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CS Executive Company Law study materials
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CS Executive Company Law practice questions

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Question 1Introduction to Company Law and Company Formation

Under the Companies Act, 2013, a company is defined as one formed and registered under the Act or under which of the following earlier statutes?

  1. The Societies Registration Act, 1860
  2. Any previous company law Correct answer.
  3. The Indian Partnership Act, 1932
  4. The Negotiable Instruments Act, 1881

Explanation

Section 2(20) defines a company as one formed and registered under this Act or under any previous company law, a phrase that sweeps in the earlier Companies Acts repealed by the 2013 Code. Partnership and societies statutes create entirely different entities and are outside that definition.

Question 2Introduction to Company Law and Company Formation

Which characteristic of a registered company means that it continues in existence irrespective of changes in its membership?

  1. Common seal
  2. Perpetual succession Correct answer.
  3. Limited liability
  4. Separate legal entity

Explanation

Perpetual succession describes the company's continuous existence: members may die, transfer shares or exit, yet the company survives until wound up. Separate legal personality explains the distinct rights and duties of the company, while limited liability caps member exposure.

Question 3Introduction to Company Law and Company Formation

A private company under the Companies Act, 2013 is one that restricts the right to transfer its shares and limits the number of its members, excluding present and past employees, to a maximum of:

  1. Unlimited
  2. 200 Correct answer.
  3. 100
  4. 50

Explanation

Section 2(68) requires a private company's articles to restrict share transfers and to limit members to 200, not counting present or past employees who became members during employment. Joint holders count as a single member for this ceiling.

Question 4Introduction to Company Law and Company Formation

Which of the following is the correct sequence of steps for incorporating a company under the Companies Act, 2013?

  1. Obtain DSC, file MOA, reserve name, obtain DIN, obtain certificate of incorporation
  2. Reserve name, obtain certificate of incorporation, file MOA and AOA, obtain DIN
  3. Obtain DIN and DSC, reserve name, file SPICe+ with MOA and AOA, obtain certificate of incorporation Correct answer.
  4. File MOA and AOA, obtain DSC, reserve name, obtain certificate of commencement of business

Explanation

Digital signatures and director identification numbers must precede the name reservation, after which the integrated SPICe+ form carries the MOA, AOA and supporting declarations to the Registrar. The Registrar then issues the certificate of incorporation, which brings the company into existence.

Question 5Introduction to Company Law and Company Formation

A promoter enters into a contract on behalf of a company that has not yet been incorporated. Under Section 15 of the Companies Act, 2013, such a pre-incorporation contract:

  1. Binds the promoter personally in every case and cannot be ratified
  2. Is void and creates no rights or obligations for anyone
  3. May be ratified by the company after incorporation and then binds it as if it had been authorised Correct answer.
  4. Is automatically binding on the company once incorporated

Explanation

Section 15 permits a company, after incorporation, to ratify a pre-incorporation contract and thereby become bound as if it had been authorised from the start. Until ratification, the company is not bound merely because it later comes into existence.

Question 6Introduction to Company Law and Company Formation

Under Section 12 of the Companies Act, 2013, a company must have its registered office capable of receiving communication from the date of incorporation and must furnish verification to the Registrar within how many days?

  1. 15 days
  2. 7 days
  3. 30 days Correct answer.
  4. 60 days

Explanation

Section 12 requires the registered office to be established from the date of incorporation and verified in the prescribed form within thirty days. Failure attracts penalties, and the company cannot commence business until the verification is filed.

Question 7Introduction to Company Law and Company Formation

Which document of a company contains the rules governing its internal management and is subordinate to the memorandum of association?

  1. Memorandum of association
  2. Prospectus
  3. Articles of association Correct answer.
  4. Certificate of incorporation

Explanation

The articles of association regulate internal management such as board meetings, share transfers and voting, and they cannot contain anything repugnant to the memorandum. The memorandum sets the outer charter of the company's objects and powers.

Question 8Introduction to Company Law and Company Formation

The doctrine of indoor management, associated with Royal British Bank v Turquand, protects an outsider who deals with a company in good faith by:

  1. Allowing the outsider to assume that internal procedures have been duly complied with Correct answer.
  2. Making the company liable even where the outsider had actual notice of an irregularity
  3. Excusing the outsider from reading the memorandum of association
  4. Transferring personal liability for the contract to the company's directors

Explanation

The doctrine entitles an outsider to presume that the company's internal affairs are conducted regularly, so a defect in internal procedure does not defeat a bona fide transaction. It does not override the constructive notice of public documents such as the memorandum and articles.

Question 9Introduction to Company Law and Company Formation

In Salomon v Salomon & Co Ltd, the House of Lords held that on incorporation a company becomes:

  1. A trustee holding assets for its shareholders
  2. A partnership in which members are jointly liable
  3. A legal person distinct from its members Correct answer.
  4. An agent of its majority shareholder

Explanation

The decision established that a company is a legal person separate from its subscribers, so Mr Salomon was not liable for the company's debts beyond his shareholding. The company's acts are its own, not those of its members.

Question 10Introduction to Company Law and Company Formation

Which of the following is a valid ground on which the Registrar may refuse to register a proposed company name?

  1. The proposed name is in a regional language
  2. The name is identical or too nearly resembles an existing company's name Correct answer.
  3. The proposed name ends with the word 'Limited'
  4. The proposed name contains the word 'India'

Explanation

Section 4 read with the naming rules bars a name that is identical with or too nearly resembles an existing company or registered trade mark. Use of a regional language or the suffix 'Limited' is permissible, and words like 'India' require approval rather than automatic rejection.

Question 11Introduction to Company Law and Company Formation

A public company must have a minimum of how many members and directors respectively at the time of incorporation?

  1. Two members and two directors
  2. Seven members and two directors
  3. Seven members and three directors Correct answer.
  4. Fifty members and three directors

Explanation

Section 3 requires a public company to be formed by at least seven persons, and Section 149 requires a minimum of three directors for a public company. Private companies need only two members and two directors.

Question 12Introduction to Company Law and Company Formation

The memorandum of association of a company limited by shares must contain which of the following clauses?

  1. Name, registered office state, objects, liability and capital Correct answer.
  2. Name, share transfer rules, board meetings and quorum
  3. Name, borrowing powers, dividends and arbitration
  4. Objects, wages, audit and taxation

Explanation

Section 4 prescribes the mandatory clauses: the name with the suffix Limited, the state of the registered office, the objects, the liability of members and, for share capital companies, the capital clause. Internal matters such as meetings and transfers belong in the articles.

Question 13Introduction to Company Law and Company Formation

The objects clause of a memorandum of association serves mainly to:

  1. Fix the remuneration payable to the managing director
  2. Define the scope of the company's permitted activities and the powers of its directors Correct answer.
  3. Specify the dividend policy of the company
  4. List the names of the first subscribers and their shareholdings

Explanation

The objects clause delimits what the company may lawfully do and, in favour of outsiders, protects them by defining the company's capacity. Acts beyond the objects are ultra vires and cannot bind the company.

Question 14Introduction to Company Law and Company Formation

An act done by a company that is beyond the objects stated in its memorandum is described as:

  1. An irregularity curable by ratification of the shareholders
  2. Voidable at the option of the affected third party
  3. Ultra vires the directors but intra vires the company
  4. Ultra vires the company and void Correct answer.

Explanation

Acts outside the objects clause are ultra vires the company itself and are void, so neither the company nor the third party can enforce them. Shareholders cannot ratify such an act, although directors may be personally liable for the loss.

Question 15Introduction to Company Law and Company Formation

Under the Companies Act, 2013, the certificate of incorporation issued by the Registrar is:

  1. A licence to commence business that lapses after one year
  2. Rebuttable evidence of incorporation that may be challenged by any member
  3. Conclusive evidence that all requirements of the Act have been complied with Correct answer.
  4. Valid only until the first annual general meeting is held

Explanation

Section 35 makes the certificate conclusive evidence that the company is duly registered and that all requirements for registration have been complied with. Its validity cannot be questioned in any proceeding once issued.

Question 16Introduction to Company Law and Company Formation

Which of the following best describes the effect of the doctrine of lifting the corporate veil?

  1. The company's articles are amended by the Tribunal
  2. The company's shares are converted into debentures
  3. The company's separate personality is ignored and its members or directors are looked at directly Correct answer.
  4. The company is dissolved automatically by the Registrar

Explanation

Lifting the veil is a judicial or statutory exception where courts disregard separate personality to reach the persons behind the company, typically for fraud, tax evasion or sham arrangements. It does not alter the company's registration or capital structure.

Question 17Introduction to Company Law and Company Formation

A newly incorporated company fails to file the declaration for commencement of business under Section 10A within the prescribed period. What is the consequence?

  1. The certificate of incorporation is automatically cancelled
  2. The promoters are prosecuted for cheating
  3. The company is converted into a limited liability partnership
  4. The company cannot exercise any borrowing power or enter into binding contracts until the declaration is filed Correct answer.

Explanation

Section 10A prohibits a company with share capital from exercising borrowing powers or entering into binding contracts until it files the declaration and verification of the paid-up capital. The restriction operates as a disability, not as a cancellation of incorporation.

Question 18Introduction to Company Law and Company Formation

Where a company alters its articles to include a provision that conflicts with its memorandum, the alteration is:

  1. Void to the extent of the conflict Correct answer.
  2. Valid only if approved by the Tribunal
  3. Valid after filing with the Registrar
  4. Valid because articles prevail over the memorandum

Explanation

The memorandum is the charter and the articles are subordinate to it, so any article inconsistent with the memorandum is void to that extent. Filing with the Registrar or Tribunal approval cannot cure a substantive conflict with the memorandum.

Question 19Introduction to Company Law and Company Formation

The doctrine of constructive notice means that persons dealing with a company are:

  1. Relieved of any duty to inspect the company's public records
  2. Entitled to rely on the internal minutes of board meetings
  3. Deemed to have read its public documents such as the memorandum and articles Correct answer.
  4. Protected even where they knew of an internal irregularity

Explanation

Since the memorandum and articles are registered and open to public inspection, every person dealing with the company is presumed to know their contents. This presumption works against the outsider and complements the indoor management rule.

Question 20Introduction to Company Law and Company Formation

A company registered with the word 'Private Limited' in its name wishes to become a public company. Which step is legally required?

  1. Alter the articles to remove restrictive provisions and pass a special resolution for conversion Correct answer.
  2. Simply file a fresh certificate of incorporation with the Registrar
  3. Surrender the existing certificate and apply for a new company
  4. Obtain the prior approval of the Securities and Exchange Board of India

Explanation

Conversion under Section 14 requires a special resolution and consequential alterations to the articles and memorandum so that the restrictive clauses of a private company are removed. The Registrar then issues a fresh certificate of incorporation reflecting the change.

Question 21Types of Companies and Conversion of Entities

Under the Companies Act, 2013, an OPC must have a minimum of how many directors?

  1. Seven
  2. One Correct answer.
  3. Three
  4. Two

Explanation

Section 149 read with the OPC provisions permits a One Person Company to function with a single director, since the sole member may also be the only director. The usual minimum of three directors for a public company and two for a private company does not apply to an OPC.

Question 22Types of Companies and Conversion of Entities

A company registered under Section 8 of the Companies Act, 2013 is formed primarily for which purpose?

  1. Trading in securities on recognised stock exchanges for profit
  2. Carrying on banking business after obtaining a licence from the Reserve Bank of India
  3. Promotion of commerce, art, science, sports, education, research, social welfare or protection of the environment Correct answer.
  4. Manufacturing goods for export under a government incentive scheme

Explanation

Section 8 permits registration of a company as a limited company for charitable or non-profit objects such as commerce, art, science, sports, education, research, social welfare and environment protection. Such a company applies its profits only to promoting its objects and pays no dividend to members.

Question 23Types of Companies and Conversion of Entities

Which of the following companies must, under the Companies Act, 2013, mandatorily use the word 'Limited' or 'Private Limited' at the end of its name?

  1. A company limited by shares Correct answer.
  2. A company limited by guarantee
  3. An unlimited company
  4. A producer company

Explanation

A company limited by shares must end its name with 'Limited' or, where it is private, 'Private Limited'. This signals to third parties that member liability is capped at the unpaid amount on their shares.

Question 24Types of Companies and Conversion of Entities

A foreign company under Section 2(42) of the Companies Act, 2013 means a company incorporated outside India which:

  1. Has a subsidiary registered in India
  2. Has raised capital from Indian banks only
  3. Has any shareholder of Indian origin, regardless of where it operates
  4. Has a place of business in India, whether by itself or through an agent, physically or through electronic mode Correct answer.

Explanation

Section 2(42) defines a foreign company as one incorporated outside India which has a place of business in India, whether by itself or through an agent, and whether physically or through electronic mode. Mere shareholding links or an Indian subsidiary do not by themselves make the overseas parent a foreign company under this clause.

Question 25Types of Companies and Conversion of Entities

A public company may issue a prospectus to invite the public to subscribe for its securities. Which document must it file with the Registrar before the offer is made?

  1. A copy of the prospectus signed by every director and filed before the offer Correct answer.
  2. A valuation report from a registered valuer alone
  3. A letter of intent to the stock exchange alone
  4. A board resolution only, without any filing

Explanation

Section 26 requires a public company to deliver a copy of the prospectus to the Registrar for registration, signed by every person named as a director or proposed director, before the offer is made. The prospectus must also carry the specified dates and consents.

Question 26Types of Companies and Conversion of Entities

A private company wants to convert into a public company. Which of the following is required?

  1. Alteration of articles to remove restrictive clauses and increase members to at least seven Correct answer.
  2. Approval of the Regional Director without any member resolution
  3. Filing of Form INC-1 for name reservation without any special resolution
  4. Only a board resolution changing the name on the letterhead

Explanation

Conversion of a private company into a public company requires alteration of the articles to delete the restrictive clauses, increase in members to at least seven, and a special resolution. The company must then file the prescribed form with the Registrar along with the altered articles.

Question 27Types of Companies and Conversion of Entities

An unlimited company wishes to convert into a company limited by shares. What is the statutory consequence for its existing members?

  1. Their liability is converted into a fixed deposit with the company
  2. Their unlimited liability continues for debts incurred before conversion unless the conversion is done in accordance with the prescribed procedure Correct answer.
  3. Their liability shifts entirely to the creditors of the company
  4. Their liability automatically becomes nil from the date of incorporation

Explanation

Conversion of an unlimited company into a limited company does not automatically extinguish the unlimited liability of members for pre-conversion debts. The prescribed procedure under the Act must be followed, and members remain exposed for liabilities incurred while the company was unlimited.

Question 28Types of Companies and Conversion of Entities

A producer company under Part XXIA of the Companies Act, 2013 must have a minimum of how many individual producers as members?

  1. Five
  2. Two
  3. Ten Correct answer.
  4. Fifty

Explanation

Section 581C requires at least ten individual producers, or two producer institutions, to form a producer company. Private limited company status is granted to it even though it may have more members.

Question 29Types of Companies and Conversion of Entities

Which of the following best distinguishes a holding company from a subsidiary company?

  1. A subsidiary company must always be a public company
  2. A holding company must be registered outside India
  3. A holding company controls the composition of the board or exercises more than half the total voting power of the other company Correct answer.
  4. A holding company always owns all the shares of the other company

Explanation

Section 2(46) defines a holding company as one of which another company is a subsidiary. Control arises where the holding company controls the board composition or exercises or controls more than one-half of the total voting power of the other company.

Question 30Types of Companies and Conversion of Entities

A company limited by guarantee has called upon its members to contribute to the assets on winding up. The liability of each member is limited to:

  1. Twice the amount of the guarantee
  2. The amount undertaken to be contributed by the member under the memorandum Correct answer.
  3. The full market value of the member's shares
  4. The total debts of the company divided equally among members

Explanation

In a company limited by guarantee, member liability is limited to the amount each member has undertaken to contribute to the company's assets in the event of winding up. That amount is specified in the memorandum and cannot exceed it.

Question 31Types of Companies and Conversion of Entities

A One Person Company has been formed. Which statement about its conversion into a private or public company is correct?

  1. An OPC may convert only after the death of its sole member
  2. An OPC can convert only after listing on a stock exchange
  3. An OPC may convert at any time after incorporation by following the prescribed procedure Correct answer.
  4. An OPC can never be converted into any other form

Explanation

The Act permits an OPC to convert into a private or public company by following the prescribed procedure, including alteration of the memorandum and articles and filing with the Registrar. There is no requirement that the sole member die or that the company be listed.

Question 32Types of Companies and Conversion of Entities

A public company wishes to convert into a private company. Which of the following is a necessary step?

  1. Filing of Form INC-1 without any resolution
  2. Obtaining a fresh certificate of incorporation without altering the articles
  3. Only an ordinary resolution passed at a board meeting
  4. Special resolution and insertion of restrictive clauses in the articles, followed by approval of the Tribunal where required Correct answer.

Explanation

Conversion of a public company into a private company requires a special resolution and alteration of the articles to include the restrictive clauses. Approval of the Tribunal is required in cases covered by the proviso to Section 14, and the prescribed form must be filed with the Registrar.

Question 33Types of Companies and Conversion of Entities

Which of the following is a characteristic that distinguishes a government company under Section 2(45)?

  1. It must always be listed on a recognised stock exchange
  2. It must have only individual shareholders
  3. It must be formed as a Section 8 company
  4. Not less than fifty-one per cent of the paid-up share capital is held by the Central Government, State Government or both Correct answer.

Explanation

Section 2(45) defines a government company as one in which not less than fifty-one per cent of the paid-up share capital is held by the Central Government, one or more State Governments, or partly by both. A subsidiary of such a company is also a government company.

Question 34Types of Companies and Conversion of Entities

A company limited by shares has unpaid calls on its shares. A creditor of the company seeks to recover the amount. Which statement reflects the correct position on member liability?

  1. A member is liable only if the company is a public company
  2. A member is not liable at all once the shares are allotted
  3. A member is liable to contribute the unpaid amount on the shares held, up to the nominal value Correct answer.
  4. A member is liable for the entire debt of the company personally

Explanation

In a company limited by shares, the liability of a member is limited to the amount unpaid on the shares held by that member. On winding up, the member contributes that unpaid amount, which cannot exceed the nominal value of the shares.

Question 35Types of Companies and Conversion of Entities

A foreign company establishes a place of business in India. Which of the following documents must it deliver to the Registrar within the prescribed time under Section 380?

  1. A copy of its foreign tax return
  2. Only a bank guarantee from an Indian bank
  3. Only the audited accounts of its Indian branch
  4. A certified copy of its charter or memorandum and articles, and the particulars of its directors and authorised representative in India Correct answer.

Explanation

Section 380 requires a foreign company establishing a place of business in India to deliver documents including a certified copy of its charter or memorandum and articles and particulars of directors, secretary and the person authorised to accept service in India. Other prescribed forms must also be filed.

Question 36Types of Companies and Conversion of Entities

A company limited by guarantee with share capital is being wound up. How is the liability of its members determined?

  1. Members are liable for the entire debts of the company
  2. Members are liable only for the amount guaranteed, and share capital is ignored
  3. Members are liable for the unpaid amount on their shares plus the amount guaranteed under the memorandum Correct answer.
  4. Members have no liability because the company has share capital

Explanation

Where a company is limited both by guarantee and by shares, a member is liable both for any unpaid amount on the shares held and for the amount guaranteed under the memorandum. The two liabilities operate cumulatively on winding up.

Question 37Memorandum and Articles of Association; Doctrine of Ultra Vires

Under the Companies Act, 2013, which document is described as the charter of the company that regulates its internal management and is subordinate to the memorandum?

  1. The certificate of incorporation
  2. The prospectus
  3. The articles of association Correct answer.
  4. The annual return

Explanation

The articles of association are the internal rulebook of a company, governing matters such as meetings, directors, and share transfers. They are subordinate to the memorandum, which sets the external relationship and objects of the company. Together they form the constitution of the company.

Question 38Memorandum and Articles of Association; Doctrine of Ultra Vires

Which of the following clauses must mandatorily appear in the memorandum of association of every company incorporated under the Companies Act, 2013?

  1. The quorum for board meetings clause
  2. The borrowing limits clause
  3. The name clause Correct answer.
  4. The dividend declaration clause

Explanation

Section 4 of the Companies Act, 2013 prescribes the mandatory clauses of the memorandum: name, registered office state, objects, liability, capital, and the subscription clause. Borrowing limits, board quorum, and dividend mechanics are matters for the articles or board resolutions, not memorandum clauses.

Question 39Memorandum and Articles of Association; Doctrine of Ultra Vires

A company wishes to alter the object clause of its memorandum. Which statutory route is correct under the Companies Act, 2013?

  1. Special resolution and filing with the Registrar, with the alteration taking effect on registration Correct answer.
  2. Board resolution passed at a board meeting with intimation to the Registrar
  3. Ordinary resolution passed at a general meeting without any filing
  4. Approval of the Registrar alone, without any member resolution

Explanation

Section 13 permits alteration of the memorandum, including the objects clause, by special resolution, with the altered memorandum filed with the Registrar within the prescribed time. The change takes effect upon registration by the Registrar. Member approval by special resolution is indispensable.

Question 40Memorandum and Articles of Association; Doctrine of Ultra Vires

The doctrine of ultra vires applies to acts of a company that are outside the scope of which document?

  1. The memorandum of association Correct answer.
  2. The board minutes
  3. The share transfer register
  4. The articles of association

Explanation

An act is ultra vires the company when it exceeds the objects and powers stated in the memorandum of association. Acts merely inconsistent with the articles may be irregular but are not necessarily ultra vires the company. The memorandum defines the company's legal capacity.

Question 41Memorandum and Articles of Association; Doctrine of Ultra Vires

What is the legal effect of an act that is ultra vires the company on the contract itself?

  1. The contract is voidable at the option of the third party
  2. The contract is valid but unenforceable by the company alone
  3. The contract is void and cannot be ratified even by unanimous consent of shareholders Correct answer.
  4. The contract is valid and binding if the board ratifies it

Explanation

An ultra vires transaction is void ab initio and cannot be ratified by the shareholders, because the company itself lacks capacity to enter into it. This is a key consequence of the doctrine. Neither ratification nor estoppel can validate such an act.

Question 42Memorandum and Articles of Association; Doctrine of Ultra Vires

The doctrine of constructive notice means that a person dealing with a company is deemed to have read which documents?

  1. Only the board resolutions filed with the Registrar
  2. The internal correspondence of the company
  3. The memorandum and articles of association, as public documents Correct answer.
  4. Only the latest annual return

Explanation

Because the memorandum and articles are registered and open to public inspection, any person dealing with the company is presumed to have knowledge of their contents. This is the doctrine of constructive notice. The presumption operates regardless of actual reading.

Question 43Memorandum and Articles of Association; Doctrine of Ultra Vires

A third party enters into a contract with a company through its directors in a manner that is beyond the directors' authority under the articles but within the company's objects. Which principle protects the third party?

  1. The doctrine of ultra vires
  2. The doctrine of frustration
  3. The doctrine of lifting the corporate veil
  4. The doctrine of indoor management Correct answer.

Explanation

The rule in Royal British Bank v Turquand protects outsiders who deal in good faith, presuming that internal procedures have been complied with. It applies where the act is within the company's capacity but there is an internal irregularity. Ultra vires concerns acts beyond the company's capacity, not directors' authority.

Question 44Memorandum and Articles of Association; Doctrine of Ultra Vires

Which of the following is a recognized exception to the doctrine of indoor management?

  1. Where the transaction is within the company's objects
  2. Where the directors acted within their stated authority
  3. Where the outsider had actual knowledge of the irregularity Correct answer.
  4. Where the outsider dealt in good faith with the company

Explanation

The indoor management rule presumes good faith and lack of knowledge of internal defects. If the outsider knew or had notice of the irregularity, or the circumstances were suspicious, the protection is lost. Transactions within the objects and authority do not require the doctrine at all.

Question 45Memorandum and Articles of Association; Doctrine of Ultra Vires

Alteration of the articles of association under section 14 of the Companies Act, 2013 requires which form of member approval?

  1. An ordinary resolution
  2. Consent of the Registrar
  3. A board resolution
  4. A special resolution Correct answer.

Explanation

Section 14 requires alteration of the articles to be made by special resolution, with filing with the Registrar. The power is subject to the provisions of the Act and the conditions in the memorandum. An ordinary resolution does not suffice.

Question 46Memorandum and Articles of Association; Doctrine of Ultra Vires

The doctrine of ultra vires was judicially established in which landmark case?

  1. Ashbury Railway Carriage and Iron Co Ltd v Riche Correct answer.
  2. Royal British Bank v Turquand
  3. Lee v Lee's Air Farming Ltd
  4. Salomon v Salomon & Co Ltd

Explanation

Ashbury Railway Carriage and Iron Co Ltd v Riche (1875) established that a company can only act within the objects stated in its memorandum. Acts beyond those objects are void and cannot be ratified. The other cases deal with separate personality and indoor management.

Question 47Memorandum and Articles of Association; Doctrine of Ultra Vires

Which of the following is not a mandatory clause of the memorandum of association under section 4 of the Companies Act, 2013?

  1. The arbitration clause Correct answer.
  2. The capital clause
  3. The objects clause
  4. The liability clause

Explanation

Section 4 lists the name, registered office state, objects, liability, capital, and subscription clauses. An arbitration clause is not among the mandatory memorandum clauses. It may appear in agreements or the articles if the company chooses.

Question 48Memorandum and Articles of Association; Doctrine of Ultra Vires

Where the articles of a company are silent on a particular matter, which source governs the internal management of the company?

  1. The preference of the majority shareholder
  2. The memorandum of association alone
  3. The discretion of the company secretary
  4. The provisions of the Companies Act, 2013, as applicable Correct answer.

Explanation

Where the articles are silent, the relevant provisions of the Companies Act, 2013 apply. The articles are subordinate to the Act and cannot override it. The memorandum governs external objects, not the detailed internal management in this context.

Question 49Memorandum and Articles of Association; Doctrine of Ultra Vires

In which situation can the articles of association be said to constitute a contract between the company and its members?

  1. They bind the company with outsiders who contract with it
  2. They bind the company and members in respect of their membership rights and obligations Correct answer.
  3. They bind only the directors in their personal capacity
  4. They bind only the promoters of the company

Explanation

The articles operate as a contract between the company and each member and among members, but only regarding membership rights. They do not create contractual rights for outsiders. This principle flows from the statutory effect of the articles.

Question 50Memorandum and Articles of Association; Doctrine of Ultra Vires

A company alters its articles to introduce a restriction that prejudices the rights of a minority shareholder. Which judicial principle limits such alteration?

  1. The alteration must be approved by the board of directors
  2. The alteration must be approved by the Registrar before it takes effect
  3. The alteration must be unanimous among all shareholders
  4. The alteration must be bona fide for the benefit of the company as a whole Correct answer.

Explanation

The power to alter articles is subject to the limitation that it must be exercised bona fide in the interest of the company as a whole. This principle, associated with Allen v Gold Reefs of West Africa Ltd, protects minorities from oppressive alterations. Registrar approval and unanimity are not the governing tests.