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PIPFA Intermediate practice questions

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Question 1Corporate Sector Syllabus

Under the Companies Ordinance 1984, which document governs the internal management of a company and sets out rules for meetings, directors' powers and share transfers?

  1. The prospectus
  2. The Memorandum of Association
  3. The statutory report
  4. The Articles of Association Correct answer.

Explanation

The Articles of Association form the internal rulebook of a company, regulating matters such as general meetings, board proceedings, voting rights and transfer of shares. The Memorandum, by contrast, governs the company's relationship with the outside world.

Question 2Corporate Sector Syllabus

A public company limited by shares wishes to issue shares at a discount. Which condition must be satisfied for such an issue to be lawful?

  1. The discount must not exceed 10% and must be approved by ordinary resolution
  2. The shares must be fully paid and the discount approved by the SECP through a prospectus
  3. The issue must be made only to existing members in proportion to their holdings
  4. The company must have been in operation for at least one year and the discount must be sanctioned by the court on a petition Correct answer.

Explanation

Issue of shares at a discount requires that at least one year has elapsed since the company became entitled to commence business, and the discount must be authorised by the court on a petition. Without court sanction, issuing shares below par is generally void.

Question 3Corporate Sector Syllabus

Which of the following best describes the doctrine of ultra vires in the corporate context?

  1. Directors who exceed their authority are personally liable but the company remains bound
  2. Acts beyond the objects stated in the memorandum are void and cannot bind the company Correct answer.
  3. Acts beyond the objects are valid if approved by the majority shareholders
  4. A company may ratify any act beyond its objects by special resolution

Explanation

Under the ultra vires doctrine, a company only has the capacity conferred by its memorandum; acts outside those objects are void and cannot be ratified even by unanimous shareholder approval. This protects investors and creditors by confining corporate activity to stated purposes.

Question 4Corporate Sector Syllabus

In a listed company, the audit committee is typically required to be composed of a majority of independent non-executive directors. What is the principal purpose of this requirement?

  1. To speed up the approval of related-party loans
  2. To reduce the company's tax liability through expert advice
  3. To guarantee higher dividend payouts to shareholders
  4. To ensure objective oversight of financial reporting and the external audit process Correct answer.

Explanation

An audit committee dominated by independent directors provides objective scrutiny of financial statements, internal controls and the auditor's independence. Independence reduces the risk that management influences the review of its own reporting.

Question 5Corporate Sector Syllabus

A company's board wishes to appoint an additional director between two annual general meetings. Which statement reflects the usual statutory position?

  1. Only the members in general meeting may fill a casual vacancy, with no board power
  2. The board may appoint a director for a full three-year term without member approval
  3. The board may appoint a casual vacancy director who holds office until the next AGM Correct answer.
  4. The appointment requires prior SECP approval before it takes effect

Explanation

Boards generally have the power to fill casual vacancies, but a director so appointed holds office only until the next general meeting, at which members may confirm or replace the appointment. This preserves shareholder control over board composition.

Question 6Corporate Sector Syllabus

Which of the following is a key distinction between a private and a public company under Pakistani company law?

  1. A private company must have at least seven members
  2. A private company must file a prospectus before commencing business
  3. A public company cannot issue debentures to the public
  4. A private company restricts the right to transfer its shares and limits the number of members Correct answer.

Explanation

A private company is characterised by restrictions on share transfer, a cap on the number of members and a prohibition on inviting the public to subscribe for its securities. A public company lacks these restrictions and may raise capital from the public.

Question 7Corporate Sector Syllabus

At a general meeting, a resolution is passed by a simple majority of members present and voting. Which type of resolution is this?

  1. Special resolution requiring three-fourths majority
  2. Ordinary resolution Correct answer.
  3. Resolution by circulation
  4. Special resolution

Explanation

An ordinary resolution requires a simple majority of votes cast by members present and voting. A special resolution requires a higher threshold, typically three-fourths of votes cast.

Question 8Corporate Sector Syllabus

A company declares a dividend out of profits, but the dividend is paid to shareholders whose names appear on the register on a specified date. What is this date called?

  1. The record date Correct answer.
  2. The date of incorporation
  3. The ex-dividend date
  4. The book closure date for the AGM

Explanation

The record date is the cut-off date used to determine which shareholders are entitled to receive a declared dividend. Only persons on the register at that date qualify for payment.

Question 9Corporate Sector Syllabus

Which of the following transactions would generally be classified as a related-party transaction requiring disclosure in a listed company's financial statements?

  1. Sale of goods to a customer with no connection to directors or major shareholders
  2. A purchase of office stationery from an unrelated supplier at market price
  3. A loan advanced by the company to a director's wholly owned private firm Correct answer.
  4. Payment of statutory audit fees to the external auditor

Explanation

A transaction between the company and an entity controlled by a director is a related-party transaction because a key management person has an interest on both sides. Such transactions require disclosure to allow users to assess whether they were conducted on arm's-length terms.

Question 10Corporate Sector Syllabus

Under the concept of separate legal personality, which statement is correct?

  1. The company's liabilities automatically pass to its major shareholders
  2. The company is a legal person distinct from its shareholders and directors Correct answer.
  3. Directors own the company's assets in trust for creditors
  4. Shareholders are personally liable for all company debts

Explanation

Once incorporated, a company becomes a legal person separate from its members and officers, owning its own assets and bearing its own liabilities. Shareholders' liability is generally limited to any amount unpaid on their shares.

Question 11Corporate Sector Syllabus

A director consistently fails to attend board meetings and neglects her fiduciary duties, causing loss to the company. Which course of action is available to the company?

  1. Take no action because directors cannot be removed before their term expires
  2. Remove the director only by an order of the SECP
  3. Remove the director by ordinary resolution after giving special notice Correct answer.
  4. Require the director to resign by a resolution of the audit committee

Explanation

Company law generally permits removal of a director by ordinary resolution of the members, provided special notice of the intended resolution is given. This power exists notwithstanding anything in the articles or any agreement with the director.

Question 12Corporate Sector Syllabus

Which of the following best explains the purpose of the statutory auditor's report?

  1. To express an opinion on whether the financial statements give a true and fair view Correct answer.
  2. To confirm that all directors have complied with tax law
  3. To certify that the company will remain profitable in the next year
  4. To approve the company's dividend declaration

Explanation

The auditor's report conveys an independent opinion on whether the financial statements present a true and fair view in accordance with the applicable reporting framework. It does not guarantee future profitability or approve management decisions.

Question 13Corporate Sector Syllabus

A company wishes to alter its object clause to enter a new line of business. What is the usual statutory procedure?

  1. Pass a special resolution and obtain approval or file the requisite notice with the registrar Correct answer.
  2. Obtain board approval only, without member involvement
  3. File a revised prospectus with the stock exchange
  4. Pass an ordinary resolution and inform the auditors

Explanation

Alteration of the objects clause generally requires a special resolution of members and compliance with the prescribed filing or approval requirements with the registrar. Member approval protects shareholders who invested on the basis of the original objects.

Question 14Corporate Sector Syllabus

Which document must a company prepare and maintain to record the names of its members and the shares held by each?

  1. The minutes book of board meetings
  2. The register of members Correct answer.
  3. The register of charges
  4. The annual return

Explanation

The register of members is the statutory record of shareholders, showing their names, addresses and the shares held. It is prima facie evidence of membership and underpins voting and dividend entitlements.

Question 15Corporate Sector Syllabus

A listed company is required to constitute a board with a specified proportion of independent directors. What is the main rationale for this requirement?

  1. To reduce the company's cost of regulatory compliance
  2. To allow the CEO to chair all board committees
  3. To increase the number of board meetings held each year
  4. To mitigate agency conflicts by ensuring board decisions are not dominated by management Correct answer.

Explanation

Independent directors help address agency problems between managers and shareholders by bringing objective judgement to board deliberations. Their presence is intended to curb management entrenchment rather than affect meeting frequency or costs.

Question 16Corporate Sector Syllabus

A company creates a floating charge over its stock-in-trade. Which characteristic distinguishes a floating charge from a fixed charge?

  1. The charge must be registered within thirty days of creation to be valid against the company itself
  2. The charge can only be created in favour of a bank
  3. The charge attaches to a specific identified asset from the outset
  4. The company may deal with the charged assets in the ordinary course of business until the charge crystallises Correct answer.

Explanation

A floating charge hovers over a fluctuating class of assets, allowing the company to buy, sell and replace them in the ordinary course until crystallisation. A fixed charge, by contrast, attaches immediately to specific identified assets.

Question 17Corporate Sector Syllabus

Which of the following statements about the doctrine of lifting the corporate veil is most accurate?

  1. Courts routinely disregard separate personality whenever a company becomes insolvent
  2. Courts may disregard separate personality where the company is used as a sham or façade to evade legal obligations Correct answer.
  3. Shareholders may request veil lifting to avoid personal liability
  4. The veil is lifted automatically when a company fails to pay dividends

Explanation

Veil lifting is exceptional and generally confined to cases where the corporate form is misused as a façade to conceal wrongdoing or evade obligations. Insolvency alone does not justify disregarding separate personality.

Question 18Corporate Sector Syllabus

A company's board passes a resolution by circulation instead of holding a meeting. Which condition is normally required for such a resolution to be valid?

  1. It must be passed within twenty-four hours of circulation
  2. It must be circulated in draft together with the necessary papers and approved by the requisite majority of directors Correct answer.
  3. It must be ratified by the external auditor
  4. It must be approved unanimously by all shareholders

Explanation

Resolutions by circulation are valid where the draft resolution and supporting papers are circulated to all directors and the required majority approves it in writing. This allows the board to act efficiently between meetings while preserving collective decision-making.

Question 19Corporate Sector Syllabus

Which of the following is an example of a statutory pre-emption right in the context of share issues?

  1. Shares must be allotted only to institutional investors
  2. Existing shareholders must be offered new shares in proportion to their holdings before they are issued to outsiders Correct answer.
  3. Directors must obtain shareholder approval before issuing any debenture
  4. New shares must be issued at a premium to their nominal value

Explanation

Pre-emption rights protect existing shareholders against dilution by requiring that new equity be offered to them first in proportion to their existing holdings. The right may be disapplied only through the prescribed corporate procedure.

Question 20Corporate Sector Syllabus

A director of a company also holds a substantial shareholding in a supplier that the company intends to contract with. What should the director do under conflict-of-interest rules?

  1. Conceal the interest to avoid disrupting board harmony
  2. Vote in favour of the contract to demonstrate confidence in the supplier
  3. Disclose the interest to the board and abstain from voting on the transaction Correct answer.
  4. Resign from the board before the contract is discussed

Explanation

Directors owe a duty to avoid conflicts of interest and must disclose any material interest in a proposed transaction to the board. Abstaining from the relevant vote prevents the director from using their position to influence a decision in which they are personally interested.

Question 21Corporate Sector Syllabus

In the context of corporate social responsibility reporting for listed companies, what is the primary purpose of the CSR disclosure requirement?

  1. To guarantee that companies make charitable donations each year
  2. To transfer environmental liabilities to the government
  3. To replace the statutory audit with a social audit
  4. To require companies to report on activities benefiting society and the environment alongside financial performance Correct answer.

Explanation

CSR disclosure obliges listed companies to report on social and environmental activities, giving stakeholders transparency about non-financial impact. It supplements rather than replaces financial reporting and audit.

Question 22Corporate Sector Syllabus

A company fails to file its annual return with the registrar within the prescribed period. What is the typical consequence?

  1. The company is automatically dissolved on the day the return is due
  2. The company's shares are cancelled and reissued to the registrar
  3. The company and its officers become liable to pay additional fees and may face penalties for continued default Correct answer.
  4. The directors are disqualified from holding office permanently

Explanation

Late filing of statutory returns generally attracts additional filing fees and penalties, and continued default can lead to further regulatory action. Automatic dissolution, permanent disqualification or share cancellation are not the ordinary consequences of a late return.

Question 23Corporate Sector Syllabus

Which of the following best describes the role of the company secretary in a listed company?

  1. To set the company's product pricing strategy
  2. To act as the sole legal representative in all litigation
  3. To audit the financial statements and issue an opinion
  4. To ensure compliance with statutory and regulatory requirements and maintain proper records Correct answer.

Explanation

The company secretary is responsible for corporate compliance, board administration and maintenance of statutory records. The role supports governance rather than performing audit, commercial or exclusive litigation functions.

Question 24Corporate Sector Syllabus

A company redeems preference shares out of the proceeds of a fresh issue of shares made for the purpose of redemption. Which principle does this illustrate?

  1. Redemption must always be funded by borrowing from a bank
  2. Preference shares can never be redeemed during the life of the company
  3. Redemption requires the consent of the external auditor
  4. Redeemable preference shares must be redeemed out of distributable profits or the proceeds of a fresh issue Correct answer.

Explanation

Company law permits redemption of redeemable preference shares only out of distributable profits or the proceeds of a fresh issue of shares made for redemption. This protects creditors by preventing redemption from eroding capital funded by borrowings.

Question 25Corporate Sector Syllabus

Which of the following is the most appropriate description of the business judgement rule as applied to directors?

  1. Directors may delegate all decision-making to shareholders to avoid liability
  2. Directors are liable for every decision that later proves commercially unsuccessful
  3. Directors are protected from liability where they act in good faith, on an informed basis and in the best interests of the company Correct answer.
  4. Directors are immune from liability whenever the company makes a loss

Explanation

The business judgement rule shields directors from hindsight liability where decisions are made honestly, with due care and in the company's best interests. It does not protect bad faith, conflicts of interest or gross negligence.

Question 26Corporate Sector Syllabus

Under the Companies Act 2017, what is the minimum number of directors required for a public company other than a listed company?

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

Explanation

Section 154 of the Companies Act 2017 provides that a public company must have at least three directors, while a private company needs a minimum of two. A listed company is subject to a higher requirement set by the SECP through regulation. The minimum for an unlisted public company is therefore three.

Question 27Corporate Sector Syllabus

A company wishes to issue shares at a discount to its existing members. Which authority must normally approve an issue of shares at a discount under the Companies Act 2017?

  1. The statutory auditor in the audit report
  2. The company in general meeting by special resolution plus SECP sanction Correct answer.
  3. The board of directors by simple majority
  4. The Securities and Exchange Commission of Pakistan through an order

Explanation

Shares may generally not be issued at a discount because that would dilute capital contrary to the principle of maintaining share capital. The Act permits a discounted issue only where the company passes a special resolution and the SECP grants its sanction, subject to conditions on amount and timing. Neither the board alone nor the auditor can authorise it.

Question 28Corporate Sector Syllabus

A company's articles vest the power to appoint additional directors in the board. The board appoints two additional directors, but the company in general meeting subsequently rejects the appointments. What is the legal effect?

  1. The appointments stand because the articles authorised the board
  2. The appointments are valid for the full term of the board unless challenged in court
  3. The appointments lapse, since an appointment by the board under such a power ordinarily lasts only until the next general meeting Correct answer.
  4. The appointments are void from the outset because members never approved them

Explanation

Where the articles empower the board to appoint additional directors, that power is normally exercisable only until the next general meeting of the company. The members retain ultimate control over board composition, so their rejection causes the appointments to lapse. The appointees cannot serve a full term against the members' decision.

Question 29Corporate Sector Syllabus

Which of the following best describes the quorum requirement for a general meeting of a public company under the Companies Act 2017?

  1. Members holding at least one-tenth of the total voting power must be present
  2. The chairman alone may constitute the quorum if no members attend
  3. At least two members present in person, or by proxy, must constitute the quorum unless the articles require more Correct answer.
  4. A quorum is unnecessary if all resolutions are passed by circulation

Explanation

For a public company, the Act sets the quorum for a general meeting at two members present in person or by proxy, unless the articles prescribe a larger number. The quorum ensures that decisions are taken with a minimum level of member participation. A single chairman or a paper process cannot substitute for the statutory quorum.

Question 30Corporate Sector Syllabus

A company has accumulated significant losses and its net assets fall below half of its paid-up capital. Which course of action does the Companies Act 2017 typically require the directors to take?

  1. Transfer the shortfall to the share premium account
  2. Immediately wind up the company voluntarily
  3. Convene a general meeting to consider whether the company should be wound up or continue Correct answer.
  4. Increase the dividend payout to restore investor confidence

Explanation

Where losses erode capital so that net assets fall to half or less of paid-up capital, the Act requires the directors to convene a general meeting within the prescribed period. The meeting considers whether the company should be wound up or continue in business. The decision is left to the members rather than being automatic.

Question 31Corporate Sector Syllabus

Which body is primarily responsible for administering the Companies Act 2017 and regulating corporate entities in Pakistan?

  1. The State Bank of Pakistan
  2. The Securities and Exchange Commission of Pakistan Correct answer.
  3. The Federal Board of Revenue
  4. The Pakistan Stock Exchange

Explanation

The SECP is the corporate regulator charged with administering the Companies Act 2017 and supervising company incorporation, filings and compliance. The State Bank regulates banking, the exchange operates the market, and the FBR handles taxation. Corporate law administration therefore rests with the SECP.

Question 32Corporate Sector Syllabus

A shareholder holding 12% of the voting shares of a public company believes that the affairs of the company are being conducted in a manner oppressive to members. Which remedy is available to her under the Companies Act 2017?

  1. She may apply to the court for relief against oppression and mismanagement Correct answer.
  2. She may unilaterally remove the directors by written notice
  3. She may apply to the SECP to wind up the company administratively
  4. She may require the auditor to restate the financial statements

Explanation

The Act provides a remedy for members who allege that company affairs are being conducted oppressively or in disregard of their interests. A qualifying member may petition the court, which can grant a range of orders including regulating future conduct or altering the articles. The remedy is judicial, not administrative.

Question 33Corporate Sector Syllabus

What is the principal purpose of the memorandum of association of a company?

  1. To record the minutes of board meetings
  2. To list the names of the company's auditors and their remuneration
  3. To record the internal management rules of the company
  4. To define the company's constitution and its relationship with the outside world, including its objects and capital Correct answer.

Explanation

The memorandum is the company's charter and governs its external relations, setting out its name, objects, registered office, liability and capital. The articles, by contrast, contain the internal management rules. Minutes and auditor details are recorded elsewhere.

Question 34Corporate Sector Syllabus

A private company wishes to convert into a public company. Which step is essential under the Companies Act 2017?

  1. Obtain the consent of the State Bank of Pakistan
  2. Appoint a liquidator to oversee the transition
  3. Pass a special resolution and file the required documents with the SECP for approval Correct answer.
  4. Sell all shares to the general public before conversion

Explanation

Conversion from a private to a public company requires member approval by special resolution together with an application and supporting documents to the SECP. The regulator then issues a certificate confirming the change of status. Conversion does not require a public share offering or a liquidator.

Question 35Corporate Sector Syllabus

Which of the following statements about the liability of members of a company limited by guarantee is correct?

  1. Members undertake to contribute a fixed amount to the company's assets if it is wound up Correct answer.
  2. Members have no liability whatsoever in any circumstances
  3. Members are liable for the company's debts without any limit
  4. Members are liable only to the extent of any unpaid amount on their shares

Explanation

In a company limited by guarantee, members do not hold shares but each undertakes to contribute a specified amount to the company's assets in the event of winding up. That guaranteed amount is the limit of their liability. The guarantee is typically used by non-profit or association-type entities.

Question 36Corporate Sector Syllabus

A company's articles contain an entrenched provision requiring a 75% majority to amend a particular clause. A group holding 80% of shares wishes to amend it. What is the position?

  1. The entrenched provision must be complied with, and the amendment must satisfy the higher majority specified Correct answer.
  2. The amendment is valid only if the court approves it
  3. The amendment is valid because 80% exceeds the ordinary special resolution threshold
  4. Entrenched provisions are unenforceable and can be ignored

Explanation

Entrenchment provisions in the articles bind the company and its members and require the higher majority specified for the protected clause to be amended. A group exceeding the ordinary special resolution threshold must still meet the entrenched requirement. Ignoring the provision would render the amendment invalid.

Question 37Corporate Sector Syllabus

Which of the following best describes the duty of a director to avoid conflicts of interest under the Companies Act 2017?

  1. A director must disclose his interest in any contract or arrangement and generally must not vote or count in the quorum on that matter Correct answer.
  2. A director may deal with company property for personal benefit if the transaction is profitable
  3. A director's interest need only be disclosed in the annual audited accounts
  4. A director may vote on any contract in which he is interested provided the board later ratifies it

Explanation

Directors owe a fiduciary duty to the company and must disclose any interest in a proposed contract or arrangement. Unless the articles permit otherwise, an interested director cannot vote or be counted in the quorum on that item. Disclosure in the accounts alone is not a substitute for the statutory process.

Question 38Corporate Sector Syllabus

A company proposes to pay a final dividend for the year. Which source of funds is legally available for that distribution?

  1. Profits available for distribution as shown in the audited accounts Correct answer.
  2. The paid-up share capital
  3. Proceeds of a fresh issue of shares
  4. The share premium account

Explanation

Dividends may be paid only out of profits available for distribution, determined by reference to the company's accounts prepared under the Act. Capital, share premium and proceeds of a share issue are not distributable profits. Paying dividends from capital would breach the capital maintenance rule.

Question 39Corporate Sector Syllabus

Under the Companies Act 2017, which register must a company maintain to record the particulars of its directors and their shareholdings?

  1. The register of members
  2. The register of charges
  3. The register of directors and officers, together with their shareholdings Correct answer.
  4. The register of debenture holders

Explanation

The Act requires a company to keep a register of directors and officers that records their particulars, including any shareholdings. This register supports transparency about who controls the company. Registers of members, charges and debenture holders serve different statutory purposes.

Question 40Corporate Sector Syllabus

A company's board wishes to borrow funds and create security over its assets. Which internal document typically governs the borrowing powers and any limits on them?

  1. The annual return filed with the registrar
  2. The memorandum of association only
  3. The auditor's engagement letter
  4. The articles of association and any members' resolution authorising the borrowing Correct answer.

Explanation

Borrowing powers are usually conferred on the board by the articles, and the Act or articles may require member authorisation for borrowing beyond specified limits. The memorandum sets out objects and capital but does not usually contain detailed borrowing procedures. The engagement letter and annual return do not govern borrowing powers.

Question 41Corporate Sector Syllabus

What is the effect of registration of a charge created by a company with the registrar under the Companies Act 2017?

  1. The charge becomes enforceable against the company only, not third parties
  2. Registration discharges the debt secured by the charge
  3. The charge is treated as void against a liquidator and creditors if not registered within the prescribed period Correct answer.
  4. Registration converts the charge into a fixed charge automatically

Explanation

Certain charges must be registered with the registrar within the prescribed period. If registration is not effected in time, the charge is void against the liquidator and creditors of the company, although the underlying debt remains. Registration protects third parties by giving public notice of the security.

Question 42Corporate Sector Syllabus

A listed company is required to prepare a corporate governance statement. Which of the following is the most appropriate content of that statement?

  1. The company's marketing strategy for new products
  2. The personal tax returns of the directors
  3. A detailed profit forecast for the next five years
  4. A description of the governance framework, board composition and compliance with the code of corporate governance Correct answer.

Explanation

The corporate governance statement discloses how the company applies the applicable code, including board composition, committees and compliance. Its purpose is to give shareholders transparency about how the company is directed and controlled. Profit forecasts, personal tax data and marketing plans fall outside its scope.

Question 43Corporate Sector Syllabus

Which statement accurately describes the rule in Foss v Harbottle as applied in Pakistani company law?

  1. Any single shareholder may sue on any cause of action belonging to the company
  2. Directors may sue shareholders on behalf of the company without board approval
  3. The auditor is the proper plaintiff for wrongs against the company
  4. Where a wrong is done to the company, the proper plaintiff is the company itself, subject to recognised exceptions Correct answer.

Explanation

The rule in Foss v Harbottle establishes that, where a wrong is done to the company, the company is the proper plaintiff and the majority rule prevails. Recognised exceptions include fraud on the minority and acts requiring a special majority. The rule prevents a single member from litigating every grievance.

Question 44Corporate Sector Syllabus

Under the Companies Act 2017, what is the usual consequence for a director who fails to disclose a material interest in a transaction that the company enters into?

  1. The transaction is always automatically void regardless of circumstances
  2. No consequence arises if the transaction was profitable for the company
  3. The director may be liable to account to the company and the transaction may be set aside at the company's instance Correct answer.
  4. The director is personally liable only for the company's tax liabilities

Explanation

A director who fails to disclose an interest breaches his fiduciary duty and may be required to account to the company for any benefit. The company may also be able to set the transaction aside. Profitability of the transaction does not cure the breach.

Question 45Corporate Sector Syllabus

Which of the following is the correct description of an annual general meeting for a public company under the Companies Act 2017?

  1. It must be held every quarter
  2. It is optional for companies with fewer than fifty members
  3. It may be dispensed with if the board passes a resolution to that effect
  4. It must be held once in every calendar year within the prescribed interval from the previous one Correct answer.

Explanation

A public company must hold an annual general meeting each year, and the gap between successive annual general meetings must not exceed the interval prescribed by the Act. The meeting gives members the opportunity to consider accounts and other business. The board cannot dispense with it by resolution, and it is not optional based on member numbers.

Question 46Corporate Sector Syllabus

A company wishes to reduce its share capital. Which of the following best reflects the statutory route under the Companies Act 2017?

  1. The auditor may approve a capital reduction in the audit report
  2. Capital can be reduced simply by transferring the amount to a dividend account
  3. The company may reduce capital with member approval by special resolution and with the sanction of the court or as otherwise permitted by the Act Correct answer.
  4. The board may reduce capital by resolution without member involvement

Explanation

Reduction of share capital requires member approval by special resolution and, in the ordinary case, confirmation by the court, since creditors must be protected. The Act provides a structured procedure to safeguard capital maintenance. Neither the board alone nor the auditor can authorise a reduction.

Question 47Corporate Sector Syllabus

Which of the following statements about the disqualification of directors under the Companies Act 2017 is correct?

  1. A disqualified director may continue in office if the board resolves to retain him
  2. Disqualification applies only to listed companies
  3. A director is disqualified automatically upon any late filing by the company
  4. A person convicted of fraud or breach of trust may be disqualified from acting as a director for the period specified by law Correct answer.

Explanation

The Act disqualifies persons with certain convictions, such as fraud or breach of trust, from acting as directors for the period specified. Disqualification protects the public and the integrity of corporate management. A board resolution cannot override a statutory disqualification.

Question 48Corporate Sector Syllabus

A company's auditor resigns before the end of his term. Which statement best describes the required action under the Companies Act 2017?

  1. The resigning auditor must personally appoint a successor
  2. The resignation takes effect immediately with no further formality
  3. The board may leave the audit function vacant until the next annual general meeting
  4. The auditor must file a statement of circumstances with the company and the registrar, and a replacement is appointed as required Correct answer.

Explanation

A resigning auditor is required to deposit a statement of circumstances connected with the resignation with the company and the registrar. The vacancy is then filled in accordance with the Act, generally by the members or the board subject to later confirmation. The auditor cannot simply walk away without formality or appoint his own successor.

Question 49Corporate Sector Syllabus

Which of the following best describes the concept of 'lifting the corporate veil' in the context of group companies?

  1. The veil is lifted automatically whenever a subsidiary makes a loss
  2. The court always treats all group companies as a single entity for all purposes
  3. The court may disregard separate legal personality where the corporate form is used as a sham or to evade legal obligations Correct answer.
  4. Shareholders become personally liable whenever a company is sued

Explanation

Courts may disregard separate legal personality in limited circumstances, for example where the corporate structure is a mere facade used to evade obligations or commit fraud. The power is exceptional and not a general rule for group companies. Ordinary losses or litigation do not by themselves expose shareholders.

Question 50Corporate Sector Syllabus

Under the Companies Act 2017, what is the primary function of the company's statutory auditor?

  1. To express an independent opinion on whether the financial statements give a true and fair view Correct answer.
  2. To set the remuneration of the directors
  3. To approve related-party transactions before they are signed
  4. To manage the day-to-day operations of the company

Explanation

The statutory auditor examines the financial statements and expresses an independent opinion on whether they give a true and fair view in accordance with applicable standards. The auditor does not manage the company or set director pay. Related-party transactions are approved by the board or members, not by the auditor.