RBSE Solutions Class 11 Business Studies Chapter 3 Company

RBSE Class 11 Business Studies Chapter 3 Multiple Choice Questions

 

Question 1. When did the President give consent for the present Indian Companies Act 2013?
(a) 20 Aug. 2013
(b) 28 Aug. 2013
(c) 1 Sept. 2013
(d) 29 Sept. 2013
Answer: (b) 28 Aug. 2013
In simple words: The President approved the Indian Companies Act in 2013 on August 28th, making it the official law. This act introduced new rules for how companies operate in India.

🎯 Exam Tip: Remember specific dates for important legal acts, as they are often tested directly in MCQs.

 

Question 3. How many total sections are given under the Indian Companies Act, 2013?
(a) 420 sections
(b) 370 sections
(c) 470 sections
(d) 520 sections
Answer: (c) 470 sections
In simple words: The Indian Companies Act of 2013 has a total of 470 sections. These sections are like different rules or parts that explain how companies should work.

🎯 Exam Tip: Key numerical figures related to acts, like the number of sections or schedules, are important facts for exams.

 

Question 4. What should be the maximum number of members for private companies according to the Indian Companies Act, 2013?
(a) 200
(b) 100
(c) 50
(d) 150
Answer: (a) 200
In simple words: Under the 2013 Indian Companies Act, a private company can have up to 200 members at most. This limit helps keep private companies smaller and more controlled.

🎯 Exam Tip: Distinguish between the maximum members for private and public companies, as these limits are often confused.

 

Question 5. Which of the following new concepts was introduced and brought into effect by the Indian Companies Act, 2013?
(a) One person company
(b) A company limited by guarantee
(c) Foreign company
(d) Subsidiary company
Answer: (a) One person company
In simple words: The Indian Companies Act of 2013 brought in the new idea of a "One Person Company". This allows a single individual to form and run a company, giving them limited liability.

🎯 Exam Tip: Focus on new introductions or major changes brought by revised acts, as these are frequently highlighted.

 

Question 7. What is the minimum number of members in a public company?
(a) 10
(b) 20
(c) 7
(d) 15
Answer: (c) 7
In simple words: For a public company to be formed, it must have at least seven members. This is the smallest number of people needed to start a public company.

🎯 Exam Tip: Remember the minimum member requirements for different types of companies (private, public, one-person). This is a common point of confusion.

 

Question 8. Which of the following document is not required to be made by a private company?
(a) MOA
(b) AOA
(c) Prospectus
(d) All of the options
Answer: (c) Prospectus
In simple words: A private company does not need to create a Prospectus. This document is usually used by public companies to ask the public to buy their shares.

🎯 Exam Tip: Understand which documents are mandatory for different company types and the purpose of each document (MOA, AOA, Prospectus).

 

Question 9. What is the maximum number of directors for a private company?
(a) 2
(b) 3
(c) 4
(d) 7

 

Question 11. Which of the given forms, a company limited by shares can opt for articles of association?
(a) Form in Table A
(b) Form in Table B
(c) Form in Table C
(d) Form in Table D
Answer: (a) Form in Table A
In simple words: A company that has its liability limited by shares can choose to use the standard "Form in Table A" for its Articles of Association. This table provides a ready-made set of rules.

🎯 Exam Tip: Be aware of the different tables (A, B, C, D, E, F, G, H, I, J) provided in the Companies Act for specific types of companies and their documents.

 

Question 12. The name proposed for the formation of a company should not be undesirable. Here, undesirable means -
(a) any name identical to other company or identical to the approved name of limited liability partnership
(b) name identical to a trademark
(c) against traditions, beliefs and culture
(d) All of the options
Answer: (d) All of the options
In simple words: When choosing a name for a company, it must not be "undesirable." This means it cannot be too similar to another company's name or a trademark, and it should not go against common traditions or beliefs. All these points are important for a suitable name.

🎯 Exam Tip: When dealing with legal definitions, pay close attention to inclusive terms like "all of the above" or "none of these" if the individual points are factually correct.

 

Question 13. According to the Companies Act, 2013, what is the duration to finalise the registered office for the incorporation of a company so that the related information can be sent on the right address?
(a) 50 days
(b) 60 days
(c) 30 days
(d) 15 days
Answer: (c) 30 days
In simple words: After a company is formed, it has 30 days to decide and register its main office address. This ensures that all official papers and communications can be sent to the correct place.

🎯 Exam Tip: Keep note of timelines and deadlines mentioned in legal acts, as they are specific details often asked in exams.

 

Question 14. How many subscribers or signatories are required to sign on the MOA of a public company?
(a) 2
(b) 3
(c) 7
(d) 10
Answer: (c) 7
In simple words: For a public company, at least seven people must sign the Memorandum of Association (MOA) to show they agree to form the company. These are called subscribers or signatories.

🎯 Exam Tip: Differentiate between the number of subscribers required for private, public, and one-person companies in the MOA.

 

Question 15. In which type of company, the name of a person is written in its MOA. who will become a member company in the condition of the death or loss of contracted capacity?
(a) In public company
(b) One person company
(c) Private company
(d) All the companies
Answer: (b) One person company
In simple words: In a One Person Company (OPC), the name of a person is included in the MOA who will become a member if the original member dies or cannot continue. This ensures the company can keep running smoothly.

🎯 Exam Tip: The nomination clause in OPC is a unique feature; understand its purpose and implications for continuity.

 

Question 16. If a company enters into a contract to do any business or activity which is outside the scope of MOA, then it will become -
(a) rectifiable
(b) void
(c) valid
(d) binding
Answer: (b) void
In simple words: If a company does something that is not allowed by its Memorandum of Association (MOA), that action or contract becomes void. This means it has no legal effect and cannot be enforced.

🎯 Exam Tip: Grasp the concept of 'ultra vires' – any act beyond the MOA's powers is void and cannot be ratified.

 

Question 18. Internal rules are laid out in companies -
(a) prospectus
(b) AOA
(c) MOA
(d) shelf prospectus
Answer: (b) AOA
In simple words: The internal rules that guide how a company operates are set down in its Articles of Association (AOA). This document manages how the company works from the inside.

🎯 Exam Tip: Differentiate between MOA (external scope and objectives) and AOA (internal management rules) clearly.

 

Question 19. The doctrine of constructive notice safeguards -
(a) company against outsiders
(b) outsiders against company
(c) directors against the company
(d) none of these
Answer: (a) company against outsiders
In simple words: The doctrine of constructive notice protects the company from outsiders. It assumes that anyone dealing with a company has read and understood its public documents like the MOA and AOA.

🎯 Exam Tip: Understand that constructive notice means outsiders are *presumed* to know the public documents, shifting responsibility to them to check.

RBSE Class 11 Business Studies Chapter 3 Very Short Answers Type Questions

 

Question 1. Define the term Company.
Answer: A company is like an artificial person created by law. Its business is run by a few real people who work for the benefit or profit of other individuals. It is a separate legal entity.
In simple words: A company is an artificial person that runs a business for profit, managed by people.

🎯 Exam Tip: Always include "artificial person" and "created by law" when defining a company, as these are key legal characteristics.

 

Question 2. When was limited liability of members of a company clause introduced in India?
Answer: The clause that limited the liability of company members was introduced in India in the year 1857. This rule applied to all companies except those involved in insurance and banking at that time. Limiting liability encouraged more people to invest.
In simple words: Limited liability for company members started in India in 1857, but not for insurance and banking firms.

🎯 Exam Tip: Note the year and any specific exceptions when discussing historical legal introductions.

 

Question 4. Explain the term Private Company.
Answer: Under the Companies Act, a private company is one that has an authorized paid-up capital and places specific restrictions through its Articles of Association. These restrictions typically include limiting the right of members to transfer their shares and prohibiting any public invitation to subscribe to its shares and debentures. This keeps ownership concentrated.
In simple words: A private company limits members' share transfers and cannot ask the public to buy its shares or debentures.

🎯 Exam Tip: Emphasize the two main restrictions for private companies: transferability of shares and public invitation for securities.

 

Question 5. What is a holding company?
Answer: A holding company is a company that can control the decisions of another company. It does this either by owning most of the other company's shares or by having control over who sits on the other company's board of directors. This gives it significant influence.
In simple words: A holding company controls another company by owning its shares or by managing its board of directors.

🎯 Exam Tip: The key idea of a holding company is control, either through equity (shares) or management (board composition).

 

Question 6. What is a one-person company?
Answer: A one-person company is a company that has only one individual as its member. This structure allows a single entrepreneur to benefit from the advantages of a company, such as limited liability.
In simple words: A one-person company is a business with only one member, offering benefits like limited responsibility.

🎯 Exam Tip: Highlight that an OPC combines the benefits of a sole proprietorship with the limited liability of a company.

 

Question 7. Why was a need for company form of the organization felt?
Answer: The need for a company form of organization was felt to solve problems like high business risks, unlimited liability for owners, and challenges with managing risky investments. The company structure helps to spread risk and limit personal liability.
In simple words: Companies were needed to deal with high risks, unlimited owner liability, and issues with risky investments.

🎯 Exam Tip: When discussing the evolution of business structures, link the "need" directly to the limitations of older forms like sole proprietorships and partnerships.

 

Question 8. What do you understand by Memorandum of Association?
Answer: The Memorandum of Association (MOA) is a very important document that outlines the company's powers and its main goals. It describes what the company is allowed to do and defines the scope of its operations. It also defines the objectives of the company.
In simple words: The MOA is a key document that shows what a company's main goals are and what it is allowed to do.

🎯 Exam Tip: Refer to MOA as the "charter" or "constitution" of the company, as it defines its fundamental character.

 

Question 10. Which form of MOA is used by a limited company having share capital to frame its MOA?
Answer: A limited company that has share capital typically uses the form in Table C to create its Memorandum of Association. This table provides a standard template for such companies.
In simple words: Companies with shares and limited liability use Table C as a guide to make their MOA.

🎯 Exam Tip: Knowing the correct Table (e.g., Table A for AOA, Table C for MOA) for specific company types is crucial.

 

Question 11. "MOA is the guide to the company". Explain.
Answer: The Memorandum of Association (MOA) acts as a guide because it provides the company with a clear vision of its purpose and boundaries. It helps in making important decisions for the company's operations by setting out its fundamental objectives and powers. Without an MOA, a company would lack direction.
In simple words: MOA guides a company by setting its goals and limits, helping it make key decisions for its work.

🎯 Exam Tip: Explain that MOA acts as a compass, ensuring the company stays within its legal and operational scope.

 

Question 12. What do you mean by Articles of Association?
Answer: The Articles of Association (AOA) is a document that contains all the rules and regulations that have been made for the internal management of the company. It governs how the company will operate on a day-to-day basis.
In simple words: AOA is a document with rules and regulations for how a company runs its internal operations.

🎯 Exam Tip: Contrast AOA with MOA by highlighting that AOA deals with *internal* governance, while MOA deals with *external* relations and objectives.

 

Question 13. What do you mean by doctrine of constructive notice?
Answer: The doctrine of constructive notice means that everyone who deals with a company is presumed to know the contents of its public documents, such as the Memorandum of Association and Articles of Association. This doctrine protects the company against outsiders by assuming they have read these documents.
In simple words: Constructive notice means outsiders are assumed to know a company's public documents, protecting the company.

🎯 Exam Tip: Emphasize that this doctrine creates a legal assumption, not actual knowledge, to protect the company.

 

Question 14. Explain briefly the doctrine of indoor management.
Answer: The doctrine of indoor management aims to protect outsiders who deal with a company from any irregularities in the company's internal procedures. It assumes that internal proceedings have been correctly followed, even if they have not. This doctrine was first explained in the Royal British Bank Vs. Marquand Case in 1856.
In simple words: Indoor management protects outsiders from internal company mistakes, assuming everything inside is correct.

🎯 Exam Tip: Remember that the doctrine of indoor management is an *exception* to the doctrine of constructive notice, protecting outsiders from internal procedural flaws.

RBSE Class 11 Business Studies Chapter 3 Short Answer Type Questions

 

Question 1. Write down the salient features of the New Companies Act 2013.
Answer: The New Companies Act 2013 has many important features designed to improve corporate governance and transparency. It contains 29 chapters, 470 sections, and 7 schedules. Key features include:
1. Great efforts have been made to protect the interests of stakeholders and bring transparency to company operations.
2. The time limit for the first annual general meeting of the company has been shortened to 9 months.
3. The maximum number of members allowed in a private company has been increased to 200.
4. If a company cannot pay 50% of its secured creditors, it is considered a sick company, and the Act provides ways to help it recover.
5. There are strong provisions to prevent illegal insider trading.
6. The National Company Law Tribunal (NCLT) was set up to handle reported cases and company issues.
7. Central corporate law now requires certain types of companies to have at least one female member.
8. There are clearer rules for bonds that are part of a loan.
9. E-management and e-governance have been introduced to make company operations smoother.
10. Rules for prospectuses are stricter to protect investors.
11. The concept of a One Person Company (OPC) was introduced.
12. The Act also includes provisions for registering dormant companies.
13. Companies can donate 7.5% of their gross profit from the last 3 years to local parties.
14. It is mandatory for every company to contribute 2% of its income to Corporate Social Responsibility (CSR).
15. The Act also includes provisions for registering companies that are no longer operating (defunct companies).
In simple words: The New Companies Act 2013 brought changes like protecting investors, setting rules for annual meetings, increasing private company member limits, and making CSR mandatory. It has 29 chapters, 470 sections, and 7 schedules.

🎯 Exam Tip: When listing features, prioritize those that represent new concepts, stricter regulations, or significant changes from previous acts.

 

Question 2. Explain the features of Joint Stock Company.
Answer: A Joint Stock Company has several important features that make it a distinct type of business organization:
1. It is considered an artificial person, meaning it exists legally but is not a human being.
2. It has a separate legal identity from its members and directors. This means the company is responsible for its own actions and debts.
3. A company's existence is symbolized by a common seal, which acts as its official signature.
4. Companies are formed by people who come together with the goal of making a profit.
5. The liability of each member in a company is limited, usually to the amount of shares they own. This protects their personal assets.
6. Shares in a joint stock company can be easily bought and sold (transferred).
7. The value of issued shares and debentures is often small, making it easier for common people to invest. This allows for wider participation.
In simple words: A Joint Stock Company is an artificial person with its own legal identity, limited liability for members, and shares that can be easily traded.

🎯 Exam Tip: Key features to highlight for a Joint Stock Company are its artificial legal person status, separate legal entity, limited liability, and transferability of shares.

 

Question 3. Classify the companies on the basis of a number of members.
Answer: Companies can be classified based on the number of their members as follows:
1. One Person Company (OPC): This is a company with only a single member. In this type, the liability of that single member is typically unlimited.
2. Private Company: Under the Companies Act, a private company is defined as having authorized paid-up capital and restricts its members. Its articles of association limit the right of members to transfer their shares, and the number of members (excluding OPCs) is capped at 200. It also prohibits any invitation to the public to subscribe to its shares and debentures.
In simple words: Companies are grouped by member count: One Person Company (one member), and Private Company (up to 200 members, with share transfer limits and no public fundraising).

🎯 Exam Tip: Clearly state the numerical limits for each type of company and the main characteristic for each classification.

 

Question 4. What are the listed Companies?
Answer: A listed company is a company that has any of its securities, such as shares or debentures, officially registered and traded on a recognized stock exchange. For a company's shares and debentures to be bought and sold freely on stock exchanges, the company must be registered with one of these recognized exchanges. This allows public trading.
In simple words: A listed company has its shares or debentures traded on a stock exchange after being officially registered there.

🎯 Exam Tip: The core definition of a listed company revolves around its securities being traded on a recognized stock exchange.

 

Question 5. State the difference between partnership and company.
Answer: The key differences between a partnership and a company are outlined below:

In simple words: Partnerships are governed by the Indian Partnership Act 1932, have unlimited liability, and registration is often optional. Companies are governed by the Company Act 2013, have limited liability, and mandatory registration.

🎯 Exam Tip: When comparing partnership and company, focus on key legal aspects such as governing act, liability, and registration requirements.

 

Question 6. State the difference between Public and Private Company.
Answer: The main differences between a Public and a Private Company are as follows:

In simple words: Public companies can invite the public to buy shares and allow free transfer, while private companies cannot publicly invite for shares and restrict share transfers.

🎯 Exam Tip: Highlight the distinction in public solicitation of funds and transferability of shares as the primary differentiators.

 

Question 7. Mention the important points to be considered while drafting the object clause of a company.
Answer: When preparing the object clause of a company, several important points must be kept in mind because this clause defines the company's core activities.
1. The company's objectives must not be illegal.
2. The objectives must be stated clearly and without confusion.
3. The object clause should not be too rigid, doubtful, or ambiguous, allowing some flexibility while remaining clear.
4. The objects should not include anything that is prohibited by the Companies Act.
5. The objectives should also be in line with public policy, meaning they should not harm the public interest.
In simple words: When writing the object clause, ensure goals are legal, clear, not rigid, not prohibited by law, and support public policy.

🎯 Exam Tip: Emphasize that the object clause is crucial as it sets the legal boundaries of a company's operations; any activity outside this clause is 'ultra vires'.

 

Question 8. MOA is a basic document for a company. Substantiate.
Answer: The Memorandum of Association (MOA) is considered a basic document for a company because it sets out the fundamental powers and objectives by which the company operates its business. No company can truly function without this document. It provides essential information such as the company's name, its registered place, its objectives, and the liability of its members, giving it a clear identity and purpose.
In simple words: MOA is basic because it defines the company's powers and goals, like its name, location, and member liability, which are essential for operation.

🎯 Exam Tip: Use terms like "charter," "constitution," or "foundation stone" to highlight the foundational importance of the MOA.

 

Question 9. Write a short note on the liability clause of MOA of a company.
Answer: The liability clause in a company's Memorandum of Association (MOA) clearly states how much its members are responsible for the company's debts. In a company limited by shares, shareholders' liability is limited to the unpaid value of the shares they hold. For a company limited by guarantee, members' liability is limited to the amount they promise to pay at the time the company is wound up. This protects members' personal assets.
In simple words: The liability clause in the MOA explains how much responsibility members have for the company's debts, usually limited to their share value or a guaranteed amount.

🎯 Exam Tip: Distinguish between liability in a company limited by shares versus one limited by guarantee, as these are the primary forms.

 

Question 11. State four differences between MOA and AOA.
Answer: Four key differences between the Memorandum of Association (MOA) and the Articles of Association (AOA) are:

In simple words: MOA sets the company's main goals and is harder to change, while AOA details internal rules and is easier to update. MOA is the primary document; AOA follows it.

🎯 Exam Tip: Focus on the "supremacy" and "scope" of each document – MOA defines the company's external boundary, while AOA regulates its internal operations.

 

Question 12. Clarify the clear concept of ultra vires transaction.
Answer: An "ultra vires" transaction means any activity carried out by a company that goes beyond its legal powers and authority, as defined in its Memorandum of Association (MOA). If an action is outside the scope of the MOA, it is considered ultra vires. In India, the 'Doctrine of ultra vires' was first established in 1866 by the Mumbai High Court in the case of Jahangir R Mody Vs Shamji Laddha. Such actions are not legally binding on the company.
In simple words: An ultra vires transaction is when a company does something that is outside the limits of its legal powers, as stated in its MOA.

🎯 Exam Tip: Remember the Latin meaning of "ultra vires" (beyond powers) and its legal consequence: such acts are void and cannot be ratified by shareholders.

RBSE Class 11 Business Studies Chapter 3 Essay Type Questions

 

Question 1. Explain the meaning of company and its features.
Answer: A company is a type of artificial person whose business activities are conducted by a small number of natural persons for the benefit or profit of others. The word "company" comes from two Latin words, "corn" (meaning bread) and "Paris" (meaning together). Originally, it referred to a group of people who gathered to share meals.
Characteristics of a Company:
1. Artificial Person: A company is legally created by law, making it an artificial person. Although it's invisible and intangible, it can own property, make contracts, and sue or be sued in its own name, just like a real person.
2. Separate Legal Entity: A company has a distinct legal existence that is separate from its members (shareholders) and its board of directors. This means the company is responsible for its own actions and debts, not its owners.
3. Perpetual Succession: A company continues to exist forever, regardless of changes in its ownership or management. The death, mental illness, or bankruptcy of its members does not affect the company's continuous existence.
4. Limited Liability: The shareholders of a company have limited liability. Typically, in a company limited by shares, members are only liable for the unpaid amount of their shares. In a company limited by guarantee, their liability is limited to the guaranteed amount they promised to pay if the company closes. This limits financial risk for investors.
5. Transferability of Shares: The shares of a company can generally be transferred by its members. Shareholders of a public limited company can freely sell their shares to others.
6. Corporate Economy: The transferability of shares helps attract more capital quickly. As an independent entity, the company owns its assets and is responsible for its own financial obligations.
7. Indirect Management: Shareholders typically do not directly manage the company; it is managed by a board of directors.
8. Permanence of Capital and Stability: Incorporated companies issue shares and debentures of low unit value, making it easy for ordinary investors to invest their capital. This structure allows risk to be shared among many people and provides financial stability.
9. Protection to Investors Against Loss: The legal framework, including section II of IPC (which includes associations of persons and companies), aims to protect investors.
In simple words: A company is a legal "artificial person" separate from its owners, with features like never-ending existence, owners' limited responsibility, and easy transfer of shares. It is run by a board of directors.

🎯 Exam Tip: When defining "company," always include the legal status (artificial person, separate legal entity) and the key benefits like limited liability and perpetual succession.

 

Question 2. State the important features of Company Act 2013.
Answer: The Companies Act 2013 is a comprehensive law that includes 29 chapters, 470 sections, and 7 schedules. It introduced several significant features aimed at modernizing company law in India:
1. The Act makes significant efforts to protect the interests of stakeholders and ensure transparency in how companies operate.
2. The deadline for holding the company's first annual general meeting has been reduced from 18 months to 9 months. This encourages quicker reporting.
3. The maximum number of members allowed in a private company has been increased to 200, up from 50 previously.
4. If a company fails to pay 50% of its secured creditors, it is considered a sick company. The 2013 Act includes provisions for reviving and rehabilitating such companies.
5. Adequate legal provisions have been made to prohibit illegal insider trading, ensuring fair market practices.
6. Under the Act of 2013, the National Company Law Tribunal (NCLT) was established to handle reported cases and resolve company-related problems efficiently.
7. The central corporate law has made it mandatory for certain types of companies to have at least one female board member, promoting gender diversity.
8. There are specific rules regarding bonds that are allocated as part of a loan.
9. E-management and e-governance have been introduced to ensure the smooth operation of companies, leveraging technology.
10. The rules for issuing a prospectus have been made more stringent and effective to safeguard the interests of investors.
11. The concept of a One Person Company (OPC) was introduced, allowing a single individual to form a company with limited liability.
12. The Act also made arrangements for the registration of dormant companies, which are inactive but can become active later.
13. A company can donate 7.5% of its gross profit earned over the past 3 years to local political parties.
14. It is compulsory for every company to contribute 2% of its income towards Corporate Social Responsibility (CSR) initiatives.
15. This Act also includes provisions for the registration of defunct companies, which are companies no longer in operation.
In simple words: The Companies Act 2013 has 29 chapters, 470 sections, and 7 schedules. Its main features include protecting stakeholders, setting new meeting timelines, increasing private company member limits, allowing OPCs, and making CSR mandatory.

🎯 Exam Tip: Structure your answer by grouping similar features (e.g., investor protection, governance, new concepts) to make it easier to remember and present comprehensively.

 

Question 3. What is a company? Explain its types.
Answer: A company is an artificial person, created by law, whose business is managed by a few individuals acting on behalf of other natural persons for profit.
Companies can be classified into several types based on different criteria:
1. On the basis of Mode/Source of Incorporation:
(a) Chartered Company: These companies are formed under a royal charter issued by a king or head of state. They were common in England; the East India Company is an example.
(b) Statutory Company: These companies are incorporated under a special Act of Parliament or a state legislature, usually to serve national interests.
(c) Registered Company: Most companies today fall into this category. They are formed and registered under the Companies Act (e.g., Companies Act 2013).
2. On the Basis of Liability of Members:
(a) Companies Limited by Shares: The liability of shareholders is limited to the unpaid value of the shares they hold. These companies must use the word 'Limited' in their name.
(b) Companies Limited by Guarantee: Members' liability is limited to the amount they guarantee to contribute at the time of the company's winding up. Chambers of commerce are good examples.
(c) Unlimited Companies: Members have unlimited liability, similar to a partnership.
3. On the Basis of the Number of Members:
(a) One Person Company (OPC): A company with only one member. Its liability is typically unlimited unless specified otherwise.
(b) Private Company: Restricts share transfers and cannot invite the public to subscribe to its securities. The maximum number of members (excluding OPCs) is 200. It must use 'Private Limited' at the end of its name.
(c) Public Company: Any company that is not a private company, meaning it has no restrictions on share transfers and can invite the public to subscribe to its securities. The minimum number of members is 7, with no upper limit.
4. On the Basis of Control:
(a) Holding Company: A company that controls another company by owning most of its shares or controlling its board of directors.
(b) Subsidiary Company: A company controlled by another company (the holding company).
(c) Associate Company: A company over which another company has significant influence (20% or more of voting power) but not control.
5. On the Basis of Capital/Stock Market:
(a) Listed Company: Its securities are listed and traded on a recognized stock exchange (e.g., BSE, NSE).
(b) Unlisted Company: Its securities are not listed on any stock exchange and are not freely traded in stock markets.
6. Other Companies:
(a) Government Company: A company where not less than 51% of its paid-up share capital is held by the Central or State Government.
(b) Foreign Company: Incorporated outside India but has a place of business in India through its branches or agencies.
(c) Defunct/Dormant Company: A company that does not file annual returns or financial statements for two consecutive years, potentially leading to its name being entered into the dormant companies category.
In simple words: A company is a legal entity run for profit. Types include chartered (by royal order), statutory (by special act), or registered (under Companies Act). They also differ by member liability (limited or unlimited), number of members (OPC, private, public), control (holding, subsidiary), and stock market status (listed, unlisted).

🎯 Exam Tip: For explaining types, use clear headings and concise definitions for each category, and provide relevant examples where possible to illustrate the concept.

 

Question 4. Explain the term Private Company.
Answer: A private company, as per the Companies Act, is one that has authorized paid-up capital and limits certain things through its articles. These limits include the right of members to transfer their shares. It also stops the public from being invited to subscribe to its shares and debentures. An enriching detail is that private companies benefit from less regulatory burden compared to public companies.
In simple words: A private company restricts who can own its shares and does not ask the public for money.

🎯 Exam Tip: Remember the two key restrictions for private companies: limiting share transferability and prohibiting public invitation for subscriptions.

 

Question 5. What is a holding company?
Answer: If one company can manage the decisions of another company, either by owning most of its shares or by controlling its board of directors, it is called a holding company. This control means it can influence the other company's operations. The company being controlled is known as a subsidiary company.
In simple words: A holding company is a parent company that controls other companies through ownership or management.

🎯 Exam Tip: A holding company's power comes from either stock ownership (over 50%) or the ability to appoint the majority of the board.

 

Question 6. What is a one-person company?
Answer: A one-person company is a type of company that has only a single individual as its member. This structure combines the benefits of a company with the simplicity of a sole proprietorship. This unique company type was introduced to encourage individual entrepreneurs to enter the corporate framework.
In simple words: A one-person company is run by just one person.

🎯 Exam Tip: Highlight that a One Person Company (OPC) allows an individual to enjoy limited liability, which is a significant advantage over a sole proprietorship.

 

Question 7. Why was a need for company form of the organization felt?
Answer: The company form of organization was needed to solve problems like high risks, unlimited liability, and difficulties with risky investments. It provides a structure where many people can invest, sharing both risks and rewards. This setup helps businesses grow larger than sole proprietorships or partnerships, attracting more capital for expansion.
In simple words: Companies were needed to share big risks, limit personal debt, and get more money for large projects.

🎯 Exam Tip: Emphasize "limited liability" and "ability to raise large capital" as primary drivers for the company form.

 

Question 8. What do you understand by Memorandum of Association?
Answer: The Memorandum of Association (MOA) is a key document that outlines a company's main goals and powers. It describes what the company is allowed to do and sets the limits of its operations. This document is like a company's constitution, guiding its activities and relationships with the outside world.
In simple words: The MOA is a rulebook for a company, stating its goals and what it can do.

🎯 Exam Tip: Refer to the MOA as the "charter" or "constitution" of the company to show a deep understanding of its importance.

 

Question 10. Which form of MOA is used by a limited company having share capital to frame its MOA?
Answer: In Table C.
In simple words: A company that sells shares and has limited liability uses the MOA format given in Table C.

🎯 Exam Tip: Knowing the specific tables for different company types shows attention to detail in corporate law.

 

Question 11. "MOA is the guide to the company". Explain.
Answer: The Memorandum of Association (MOA) acts as a guide for the company by giving it a clear vision and helping it make important decisions for its operations. It sets out the main purpose and limits of the company, ensuring all actions are within its defined scope. This protects shareholders and creditors by outlining the company's intended activities.
In simple words: The MOA guides a company by showing its main goals and helping it make decisions.

🎯 Exam Tip: Always link the MOA's role as a guide to its function in defining the company's legal boundaries and objectives.

 

Question 12. What do you mean by Articles of Association?
Answer: The Articles of Association (AOA) is a document that contains the rules and regulations for how a company is managed internally. These rules govern the day-to-day operations and define the duties, rights, and powers of the company's directors and members. It ensures smooth functioning and fair conduct within the organization.
In simple words: The AOA has rules for how a company runs its daily business and manages its people.

🎯 Exam Tip: Distinguish AOA as governing "internal" management, while MOA governs "external" objectives and powers.

 

Question 13. What do you mean by doctrine of constructive notice?
Answer: The doctrine of constructive notice means that anyone dealing with a company is assumed to know the contents of its public documents, like the Memorandum of Association (MOA) and Articles of Association (AOA). This rule protects the company by making outsiders responsible for checking these documents. It implies that ignorance of these publicly available documents is not an excuse.
In simple words: If you deal with a company, the law says you should know what its public documents say.

🎯 Exam Tip: Remember that constructive notice is a legal fiction that protects the company, not outsiders, by presuming knowledge of public documents.

 

Question 14. Explain briefly the doctrine of indoor management.
Answer: The doctrine of indoor management protects outsiders who deal with a company from problems in its internal workings. It means that outsiders can assume all internal procedures have been followed correctly, even if they haven't been. This rule was first proposed in 1856 in the Royal British Bank Vs. Marquand Case, making business dealings smoother for external parties. It prevents companies from using their own internal mistakes to escape agreements.
In simple words: This rule helps outsiders by letting them assume a company's inside rules are followed, even if they aren't.

🎯 Exam Tip: Contrast the doctrine of indoor management (protects outsiders from internal irregularities) with constructive notice (protects the company from outsiders' ignorance of public documents).

 

Question 1. In ancient India, the draft of the company that started in the year 1600, was founded through which company?
(a) East India Company
(b) West India Company
(c) North India Company
(d) South India Company
Answer: (a) East India Company
In simple words: The East India Company was set up in 1600 and played a big role in early company history in India.

🎯 Exam Tip: Historical questions often test specific names and dates; ensure you recall prominent early companies correctly.

 

Question 2. Why did companies become popular in the business world?
Answer: Companies became popular because they helped reduce high risks and limited personal liability for investors. They also made it easier to attract money for projects, keeping shareholder investments safe and personal property protected from business losses. This structure allowed businesses to grow and succeed even without all partners having deep business knowledge. It offered a robust framework for large-scale operations.
In simple words: Companies became popular because they reduced risks for investors, protected personal assets, and made it easier to get more money for business.

🎯 Exam Tip: Focus on the advantages of limited liability and the ability to pool capital as key reasons for the popularity of company structures.

 

Question 3. Which all acts were made on the basis of Joint Stock Company Act 1844 by The British government?
(a) Company Act, 1956
(b) Joint Stock Company Act, 1850
(c) Company Act, 1913
(d) All of the options
Answer: (b) Joint Stock Company Act, 1850
In simple words: The British government made the Joint Stock Company Act of 1850 based on the 1844 Act.

🎯 Exam Tip: Be precise with the dates and names of historical acts, as they are specific legal milestones.

 

Question 4. Company Act of 1956 was effective -
(a) Till 30 August 2013
(b) Till 29 August 2013
(c) Till 8 August 2013
(d) Till 18 December 2013
Answer: (a) Till 30 August 2013
In simple words: The Company Act of 1956 was used until August 30, 2013.

🎯 Exam Tip: Knowing the duration of significant legal acts helps in understanding their historical context.

 

Question 5. How many chapters does Company Act 2013 have?
(a) 12
(b) 470
(c) 29
(d) None of the options
Answer: (c) 29
In simple words: The Company Act of 2013 has a total of 29 chapters.

🎯 Exam Tip: Specific numerical facts about legal acts, like the number of chapters or sections, are often tested.

 

Question 6. How many schedules does Indian company act 2013 have?
(a) 12
Answer: There are 7 schedules in the Indian Company Act 2013, as indicated in the earlier descriptive answer for a similar question. The option (a) 12 is incorrect.
In simple words: The Indian Company Act 2013 has 7 schedules, which are like lists of rules.

🎯 Exam Tip: Always double-check numerical facts like the number of schedules or sections in legal acts.

 

Question 7. The duration for the first annual general meeting of the company has been reduced from 18 months to -
(a) 10 months
(b) 12 months
(c) 15 months
(d) 9 months
Answer: (d) 9 months
In simple words: The time for a company's first annual general meeting was shortened from 18 months to 9 months.

🎯 Exam Tip: Regulatory changes, especially regarding timelines for statutory meetings, are important to remember for business studies.

 

Question 8. According to Company Act. 2013, how many female candidates have been made compulsory to be included in the Board of directors?
(a) One
(b) Two
(c) Three
(d) Four
Answer: (a) One
In simple words: The 2013 Company Act requires at least one female director on the board.

🎯 Exam Tip: Corporate governance reforms, like mandatory female directors, are key points to highlight.

 

Question 9. The word 'company' has originated from which language?
(a) Latin
(b) German
(c) French
(d) None of the options
Answer: (a) Latin
In simple words: The word 'company' comes from the Latin language.

🎯 Exam Tip: Understanding the etymology of business terms can sometimes provide a deeper understanding of their meaning and history.

 

Question 11. A feature of the company is -
(a) Artificial Person
(b) Separate Legal existence
(c) Eternal Successor
(d) All of the options
Answer: (d) All of the options
In simple words: A company acts like an artificial person, has its own legal identity separate from its owners, and continues to exist forever.

🎯 Exam Tip: The core features of a company-artificial person, separate legal entity, and perpetual succession-are fundamental concepts to remember.

 

Question 12. The company has the right to citizenship:
(a) under Company Act 2013
(b) under Indian Citizenship Act 1955
(c) under Company Act 1956
(d) None of these Acts
Answer: (b) under Indian Citizenship Act 1955
In simple words: A company gets its right to citizenship under the Indian Citizenship Act of 1955.

🎯 Exam Tip: While a company is a legal person, its "citizenship" is determined by specific acts, not general company law.

 

Question 13. The company which is made through the passing of letter of right from him of state or king is -
(a) Chartered Company
(b) Statutory Company
(c) Registered Company
(d) None of them
Answer: (a) Chartered Company
In simple words: A company formed by a special royal letter or charter is called a Chartered Company.

🎯 Exam Tip: Distinguish chartered companies (royal grant) from statutory companies (special act of parliament) and registered companies (Companies Act).

 

Question 15. The concept of OPC was firstly adopted in India by which act?
(a) Indian Company Act, 1932
(b) Indian Company Act, 1956
(c) Indian Company Act, 1930
(d) None of the options
Answer: (d) None of the options
In simple words: The One Person Company (OPC) idea was first brought into India through the Companies Act, 2013, not any of the older acts listed.

🎯 Exam Tip: Note that the OPC concept is a relatively new addition to Indian company law, introduced by the 2013 Act.

 

Question 16. Under which act is FERA company employed
(a) Indian Company Act, 2013
(b) Indian Company Act, 1956
(c) Foreign Exchange Regulation, 1973
(d) Indian Company Act. 1930
Answer: (c) Foreign Exchange Regulation, 1973
In simple words: A FERA company operates under the Foreign Exchange Regulation Act of 1973.

🎯 Exam Tip: FERA (Foreign Exchange Regulation Act) was a key legislation for foreign companies in India before it was replaced by FEMA (Foreign Exchange Management Act).

 

Question 17. Name the company, whose securities can independently be traded in the stock market.
(a) FERA Company
(b) Associate Company
(c) Unlisted Company
(d) Listed Company
Answer: (d) Listed Company
In simple words: A listed company's shares can be bought and sold freely on the stock market.

🎯 Exam Tip: The ability to trade securities publicly on a stock exchange is the defining characteristic of a "listed company."

 

Question 19. How many independent directors can be there out of total directors in a public company?
(a) 1/3
(b) 1/2
(c) 1/4
(d) 1/6
Answer: (a) 1/3
In simple words: At least one-third of the total directors in a public company must be independent directors.

🎯 Exam Tip: The requirement for independent directors is a crucial aspect of corporate governance, ensuring unbiased decision-making.

 

Question 20. The document that states the constitution of a company and the limit of its powers is -
(a) Memorandum of Association
(b) Articles of Association
(c) Prospectus
(d) None of them
Answer: (a) Memorandum of Association
In simple words: The Memorandum of Association is the document that sets up a company's basic rules and limits its powers.

🎯 Exam Tip: The MOA is the primary document defining a company's fundamental character and scope of operation.

 

Question 21. The fundamental document of a company is -
(a) Memorandum of Association
(b) Articles of Association
(c) Prospectus
(d) None of these
Answer: (b) Articles of Association
In simple words: The Articles of Association (AOA) is the basic document that lays out the internal rules for how a company runs.

🎯 Exam Tip: While MOA defines the company's external scope, AOA is fundamental for its internal governance and operations.

 

Question 23. How many days can a company take to register important documents?
(a) 50 days
(b) 60 days
(c) 30 days
(d) 15 days
Answer: (c) 30 days
In simple words: A company has 30 days to register its important documents.

🎯 Exam Tip: Timelines for document registration are critical compliance requirements for companies.

 

Question 24. If a company doesn't follow the provisions published in the Registrar's office, then each member is liable to pay:
(a) 50 thousand
(b) 1 lakh
(c) 2 lakh
(d) 3 lakh
Answer: (b) 1 lakh
In simple words: If a company ignores rules from the Registrar's office, each member might have to pay up to 1 lakh rupees.

🎯 Exam Tip: Understanding the penalties for non-compliance emphasizes the seriousness of legal provisions for companies.

 

Question 25. While preparing the objects clause of MOA, what things should be kept in mind?
(a) Objectives of the company must not be against the law.
(b) Objectives must be clear.
(c) Objectives should be detailed.
(d) All of the options
Answer: (d) All of the options
In simple words: When writing a company's goals, make sure they are legal, clear, and detailed.

🎯 Exam Tip: The objects clause of MOA must be legally sound, unambiguous, and comprehensively define the company's activities to avoid future disputes.

 

Question 27. "The contracts outside the rights are void and they can be unlimited through the confirmation of stakeholders" - Who said it?
(a) Lord Keyerns
(b) Justice Charlesworth
(c) Lord Sailborn
(d) Justice Boven
Answer: (a) Lord Keyerns
In simple words: Lord Keyerns said that agreements made beyond a company's rights are invalid, but stakeholders can still approve them without limits.

🎯 Exam Tip: Citing specific legal opinions or quotes demonstrates a nuanced understanding of company law principles like ultra vires.

 

Question 28. 'The rule outside rights' was enacted in which year?
(a) In the year 1956
(b) In the year 1866
(c) In the year 1600
(d) In the year 1960
Answer: (b) In the year 1866
In simple words: The rule about acting "outside rights" (ultra vires) was first set in the year 1866.

🎯 Exam Tip: Understanding the historical origin of legal principles, like the doctrine of ultra vires, is important for contextual understanding.

 

Question 29. This is not the feature of MOA:
(a) It is a public document
(b) It contains the internal rules of the company
(c) It is the fundamental document of a company
(d) It is an associate document
Answer: (c) It is the fundamental document of a company
In simple words: The MOA is the fundamental document that defines the company's purpose and powers, but it does not contain the internal rules.

🎯 Exam Tip: Clarify that the MOA is fundamental for the company's external relations, while internal rules are covered by the Articles of Association (AOA).

RBSE Class 11 Business Studies Chapter 3 Very Short Answer Type Questions

 

Question 1. How many chapters, sections and schedules are there in Company Act, 2013?
Answer: The Company Act, 2013, includes a total of 29 chapters, 470 sections, and 7 schedules. These divisions organize the vast legal framework governing companies in India, making it comprehensive. Each part addresses different aspects of company formation, operations, and winding up.
In simple words: The 2013 Company Act has 29 chapters, 470 sections, and 7 schedules.

🎯 Exam Tip: Knowing the organizational structure (chapters, sections, schedules) of key legal acts shows a thorough understanding of the subject.

 

Question 2. State two features of New Company Act, 2013.
Answer: Two key features of the New Company Act, 2013, are:
• The Act encourages e-management and e-governance to ensure smoother company operations, promoting digital efficiency.
• It increased the maximum number of members for a private company from 50 to 200, allowing for larger private entities. These changes aimed to modernize company law and boost ease of doing business.
In simple words: The 2013 Company Act made company management more digital and allowed private companies to have up to 200 members.

🎯 Exam Tip: Focus on significant changes introduced by the new Act, such as digital governance and revised membership limits, as they reflect modern business needs.

 

Question 3. State two companies formed under a special act of parliament.
Answer: Two examples of companies formed under a special act of parliament are:
• Industrial Finance Corporation Limited.
• Damodar Valley Corporation. These companies are created to serve specific public purposes and are governed by their unique statutes. Such entities often play strategic roles in national development.
In simple words: Industrial Finance Corporation and Damodar Valley Corporation are two companies made by a special law from the parliament.

🎯 Exam Tip: Companies formed by special acts are known as 'Statutory Companies' and are typically public sector undertakings with specific mandates.

 

Question 4. What is a subsidiary company?
Answer: A subsidiary company is one whose policies and management are controlled by another company, known as the holding or parent company. This control is usually achieved through majority ownership of shares or by having the power to appoint most of the directors. A subsidiary operates under the guidance of its parent company but often maintains its own legal identity.
In simple words: A subsidiary company is a company that is controlled by another, larger company.

🎯 Exam Tip: Remember that a subsidiary is controlled by a "holding company," which typically owns more than 50% of its shares or controls its board.

 

Question 6. With the permission of the central government, how many members can be there in a partnership?
Answer: The maximum number of members in a partnership can be 100, if the central government gives permission. A partnership offers a simpler structure for collaboration, but its size is often limited by law to ensure manageability.
In simple words: A partnership can have up to 100 members if the government allows it.

🎯 Exam Tip: Remember the general limit for partners (often 50 or 20) and the special exemption for 100 members with government approval.

 

Question 7. What is the minimum number of directors that should be there in a public company?
Answer: A public company must have at least three directors. These directors are important for guiding the company and making big decisions, ensuring proper governance and oversight.
In simple words: A public company needs at least three directors.

🎯 Exam Tip: Know the minimum director requirements for both private (usually two) and public companies (usually three), as this is a common point of distinction.

 

Question 8. How much percentage does the company give to its directors from the profit earned?
Answer: A company can pay its directors up to 11% of the net profit earned. This share is part of their overall compensation for managing the company and is subject to statutory limits.
In simple words: Companies can give up to 11% of their profits to directors.

🎯 Exam Tip: Remember the 11% limit on profit distribution to directors, as it's a key regulation in company law.

 

Question 9. State the capital clause of MOA.
Answer: The Capital clause in the Memorandum of Association (MOA) explains the total share capital of the company at the time of its registration. This capital is divided into smaller, equal parts called shares, which represent ownership. It helps everyone understand how the company's ownership and financial structure are designed.
In simple words: The Capital clause in MOA tells us how much money the company starts with and how it is divided into shares.

🎯 Exam Tip: Clearly define what the Capital Clause specifies, including details about share division and the company's authorized capital.

 

Question 10. How many signatures must be there on the memorandum of Association in OPC?
Answer: For a One Person Company (OPC), only one signature is required on the Memorandum of Association. This single signature represents the sole member of the company, making the setup process simpler for individual entrepreneurs.
In simple words: A One Person Company needs only one signature on its MOA.

🎯 Exam Tip: Distinguish the signature requirements for OPC (one), private company (two), and public company (seven) on the MOA.

 

Question 11. The Name clause of MOA is used by which type of company?
Answer: The Name clause of the Memorandum of Association is used by all types of companies, including a One Person Company (OPC). Every company needs a unique name, and this clause formally records it, ensuring legal identity and distinction from other businesses. This is a fundamental requirement for any registered company.
In simple words: The Name clause in MOA is used by all companies, including a One Person Company, to state its name.

🎯 Exam Tip: Understand that the Name Clause is universal for all company types, highlighting its importance for legal identification and differentiation.

 

Question 13. State two features of AOA.
Answer: The Articles of Association (AOA) contains the internal rules and guidelines for how a company will operate. It is also a public document, meaning anyone can access it to understand the company's internal management. The AOA outlines how decisions are made, shares are transferred, and meetings are conducted.
In simple words: AOA has the company's internal rules and is a document anyone can see.

🎯 Exam Tip: Focus on AOA's role in internal governance and its public accessibility as key features.

 

Question 14. Which schedule is assigned for a company limited by a share in MOA?
Answer: Table F is the specific schedule assigned for a company limited by shares in its Memorandum of Association (MOA). This table provides a standard format for such companies, helping them draft their MOA easily and ensuring compliance with legal requirements.
In simple words: For a company limited by shares, MOA uses Schedule Table F.

🎯 Exam Tip: Remember that Schedule I of the Companies Act contains various tables (A to J) for different types of companies to adopt as their MOA/AOA, with Table F specifically for companies limited by shares.

 

Question 15. Which is called 'Fundamental document of the company'?
Answer: The Memorandum of Association (MOA) is known as the fundamental document of a company. It sets out the company's basic information and objectives, acting like its constitution. Without a properly drafted MOA, a company cannot be legally formed.
In simple words: The Memorandum of Association is the company's main rule book.

🎯 Exam Tip: Always identify the MOA as the fundamental document, highlighting its constitutional nature and role in defining the company's scope.

 

Question 16. What is the objective behind the Article of Association?
Answer: The main goal of the Articles of Association (AOA) is to manage the internal operations and activities of a company. It sets rules for how the company and its members will work together, covering aspects like shareholder rights, board meetings, and share transfers. This ensures smooth and organized functioning.
In simple words: AOA's goal is to control how the company works inside.

🎯 Exam Tip: Emphasize that the AOA's primary purpose is to regulate the internal affairs, rights, and duties within the company, rather than external dealings.

 

Question 17. Which provision states the help of the people who are in contract with the company?
Answer: The arrangement of internal management within a company helps clarify how people who contract with the company are protected. These internal rules, especially those related to the doctrine of indoor management, ensure fair dealings and accountability for external parties, even if internal procedures were not perfectly followed.
In simple words: Internal management rules help protect people who do business with the company.

🎯 Exam Tip: Relate this to the 'Doctrine of Indoor Management,' which protects outsiders dealing with a company in good faith, assuming internal procedures are correctly followed.

 

Question 13. What is Article of Association? Explain.
Answer: The Articles of Association (AOA) is the second most vital document for a company. It contains the internal rules and regulations that govern how the company is managed and run. A company must file its AOA with the Registrar of Companies (ROC) at its registered office, and each person who signs the Memorandum of Association must also sign the AOA in front of a witness. This ensures proper internal governance and legal compliance, detailing everything from share allotment to board meetings.
In simple words: AOA is the second important document that sets out a company's internal rules. It must be filed with the government, and all founders must sign it.

🎯 Exam Tip: Distinguish AOA from MOA by emphasizing AOA's focus on internal administration, operational procedures, and member-company relations.

 

Question 1. Explain the concept of company Act, 2013 in brief.
Answer: The Companies Act, 2013, replaced the earlier 1956 Act to modernize company laws in India. The new bill was introduced in December 2012, passed by both houses of Parliament by August 2013, and received presidential approval on August 29, 2013. This important law has 29 chapters, 470 sections, and 7 schedules, marking a significant update in how companies are governed in the country and improving corporate transparency.
In simple words: The Companies Act, 2013, is a new law that replaced an older one. It was passed in 2013 and has many rules to guide companies in India.

🎯 Exam Tip: Mention the key dates (introduction, passing, assent) and the basic structure (chapters, sections, schedules) of the Companies Act, 2013.

 

Question 2. 'Company is an artificial person'. Explain.
Answer: A company is described as an "artificial person" because it is created and dissolved by law, not by birth or death like humans. It has a separate legal identity, meaning it's distinct from its owners or members. Like a real person, a company can own assets, make agreements, and take legal action in its own name. Justice Marshall famously called it "invisible, intangible, and existing only in the eyes of the law." This legal status allows it to function independently and continuously.
In simple words: A company is called an "artificial person" because the law creates it. It can own things and make deals just like a real person, but it is not human.

🎯 Exam Tip: When explaining "artificial person," highlight that the company has a separate legal identity, can sue/be sued, own property, and its existence is independent of its members.

 

Question 3. Explain the type of companies on the basis of formation.
Answer: Companies can be classified into three types based on how they are formed: 1. **Incorporated by Royal Charter:** These companies are created by a special royal order from a king or head of state. The East India Company is a historical example of this type, often granted vast trading powers. 2. **Statutory Company:** These companies are established by a unique Act of Parliament or a state legislature. They are usually set up to serve a specific public interest, like national banks or certain public sector undertakings. 3. **Registered Company:** These are the most common type, formed by following the registration process and rules outlined in the Companies Act. Most modern companies, whether public or private, fall into this category. This classification helps understand their legal origin and governing frameworks.
In simple words: Companies are formed in three ways: by a special royal order, by a special law from the government, or by registering under the general Companies Act.

🎯 Exam Tip: Remember the three types of companies based on formation: Chartered (by King/Head of State), Statutory (by special Act), and Registered (under Companies Act).

 

Question 4. What do you understand by Dormant Company?
Answer: A dormant company is a business that has been registered under the Companies Act, 2013, but is created for a future project or has no significant business activity. It can become active again by applying to the Registrar. If a company fails to submit its annual reports for two years in a row, the Registrar of Companies (ROC) can classify it as dormant, allowing it to maintain its legal status without active operations.
In simple words: A dormant company is registered for a future project or has no business. If it doesn't file reports for two years, the government calls it dormant.

🎯 Exam Tip: Key points for a dormant company are: registered for future projects, no significant transactions, and failure to file annual returns for two consecutive years leading to dormant status.

 

Question 5. Explain subscriber clause of MOA.
Answer: The Subscriber Clause in the Memorandum of Association (MOA) lists the names and addresses of the people who agree to form the company. These individuals sign a declaration stating their intention to create the company. For a public company, at least seven people must sign, while for a private company, two signatures are needed. A One Person Company (OPC) requires only one signature. Each signature must be witnessed by another person. This clause legally binds the initial members to the company and signifies their commitment.
In simple words: The Subscriber Clause lists the people who want to start the company. They all sign it, and their signatures must be witnessed. Public companies need 7 signers, private companies need 2, and OPCs need 1.

🎯 Exam Tip: Focus on the number of subscribers required for each company type and the necessity of witness attestation for signatures on the MOA.

 

Question 6. Explain the Doctrine of Constructive Notice.
Answer: The Doctrine of Constructive Notice means that anyone dealing with a company is presumed to have read and understood its public documents, especially the Memorandum of Association (MOA) and Articles of Association (AOA). The law assumes that every person has thoroughly checked these documents before entering any contract with the company. If someone makes a contract without knowing the contents, they will be held responsible for any problems that arise, as ignorance of these public documents is not an excuse.
In simple words: This rule says that if you deal with a company, you are expected to know what is written in its public documents like MOA and AOA. If you don't know, it's your own fault.

🎯 Exam Tip: The core idea is that public documents provide sufficient notice, making external parties responsible for understanding them before engaging with the company.

 

Question 7. Explain the features of AOA.
Answer: The Articles of Association (AOA) have several key features: 1. It is a vital document that lays down the rules for a company's internal management and daily operations. 2. The AOA defines the rights and duties of the company's members and directors, clarifying their roles. 3. While public companies might adopt standard models, private companies are required to create their own AOA, tailored to their specific needs. 4. It sets the framework for how the company's business will be conducted, ensuring smooth functioning and decision-making. This document is like a company's internal constitution, guiding all its activities.
In simple words: AOA sets the rules for how a company runs its inside business. It tells members and directors their duties and helps guide all company activities.

🎯 Exam Tip: Remember that AOA specifies internal rules, defines member/director rights, is often custom-made for private companies, and ensures systematic operations.

 

Question 8. Which form of companies are applicable in section 5(6) of Companies Act and schedule I contain the different form of AOA.
Answer: Section 5(6) of the Companies Act and Schedule I outline various forms of the Articles of Association (AOA) that different types of companies can adopt. These include: 1. **Table F:** For companies limited by shares. 2. **Table G:** For companies limited by guarantee with share capital. 3. **Table H:** For companies limited by guarantee without share capital. 4. **Table I:** For unlimited companies with share capital. 5. **Table J:** For unlimited companies without share capital. These standard tables provide ready-made templates, simplifying the process of drafting an AOA for various company structures and ensuring legal compliance.
In simple words: The Companies Act lists different standard AOA forms, like Table F for companies with shares, and Tables G, H, I, J for others, depending on how they are set up.

🎯 Exam Tip: Be familiar with the specific Tables (F to J) in Schedule I and which type of company each AOA form is applicable to.

 

Question 9. How can the alteration of AOA be done?
Answer: A company can change its Articles of Association (AOA), but it must follow a specific process. This usually involves passing a "special resolution" by its members. The changes must fit within the scope of the Memorandum of Association (MOA) and comply with all laws and the Companies Act. If any AOA provision tries to restrict future changes, that restriction becomes invalid. All alterations must be legal, benefit the company, and only become effective once they are officially registered with the Registrar of Companies (ROC). This ensures that the AOA remains dynamic and adaptable to the company's evolving needs.
In simple words: A company can change its AOA by a special vote, but the changes must follow laws and be registered. They should also be good for the company.

🎯 Exam Tip: Key elements for AOA alteration are a special resolution, compliance with MOA and company law, and compulsory registration of changes with the ROC.

RBSE Class 11 Business Studies Chapter 3 Essay Type Questions

 

Question 1. Explain the difference between Partnership and company.
Answer: The main differences between a partnership and a company lie in several key areas, impacting their structure and operations:

This table clearly highlights how companies offer greater stability, limited liability, and formal structure compared to partnerships, which are simpler but carry more personal risk.
In simple words: Partnerships are simpler and smaller, with owners having full responsibility. Companies are larger, more formal, protect owners' money, and can last forever.

🎯 Exam Tip: Focus on the key differentiating factors: legal personality, liability, membership limits, transferability of interest, and perpetual succession, when comparing partnerships and companies.

 

Question 2. What is a company? State the difference between Private and Public company.
Answer: A company is a legal entity, like an artificial person, that runs its business through a few individuals to make profits for its owners. Here are the key differences between a private company and a public company:

Public companies generally have more stringent regulations and allow wider public participation, while private companies offer more flexibility but with limits on public involvement. This distinction affects their governance, funding, and public accountability.
In simple words: A company is a legal "person" run by real people for profit. Public companies can ask anyone to buy shares and have more rules. Private companies have fewer rules and can't ask the public to buy shares.

🎯 Exam Tip: Focus on minimum directors, public invitation for shares, transferability of shares, and required name suffixes as key differences between private and public companies.

 

Question 3. Can the company of public sector compete with the company of the private sector on the basis of profit and loss?
Answer: Public sector companies often struggle to compete with private sector companies based on profit and loss, due to several key reasons: 1. **Excess Human Resources:** Public companies frequently have more employees than necessary, leading to inefficient use of manpower and higher production costs. 2. **Industrial Conflicts:** These companies often face strikes and lockouts due to various policy disagreements, disrupting operations and productivity. 3. **Flawed Project Planning:** Project plans are often unclear and depend heavily on government decisions, causing delays and incomplete projects. 4. **Poor Financial Management:** A common problem is weak financial planning, which results in low returns and reduced profits. 5. **Inefficient Production Planning:** There's a lack of scientific planning for production, leading to either overproduction or underproduction, and delays in delivery. 6. **Inadequate Employee Training:** Employee selection often overlooks skill evaluation, leading to a workforce that is not always efficient or well-trained. 7. **Flawed Promotion Policies:** Promotions are often based solely on government policies rather than merit, affecting employee motivation and performance. 8. **Broader Objectives:** Unlike private companies focused purely on profit, public companies also aim for social welfare and fulfilling government and societal needs, which can impact profitability. These factors combined create challenges for public sector companies in a competitive market.
In simple words: Public companies find it hard to compete for profit with private companies. This is because they often have too many workers, face strikes, have bad planning, poor money management, and sometimes don't train staff well. They also have goals other than just making money.

🎯 Exam Tip: When discussing competition between public and private sectors, highlight inefficiencies like overstaffing, political interference, and non-profit objectives as major handicaps for public sector entities.

 

Question 4. Explain 'Name clause' of MOA. Or What provisions should be kept in mind while forming a 'Name clause'?
Answer: The Name Clause is a crucial part of the Memorandum of Association (MOA) as it provides a company's unique identity. When forming this clause, several legal provisions and considerations must be kept in mind: 1. **Uniqueness:** The proposed name must not be identical or too similar to an existing company's name. 2. **Legal Compliance:** The name must not go against any guidelines issued by the Department of Company Affairs, Government of India. 3. **Suffixes:** Public companies must use 'Limited' at the end of their name, while private companies must use 'Private Limited'. Non-profit organizations are exempt from these suffixes. **Reservation and Consequences:** To register a name, a company must apply with the required fees to the Registrar of Companies (ROC). The ROC will review the application and, if satisfied, reserve the name for 60 days. If the name was reserved based on false or incomplete information, serious consequences follow: * If the company hasn't been formed yet, the reserved name will be cancelled, and the applicant could face a penalty of up to Rs. 1 lakh. * If the company is already formed, the ROC might direct it to change its name within three months, remove its name from the register, or even initiate winding-up proceedings after giving the company a chance to explain. This ensures fairness and compliance.
In simple words: The Name Clause gives a company its name, which must be unique and follow government rules, like adding 'Limited' or 'Private Limited'. If a name is reserved with wrong information, the company could face fines or be forced to change its name or even close down.

🎯 Exam Tip: Focus on the uniqueness requirement, legal suffixes, and the penalties for obtaining a name through misrepresentation, as these are critical aspects of the Name Clause.

 

Question 5. What do you mean by 'Rights outside the Rules'. Explain the effects of “Rights outside the Theory”.
Answer: "Rights outside the Rules," also known as "ultra vires" activities, refer to actions a company takes that are beyond the scope of its powers as defined in its Memorandum of Association (MOA). The MOA's object clause sets clear boundaries for a company's operations. If a company acts outside these stated limits, those actions are considered "ultra vires." This concept was first established in India in 1866 through the case of Jahangir Modi v/s Shamji Laddha. The effects of such ultra vires transactions are significant: 1. **Ultra Vires Contracts:** Any contract or activity performed by the company outside its authorized powers is generally considered void from the beginning. 2. **Injunctions:** Any member of the company can seek a court order (injunction) to stop the company from continuing ultra vires acts. 3. **Ultra Vires Lending:** If a company lends money beyond its powers, it can legally sue to get that money back. 4. **Property Rights and Powers:** If company property is sold or traded in an ultra vires manner, the company still retains its ownership rights to that property. 5. **No Legal Recourse:** Any act done outside the MOA's scope is illegal and void, meaning it cannot be enforced in a court of law. These rules protect shareholders and creditors by ensuring the company operates within its defined objectives and doesn't engage in risky unauthorized ventures.
In simple words: "Ultra vires" means a company doing things it is not allowed to do based on its main rule book (MOA). Such actions are usually invalid. If a company acts beyond its powers, members can stop it, and the company can still get back money or property that was part of the wrong deal. However, no one can take legal action based on those wrong acts.

🎯 Exam Tip: Define "ultra vires" as "beyond the powers" of the company and explain that such acts are generally void, protecting stakeholders from unauthorized activities.

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