IGNOU BCOC-135 Solved Question Paper PDF Download

IGNOU BCOC-135 Previous Year Solved Question Paper in Hindi

IGNOU BCOC-135 Previous Year Solved Question Paper in English

Q1. (a) Explain “A company limited by guarantee”. (b) What privileges and exemptions are available to a private company?

Ans. (a) A company limited by guarantee As per Section 2(21) of the Companies Act, 2013, a company limited by guarantee is a type of company where the liability of its members is limited to such an amount as the members may respectively undertake to contribute to the assets of the company in the event of it being wound up. Its main characteristics are:

• Limited Liability: The liability of the members is limited only to the amount they have guaranteed. This amount is specified in the company’s Memorandum of Association.
• Absence of Share Capital: Generally, these companies do not have a share capital. However, the Act permits a guarantee company to have a share capital.
• Purpose: Such companies are typically formed for non-profit purposes, such as promoting commerce, art, science, sports, education, or religion. They can also be registered as Section 8 companies .
• Membership: It has members, not shareholders. The liability of members arises only at the time of the company’s winding up, not during its lifetime.

In essence, it is a company where the financial liability of members is restricted to a pre-determined guaranteed sum, which can only be called upon when the company is dissolved.

(b) Privileges and Exemptions of a Private Company

A private company, as defined under Section 2(68) of the Companies Act, 2013, enjoys several privileges and exemptions compared to a public company. These exemptions provide it with greater flexibility in its operations. The main privileges are:

• Minimum Number of Members: A private company can be started with just 2 members , whereas a public company requires a minimum of 7 members.
• No Need to Issue a Prospectus: Since a private company is prohibited from inviting the public to subscribe to its securities, it is not required to issue a prospectus or file a statement in lieu of a prospectus.
• Minimum Subscription: The provision of minimum subscription is not applicable to a private company. It can allot shares immediately after incorporation.
• Commencement of Business: A private company can commence its business immediately after receiving its certificate of incorporation. It does not need a certificate of commencement of business.
• Number of Directors: A private company needs to have a minimum of only 2 directors , unlike a public company which requires 3 directors.
• Quorum for Meetings: The quorum for a general meeting of a private company is 2 members personally present, which is lower than that for a public company.
• Related Party Transactions: The rules regarding related party transactions are less stringent as compared to public companies.
• Loans to Directors: It is exempted from the restrictions on providing loans to directors, subject to certain conditions.

These exemptions help private companies to function more efficiently with a lesser compliance burden.

Q2. What do you mean by Memorandum of Association? Enumerate the different clauses of Memorandum of Association.

Ans. Memorandum of Association (MoA) The Memorandum of Association is the most important and fundamental document of any company. It is also known as the ‘constitution’ or ‘charter’ of the company because it defines the limits of the company’s powers and objectives. It governs the relationship of the company with the outside world and specifies the scope of its activities. The MoA defines the company’s area of operation. Any act done by the company which is beyond the objectives stated in this memorandum is considered Ultra Vires (beyond the powers) and is therefore null and void. Hence, it must be drafted with utmost care. Different Clauses of the Memorandum of Association As per Section 4 of the Companies Act, 2013, a Memorandum of Association must contain the following six clauses: 1. The Name Clause:

• This clause contains the name of the company with which it is to be registered.
• The name should not be identical or too similar to the name of an existing company.
• A public company must have the word “Limited” at the end of its name, and a private company must have the words “Private Limited” .

2. The Registered Office Clause (or Domicile Clause):

• This clause specifies the name of the State in which the registered office of the company is to be situated.
• It determines the nationality and domicile of the company. The full address of the registered office is communicated to the Registrar separately.

3. The Object Clause:

• This is the most crucial clause of the Memorandum. It defines the objects for which the company is formed.
• The company can only engage in activities that are necessary to achieve these objects. Any act done beyond this is deemed ‘Ultra Vires’ and is void.
• The clause specifies the main objects and other objects ancillary to the attainment of the main objects.

4. The Liability Clause:

• This clause states whether the liability of the members of the company is limited or unlimited.
• In the case of a company limited by shares, it states that the liability of the members is limited to the unpaid value of the shares held by them.
• In the case of a company limited by guarantee, it specifies the amount that each member undertakes to contribute upon the company’s winding up.

5. The Capital Clause:

• This clause is mandatory only for companies having a share capital.
• It states the total amount of the authorized or registered share capital of the company.
• It also shows the division of this capital into shares of a fixed amount.

6. The Association or Subscription Clause:

• In this clause, the subscribers to the Memorandum declare that they are desirous of forming a company in pursuance of this memorandum.
• If the company has a share capital, each subscriber also agrees to take at least one share and writes the number of shares taken opposite their name.

All these clauses together define the structure, scope, and nature of the company.

Q3. (a) What is Insider trading? Why is it illegal? (b) Explain in brief the limitations under the Companies Act regarding payment of remuneration to the managerial personnel.

Ans. (a) Insider Trading Insider trading refers to the practice of trading in a company’s securities (shares or bonds) by a person who has access to Unpublished Price Sensitive Information (UPSI) about the company. This information is not available to the general public and, if made public, is likely to materially affect the price of the company’s securities. An ‘insider’ is a person connected to the company, such as a director, employee, or any other person (like an auditor or consultant) who has access to UPSI due to their position. UPSI can include information about financial results, merger and acquisition plans, dividend declarations, or any major policy changes. Why is it illegal? Insider trading is considered illegal and unethical for the following reasons:

• Unfair Advantage: It gives the insider an unfair advantage over other investors who do not possess that sensitive information. This violates the principle of a level playing field.
• Erosion of Market Confidence: It undermines the confidence of ordinary investors in the fairness and integrity of the stock market. If investors feel that the market is rigged in favour of a few, they will be reluctant to invest.
• Breach of Fiduciary Duty: Company officers and directors have a fiduciary duty to their company. Using this information for personal gain is a breach of this duty.

In India, the

SEBI (Prohibition of Insider Trading) Regulations, 2015

, prohibit such trading and prescribe severe penalties for offenders.

(b) Limitations on Managerial Remuneration

The Companies Act, 2013, imposes certain limits on the remuneration that can be paid by a public company to its managerial personnel (such as Managing Director, Whole-Time Director, and Manager). These provisions are contained in

Section 197

and

Schedule V

of the Act. The objective is to ensure that remuneration is not excessive and to protect the interests of shareholders.

The key limitations are as follows:

1. Overall Limit: The total managerial remuneration payable by a company to all its managerial personnel in any financial year shall not exceed 11% of the net profits of the company for that year.
2. Individual Limits:
   • If there is one Managing Director (MD) or Whole-time Director (WTD) or Manager , the remuneration shall not exceed 5% of the net profits.
   • If there is more than one such director, the total remuneration to all of them combined shall not exceed 10% of the net profits.
3. Remuneration to Other Directors:
   • The remuneration payable to directors who are neither MD nor WTD (i.e., non-executive directors) shall not exceed 1% of the net profits if the company has an MD or WTD.
   • If the company does not have an MD or WTD, this limit is 3% of the net profits.
4. In Case of No Profits or Inadequate Profits: If a company has no profits or its profits are inadequate, it can pay remuneration in accordance with the conditions and limits specified in Schedule V of the Act. Payment exceeding these limits requires special approval from shareholders.

These limits apply only to public companies, not private companies.

Q4. What are different types of shares which a company can issue? Explain “Equity shares with differential rights as to voting, dividend or otherwise”. Can a company issue non-voting shares?

Ans. As per Section 43 of the Companies Act, 2013, a company can issue mainly two types of shares: 1. Equity Shares:

• These are also known as ordinary shares. They are shares that are not preference shares.
• Equity shareholders are considered the real owners of the company. They bear the highest risk.
• Payment of dividend and repayment of capital are done only after the claims of preference shareholders are met.
• They have voting rights in the general meetings of the company.
• Equity shares can be of two types: (a) equity shares with uniform voting rights, and (b) equity shares with differential rights.

2. Preference Shares:

• The holders of these shares get a preference in two matters:
  1. Payment of dividend: They have the first right to receive dividends at a fixed rate.
  2. Repayment of capital: In the event of the company’s winding up, they have the right to get their capital back before equity shareholders.
• Preference shares can be of various types, such as cumulative, non-cumulative, redeemable, irredeemable, convertible, etc.

Equity Shares with Differential Rights (DVRs)

Equity Shares with Differential Rights (DVRs) are equity shares that have rights different from ordinary equity shares with respect to

voting, dividend, or otherwise

. This means a company can issue equity shares with either enhanced or diminished rights.

For example:

• Difference in Voting Rights: A company can issue shares where 10 shares carry the right to 1 vote (inferior rights), or 1 share carries the right to 2 votes (superior rights).
• Difference in Dividend: To make shares with inferior voting rights attractive, the company might offer a higher rate of dividend on them compared to ordinary shares.

According to the Companies (Share Capital and Debentures) Rules, 2014, certain conditions must be met to issue DVRs, such as:

• The Articles of Association (AoA) of the company must authorize it.
• A special resolution must be passed in the general meeting of shareholders.
• The company must have a track record of distributable profits for the last three years.
• The company should not have defaulted in payment to any financial institution.

Can a company issue non-voting shares?

No,

under the Companies Act, 2013, a company

cannot issue equity shares with zero or non-voting rights

.

Section 47(1) of the Act clearly states that every equity shareholder shall have a right to vote on every resolution placed before the company. His voting right shall be in proportion to his share in the paid-up equity share capital.

In the case of DVRs, the voting rights can be

‘differential’

, meaning they can be lower or higher than ordinary shares, but they cannot be

‘zero’

. Therefore, the issue of purely non-voting equity shares is prohibited under Indian company law. Preference shareholders, however, have limited voting rights, which are applicable only on matters affecting their interests.

Q5. “A company is an artificial person created by law with a perpetual succession and is different from the members constituting it.” Comment.

Ans. This statement highlights the three most fundamental and significant characteristics of a company, which distinguish it from other forms of business organizations like sole proprietorships or partnerships. A detailed commentary on these features is as follows: 1. Artificial Legal Person: A company is not born naturally but is created by a process of law, known as ‘incorporation’ . Therefore, it is an ‘artificial’ person. In the eyes of the law, it has its own independent personality.

• Like a natural person, a company can buy and sell property in its own name.
• It can sue and be sued in its own name.
• It can enter into contracts in its own name.

However, being an artificial person, it cannot act physically. It acts through its Board of Directors and other officers, who act as its agents.

2. Perpetual Succession:

‘Perpetual succession’ means that the existence of the company is continuous and permanent. Its existence is not affected by the death, insolvency, lunacy, or transfer of shares by its members (shareholders). Members may come and go, but the company goes on forever.

The life of a company can only be ended by law, through a process known as

‘winding up’

. This stability and permanence enable a company to engage in long-term projects and contracts.

3. Different from Members (Separate Legal Entity):

This is the most important principle of company law. Upon incorporation, a company acquires a separate and independent legal existence from its members, directors, and promoters. The company and its members are considered two distinct persons.

• The famous case of Salomon v. Salomon & Co. Ltd. is a classic example of this principle. In this case, the House of Lords established that once a company is duly incorporated, it is entirely separate from its members, even if one member holds almost all the shares.
• The consequence is that the assets of the company are its own, not its members’.
• Similarly, the debts and liabilities of the company are its own, and the members are generally not personally liable for them. The liability of members is limited to the unpaid value of the shares they hold or the amount they have guaranteed.

In conclusion, these three characteristics—artificial personhood, perpetual existence, and separate legal entity—combine to make a company a unique, stable, and powerful business entity with its own legal personality, an indefinite life, and an identity distinct from its owners.

Q6. Discuss in detail the types of company meetings of shareholders.

Ans. Shareholders play a crucial role in the governance and management of a company, and they exercise their powers in company meetings. Under the Companies Act, 2013, the meetings of shareholders can be broadly classified into three categories: 1. Annual General Meeting (AGM) This is a regular and compulsory meeting of shareholders held once every financial year. As per Section 96 of the Companies Act, 2013, every company, other than a One Person Company (OPC), must hold an AGM.

• Time Limit: The first AGM must be held within 9 months from the end of the company’s first financial year. Subsequent AGMs must be held within 6 months from the end of the financial year. The gap between two AGMs should not exceed 15 months.
• Purpose: The main purpose of the AGM is to transact ‘Ordinary Business’, which includes:
  • Considering and adopting the financial statements, Board’s report, and auditors’ report.
  • Declaring a dividend.
  • Appointing directors in place of those retiring.
  • Appointing auditors and fixing their remuneration.

  ‘Special Business’ can also be transacted by giving proper notice.

• Venue and Time: The AGM must be held during business hours (9 a.m. to 6 p.m.) at the registered office or some other place within the same city, town, or village where the registered office is situated. It cannot be held on a National Holiday.

2. Extraordinary General Meeting (EGM)

Any general meeting of shareholders other than the AGM is called an Extraordinary General Meeting. As the name suggests, it is convened to discuss urgent or special matters that cannot be postponed until the next AGM.

Section 100

deals with the provisions relating to EGM.

An EGM can be called by:

• The Board of Directors: The Board can call an EGM suo motu whenever any important matter arises.
• On the requisition of Shareholders (Requisitionists): A specified number of shareholders (holding at least 10% of the total voting power of the company) can request the Board to call an EGM. If the Board does not proceed to call a meeting within 21 days and fails to hold it within 45 days, the requisitionists can call the meeting themselves.
• By the National Company Law Tribunal (NCLT): If for any reason it is impracticable to call a meeting, the NCLT may, on the application of any member, order an EGM to be called.

3. Class Meeting

This is a meeting of holders of a particular class of shares, such as preference shareholders or equity shareholders of a specific series.

• Purpose: These meetings are held when a variation or change in the rights of that particular class of shareholders is proposed. As per Section 48 of the Companies Act, 2013, any variation in the rights of a class will not be effective unless it is consented to by a special resolution passed by three-fourths of the shareholders of that class.
• Convening: This meeting is called to protect the interests of the shareholders of that class, and only members of that class can attend and vote.

All these meetings ensure that the company is managed transparently and that shareholders have a say in important decisions.

Q7. (a) What is a deemed prospectus? Explain the provisions of Companies Act, 2013 with respect to deemed prospectus. (b) Discuss the liabilities of a Company Secretary in detail.

Ans. (a) Deemed Prospectus Under Section 25 of the Companies Act, 2013, a ‘deemed prospectus’ is a document that is legally considered a prospectus, even though it may not have been directly issued to the public by the company. The main purpose of this provision is to prevent companies from avoiding the strict regulations associated with a prospectus by selling their securities through an intermediary, such as an issue house or an underwriter, instead of selling them directly to the public. When a company allots its securities to another firm (the intermediary) with a view to that firm offering those securities for sale to the public, the offer for sale document issued by the firm is ‘deemed’ to be the company’s prospectus. Provisions of the Act, 2013: Section 25 contains the following provisions:

1. Conditions: A document will be considered a deemed prospectus if it is proved that the company allotted the securities with a view to them being offered for sale to the public.
2. Presumption: The law presumes that the allotment was made with a view to sale to the public if:
   • The offer for sale of the securities is made within six months of the allotment by the company, OR
   • As on the date the offer for sale was made, the full consideration for the securities had not been received by the company.
3. Applicable Rules: A deemed prospectus is subject to all the rules, liabilities, and penalties that apply to a normal prospectus. This means:
   • It must be filed with the Registrar.
   • It must contain all the details required for a prospectus under Section 26.
   • The company and its directors will be liable for any misstatements in this document in the same way they would be for a normal prospectus.
4. Signatures: The document must be signed by at least two directors of the company.

In short, this provision ensures that in every case of an offer of securities to the public, whether directly by the company or through an intermediary, investors are provided with complete and accurate information.

(b) Liabilities of a Company Secretary

A Company Secretary (CS) is a

‘Key Managerial Personnel’ (KMP)

under the Companies Act, 2013. He/she acts as the compliance officer of the company, ensuring that it adheres to all legal and procedural requirements. The liabilities of a CS can be categorized as follows:

1. Statutory Liabilities:

• These liabilities arise directly from the Companies Act and other applicable laws.
• The CS is considered an “officer in default” and can be held liable for the company’s failure to comply with the provisions of the Act.
• Examples: Non-filing of annual returns, improper maintenance of statutory registers, failure to prepare minutes of meetings, or not submitting required documents to the Registrar. For these defaults, the CS may be subject to fines or prosecution.

2. Contractual Liabilities:

• These liabilities stem from his/her contract of employment with the company.
• If the CS fails to perform his/her duties as specified in the contract, the company can take action against him for breach of contract.

3. Civil Liabilities:

• This liability arises when the company suffers any financial loss due to the CS’s negligence, breach of duty, or acting beyond his authority.
• The company can sue the CS to recover such losses. For instance, if a penalty is imposed on the company due to the CS’s fault, the company may recover that amount from the CS.

4. Criminal Liabilities:

• This is the most severe liability and arises in cases of fraud, willful misstatement, or complicity in any offence committed by the company.
• Example: Knowingly signing any return, report, certificate, or financial statement that contains false information or omits material facts. In such cases, the CS could face imprisonment and heavy fines.

In summary, the role of a Company Secretary is one of great responsibility, and he/she must exercise utmost care and diligence in the company’s affairs.

Q8. (a) What all accounts and statements are included in financial statements? (b) What are the rights of an auditor? (c) Explain the provisions relating to audit.

Ans. (a) Accounts and Statements included in Financial Statements As per Section 2(40) of the Companies Act, 2013, the Financial Statements of a company include the following:

1. A Balance Sheet: which shows the financial position (assets and liabilities) of the company as at the end of the financial year.
2. A Profit and Loss Account: which shows the financial performance (income and expenditure) of the company for the financial year. (In the case of non-profit organizations, this is called the ‘Income and Expenditure Account’).
3. A Cash Flow Statement: which shows the flows (inflows and outflows) of cash and cash equivalents of the company during the financial year.
4. A Statement of Changes in Equity: if applicable, which shows the changes in equity between the beginning and end of the financial year.
5. Explanatory Notes: which are annexed to and form part of any of the documents mentioned above, providing detailed explanations of the information contained therein.

Note:

A One Person Company (OPC), small company, and dormant company are not required to prepare a cash flow statement.

(b) Rights of an Auditor

An auditor of a company is granted several rights under the Companies Act, 2013, to enable him to discharge his duties effectively. The main rights (mostly under

Section 143

) are as follows:

• Right of Access to Books of Account: The auditor has a right of access at all times to the books of account, ledgers, and vouchers of the company, wherever they are kept.
• Right to Obtain Information and Explanations: He can seek any information and explanations from the officers and employees of the company that he may think necessary for the performance of his duties.
• Right to Visit Branch Offices: He has the right to visit any branch office of the company and inspect its accounts.
• Right to Receive Notice of and Attend General Meetings: He has the right to receive notice of and attend any general meeting (AGM/EGM) of the company where any matter concerning the accounts is being discussed.
• Right to be Heard at Meetings: He has the right to speak at the meeting on any matter which concerns him as an auditor.
• Right to Sign the Audit Report: Only the auditor or his authorized partner can sign the audit report.
• Right to be Indemnified: If any civil or criminal proceedings are initiated against the auditor and he is acquitted, he has the right to be indemnified by the company for the expenses incurred in his defense.

(c) Provisions relating to Audit

The Companies Act, 2013 contains detailed provisions relating to audit to ensure a fair examination of accounts and transparency in financial reporting. The key provisions are:

• Appointment of Auditor (Section 139):
  • First Auditor: Appointed by the Board of Directors within 30 days of the company’s registration. If the Board fails, the members appoint in an EGM within 90 days.
  • Subsequent Auditors: Appointed by the members at the first AGM and they hold office till the conclusion of the sixth AGM (a 5-year term).
• Rotation of Auditor (Section 139): Rotation is mandatory for listed companies and certain other prescribed classes of companies. An individual auditor can be appointed for one term of 5 years, and an audit firm for two consecutive terms of 5 years each, after which there is a cooling-off period.
• Removal of Auditor (Section 140): An auditor can be removed before the expiry of his term only with the prior approval of the Central Government and by a special resolution of the shareholders.
• Powers and Duties of Auditors (Section 143): This includes examining accounts, making a report, and inquiring into certain matters (as covered in part ‘b’). The auditor has to report whether the accounts present a ‘true and fair’ view.
• Prohibited Services (Section 144): An auditor cannot provide certain non-audit services to the company being audited, or its holding/subsidiary company, such as accounting, internal audit, investment banking, etc., to maintain his independence.
• Audit Report: The auditor must submit his report to the members. If he has any qualifications or adverse remarks, he must state them in his report.

Q9. Write short notes on any four of the following: (a) Distinction between members and shareholders of a company (b) Interim dividend (c) Quorum (d) Sweat equity shares (e) Minimum subscription (f) Incorporation of a company

Ans. (a) Distinction between members and shareholders of a company In common parlance, the terms ‘member’ and ‘shareholder’ are used interchangeably, but legally there is a subtle difference. A shareholder is a person who holds shares in the company. A member is a person whose name is entered in the company’s register of members (Section 2(55)). Every shareholder is usually a member, but this is not always the case. Some examples of the distinction:

• A person may buy shares, but until his name is entered in the register of members, he is only a shareholder, not a member.
• A company limited by guarantee may have members but not shareholders, as it may not have a share capital.
• The legal heir of a deceased shareholder owns the shares (is a shareholder) but does not become a member until his name is entered in the register.
• Subscribers to the Memorandum of Association automatically become members upon the incorporation of the company, even before shares are allotted to them.

(b) Interim dividend

An interim dividend is a dividend declared by the Board of Directors at any time between two Annual General Meetings (AGMs). It is different from the final dividend, which is declared by the shareholders at the AGM.

• Source: An interim dividend can be declared out of the profits earned during the financial year or from the surplus in the profit and loss account of the previous financial year.
• Power of the Board: The power to declare it rests with the Board of Directors, provided the company’s Articles of Association authorize it.
• Precaution: Before declaring, the Board must ensure that the company’s financial position is sound and that the payment of this dividend will not adversely affect the working capital of the company.
• In case of loss: If the company has incurred a loss during the current financial year, the rate of interim dividend cannot be higher than the average rate of dividend of the preceding three years.

(c) Quorum

Quorum refers to the minimum number of members required to be present at a meeting to validly transact business. If the quorum is not complete, any business transacted at the meeting is considered invalid.

As per

Section 103

of the Companies Act, 2013, the quorum for a general meeting of shareholders is as follows:

• For a Public Company:
  • If the number of members is up to 1,000: 5 members personally present.
  • If the number of members is more than 1,000 but up to 5,000: 15 members personally present.
  • If the number of members is more than 5,000: 30 members personally present.
• For a Private Company: 2 members personally present.

If the quorum is not present within half an hour of the scheduled time for the meeting, the meeting is adjourned to the same day, time, and place in the next week.

(d) Sweat equity shares

Sweat equity shares are equity shares issued by a company to its directors or employees at a discount or for a consideration other than cash (such as for providing know-how, intellectual property rights).

It is a way of rewarding them for their contribution to the company. Under

Section 54

of the Companies Act, 2013, certain conditions must be met for issuing sweat equity shares:

• It must be authorized by a special resolution passed by the shareholders.
• It must be of a class of shares already issued by the company.
• At least one year must have elapsed since the company commenced its business.
• The special resolution must specify the number of shares, the current market price, the consideration (if any), and the class of directors or employees to whom such shares are being issued.

(e) Minimum subscription

Minimum subscription is the minimum amount that a company must raise through its public issue of securities before it can allot any shares.

The purpose is to ensure that the company has enough capital to start its projects and meet its preliminary expenses. As per

Section 39

of the Companies Act, 2013, and SEBI guidelines, this amount is set at

90% of the issue size

.

If the company fails to receive the minimum subscription within 30 days from the date of issue of the prospectus (or the period specified by SEBI), it must refund all the application money received within the next 15 days. Failure to refund the money in time requires the company to repay it with interest. This provision does not apply to private companies.

(f) Incorporation of a company

The incorporation of a company is the legal process by which a company is registered as a corporate entity. It is the second and most crucial stage in the formation of a company. After this process, the company gains the status of a separate legal entity.

The main steps in the process are:

1. Preparation of Documents: Promoters prepare the necessary documents, the most important being the Memorandum of Association (MoA) and the Articles of Association (AoA).
2. Application to Registrar: An application is made in the prescribed form (e.g., SPICe+) to the Registrar of Companies (ROC) along with all necessary documents, declarations, and fees.
3. Scrutiny: The Registrar scrutinizes the documents submitted to ensure they are in conformity with the provisions of the Companies Act.
4. Certificate of Incorporation: Upon being satisfied with all the documents, the Registrar registers the company and issues a ‘Certificate of Incorporation’ . The company’s legal existence begins from the date mentioned in this certificate.

This certificate is conclusive evidence that all legal formalities regarding the company’s formation have been complied with.