Company Law - MCQs With Answers

invest their money in it by way of shares and debentures or deposits.
For this purpose the

company has to be inform about the various details of the company such as its object and its
nature of business to enable the public to decide whether to contribute or not to contribute.
For the assurance of the public the company will issue a document called Prospectus by
which a company exhibits its repaying capacity, its resources, reasons for the development,
profits etc. Further it is to be noted that every company need not go for borrowing if its
promoters are stronger enough and successful with their own financial arrangements. The
prospectus is needed only when the company wants to procure money from the public in
return of shares and debentures.
⮚ OBJECTS OF PROSPECTUS:
People want to invest their money in sound and profitable company. Prospectus gives
the information about the profitability, soundness and prosperity of the company. The basic
object and fundamental function of the prospectus is to attract the public. Prospectus is an
invitation to offer it is not a direct offer.
⮚ MEANING AND DEFINITION OF PROSPECTUS:
In order to finance its activities, a company needs capital which is raised by a
company by the issue of a prospectus inviting deposits or offers for shares and debentures
from the public. The central theme of a prospectus, from the money point of view, is that it
sets out the prospectus of the company and the purpose for which the capital is required. The
prospectus is the basis on which the prospective investors from their opinion and take
decisions as to the worth and prospects of the company.
According to section 2 (70) “prospectus means any document described or issued as a
prospectus and includes any notice, circular, advertisement or other document inviting offers
from the public for the subscription or purchase of any securities of a body corporate”.
In other words ,any document inviting deposits from the public or inviting offers from
the public for the subscription of shares or debentures of a company is a prospectus.
⮚ CONTENTS / SUBJECT MATTER TO BE SPECIFIED IN PROSPECTUS –
(SECTION 26):
Prospectus is the most important document of a company, since the intending
investors take their decisions on anyone of the facts and figures furnished in the prospectus.
In order to protect the interest of investors against the frauds of the promoters the Companies
Act requires every company to issuing a prospectus has to observe large number of
regulations failure to observe them will made to punishable with fine or imprisonment or both
and hence at most care should be taken in drafting prospectus. Section 26 of the Act deals
with the contents to be specified in prospectus.
(i) Names and addresses of the registered office of the company, company secretary,
Chief Financial Officer, auditors, legal advisers, bankers, trustees, if any,
underwriters and such other persons as may be prescribed;
(ii) Dates of the opening and closing of the issue, and declaration about the is
MULTIPLE CHOICE QUESTIONS
1. What is the primary feature of a company?

A) Limited liability
B) Unlimited liability
C) No legal existence
D) High taxation
Answer: A
2. Which of the following is NOT a type of company?

A) Private company
B) Public company
C) Unlimited company
D) Non-profit organization
Answer: D
3. The process of forming a company is known as:

A) Promotion
B) Liquidation
C) Dissolution
D) Registration
Answer: A
4. What document outlines the objectives of a company?

A) Articles of Association
B) Memorandum of Association
C) Prospectus
D) Statement in Lieu of Prospectus
Answer: B
5. Which of the following is a feature of the doctrine of lifting the corporate veil?
A) Protects shareholders
B) Holds individuals personally liable
C) Ensures unlimited liability
D) Guarantees company debts
Answer: B
6. Which of the following is NOT required for the incorporation of a company?

A) Memorandum of Association
B) Articles of Association
C) Certificate of Compliance
D) Annual General Meeting
Answer: D
7. The doctrine of ultra vires means:

A) Actions beyond the authority of the company
B) Actions within the authority of the company
C) Personal liabilities of directors
D) Company actions taken in good faith
Answer: A
8. What is the significance of the doctrine of constructive notice?

A) Protects shareholders from liability
B) Assumes knowledge of a company's public documents
C) Allows for unlimited liabilities
D) Invalidates contracts made by directors
Answer: B
9. A company’s prospectus must include:

A) Financial statements only
B) Information about directors only
C) Full disclosure of risks and financials
D) None of the above
Answer: C
10. Misstatement in a prospectus can lead to:

A) Criminal charges only
B) No consequences
C) Civil liability
D) Immediate dissolution of the company
Answer: C
11. Which type of company is limited by shares?

A) Private limited company
B) Public limited company
C) Both A and B
Answer: C
12. In the context of company law, winding up refers to:

A) The expansion of business operations
B) The process of dissolving a company
C) Increasing the company’s capital
Answer: B
13. Which of the following is NOT a type of winding up?

A) Voluntary winding up
B) Compulsory winding up
C) Administrative winding up
D) Judicial winding up
Answer: C
14. What is the role of a promoter in a company?

A) Managing director
B) Person who brings a company into existence
C) Auditor
D) Shareholder
Answer: B
15. What does "preliminary contracts" refer to?

A) Contracts made after incorporation
B) Contracts made before a company is incorporated
C) Employment contracts
D) Sale agreements
Answer: B
16. Which document governs the internal management of a company?

C) Prospectus
D) Statement in Lieu of Prospectus
Answer: B
17. Who is liable in the case of misstatement in a prospectus?

A) Only the company
B) Only the promoters
C) Both the company and individuals responsible
D) No one
Answer: C
18. Which type of company has a minimum of two members?

A) Private company
B) Public company
C) One-person company
D) Non-profit company
Answer: A
19. Which of the following documents is required for the incorporation of a private company?
C) Both A and B
Answer: C
20. What does the term ‘registered office’ refer to?
A) The main place of business operations
B) The official address of the company registered with the Registrar
C) A temporary office location
D) A shareholder’s residence
Answer: B
21. Under the Companies Act, 2013, which of the following is NOT a ground for misrepresentation in
a prospectus?
A) False statements made knowingly
B) Omissions of material facts
C) Inadvertent mistakes
D) Misleading statements
Answer: C
22. The Articles of Association of a company typically include provisions about:

A) Company structure
B) Powers of directors
C) Rights of shareholders
D) All of the above
Answer: D

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invest their money in it by way of shares and debentures or deposits.

For this purpose the

1. What is the primary feature of a company?

2. Which of the following is NOT a type of company?

3. The process of forming a company is known as:

4. What document outlines the objectives of a company?

6. Which of the following is NOT required for the incorporation of a company?

7. The doctrine of ultra vires means:

8. What is the significance of the doctrine of constructive notice?

9. A company’s prospectus must include:

10. Misstatement in a prospectus can lead to:

11. Which type of company is limited by shares?

12. In the context of company law, winding up refers to:

13. Which of the following is NOT a type of winding up?

14. What is the role of a promoter in a company?

15. What does "preliminary contracts" refer to?

16. Which document governs the internal management of a company?

17. Who is liable in the case of misstatement in a prospectus?

18. Which type of company has a minimum of two members?

22. The Articles of Association of a company typically include provisions about:

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