BCOE 108 Solved Assignment 2022 – 23
ECO 08 Solved Assignment 2022 – 23
IGNOU B.Com Free Solved Assignment 2022 – 23
Company Law ECO 08/BCOE 108 Solved Assignment 2022 – 23
COURSE CODE: BCOE – 108/ECO-08
COURSE TITLE: Company Law
ASSIGNMENT CODE: BCOE-108/ECO-08/TMA/2022-23
COVERAGE: ALL BLOCKS
Maximum Marks: 100
In this post, you will get BCOE 108 Solved Assignment 2022 – 23/ECO 08 Solved Assignment 2022 – 23. For Free B.Com IGNOU Solved Assignments 2022 – 23, you can visit our website regularly or you can download our mobile application. We will try to provide IGNOU Solved Assignments 2022 – 23 for BA, MA, MCOM, BBA and MBA also.
Attempt all the questions.
1. (a) Define a holding company and a subsidiary company. When can a company be called a subsidiary of another company? Elaborate. 10
Ans: An important development of recent times in the business world is the combining of independent business units into a group or an economic unit. A company may acquire either the whole or majority of shares of another company so as to have a controlling interest in such a company or companies. The controlling company is known as Holding or Parent Company and the company controlled is known as Subsidiary Company.
Holding Company: As per Section 2(46) “holding company”, in relation to one or more other companies, means a company of which such companies are subsidiary companies. According to this section, one company can become the holding company of another in any of the following three ways:
1. By holding more than ½ of voting power in the subsidiary company.
2. By controlling the composition of the Board of Directors of the other company so that the holding company is able to appoint or remove the directors of the subsidiary company.
3. By controlling a holding company which controls another subsidiary or subsidiaries. For example, if B Ltd is a Subsidiary of C Ltd & C Ltd is a subsidiary of A Ltd then B Ltd is also deemed to be a subsidiary of A Ltd.
Meaning of “subsidiary Company”
As per Section 2(87) of the Companies Act, 2013, a company is a “subsidiary company” of another company, i.e. “holding company”, if that other company:
a) holds more than ½ of the voting rights in it, or
b) is a member of it and has the right to appoint or remove a majority of its board of directors, or
c) is a member of it and controls alone, pursuant to an agreement with other members, a majority of the voting rights in it, or if it is a subsidiary of a company that is itself a subsidiary of that other company.
(b) What is one-person company? Discuss the relaxations available and special provisions applicable to one-person company. 10
Ans: One Person company (OPC) [Sec. 2(62)]: It means a company which has only one person as a member. All the provisions of a private company are also applicable to this company. It provides benefit of both forms of business – proprietorship and company. With formatting of a one-person company business can be run in same way as a proprietorship but by complying with laws.
Special Advantages of One-Person Company
1. Independent Existence: The One Person Company is considered as a separate legal entity. In the eyes of the law, a company is a person, having a common seal, and perpetual succession. It gets the authority to exercise all the functions of an incorporated person.
2. Limited Liability: Unlike public limited company & private limited company, the concept of limited liability of One Person Company in India implies that the liability of the member is will be up to the extent of his share in the company. In an OPC, one person holds the entire share and has complete authority over the operation of the business. So, it can be elucidated that the liability of the person will be to the extent he has invested in the business.
3. Separate Property: An OPC will have its own separate property as it gains its own identity and functions as a separate legal entity. The OPC will become the owner of its assets, and the members will not have any insurable rights in the assets of the company.
4. Transferability of Shares: OPC has only one shareholder. The issue of transferring a portion of the share does not arise at all because if it is done, the company will cease to be a “one person” company. Transferring all the shares is also not practicable as it’ll change the entire structure of the company as the owner of the company is changing. The issue has not yet been dealt with, and interpretation of the law may provide us with the explanation that in an OPC, transfer of share is not allowed.
5. Tax Flexibility and Savings: OPC make a valid contract with its shareholder or directors. This means as a director you can receive remuneration, as a lessor you can receive rent, as a creditor you can advance money to your own company and earn interest. Directors’ remuneration, rent and interest are a deductible expense which reduce the profitability of the Company and ultimately brings down taxable income of your business.
6. Complete Control of the Company with The Single Owner: OPC is completely controlled and managed by the Single Owner. It leads to quick decision making and execution. The sense of belonging motivates to grow the business further.
7. Legal Status and Social Recognition for Your Business: One-person company is the most popular business structure in the world. Large organizations prefer to deal with private limited companies instead of proprietorship firms. Private Limited business structure enjoys corporate status society which helps the entrepreneur to attract quality workforce and helps to retain them by giving corporate designations, like directorships.
2. (a) What is Memorandum of association? Discuss its purpose. 10
Ans: Memorandum of association is the document which contains the rules regarding constitution and activities and objects of the company. It is fundamental charter of the company. Its relation towards the members and the outsiders are determined by this important document.
Section 2 (56) of the Companies Act, 2013 defines Memorandum as “Memorandum means the Memorandum of association of a company as originally framed or as altered from time to time in pursuance of any previous companies’ law or of this act”.
One of the essentials for the registration of a company is memorandum of association. It is the first step in the formation of a company. Its importance lies in the fact that it contains the fundamental clauses which have often been described as the conditions of the company’s incorporation.
Memorandum of association is divided into 5 clauses/contents [Sec. 4 of the Companies Act, 2013]:
1. Name clause
2. Situation or Registered office clause
3. Objects clause
4. Liability clause and
5. Capital clause
6. Subscription or Association Clause
Purpose of Memorandum of Association: Under sec.10 of the Companies Act, 2013, the memorandum and the articles when registered, shall bind the company and its members to the same extent as if it had been signed by them and had contained a covenant on their part that the memorandum and the articles shall be observed. With respect to the above section, the importance and purpose of Memorandum of Association can be summed up as follows:
a) It is the foundation of a business. It shows the capacity to contract of a company.
b) It is constitution of a company which relates with the outside world. No company is allowed to temper with its contents without the sanction of central government or court of law.
c) Any act of the company outside the scope of activities as laid down in the memorandum is said to be ultra vires and non-binding on it.
d) Every member shall be bound to comply with the provisions contained in the memorandum. In case of non-compliance, the company may sue a member.
(b) Discuss the Misstatement in a prospectus and its consequences. 10
Ans: Misleading Prospectus or Mis-statement in prospectus:
A prospectus is said to be misleading or untrue in two following cases:
a) A statement included in a prospectus shall be deemed to be untrue, if the statement is misleading in the form and context in which it is included.
b) Omission from prospectus of any matter to mislead the investors.
CRIMINAL LIABILITY FOR MIS-STATEMENT IN PROSPECTUS (SECTION 34):
Where a prospectus, issued, circulated or distributed:
a) includes any statement which is untrue or misleading in form or context in which it is included; or
b) where any inclusion or omission of any matter is likely to mislead;
Every person who authorises the issue of such prospectus shall be liable under section 447 i.e. fraud.
Defenses available in this section are:
a) Person proves that statement or omission was immaterial;
b) Person has reasonable ground to believe and did believe that statement was true; or
c) Person has reasonable ground to believe and did believe that the inclusion or omission was necessary.
CIVIL LIABILITY FOR MIS-STATEMENTS IN PROSPECTUS (SECTION 35):
Where a person has subscribed for securities of a company acting upon any misleading statement, inclusion or omission and has sustained any loss or damage as its consequence, the company and every person who:
a) is a director at the time of the issue of prospectus;
b) has named as director or as proposed director with his consent;
c) is a promoter of the company;
d) has authorised the issue of the prospectus; and
e) is an expert; shall be liable to pay compensation to effected person. This civil liability shall be in addition to the criminal liability under section 36.
Where it is proved that a prospectus has been issued with intent to defraud the applicants for the securities of a company or any other person or for any fraudulent purpose, every person shall be personally responsible, without any limitation of liability, for all or any of the losses or damages that may have been incurred by any person who subscribed to the securities on the basis of such prospectus.
Defenses under this section are:
a) he has withdrawn his consent or never gives his consent;
b) the prospectus was issued without his knowledge or consent and when he became aware, gave a reasonable public notice that prospectus was issued without his knowledge or consent.
3. (a) What is allotment of shares? Discuss the rules regarding allotment of shares. 10
Ans: A public limited company invites subscriptions from the public and for this purpose a prospectus is issued. In response to this invitation, the prospective investors offer to buy shares by submitting the prescribed application form. If the application is accepted by the company, it proceeds to allot him the shares. With the issue of the letter of allotment, the offer stands accepted thereby giving rise, to a legally binding contract between the company and the shareholder.
Thus, an allotment is the acceptance by the company of the offer to purchase shares. The term ‘Allotment’ has nowhere been defined in the Companies Act. It may be said that allotment is an appropriation by the Board of directors of a certain number of shares to a specified person in response to his application. In other words, allotment means the appropriation out of the previously un-appropriated capital of a company, of a certain number of shares to a person.
Rules regarding Allotment of Shares
The rules regarding allotment of shares can be discussed under the two broad headings:
(a) General rules and
(b) the legal rules.
General Rules: The allotment is the acceptance of an offer to purchase certain number of shares. Therefore, the general rules relating to valid acceptance of an offer must be followed. The general rules regarding allotment of shares are as follows:
i) The allotment must be made by proper authority: It is the duty of the Board of directors to allot the shares. However, the Board may delegate this authority to some other person or persons as per the provisions of the articles of association. Allotment of Shares made by an improper authority will make it void.
ii) The allotment should be made within a reasonable time: The offer to purchase shares of the company must be accepted within a reasonable time otherwise the applicants may refuse to take shares because after a reasonable time the offer lapses. What is the ‘reasonable time’ is a question of fact in each case.
iii) It must be communicated: The allotment of shares should be communicated to the applicants. Posting of a properly addressed and stamped letter of allotment will be taken as a valid communication. Even if this letter of allotment is delayed or lost in transit, the allottee will be liable. ‘G’ applied for certain shares in a company. The letter of allotment was dispatched to him but it never reached. It was held that ‘G’ was liable as a shareholder.
iv) It must be absolute and unconditional. The allotment of shares must conform to the terms and conditions of the application. If the allotment is not according to the terms and conditions, the applicant may refuse to accept the shares even though allotment has been made to him. If the conditions are not fulfilled, the applicant must reject the shares promptly. His silence or acceptance will debar him from this right.
Legal Rules: So far as the private companies are concerned, the Act does not lay down any restrictions as to the allotment of shares. But the Act has laid down certain restrictions regarding the allotment of shares by public companies.
When no public offer is made: Where a public company does not offer its shares to the public but arranges the capital privately, the company cannot proceed with the allotment unless it files with the Registrar of Companies at least three days before the first allotment, a statement in lieu of prospectus. If the allotment is made in contravention to this provision, it will be termed as irregular allotment and it shall be voidable at the option of the allottee. In addition to this, every officer of the company, who is a party to such allotment shall be punishable with fine which may extent to Rs. 1,000.
When an Offer is made to the Public: Where a company offers to shares to the public:
i) a prospectus must be issued and a copy of the same should be filed with the Registrar. You should note that the company cannot allot the shares immediately after issuing the prospectus. No allotment can be made until the beginning of the fifth day from the date of issue of prospectus. The fifth day is to be counted from the date of issue of prospectus was published or was otherwise notified to the public. The beginning of the fifth day is known as ‘the time of the opening of the subscription lists.
The object of this provision is to enable the public to go through the prospectus and to decide whether to apply for the shares. The Companies Act, however, does not specifically provide for the time of closing the subscription list. It means that the company may keep the subscription list open for any length of time it wants. According to stock exchange regulations where the shares are listed on any stock exchange, the subscription list must be kept open for at least three days, in such cases, the prospectus usually mentions the time of closing of the subscription lists.
ii) Minimum subscription: No company can proceed to allot shares to the public until the minimum subscription (which is 90%.thc issue amount) has been subscribed, and the sum payable on applications for it has been received by the company in cash. If the company does not receive the minimum subscription of 90% of the issue amount, the entire subscription will be refunded to the applicants within 90 days from the date of closure of the issue.
If there is a delay in refund of such amount by more than ten days, the company is liable to pay interest at the rate of 15% per annum for the delayed period.
iii) Application money: It is the amount which is payable on each share along with the application for purchase of shares. The amount payable on application 0% each share shall not be less than 5 per cent of the nominal amount of the share.
iv) Application money to be deposited in a scheduled bank: All the money received from applicants must be deposited in a scheduled bank and it shall remain there until the certificate to commence business is received.
v) Allotment of shares to dealt in on stock exchange. According to Section 73(1) of the Companies Act, every company intending to offer shares to the public for subscription by the issue of a prospectus shall, before such issue, make an application to one or more recognised stock exchanges for permission for the shares to be dealt with in the stock exchange. Thus, now it is made compulsory that the shares must be listed on a recognised exchange. The prospectus must state the name of the stock exchange or each of such exchanges where the application has been ‘made.
Subsequent allotment of shares: The rules regarding the subsequent allotment of shares are the same as discussed above except the rule regarding minimum subscription.
(b)Distinguish between a member and a shareholder. 10
Ans: Distinction between a member and a shareholder
|
Basis |
Member |
Shareholder |
|
Registration |
A registered shareholder is a member. |
A registered member may not be a shareholder |
|
Shares |
A person may be a member without holding shares. |
No person can be a shareholders without holding shareholders. |
|
On the Death of member |
A legal representative may not be a member until he applies for registration |
The legal representative remains a shareholder though his name does not appear on the register |
|
Share warrant |
Holder of share warrant is not a member his name is struck off |
A person who owns a share warrant is a shareholder |
|
On subscription |
A person who subscribes to the MOA immediately become the member |
When the shares are allotted to the subscriber they become shareholder. |
|
On the transfer |
On the transfer of share the person remains the member till the time the transfer is registered in the name of the transferee |
A person who transfers his shares ceases to be a holder of shares from the date of transfer. |
|
Necessity |
Members are essential for a company. |
Shareholders are not essential for every company. |
4. (a) What are the liabilities of the director to the company and to the third parties? 10
Ans: Liability of Directors
Directors being a principal officer of a company can be held liable not only towards company and shareholders but also towards outsiders. Liability of directors can be studied in the following heads:
1. Liability of directors towards Company: Directors have some duties towards the company by virtue of their office. The directors are liable to the company in the following cases:
a) Ultra vires Acts: Directors are personally liable to the company for ultra vires acts i.e., acts which are beyond their powers. For example, if they pay dividends out of capital, they will be liable to the company for any loss or damage suffered due to such ultra vires acts.
b) Negligence: If the directors are negligent about their duties, they are personally liable for any loss cause to the company. They are, however, not liable for errors of judgement.
c) Breach of trust: The directors occupy a fiduciary position towards the company. They must act honestly and in the interest of the company. If the directors make some secret profits or use the property of the company for their personal purpose, then they shall be liable to the company.
d) Misfeasance: The misfeasance means willful misconduct or willful negligence resulting in some loss to the company. The company can take action against the directors for any loss or damages caused to the company in case of misfeasance.
2. Liability of directors towards outsiders: Directors acts on behalf of the company, so they cannot be held personally liable to outsiders for any acts done by them on behalf of the company. They would, however, be personally liable to outsiders in the following circumstances:
a) When they enter into contracts in their own names and not in the name of the company.
b) Where the directors act ultra vires the company i.e., acts beyond their powers, in such a case company will not be liable but directors will be personally liable to third parties for breach of implied warranty of authority.
c) Where they have permitted the issue of a prospectus which contains misstatements or which does not present the true position, the directors shall be personally liable.
d) Where the directors fail to return the application money within the specified time, if the minimum subscription is not subscribed.
e) Where there is irregular allotment of shares,
f) Where the directors act fraudulently.
(b) What do you mean by secretary in practice? Discuss the role of company secretary as a statutory officer. 10
Ans: Company Secretary Appointment and his Rights and Obligations needs to understand the definitions and as per sec. 2(24) of Companies Act 2013, Company Secretary means a Company Secretary define in sec. 2(1)(c) of the Company Secretaries Act 1980. As per this clause, Company Secretary means a person who is a member of Institute of Company Secretary of India. Company Secretary is managerial personnel in a private sector company and in a public sector company, a Company Secretary is a person who can represent his company before any quasi-judicial body in relation to any legal dispute and other legal litigation.
To be qualified as a company secretary, one must clear the:
1. Company Secretary Executive level programme and Professional level programme.
2. Must have training certificates which includes student induction programme, executive development programme, professional development programmed and long term internship with specified cs entity.
However, to apply for the above programmes, one must:
(a) Be a graduate from any recognized university or institution.
(b) Should not be less than 17 years of age.
Thus, a company secretary should be a member of the institute of companies’ secretaries of India.
Position of a Company Secretary as a Statutory Officer:
The company secretary is an officer responsible for compliance with numerous legal requirements under different Acts including the Companies Act, 2013 as applicable to companies. All companies (including Private Companies) are required to appoint Company Secretary in whole time employment whose paid up Share Capital is five crore rupees of more.
Being a key managerial personnel of a company, it is obligatory for the secretary to sign the annual return filed with the Registrar [Section 92], to sign financial statements [Section 134(1)] duty to report fraud [Section 143(12)] and to make declaration under Section 7(1) of the Act before incorporation of a company confirming that all the requirements of Act and the Rules there under have been complied with in respect of registration of a company and the Registrar may accept such a declaration as sufficient evidence of such compliance.
5. (a) What is quorum? What are the legal rules for quorum in a meeting in a case of public and private company? 10
Ans: Quorum of Meetings: Quorum is the minimum number of members who must be present at a meeting as required by the rules. Any business transacted at a meeting without a quorum is invalid. The main purpose of having a quorum is to avoid decisions being taken at a meeting by a small minority which may be found to be unacceptable to the vast majority of members. The number constituting a quorum at any company meeting is usually laid down in the Articles of Association. In the absence of any provision in the Articles, the provisions as to quorum laid down in the Companies Act, 2013 (under Sec.103) will apply.
Quorum for Public Limited Company:
1. General Meeting of Shareholders: Sec. 103 of Companies Act provides that the quorum for general meetings of shareholders shall be five members personally present in case of a public company if the number of members as on the date of meeting is upto 1000, 15 quorums if number of members as on the date of meeting is more than 1000 but up to 5000 and if number of member exceeds 5000 than 30 quorums is required; and
2. Quorum of Board Meeting:1/3 rd of total strength OR 2 (Two) Directors, whichever is higher. Where meeting of Board could not be held for want of quorum, the meeting shall automatically adjourn to same time, same place at next week (Not being national holiday).
If number of directors reduced below quorum, then the remaining directors may hold the meeting for the following purposes:
a) To call a General meeting
b) Increase the number of directors.
c) Quorum in case of Interested Directors:
d) If interested director exceeds or equal to 2/3 of total strength the remaining directors not being less than 2 (two) shall be the quorum.
Quorum for Private Company:two members personally present for any private company or articles may provide otherwise.
(b) What are the requisites of a valid meeting? 10
Ans: Requisites of a Valid Meeting
If the business transacted at a meeting is to be valid and legally binding, the meeting itself must be validly held. A meeting will be considered to be validly held, if:
a) It is properly convened by proper authority.
b) Proper notice must be served. (Sec. 101 and Sec. 102 of the Companies Act, 2013)
c) Proper quorum must be present in the meeting. (Sec. 103 of the Companies Act, 2013)
d) Proper chairman must preside the meeting. (Sec. 104 of the Companies Act, 2013)
e) Business must be validly transacted at the meeting.
f) Proper minutes of the meeting must be prepared. (Sec. 118 and 119 of the Companies Act, 2013)
Proper Authority to Convene Meeting: A meeting must be convened or called by a proper authority. Otherwise it will not be a valid meeting. The proper authority to convene general meetings of a company is the Board of Directors. The decision to convene a general meeting and issue notice for the same must be taken by a resolution passed at a validly held Board meeting.
Notice of Meetings: A meeting in order to be valid must be convened by a proper notice issued by the proper authority. It means that the notice convening the meeting be properly drafted according to the Act and the rules, and must be served on all members who are entitled to attend and vote at the meeting.
For general meeting of any kind at least 21 days notice must be given to members. A shorter notice for Annual General Meeting will be valid, if all members entitled to vote give their consent. The number of days in each case shall be clear days, i.e. the days must be calculated excluding the day on which the notice is issued, a day or so for postal transit, and the day on which the meeting is to he held.
Every notice of meeting of a company must specify the place and the day and hour of the meeting, and shall contain a statement of the business to be transacted thereat.
Quorum of Meetings: Quorum is the minimum number of members who must be present at a meeting as required by the rules. Any business transacted at a meeting without a quorum is invalid. The main purpose of having a quorum is to avoid decisions being taken at a meeting by a small minority which may be found to be unacceptable to the vast majority of members.
The number constituting a quorum at any company meeting is usually laid down in the Articles of Association. In the absence of any provision in the Articles, the provisions as to quorum laid down in the Companies Act, 2013 (under Sec.103) will apply.
Sec. 103 of Companies Act provides that the quorum for general meetings of shareholders shall be five members personally present in case of a public company if the number of members as on the date of meeting is upto 1000, 15 quorums if number of members as on the date of meeting is more than 1000 but upto 5000 and if number of member exceeds 5000 than 30 quorums is required; and two members personally present for any private company or articles may provide otherwise.
Chairman of a Meeting: ‘Chairman’ is the person who has been designated or elected to preside over and conduct the proceedings of a meeting. He is the chief authority in the conduct and control of the meeting.
Agenda of Meetings: The word ‘agenda’ literally means ‘things to be done’. It refers to the programme of business to be transacted at a meeting. Agenda is essential for the systematic transaction of the business of a meeting in the proper order of importance. It is customary for all organisations to send an agenda along with the notice of a meeting to all members.
The business of the meeting must be conducted in the same order in which the items are placed in the agenda and the order can be varied only with the consent of the meeting.
Minute: Minute of a meeting contains a fair and correct summary of the proceedings of a meeting. Minutes must be prepared and signed within 30 days of the conclusion of the meeting. The minute books of meetings must be kept at the registered office of the company or at such other place as may be approved by the board.
Proxy: The term ‘proxy’ is used to refer to the person who is nominated by a shareholder to represent him at a general meeting of the company. It also refers to the instrument through which such a nominee is named and authorised to attend the meeting.
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