11th SP 3rd Chapter Exercise (Formation of a Company) Maharashtra Board – Free Resource

11th SP 3rd Chapter Exercise

Chapter 3 – Formation of a Company

Q.1 (A) Select the correct option and rewrite the sentences.

1) A company is ………….. .
a) a human being
b) an artificial person created by law
c) a natural individual

2) …………… are the persons who undertake the process of formation of a company.
a) Promoters
b) Directors
c) Registrar of companies

3) A ………….. company needs minimum two or more members.
a) Public
b) Private
c) One person Company

4) In a public company there must be minimum …………… or more members.
a) one
b) two
c) seven

5) ………… refers to contracts entered into by the promoters on behalf of a proposed company.
a) Pre-incorporation/Preliminary contracts
b) Fiduciary contracts
c) Memorandum of Association

6) A Director must have a …………. to be appointed as a Director of a company.
a) PAN
b) DIN
c) CIN

7) …….. has 21 digit alpha-numeric code which is a unique number assigned to every company at the time of Incorporation.
a) DIN
b) PIN
c) CIN

8) ……….. is a document which invites the public to buy the shares of a company.
a) Articles of Association
b) Prospectus
c) Certificate of Incorporation.

Q.1 (B) Match the pairs.

Group A	Group B
a) Minimum 7 members	1) Persons who conceive idea of setting up a company
b) DIN	2) Public Company
c) Preliminary contracts	3) Promoters
d) Fiduciary duties towards the company	4) Nine Digit alphanumeric number
e) CIN	5) Private company
	6) Unique number assigned to each Director
	7) ROC
	8) 21-digit alphanumeric code number
	9) One Person Company
	10) Contracts entered by Promoters with third parties

Answers.
a. 2) Public Company
b. 6) Unique number assigned to each Director
c. 10) Contracts entered by Promoters with third parties
d. 3) Promoters
e. 8) 21-digit alphanumeric code number

Q.1 (C) Give one word/phrase/term for the following statements.

1) Term which means registering a company as per provisions of Companies Act, 2013.
Answer: Incorporation

2) Persons who undertake the necessary steps to set up a company.
Answer: Promoters

3) Term which refers to contracts entered into by Promoters with third parties on behalf of the proposed company.
Answer: Preliminary contracts

4) The Birth Certificate of a company.
Answer: Certificate of Incorporation

Q.1 (D) State True or False.

1) A company is an artificial person. (True)

2) To form a Public company, there must be minimum 2 persons/promoters. (False)

3) Promoters are persons who take the necessary steps to set up a company. (True)

4) Promoters can make secret profits while setting up a company. (False)

5) In India companies have to be incorporated as per the provisions of Companies Act, 2013. (False)

6) DSC is needed by Directors when they have to sign documents for e-filing. (False)

7) A company can be registered even without submitting Memorandum of Association and Articles of Association. (False)

8) Every Director has to quote his DIN while giving his consent to be a Director of a company. (True)

9) ROC issues CIN only to certain companies. (False)

10) All companies need Certificate of Incorporation. (True)

11) All companies need Certificate of Commencement of business. (False)

Q.1 (E) Find the odd one.

1) CIN, DIN, PAN

2) Promotion, Prospectus, Incorporation of a company

Q.1 (F) Complete the sentences.

1) Promoters are the persons who undertake the process of Formation of a company.

2) The document issued by the Registrar of companies when a company is incorporated is called as Certificatie of Incorporation.

3) On incorporation of a company the ROC allots a unique identity number called as Corporate Identity Number/CIN.

4) On behalf of a proposed company, preliminary contracts with third parties are entered by Promoters.

Q.1 (G) Complete the following table.

Group A	Group B
1) Promoter	Formation of a company
2) Birth Certificate of a company	Certificate of Incorporation
3) CIN	Corporate Identity Number
4) RUN is used for	Reserving name of a company

Q.1 (H) Answer in one sentence.

1) Who is a Promoter?
Answer: The Persons who undertake the process of promotion of a company are called as ‘Promoters’. A promoter can be an individual, a partner, a company, an association or a syndicate.

2) What is CIN?
Answer: CIN is a 21 digit alpha numeric code and is to be quoted in every form and correspondence that the company uses.

3) Which company needs Certificate of Commencement of Business?
Answer: A Public Limited Company needs Certificate of Commencement of Business.

4) What are Preliminary Contracts?
Answer: Preliminary contracts are the contracts which are entered into by the promoters on behalf of the company before its incorporation with third Parties.

Q.1(I) Correct the underlined word and rewrite the following sentences.

1) ROC prepares draft Memorandum and Articles of Association.
Answer: Promoters

2) Certificate of Commencement of Business is like a birth certificate of a company
Answer: Certificate of Incorporation

Q.1(J) Arrange in proper order

1)
a) Appoint First Directors
b) Prepare Draft Memorandum of Association and Articles of Association.
c) Come up with business idea

Answer:
a) Come up with business idea
b) Prepare draft M/A and A/A
c) Appoint first Directors

2)
a) Incorporation of a company
b) Commencement of a company
c) Promotion

Answer:
a) Promotion
b) Incorporation of a Co.
c) Commencement of Business

Q.2 Explain the following terms/concepts.

1) Promoters
Answer:
a) The Persons who undertake the process of promotion of a company are called as ‘Promoters’.
b) Promoters are the ones who come up with the idea of starting a business.
c) A promoter can be an individual, a partner, a company, an association, or a syndicate.
d) They prepare the various documents needed for incorporation of a company like Memorandum and Articles of Association.

2) Promotion
Answer: Where promoters, the ones who want to form a company, take the necessary steps to incorporate a company.

Promotion of a company means taking all the necessary steps to incorporate a company as per the provisions of the Companies Act, 2013.

3) Certificate of Incorporation
Answer: A certificate that is issued by the Registrar of Companies after its registration, signifying the birth of the company, is called the Certificate of Incorporation.
It is required to be obtained by all companies i.e. Public Limited companies as well as Private Limited companies.

The certificate of Incorporation contains:

(a) the name of the company
(b) the date of issue
(c) Corporate Identity Number to indicate whether a company is listed or unlisted, industry code, state of its location, year of incorporation, ownership type and registration number.
(d) Permanent Account Number (PAN) and Tax Deduction and Collection Account Number of the company.
(e) Signature of Registrar with the date and his seal.

4) SPICe
Answer: Rule 38 of Companies (Incorporation) (Fourth Amendment) Rules has introduced, with effect from 2.10.2016, a simplified integrated process for the incorporation of a company. Under this, only one form-Form INC-32 (SPICe), needs to be submitted at the time of incorporation of a company.

SPICe is to be filed for applying for:
i) Reservation of Name of Company
ii) Incorporation of a new company
iii) DIN for Directors
iv) PAN and TAN for a new company

5) CIN
Answer: Corporate Identity Number – issued by ROC at the time of incorporation of a Company. It indicates whether a company is listed or unlisted, Industry code, state of its location, year of incorporation, ownership type and registration number.
E.g., CIN. of Air India Ltd. – U62100DL 1992GOI048581

At the time of issuing a Certificate of Incorporation the ROC also allots a CIN to the Company which is its unique identity number. CIN is a 21 digit alpha-numeric code and is to be quoted in every form and correspondence that the company uses.

Solution of other subjects
Solution of all Chapters of SP
1 – 2 – 3 – 4 – 5 – 6 – 7 – 8

Q.3 Study the following case/situation and express your opinion.

1) Mr. Ram, Mr. Sam and Mr. Tom who are partners have come together to convert their business into a company. They have finalized all the details about the business they want to do, capital needed, etc. However, they do not know how to proceed with the legal formalities. Hence they appoint Mr. Shah who is a Practicing Company Secretary to help them prepare documents needed for incorporating the proposed company.

Questions:

a) Can Mr. Ram, Mr. Sam and Mr. Tom convert their partnership firm into a company?
b) Name 2 most important documents needed to incorporate a company.
c) Will Mr. Shah be considered as a Promoter of the Company? Why?

Solution:
a) Mr. Ram, Mr. Sam and Mr. Tom can convert their partnership firm into a company. They can convert their partnership firm into a Private Company as it needs a minimum of 2 promoters/persons.
b) Memorandum of Association and Articles of Association are the 2 most important documents needed to incorporate a company.
c) Mr. Shah will not be considered as promoter of the company. This is because Mr. Shah Who is a practicing Company Secretary only assists the partners in completing the legal formalities in a professional capacity.

2) Mr. T along with his 5 friends have submitted all the necessary documents for incorporation
of TRIM private limited company.

a) How many minimum promoters are needed to incorporate a private company?
b) When can TRIM Private limited company be said to have come into existence?
c) Name the two most important documents that must be submitted at the time of
Incorporation of a company.

Solution:
a) A minimum 2 promoters are needed to incorporate a private company.
b) When Registrar of Companies (ROC) issues a certificate of incorporation to TRIM private Limited company, it is said to have come into existence.
c) The two most important documents i.e Memorandum of Association and Articles of Association must be submitted to the Registrar of Companies (ROC) at the time of incorporation of a company.

3) Sagar company limited got its Certificate of Incorporation on 1st Sept. 2018. The application
for Incorporation was submitted on 16th Aug. 2018. There were 10 promoters who took the steps to incorporate the company.

a) State the date on which Sagar company limited came into existence legally?
b) On which date will the company get its Corporate Identity Number?
c) How many minimum promoters are needed for incorporating a public company?

Solution:
a) On 1st September, 2018, Sagar Company Limited comes into existence legally.
b) On 1st September, 2018, the Sagar Company Limited will get its Corporate Identity Number (CIN).
c) Minimum 7 promoters are needed for incorporating a public company.

Q.4 Answer in brief.

1) State the contents of the Certificate of Incorporation.

Answer:
After verifying that all the documents and information submitted to it is proper, the Registrar
of Companies will enter the name of the company in the Register of Companies and certifies under his hand that the company is incorporated. Registrar issues the Certificate of Incorporation in the prescribed form.

Contents of Certificate of Incorporation:
i) the name of the company.
ii) date of issue of Certificate of Incorporation.
iii) CIN.
iv) PAN and TAN of the company.
v) Signature of Registrar with date and his seal.

2) State the importance of Certificate of Incorporation.

Answer:
Importance of Certificate of Incorporation:

i) Certificate of Incorporation is like the Birth Certificate of the Company as the company comes
into existence from the date mentioned in the certificate.
ii) The Company now becomes a legal person distinct from its members.
iii) Company becomes a body corporate having perpetual succession from the date of its
incorporation
iv) The company can sue and be sued upon others in its own name.

3) Write a note on – Role of Promoter.

Answer:
Role of Promoters:

i) Promoters are the ones who come up with the idea of starting a business.
ii) They decide the objects of the business, amount of capital needed, scale of business operation etc.
iii) They prepare the various documents needed for incorporation of a company like Memorandum and Articles of Association.
iv) Approach investors for collecting capital for the company.
v) Promoters often nominate themselves as first directors of the company and are first subscribers to Memorandum and Articles of Association.
vi) The promoters can enter into contracts with third parties on behalf of the proposed company.

These contracts are called as ‘Pre-incorporation contracts’ or ‘Preliminary Contracts’. For e.g..
Contracts for preparing and printing Memorandum and Articles of Association, hiring office
premises, etc.
vii) Promoters have fiduciary duties towards the company they are setting up. They are supposed to act in such a manner so as to protect and promote the interest of the proposed company . They cannot make any secret profits while promoting a company.

4) Draw and explain the flow chart of steps in promotion of a company.

Answer:

Solution of other subjects
Solution of all Chapters of SP
1 – 2 – 3 – 4 – 5 – 6 – 7 – 8

Q.5 Justify the following statements.

1) Certificate of Incorporation is like a Birth Certificate of a company.

Answer:
a) a certificate in the prescribed form issued by the Registrar of Companies to the company after its registration, signifying its birth is called the Certificate of Incorporation.
b) A Certificate of the corporation is like a Birth certificate of the company because the company came into existence from the date of the issue of a certificate of incorporation.
c) It is legal proof of the fact that the company is incorporated.
d) After getting the certificate of incorporation, a company becomes a legal or artificial person having a distinct identity or personality.
e) Although it has no body, soul, and physical existence, still recognized as a person in the eyes of law.

2) Every Company on incorporation gets a CIN.

Answer:
a) CIN Is the Corporate Identity Number of a company.
b) CIN shows whether a company is a listed company or unlisted company, industry code number, state of its location, year of incorporation, type of company, and registration number given by ROC.
c) So, CIN becomes the company’s unique identity number. Every incorporated company is required to quote CIN in every form and correspondence required in the course of business. d) CIN number is also required to obtain various permission from different authorities. So without a CIN number, the running of a business is not possible.
e) Thus, Every Company on incorporation gets a CIN.

3) Promoters play an important role in formation of a company.

Answer:
a) Promoters are the ones who come up with the idea of starting a business.
b) They decide the objects of the business, amount of capital needed, scale of business operation etc.
c) They prepare the various documents needed for incorporation of a company like Memorandum and Articles of Association.
d) Approach investors for collecting capital for the company.
e) Promoters often nominate themselves as first directors of the company and are first subscribers to Memorandum and Articles of Association.
f) The promoters can enter into contracts with third parties on behalf of the proposed company.
g) Thus, the liability of shareholders of the company is limited.

Q.6 Answer the following questions

1) Explain briefly the steps involved in incorporation of a company.

Answer:
Following steps are undertaken to incorporate a company:

1. Obtain Digital Signature Certificate (DSC)

A Digital Signature Certificate is needed for persons authorized to sign documents for e-filing. So Promoters and the proposed first directors need to obtain a DSC by applying to the Certified Authority.

2. Register DSC in the name of the Director with MCA

After obtaining the DSC in the name of the Promoter / Director, the DSC has to be registered with the MCA. MCA maintains the details of every Director including their DIN, personal details, etc.

3. Obtain Director Identification Number (DIN)

The proposed first directors of the proposed company who do not have DIN, have to apply for DIN in electronic form SPICe – 32 at the time of incorporation. A person to be appointed as a Director must have a DIN.

4. Apply for Reservation of Name

The Promoters have to get the proposed name of the company approved by the Central Registration Centre (CRC) by filling form RUN (Reserve Unique Name) along with the prescribedn fees through MCA Portal (www.mca.gov.in).

Promoters may suggest more than one name in the order of their preference. After verifying its database, CRC will give its approval for the proposed name and reserve the name for a period of 20 days from the date of application.

5. Finalize Memorandum of Association and Articles of Association :

Two important documents the Memorandum and Articles of Association have to be submitted along with the application for incorporation of a company. These documents contain legal and technical information related to objectives of company and regulations for operation of company pursuant to company Law. Hence, the promoters take the help of professionals like a company Secretary, legal experts, accountants, etc. to finalize the draft Memorandum and Articles of Association.

In case a proposed public company wants to list itself with one or more stock exchanges, Promoters should send a copy of the draft Memorandum of Association and Articles of Association to such stock exchanges for their review and suggestions.

6. Signing, Stamping and Dating of Memorandum and Articles of Association

The Memorandum of Association and Articles of Association must be signed by each subscriber to the Memorandum and shall add his name, description, address, occupation, etc. in the presence of at least one witness who shall attest the signatures and likewise sign and add his name, description, address, occupation, etc.

After signing, the Memorandum and Articles of Association needs to be stamped as per the Indian Stamp Act, 1899. The stamp duty depends on the authorized share capital of the company and varies from state to state.

7. Preparing other necessary documents needed for incorporating a company

i) Consent of Directors
ii) Details of Manager, Secretary, etc.
iii) Declaration by subscribers to the Memorandum and First Directors

8. Address for communication and notice of Registered office address

At the time of incorporation, if the proposed company has not decided its location of Registered office, the promoters have to give an address for communication. As per the Companies Act, 2013, a company is required to have a Registered office within 30 days of incorporation.

9. Obtain a statutory declaration from

i) An advocate, practicing company Secretary, a cost accountant or chartered accountant who is engaged in the formation of the company, and
ii) A person named in the Articles of Association as a Director, Manager or Secretary stating that all requirements related to incorporation has been complied with.

10. Filing of application and documents for incorporation of a company

After all the documents are prepared, the promoters have to submit an application to the Registrar of companies in the prescribed form along with all the necessary documents and the prescribed fees for incorporation.

11. Obtaining Certificate of Incorporation

After verifying that all the documents and information submitted to it is proper, the Registrar of Companies will enter the name of the company in the Register of Companies and certifies under his hand that the company is incorporated. Registrar issues the Certificate of Incorporation in the prescribed form.

2) Promoters play an important role in formation of a company. – Explain.

Answer:
The Persons who undertake the process of promotion of a company are called as ‘Promoters’.
A promoter can be an individual, a partner, a company, an association or a syndicate.

Section 2(69) of the Companies Act, 2013 defines the term Promoter as a person :

1. Who has been named as such in a prospectus or is identified by the company in the Annual Return or
2. Who has control over the affairs of the company, directly or indirectly whether as a shareholder, Director or otherwise or
3. In accordance with whose advice, directions or instructions, the Board of Directors is
accustomed to act.

However, a person who is assisting the promoter in a professional capacity (e.g. A lawyer,
accountant etc.) cannot be called as Promoter.

i) Promoters are the ones who come up with the idea of starting a business.
ii) They decide the objects of the business, amount of capital needed, scale of business operation etc.
iii) They prepare the various documents needed for incorporation of a company like Memorandum and Articles of Association.
iv) Approach investors for collecting capital for the company.
v) Promoters often nominate themselves as first directors of the company and are first subscribers to Memorandum and Articles of Association.
vi) The promoters can enter into contracts with third parties on behalf of the proposed company.

These contracts are called as ‘Pre-incorporation contracts’ or ‘Preliminary Contracts’. For e.g..
Contracts for preparing and printing Memorandum and Articles of Association, hiring office
premises, etc.
vii) Promoters have fiduciary duties towards the company they are setting up. They are supposed to act in such a manner so as to protect and promote the interest of the proposed company . They cannot make any secret profits while promoting a company.

Hence, Promoters play an important role in the formation of a company.

Solution of other subjects
Solution of all Chapters of SP
1 – 2 – 3 – 4 – 5 – 6 – 7 – 8

11th SP Textbook Solutions

Chapter Name	Solution Link
1) Secretary	Click Here
2) Joint Stock Company	Click Here
3) Formation of a company	Click Here
4) Documents related to formation of a company	Click Here
5) Members of a company	Click Here
6) Directors and Key Managerial personnel of a company	Click Here
7) Company Meetings – I	Click Here
8) Company Meetings – II	Click Here
9) Business Communication Skills of Secretary	Click Here
10) Correspondence with Directors	Click Here
11) Correspondence with Banks	Click Here
12) Correspondence with Statutory Authorities	Click Here

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