Samacheer Kalvi Class 11 Commerce Solutions Chapter 6 Joint Stock Company

I. Choose the Correct Answer

 

Question 1. The relationship between outsiders and the company is defined in
(a) Prospectus
(b) Articles of Association
(c) Memorandum of Association
(d) Certificate of Incorporation
Answer: (c) Memorandum of Association
In simple words: The Memorandum of Association sets the rules for how a company deals with people outside of it, like customers or suppliers. It defines the basic scope of the company's activities.

🎯 Exam Tip: Remember that the Memorandum of Association (MOA) is like the company's constitution, outlining its main powers and dealings with external parties.

 

Question 2. Table A of the Companies Act is a
(a) Model minutes book
(b) Model form of Balance Sheet
(c) Model of AOA
(d) Model of MOA
Answer: (c) Model of AOA
In simple words: Table A is a ready-made set of rules for a company's internal working, which companies can choose to adopt as their Articles of Association. It offers a standard framework.

🎯 Exam Tip: Know that Table A provides a standard set of regulations for the internal management of a company, acting as a default Articles of Association.

 

Question 3. Which of the following is created by a Special Act of Parliament or in State Assemblies?
(a) Chartered company
(b) Foreign company
(c) Government company
(d) Statutory Company
Answer: (d) Statutory Company
In simple words: A Statutory Company is formed directly by a special law passed by the government, not under the general Companies Act. This means its rules are unique and set by that specific law.

🎯 Exam Tip: Understand that statutory companies have their powers and duties defined by the specific act that creates them, making them distinct from other company types.

 

Question 4. The Board of directors of a company is elected by
(a) Creditors
(b) Debtors
(c) Debenture holders
(d) Shareholders (members)
Answer: (d) Shareholders (members)
In simple words: The shareholders, who are the owners of the company, choose the Board of Directors. These directors then manage the company on behalf of the shareholders.

🎯 Exam Tip: Remember that shareholders are the ultimate owners of a company, and they exercise their power by electing the directors who oversee the company's operations.

 

Question 5. Companies established as a result of a charter granted by the King or Queen of a country is called
(a) Chartered companies
(b) Statutory companies
(c) Registered companies
(d) Foreign companies
Answer: (a) Chartered companies
In simple words: Chartered companies are old types of companies that got their right to exist from a royal decree or "charter" from a king or queen. They were common in the past for large trading ventures.

🎯 Exam Tip: Recognize that chartered companies are historical and were formed through a special grant from a monarch, differing from companies formed under modern company laws.

II. Very Short Answer Questions

 

Question 1. What are the different types of companies?
Answer: Companies can be classified in different ways based on various features. Here are some common ways to classify companies:
1. Incorporation (how they are formed)
2. Membership (how many members they have)
3. Member liability (how much members are responsible for debts)
4. Control (who manages the company)
5. Nationality (where the company is registered)
In simple words: Companies can be grouped by how they started, how many people own them, how much owners are responsible for debts, who runs them, and what country they belong to.

🎯 Exam Tip: When asked about types of companies, list the main criteria for classification and be ready to explain each type briefly.

 

Question 2. Define a Company.
Answer: According to L.H. Haney, "A company is an artificial person created by law having a separate legal entity with a perpetual succession and a common seal." This means a company is treated as a distinct legal entity, separate from its owners. It can continue to exist even if owners change, and it acts through a common seal.
In simple words: A company is like a person in the eyes of the law, but not a real person. It can do business, own things, and last forever, separate from the people who own it.

🎯 Exam Tip: When defining a company, always mention key features like "artificial person," "separate legal entity," "perpetual succession," and "common seal" to score well.

 

Question 3. What is meant by Limited liability?
Answer: Limited liability means that the shareholders' financial risk in a company is restricted. If the company faces losses or debts, a shareholder is only responsible for the unpaid amount on the face value of the shares they hold. They will not lose more than what they invested or promised to invest in shares.
In simple words: Limited liability means that if a company loses money, its owners only have to pay up to the amount they put into their shares, not all their personal savings.

🎯 Exam Tip: Highlight that limited liability protects shareholders' personal assets beyond their investment in shares, which is a major advantage of forming a company.

 

Question 4. Explain any two characteristics of a company.
Answer: Here are two main characteristics of a company:
1. Separate Legal Entity: Once a company is registered (incorporated), it becomes a separate legal entity. This means it is distinct from its owners (members). The company can own property, enter contracts, and incur debts in its own name, just like a person. It is seen as an artificial person in law.
2. Capacity to Sue and Be Sued: A company has the legal right to sue others and can also be sued in its own name. This is separate from its members. This ensures that legal actions relate directly to the company's business activities.
In simple words: A company is seen as a separate "person" by the law, different from its owners. It can also sue others or be sued itself, just like a real person, without involving its owners directly.

🎯 Exam Tip: When explaining characteristics, focus on how they differentiate a company from other business structures, such as a sole proprietorship or partnership.

 

Question 5. What is meant by Chartered Company?
Answer: Chartered companies are special types of companies that were established through a royal charter, which is a formal grant from a King or Queen of a country. The specific powers and special rights of these companies are clearly written down in this charter. The King or Queen who granted the charter also holds the authority to cancel it. Such companies were historically significant for trade and exploration.
In simple words: A chartered company is an old type of company started by special permission from a king or queen. The king or queen gave them certain rights and could also take them away.

🎯 Exam Tip: Emphasize that chartered companies are created by a monarch's special grant (charter), making their formation distinct from companies under general corporate law.

III. Short Answer Questions

 

Question 1. What are the advantages of Companies? (Any 3)
Answer: Here are three advantages of forming a company:
1. Large Capital: Companies can gather a much larger amount of capital compared to businesses like sole traders or partnerships. This is because they can issue shares to many investors. This large capital is crucial for running big businesses and large-scale operations.
2. Limited Liability: A significant advantage for shareholders is limited liability. This means a shareholder's risk of financial loss is only up to the unpaid amount on the face value of the shares they own. Their personal assets are safe even if the company faces huge debts. This encourages more people to invest.
3. Transferability of Shares: It is very easy to buy and sell shares between individuals in a company. This makes the investment "liquid," meaning shareholders can quickly convert their shares into cash by selling them in the market. This flexibility makes company shares attractive to investors.
In simple words: Companies can raise a lot of money, owners don't lose all their personal money if the business fails (limited liability), and it's easy to sell company shares to others.

🎯 Exam Tip: Focus on the benefits related to capital, risk, and investment flexibility when discussing company advantages, as these are primary reasons for their popularity.

 

Question 2. What is meant by a Private Company?
Answer: A Private Limited Company is a type of company that is formed with a minimum of two shareholders and two directors. Before 2015, there was a minimum requirement for authorized or paid-up capital of Rs. 1,00,000, but this has since been removed by the Companies Act 2015. A private company can have a maximum of 200 persons as its shareholders. These companies often have restrictions on transferring shares to maintain closer control.
In simple words: A private company needs at least two owners and two directors, and it can have up to 200 owners. It's usually a smaller business that doesn't sell shares to the general public.

🎯 Exam Tip: Remember the key defining characteristics of a private company: minimum members, maximum members (200), and restrictions on share transfer.

 

Question 3. What is meant by Government Company?
Answer: A Government company is a public enterprise that is officially registered under the Indian Companies Act, 1956. These companies are either fully or partly owned and managed by the central government or a state government. According to Section 617 of the Companies Act, 1956, a company is considered a "Government Company" if at least 51% of its paid-up share capital is held by the Central Government, a State Government, or multiple State Governments. Even a company that is a subsidiary of a Government company is also treated as a Government company.
In simple words: A government company is a business where the government owns more than half of its shares. It can be run by the central government, state government, or both.

🎯 Exam Tip: The critical point for a Government company is the 51% share capital ownership by the government, which determines its status.

 

Question 4. What is meant by Foreign Company?
Answer: A Foreign company is a company that was officially registered (incorporated) in a country outside of India, following the laws of that specific country. However, this company then establishes a place of business in India. After setting up its business in India, it is required to file the necessary legal documents with the Registrar of Companies in India within 30 days from the date of establishment. These companies often bring foreign investment and technology.
In simple words: A foreign company is a company that started in another country but also does business in India. It needs to follow Indian rules once it opens an office here.

🎯 Exam Tip: Distinguish a foreign company by its place of incorporation (outside India) and its establishment of a business presence within India.

IV. Long Answer Questions

 

Question 1. What are the contents of the Memorandum of Association?
Answer: The Memorandum of Association (MOA) is a foundational document for a company, outlining its constitution and external dealings. It must contain the following important clauses:
1. Name Clause: This clause states the official and recognized legal name of the company. Companies can only register a name if it is not too similar to an existing company's name. This ensures each company has a unique identity.
2. Situation Clause: This clause specifies the physical location of the company's registered office. This office is where all company registers are kept, and it serves as the main point for all official outgoing and incoming communications. It defines the company's official address.
3. Objective Clause: This clause summarizes the main goals for which the company is being formed. It also includes "ancillary" objectives, which are additional goals or activities that help the company achieve its primary objectives. This defines what the company is allowed to do.
4. Liability Clause: This clause clearly states the extent to which the company's shareholders are responsible for the company's debts, especially if the company were to be closed down (dissolved). It usually indicates that liability is limited to their shareholding or their commitment to contribute to dissolution costs if limited by guarantee.
5. Capital Clause: This clause states the company's authorized share capital, which is the maximum amount of share capital it can issue. It also lists the different types (categories) of shares, their minimum value per share (nominal value), and any assets the company holds. This explains the company's financial structure.
6. Association Clause: This clause confirms that the people signing the MOA (subscribers) are willingly coming together to form the company. For a public company, at least seven members must sign the MOA, and for a private company, at least two. Their signatures must be witnessed. This shows the intent to form a company.
In simple words: The Memorandum of Association is like the company's rulebook that tells everyone important things. It says the company's name, where its office is, what it wants to do, how much money owners can lose, how much money it can raise, and who started it. It's a key document for a company's birth.

🎯 Exam Tip: Remember to list all six clauses of the Memorandum of Association and briefly explain the purpose of each. Using clear headings for each clause will help you score better.

 

Question 2. What are the contents in Articles of Association?
Answer: The Articles of Association (AOA) is a key document that lays out the rules and regulations for the internal management of a company. It defines the company's purpose, as well as the duties and responsibilities of its members and directors. It acts as a guide for how the company operates day-to-day. The contents typically include:

• Amount of shares, capital, value, and different types of shares.
• Rights of each class of shareholders regarding voting, dividends, and the return of capital.
• Rules for issuing new shares and debentures (loans).
• Procedures and regulations for making calls on shares (asking shareholders to pay remaining amounts).
• Manner of transferring shares, declaration of dividends, and rules for borrowing money.
• Rules for appointing, paying, and removing directors.
• Procedures for holding meetings, conducting proxy votes, and ensuring a quorum (minimum number of members present) for decisions.
• Procedures for keeping books of accounts and conducting audits.
• Details about the company's official seal.
• Procedures regarding the winding up (closing down) of the company.

In simple words: The Articles of Association is a document that sets all the internal rules for a company. It tells how shares are handled, what rights owners have, how directors are chosen, how meetings are held, and how the company works from the inside.

🎯 Exam Tip: Distinguish the AOA from the MOA by focusing on its internal management aspect. Provide a comprehensive list of its contents to show a complete understanding.

 

Question 3. What is meant by Prospectus?
Answer: According to Section 2(36) of the Companies Act, a prospectus is any document that invites the public to buy a company's shares or debentures, or to deposit money. It acts as "the only window" through which a potential investor can evaluate the financial health and future plans of a company. Therefore, it must contain specific information as per Schedule II of the Companies Act, including:
1. The main goals of the company, the names and addresses of those who signed the Memorandum of Association, and how many shares they hold.
2. The names, addresses, and jobs of the directors and managing directors.
3. The total number and types of shares and debentures the company has issued.
4. The minimum number of shares directors must hold to qualify for their position, and any financial interest directors have in promoting the company.
5. The number, details, and documents of any shares or debentures that were agreed to be issued for reasons other than cash within the last two years.
In simple words: A prospectus is like a company's public advertisement to ask people to buy its shares or lend it money. It must show all important details about the company so people can decide if they want to invest.

🎯 Exam Tip: When defining a prospectus, highlight its primary function as an invitation to the public for investment and mention that it must disclose crucial company information transparently.

 

Question 4. What is meant by a Multi-National Company?
Answer: A Multi-National Company (MNC) is a very large industrial organization that operates its business activities in more than one country. These companies are global in nature and usually carry out various activities such as production, marketing, and research in different countries around the world. Their main goal is often to maximize profits globally. Interestingly, a company can be either a domestic company (started in its home country) or a foreign company (started abroad) and still become an MNC as long as it operates across national borders. Examples of well-known MNCs include Microsoft Corporation, Nokia Corporation, Nestle, Coca-Cola, International Business Machines (IBM), PepsiCo, and Sony Corporation.
In simple words: A Multi-National Company (MNC) is a very big company that works in many different countries. They make and sell products all over the world to earn more money.

🎯 Exam Tip: Focus on the core definition of an MNC: operating in multiple countries, often with global production and marketing strategies, and provide a few well-known examples.

 

Question 5. What is meant by Holding and Subsidiary Company?
Answer:
1. Holding Company: As per Section 2(87) of the Companies Act, a "holding company" is a company that has control over another company, known as a "subsidiary company." A company becomes a holding company if it:

• Controls the way the Board of Directors of the other company is formed; or
• Owns or controls more than half of the total share capital of the other company, either on its own or together with its own subsidiaries.

The law also states that there can only be a certain number of layers of subsidiary companies.
2. Subsidiary Company: A "subsidiary company" is the company that is controlled by a holding company. In other words, if a holding company meets the criteria above (controlling the board or more than 50% of shares), then the company it controls is its subsidiary. For example, if H Ltd. owns more than 50% of the equity share capital of S Ltd., then H Ltd. is the holding company and S Ltd. is the subsidiary company. This structure allows for unified control over multiple businesses.
In simple words: A holding company is like a parent company that owns and controls another company. The company that is controlled is called a subsidiary company. This usually happens when one company owns more than half of the other company's shares.

🎯 Exam Tip: Clearly define both holding and subsidiary companies, emphasizing the control mechanism (either Board of Directors or more than 50% share capital) as the distinguishing factor, and provide a simple example.

11th Commerce Guide Joint Stock Company Additional Important Questions and Answers

I. Choose the Correct Answer

 

Question 1. The maximum number of members in a private limited company is
(a) 25
(b) 50
(c) 100
(d) 200
Answer: (d) 200
In simple words: A private limited company can have a maximum of 200 people as its members or shareholders. This limit helps keep the company relatively small and closely held.

🎯 Exam Tip: Remember the maximum member limit of 200 for a private limited company, as this is a key characteristic that distinguishes it from a public company.

 

Question 2. The maximum number of members in a private company is
a. 10
b. 20
c. 50
d. unlimited
Answer: (c) 50
In simple words: In some older or specific company regulations, the maximum number of members for a private company was set at 50. Rules can sometimes vary based on the specific law or time period being referred to.

🎯 Exam Tip: Be aware that while modern company acts often set the limit at 200, historical or specific regional laws might define the maximum number of private company members as 50. Always clarify the context.

 

Question 3. A new class of company is of "One Person Company" and it is included in ................ Act.
(a) 1956
(b) 1952
(c) 2013
(d) 2015
Answer: (c) 2013
In simple words: The "One Person Company" (OPC) was a new type of company introduced by the Companies Act, 2013. This law made it possible for a single person to form a company.

🎯 Exam Tip: Know that the One Person Company (OPC) concept was a significant introduction in the Companies Act of 2013, allowing individual entrepreneurs to enjoy limited liability.

 

Question 4. On the basis of liability, companies are classified in to ................ types.
a. 2
b. 3
c. 4
d. 5
Answer: (a) 2
In simple words: When we talk about how much owners are responsible for debts, companies are usually grouped into two types: those with limited liability and those with unlimited liability. Limited liability is more common now.

🎯 Exam Tip: The two primary types of companies based on liability are companies limited by shares and companies limited by guarantee (both offering limited liability to members), or, in broader terms, limited and unlimited companies.

 

Question 5. ................ companies are established by a Special Act made in Parliament/State Assembly.
(a) Chartered
(b) Statutory
(c) Private
(d) Unlimited
Answer: (b) Statutory
In simple words: Statutory companies are formed when a special law is passed by the government's Parliament or State Assembly. These laws create the company and set its specific rules.

🎯 Exam Tip: Recognize that statutory companies are unique because their existence and powers stem directly from a specific legislative act, rather than general company registration procedures.

 

Question 6. Memorandum Association consists of ................ clause.
a.5
b.6
c.7
d.8
Answer: (b) 6
In simple words: The Memorandum of Association, which is a very important document for a company, must always include six specific sections or clauses. These clauses cover key information about the company.

🎯 Exam Tip: Memorize the six essential clauses of the Memorandum of Association: Name, Situation, Objects, Liability, Capital, and Association. This is a common and important knowledge point.

 

Question 7. The share capital of the government company must not be less than ................
(a) 75%
(b) 60%
(c) 95%
(d) 51%
Answer: (d) 51%
In simple words: For a company to be called a government company, the government (either central or state) must own at least 51% of its total share capital. This ensures government control.

🎯 Exam Tip: Always remember the 51% ownership threshold for government companies, as it is the legal criterion for their classification.

 

Question 8. Who has the power to convene the meetings of the Board of Directors?
a) Shareholders
b) Board of Directors
c) Chairman
d) None of these
Answer: (b) Board of Directors
In simple words: The Board of Directors itself has the authority to call its own meetings. They decide when and how to meet to discuss company matters.

🎯 Exam Tip: Understand that while shareholders elect directors, the Board of Directors operates autonomously in convening its own meetings to manage the company's affairs.

 

Question 9. ................ is a document containing rules and regulations for the internal management of a company.
(a) Table A
(b) Memorandum
(c) Prospectus
(d) Statutory declaration
Answer: (a) Table A
In simple words: Table A is a standard document that lists many rules for how a company should run its internal business. Companies can choose to use it as their own rulebook.

🎯 Exam Tip: Remember that Table A offers a pre-defined set of internal management rules that companies can adopt as their Articles of Association.

II. Very Short Answer Questions

 

Question 1. What is Perpetual succession?
Answer: Perpetual succession means that a company continues to exist indefinitely, without being affected by changes in its members (shareholders) or directors. It does not cease to exist unless it is specifically wound up (closed down) through a legal process, or if the specific task for which it was created has been fully completed. This ensures the company's continuous operation even if owners come and go.
In simple words: Perpetual succession means a company lasts forever, even if its owners change or pass away. It only stops if someone legally closes it down.

🎯 Exam Tip: Emphasize that perpetual succession ensures the stability and continuous existence of a company, making it independent of its individual members.

 

Question 2. What is meant of Articles of Association?
Answer: The Articles of Association (AOA) is a legal document that sets out the rules and regulations for how a company's internal affairs will be managed. It defines the company's objectives and specifies the duties and responsibilities of its members (shareholders) and directors. This important document must be filed with the Registrar of Companies during the company's registration. It essentially dictates the day-to-day running of the company.
In simple words: The Articles of Association are the internal rules of a company. They tell everyone how the company will be run, what owners should do, and what directors are responsible for.

🎯 Exam Tip: Clearly state that the AOA governs the internal management of a company, contrasting it with the MOA which deals with external matters.

 

Question 3. What is the Objective clause?
Answer: The Objective Clause is a section within a company's Memorandum of Association. It requires the company to clearly state its primary goals and reasons for being established. This clause also includes any "ancillary objectives," which are additional aims or activities that are necessary to help the company achieve its main objectives. It limits the company's activities to those defined within this clause, ensuring clarity for investors and the public.
In simple words: The Objective Clause in a company's main document tells everyone what the company is made for and what it plans to do. It lists the main goals and other small goals that help reach the big ones.

🎯 Exam Tip: Highlight that the Objective Clause defines the scope of a company's legitimate business activities, ensuring transparency and preventing the company from acting beyond its stated purposes (ultra vires).

III. Short Answer Questions

 

Question 1. What is meant by Joint and Several Liability?
Answer: In a partnership, every partner is responsible together and individually for all the firm's actions. This means if the company's money is not enough to pay its debts, the partners' personal money can also be used to settle claims. The people owed money (creditors) can collect their claims from any or all of the partners. This ensures that debts are paid even if company assets are insufficient.
In simple words: All partners are fully responsible for the company's debts, both as a group and as individuals. If the company cannot pay, their personal assets can be used.

🎯 Exam Tip: Remember that "joint and several liability" provides extra protection for creditors because partners' personal assets can be used to cover business debts if necessary.

 

Question 2. Write a note on one share - one vote.
Answer: The "one share - one vote" rule means that for every share a person owns in a company, they get one vote. So, if someone has 10 shares, they have 10 votes. This is different from co-operative societies where each member gets only one vote, no matter how many shares they hold. This system links voting power directly to ownership stake in the company.
In simple words: In a company, the more shares you own, the more votes you get. One share equals one vote.

🎯 Exam Tip: Distinguish between "one share - one vote" in companies and "one member - one vote" in co-operative societies to avoid confusion.

IV. Long Answer Questions

 

Question 1. Classify the Companies According to its Incorporation:
Answer: Companies can be classified into different types based on how they are formed:
1. Chartered Companies: These companies are created by a special order or charter given by a King or Queen of a country. The charter states their powers and special rights. The King or Queen also has the power to cancel this charter. An example is the historic East Indian Company.
2. Statutory Companies: These companies are formed by a specific law passed in the Parliament or State Assembly. Their basic rules and structure are written in the Memorandum of Association, and their internal rules are in the Articles of Association. They often have an independent status and do not need to use the word 'Limited' in their name. Examples include public corporations like LIC or RBI.
3. Association Not for Profit: Under Section 25 of the Companies Act, the Central Government can allow an association to register as a company with limited liability without using "limited" or "private limited" in its name. This approval is only for non-profit organizations that promote art, science, religion, charity, or other useful objectives. They aim to use profits for the company's goals, not to distribute them to members. Such companies may or may not have share capital.
In simple words: Companies are formed in different ways: some by a royal order, some by a special law, and some are non-profit groups registered as companies. Each type has its own set of rules and purpose.

🎯 Exam Tip: When classifying companies by incorporation, clearly state the authority that creates them (e.g., King/Queen, Parliament, Central Government) and a key feature for each type.