of the company.17. Reasons for change in name.

2009 - June [5] (b) Enumerate the procedure for conversion of a public company intoa private company. (8 marks)Answer :Please refer 2006 - June [2] (a) on page no. 22

2009 - June [6] (a) Describe the basic features of limited liability partnership (LLP) anddistinguish it from normal partnership. (8 marks)Answer :The salient features of the Limited Liability Partnership are as follows:-1. The LLP is a body corporate and a legal entity separate from its partners. Any two

or more person associated for carrying on a lawful business with a view to earnprofit, may by subscribing their names to an incorporation document and filing thesame with the Registrar to form a Limited Liability Partnership. The LLP will haveperpetual succession.

2. Subject to the provisions of the legislation the mutual rights and duties of partnersof an LLP inter se and those of the LLP and its partners shall be governed by anagreement between partners or between the LLP and the partners. There would beflexibility to Revise the agreement as per their choice. In the absence of any suchagreement the mutual rights or duties shall be governed by the provision of thelegislation.

3. The LLP will be a legal entity, liable to the full extent of its assets with the liabilityof the partners being limited to their agreed contribution in the LLP which may betangible or intangible in nature or both tangible or intangible in nature. No partnerswould be liable on account of the independent or unauthorized acts of otherpartners or their misconduct.

4. Every LLP shall have at least two partners or shall also have at least two individualsas designated partners of whom at least one shall be resident in India. The dutiesand obligations of designated partners shall be as provided in the law.

5. The LLP shall be under an obligation to maintain annual accounts reflecting trueand fair views of its state of affairs. A statement of accounts and solvency shall befiled by every LLP with the Registrar every year. The accounts of LLPs shall alsobe audited subject to any class of LLPs being exempted from this requirement bythe Central Government.

6. The Central Government shall have powers to investigate the affairs of an LLP, ifrequired by appointment of competent inspector for the purpose.


7. The Indian Partnership Act, 1932 shall not be applicable to LLPs. In accordancewith the provision of the legislation, the Indian Partnership Act, 1932, shall not beapplicable to LLPs.

8. The Central Government has framed rules for carrying out the provision of theproposed legislation.

2009 - June [7] (a) You are a Practicing Company Secretary. One of your clientsabroad wants to establish a place of business in India for a company incorporatedabroad in which he is a Whole-time Director. Prepare a note for his informationindicating the procedure involved to set-up a place of business in India. (8 marks)Answer :If Whole-time Director of foreign company is willing to establish a place of businesswithin India, then pursuant to Section 592 of the Companies Act, 1956. E-form 44 isrequired to be delivered to Registrar of Companies within 30 days of the establishmentof the place of business for its registration. In such e-form, some of the important detailslike address and state of principal place of business in India, date of its establishment,full address of principal office of foreign company, type of office and main division ofbusiness activity, details of persons resident in India and authorized to accept on behalfof company service of process and any notices documents to be served on thecompany. The following documents are required to be attached- C Charter, statutes or memorandum and articles of association or other instrument

constituting or setting out the constitution of the company. If the documents are notin English language then it should be translated in English language.

C Details of directors (individuals as well as bodies corporate).C Approval letter from Reserve Bank of India for the setting up of business in India.C Power of attorney or board resolution in favour of the authorised representatives.The form is required to be signed digitally by the authorized representative of the foreigncompany.The details of directors, Secretary and body corporate should contain the followingparticulars:

(a) with respect to each director - (i) In the case of an individual, his present name, former name (if any) and

surname, his usual residential address, his nationality of origin, (if other thannationality) and his business occupation, if any or if he has no businessoccupation but holds any other directorship or directorships, particulars of thatdirectorship or of some one of those directorships; and

(ii) In the case of a body corporate, its corporate name and registered or principaloffice and the full name, address, nationality and nationality of origin, (ifdifferent from that nationality) of each of its directors.


(b) with respect to the secretary or where there are joint secretaries with respectto each of them- (i) In the case of an individual, his present name, former name (if any) and

surname and his usual residential address; and (ii) In the case of a body corporate, its corporate name and registered or principal

office. Provisions under FEMA (Establishment in India of Branch of Office or other place ofbusiness) Regulation, 2000

A foreign company or individual desiring to set up business operations in India cando so through a Liaison Office/Representative Office, Project Office or a Branch Office.The FEMA (Establishment in India of Branch or Office or other place of business)Regulation, 2000 governs the opening and operation of such officers.

Accordingly, companies incorporated outside India, desirous of opening a Liaison/Branch office in India have to make an application in form FNC-1. It may be noted thatRBI has authorized AD Category I bank to forward FNC-1 along with the necessaryenclosures along with the comments and recommendations to The Chief Manager-in-chargesReserve Bank of IndiaForeign Exchange DepartmentForeign Investment DivisionCentral Office Mumbai - 400001

2009 - Dec [5] (a) What is a 'foreign company' and 'foreign controlled company'? Statethe legal requirements a foreign company should comply with relating to delivery ofdocuments to the Registrar of Companies, if it wishes to establish a place of businessin India under the Companies Act, 1956. (8 marks)Answer :

A foreign company means a company incorporated outside India and having aplace of business in India, whatever be the pattern of their holding. However, as persection 591(2) of the Companies Act, 1956, where not less than 50% paid-up capital offoreign company is held by one or more citizens of India or by one or more bodiescorporate incorporated in India, whether singly or in aggregate, such company shallcomply with the provisions of the Companies Act, 1956, as if it were a companyincorporated in India.

“A foreign controlled company”, however means a company in which the majorityshareholding and voting power is in the hands of foreign individuals and/or bodiescorporate.

Filing of returns and documents (sections 592 and 593): Foreign companies whichestablish a place of business in India must within one month from that date file with theROC:


(1) a certified copy of the charter, statutes or memorandum and articles of thecompany or other instrument defining its constitution with a certified translation ofthe documents in the English language if they are not in that language. Rule 16 ofthe Central Government’s General Rules, 1956 specifies the persons who are tocertify the documents;

(2) the full address of the Registered or principal office of the company;(3) a list of directors giving with respect to each of the directors who are individuals,

his name and surname, former name and surname, usual residential address andnationality;

(4) the present name and surname, former name and surname and usual residentialaddress of the Secretary, if he is an individual and if a body corporate its corporatename and its registered office or principal office and if a firm, the partners of whichare joint secretaries, the name and principal office of the firm;

(5) the names, addresses of persons resident in India and authorized to accept serviceof documents, notices and processes on behalf of the company; and

(6) the address of the principal place of business in India (section 592).A foreign company should deliver to the ROC within the prescribed time, a returncontaining particulars of any changes or alterations in any of the particulars mentionedabove (section 593).

Rule 17 of the Central Government’s General Rules, 1956 prescribes the time limitwithin which the particulars of alternations are to be filed.

2010 - Dec [7] (a) Enumerate the procedure for conversion of a public company into aprivate company. (8 marks)Answer :Please refer 2006 - June [2] (a) on page no. 22

2011 - Dec [1] {C} Draft Board resolutions for a listed company for the followingbusinesses:

(vi) A resolution for obtaining a certificate of commencement of business undersection 149(3). (4 marks)

Answer:Board Resolution for obtaining a certificate of commencement of business“RESOLVED THAT the draft of the Statement in Lieu of Prospectus made inaccordance with the provisions of Schedule III of the Companies Act, 1956, Parts I, IIand III, as placed before the Board duly initialed by the Chairman for the purpose ofidentification be and is hereby approved and that the same be signed by all the directorsof the company and delivered to the Registrar of Companies, Delhi & Haryana, forobtaining the Certificate of Commencement of Business.FURTHER RESOLVED THAT Mr.................., Director of the Company be and ishereby authorised to sign and file e-Form 20 to the Registrar of Companies, Delhi &Haryana.


FURTHER RESOLVED THAT the directors of the company be and is herebyauthorised to give Power of Attorney in favour of Mr.........................., the Director and/orMr. ....................., Advocate to do all such acts, deeds and things for filing of the abovesaid Statement in Lieu of Prospectus and to make any additions, corrections,alterations, etc. for and on behalf of the Board of directors of the company as may berequired or directed by the Registrar of Companies for taking on record and to issue thecertificate for Commencement of Business.”

2011 - Dec [2] Explain the following pair of terms to bring out their distinctions:(v) ‘Section 25 company’ and ‘producer company’. (4 marks)

Answer:Section 25 of Company : (a) Company should be formed for promoting commerce, art, science, religion, charity

or any other useful object.(b) The company should use its profit/income for the promotion of its objects and

prohibits payment of dividend to its members.(c) The Central Government may grant licence on such conditions and regulation, as

it think fit.(d) Section 25 permits a limited liability company, to be registered without using the

words Ltd. or Pvt. Ltd. in its name, under a special licence granted by the CentralGovernment, provided it is a company formed not for profit.

Note : Revocation of licence: If any of the above conditions are contravened thelicence shall be revoked.

A licenced company cannot alter the object Clause of its memorandum ofAssociation without the approval of Central Government signified in writing.Producer Company : As per Section 581 A(1) of the Companies Act, 1956 producercompany means a body corporate having objects or activities specified in Section 581B and registered as producer company under this Act.

The term producer has been defined as “Any person engaged in any activityconnected with or relatable to any primary produce” which in turn encompassesagricultural and farm activities resulting in production or in aid of production produce ofcottage industries handloom handicraft etc.(a) A producer company can be formed by any ten or more individual each of whom will

be a producer or any two or more producer institution or combination of ten or moreindividuals and producer institutions.

(b) It has to use the word ‘producer company limited’ as the last words of its name.(c) It will be limited liability of the company.(d) It is not to hold a license from the Central Government but have to get registered as

producer company.


2011 - Dec [7] (c) There is a condition that a private limited company should alwaysadhere to the conditions laid down in section 3(1)(iii). Comment on the consequencesof non-compliance of the same. Is there any relief available for the default?

(4 marks)Answer :If default is made in complying with any of the conditions laid down in Section 3 (i) (iii)of the Act, that is

(i) If its membership exceed 50.(ii) Permit free transfer of its shares.(iii) Invitation to the public to subscribe for any shares in or debentures of the

company.(iv) Invitation or acceptive of deposits from persons.

It become public company automatically.As a consequence, the company shall cease to enjoy the privileges andexemption conferred on a private company and the provisions of the companiesAct shall apply to it as if it is were a public company.However, if it is proved to the satisfaction of the Central Government that thedefault in compliance of the provisions of Section 3 (i) (iii) was accidental or dueto some inadvertence or other sufficient cause the Central Government maygrant relief, the relief may be granted on ground which the Central Governmentfeel are just and equitable .Petition for relief should be made in the prescribe Form No.1 of Annexure IIalong with prescribed application fee, accompanied by the following documents:1. Copy of memorandum and articles.2. Copy of documents showing that the default has been committed in

complying with the condition laid down in Section 3 (i) (iii).3. Affidavit verifying the petition .4. Bank draft evidencing payment of prescribed fee. 5. Memorandum of appearance.

2012 - June [4] (a) Bring out the procedure for incorporation of a company assubsidiary of an existing company. (8 marks)(c) Do you agree with the following statements? Give brief reason(s) in support of your

answer :(i) In a scheme of amalgamation, shareholders of Company-A were offered

shares of Company-B in lieu of shares held by them in Company-A. Can theoffer letter issued by Company-B to the shareholders of the Company-A beregarded as prospectus ? (2 marks)

Answer :(a) As per Section 4(I) a company shall be deemed to be a subsidiary of another if:

(I) That other controls the composition of its Board of Director or


(ii) For the purpose of control the company should hold more than half innominal value of the equity shares of another company.

(iii) Exercises or controls more than half the total voting power of anothercompany.

Procedure for the formation and registration of its subsidiary company :-(1) To call a meeting of the Board of Directors.(2) Selecting the name of the company.(3) Ascertaining its name availability from ROC.

(4) Drafting and printing of memorandum and Articles of Association.(5) Stamping of memorandum and Articles.(6) Dating of memorandum and Articles.(7) E-form No. 1, 18, 32 are then filed within ROC for Registration alongwith the

prescribed registration fees and fees for filling of forms as per the ratescontained in schedule X to the Companies Act.

(8) The Registrar of company, will scrutinize them and if they are foundcomplete in all respects. The Registrar will register the company.

(9) After the registration of the company the Registrar will issue under his handand seal of his office the certificate of incorporation in the name of thecompany.

(c) (I) No, the offer letter issued by company-B to the shareholders of company-Acannot be regarded as a prospectus.As per Section 2(36) define the prospectus as any document described orissued as prospectus and includes any notice, circular or other documentsinviting offers from the public for subscription or purchase of share bodycorporate.

2013 - Dec [1] {C} Attempt the following:(i) Draft a resolution with associated requirements altering articles of association

of the company to include restrictions as specified in section 3(1)(iii) convertingDJA Limited into DJA Private Limited. (5 marks)

PRACTICAL QUESTIONS

2004 - June [8] (b) The central government holds 32% of the equity shares of GlobeLtd. The State governments of Tamil Nadu and Andhra Pradesh together hold 15%. UTIholds 5% and LIC holds 2% of the equity shares of the company. Is it a governmentcompany? (3 marks)Answer:Section 617 of the Companies Act, 1956 defines a Government Company as acompany in which not less than 51% of the paid-up share capital of the company is held


by Central Government or by any State Government(s) or partly by the CentralGovernment and partly by one or more of the State Government and includes acompany which is a subsidiary of a Government company as thus defined. In givencase the Central Government and State Government together hold 47% of the shares,of the company. The equity shares held by UTI and LIC, being financial institution, shallnot be counted as government holding. Hence, the company cannot be considered asa government company.

2005 - June [8] (b) Shares of Anand Pvt. Ltd. are held by Ram and Shyam in theproportion of 70:30. Ram transfers his entire shareholding in favour of RamaInvestments Ltd. Anand Pvt. Ltd. became a subsidiary of a public company andchanged its status as such. State the implications of above and enumerate theprocedure, if any, required to be followed in this regard. (8 marks)Answer:In the given problem, 70% shareholding of Anand Private Ltd. has been acquired byRama Investments Ltd. as Ram has transferred his entire shareholding in favour of saidcompany. This means that Rama Investments Ltd. becomes a holding company ofAnand Pvt. Ltd. Further, Anand Pvt. Ltd. becomes a subsidiary of a Public Company interms of Section 3(i) (iv) of the Act according to which a private company which is asubsidiary of a public company will be treated as public company. A private companywhich is a subsidiary of a public company is throughout in the Act put in the sameposition as a public company and all the provisions of the Act applicable to publiccompanies shall apply to such subsidiary company. Accordingly, Anand Pvt. Ltd. shallhave to comply with the applicable provisions of the Act.

However, the company may:C limit the number of its members to fifty.C prohibit invitation to public to subscribe for the shares or debentures.C prohibit any invitation or acceptation of deposits.The procedure to be adopted is as follows:

(i) A private company on becoming a subsidiary of a public company shouldincrease its paid-up capital forthwith to five lakh rupees.

(ii) The number of members should be enhanced to seven within six months fromthe date of the company becoming subsidiary of a public company.

Repeatedly Asked Questions

No. Question Frequency


1 Enumerate the procedure for conversion of a publiccompany into a private company.

09 - June [5] (b), 10 - Dec [7] (a) 2 Times

Table Showing Marks of Compulsory Questions

Year 09J

09D

10J

10D

11J

11D

12J

12D

13J

13D

Descriptive 4 5

Total 4 5

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