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2 c Law Other Laws Practical Questions

2 c Law Other Laws Practical Questions

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Published by: emmanuel on Feb 11, 2010
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Practical Questions inCorporate & Other Laws
Both the shareholders of the Private Company died in a car accident. Decide whetherCompany’s existence also comes to an end.
The Company’s existence is not affected by the death of its shareholders, since theCompany has separate legal entity. This is clearly established in Salomon Vs. Salomon & Co. Ltd,Lee Vs. Lee Air farming Ltd & Kandoli tea Co. Ltd. cases. Further the Company has havingperpetual succession.
In a private Company, after the death of Mr.X entire capital of the company is held by hisson Y. Decide, whether Y can continue business of the co. with single shareholder.
In such a situation, Y can continue to carry on the business of the Company but, inaccordance with the provisions of Sec.45 of the Act, if the same position continues for more thansix months, then y will become personally liable for all the liabilities of the Company contractedafter six months from the date he becomes only shareholder.
 The number of members in a public Company became reduced to six on the 10
September, 1988, the Company incurs trade debts on 11
September, 1988, 2
February, 1989and 17
March, 1989. How far are the remaining six members liable for the debts?
The remaining six members are liable for the debts incurred after 6 months of thereduction in the number of members below the statutory minimum specified in Sec. 45 of theCompanies Act, 1956 i.e., for debt contracted on 17
March, 1989.
A public limited Company has only seven shareholders, all the shares being paid in full.All the shares of one such shareholder are sold by the court in an auction and purchased byanother shareholder. The Company continues to carry on its business thereafter. Discuss theliabilities of the shareholders of the Company.
 The problem in question relates to reduction of membership below the statutory minimum.Section 12 of the Companies Act requires a public Company to have a minimum of sevenmembers. If at any time the membership of a public Company falls below seven and it continues’for more than six months, then according to Section 45 of the Companies Act, 1956, every suchmember who was aware of this fact, would be individually (personally) liable for the debtscontracted after six months. Thus, in the above problem the remaining members shall incur personal liability for the debtscontracted by the Company:
If they continued to carry on the business of the Company with that reduced membership(i.e., 6) beyond six months period.
Only those members who knew this fact of reduced membership shall be liable, forinstance, one of the members who was abroad and thus not aware of these developments,shall not be liable.
 The liability shall extend only to the debts contracted after six months from the date of auction of that member’s shares.
In a private limited Company it is discovered that there are, in fact, 54members. On anenquiry, it is ascertained that 6 of such members have been employees of the Company in the
Corporate & Other Laws Practical Questions________________________________
Master Minds (For CA\CWA\CS)
recent past and that they acquired their shares while they were still employees of the Company.Is it necessary to convert the Company into a public limited Company?
As per Section 3(1)(iii), a Company to be registered as a private Company must restrict itsmembership to 50 only. But, however, in counting this number of 50 members, employeemembers and ex-employee members (i.e., those who become members while in the employmentof the Company but now having retired still continue to retain membership) are to be excluded. Thus, in the given case, the Company shall continue to be a private Company. There is no needfor conversion.
BS & Co. Ltd. is registered as a Public Limited Company. The shareholding pattern of theCompany is under.
Directors & their relativesEmployeesEx-employees (shares were allotted when they were employees)Six couples holding shares jointly in the names of husband and wife (6 x2)Others
 The Board of directors of the Company proposes to convert it into a private Company. Advise theBoard of directors about the steps to be taken for its conversion into a private Company includingreduction in the numbers of members, if necessary.
public limited Company may be converted into private limited Company only if thenumber of members is limited to 50 excluding Sec.3(1)(iii):
Persons who are in the employment of the Company
Persons who became members during the course of their employment & continue to bemembers even after their employment ceases.
Further if two or more members hold shares in a Company jointly they shall be treated as asingle member. The number of members is only 48 for this purpose as noted below:Directors and their relatives Joint holding treated assingleOthers3666
Hence the Company can be converted into private limited Company.
 The paid up share capital of Advanced Castings Pvt. Ltd is Rs.1,00,00,000 consisting of 8,00,000 Equity shares of Rs.10 each fully paid up and 2,00,000 cumulative Preference shares of Rs.10 each fully paid up. Quality Forgings Pvt. Ltd. and Supreme Engineering Pvt. Ltd. are holding3,00,000 Equity shares and 1,50,000 Equity shares respectively in Advanced Castings Pvt. Ltd.Quality Forgings Pvt. Ltd. and Supreme Engineering Pvt. Ltd are the subsidiaries of UniqueMachineries Pvt. Ltd. Examine whether Advanced Castings Pvt. Ltd. is a subsidiary of UniqueMachineries Pvt. Ltd. Will your answer be different, if Unique Machineries Pvt. Ltd. controlscomposition of Board of Directors of Advanced Casting Pvt. Ltd.?
Sol.: Holding & Subsidiary Co.’s.
According to section 4 of the Companies Act, a Company(Assume S Ltd.) shall be deemed to be a subsidiary of another Company (Assume H Ltd.), if &only if:
Control on BOD.
That the H Ltd. controls the composition of Board of directors of S Ltd. Or
Control by ownership.
Corporate & Other Laws Practical Questions________________________________
Ph: 0863 – 22 42 355 
Where S Ltd. is an existing Company in which the preference shareholders are havingvoting rights, H Ltd. controls more than half of the total voting power of S Ltd. (E + P)
Where S Ltd. is a newly formed Company, H Ltd. holds more than half in the nominal valueof S Ltd. equity share capital (Only E) Or
Chain relation.
If S Ltd. is a subsidiary of A Ltd. which is subsidiary of H Ltd., then theCompany S Ltd. is subsidiary of H Ltd.Further shares held by any person as a nominee for the Co. shall be treated as being held by thesaid Co. Thus, the shares held by a subsidiary shall be treated as held by the Holding Co. In thiscase, the equity share capital of Advance Castings Private Ltd. is Rs.80,00,000 consisting of 8,00,000 Equity shares of Rs.10 each fully paid up. Quality Forgings Pvt. Ltd. and SupremeEngineering Pvt. Ltd. are holding 4,50,000 (3,00,000+1,50,000) Equity shares in AdvanceCastings Pvt. Ltd. As these two Companies are the subsidiaries of Unique Machineries Pvt. Ltd., itwill be treated as holding more than half in nominal value of the Equity share capital of AdvanceCastings Pvt. Ltd. and hence Advance Castings Pvt. Ltd. is a subsidiary of Unique Machineries Pvt.Ltd.If Unique Machineries Pvt. Ltd. control the composition of the Board of Directors of AdvanceCastings Pvt. Ltd., it will also be treated as holding Company by virtue of Sec.4. Hence the answerwill not be different.
 The paid-up share capital of XYZ (Private) Co. Limited is Rs.20 lakhs consisting of 2,00,000 Equity Shares of Rs.10 each fully paid up. ABC (Private) Limited and its subsidiary DEF(Private) Limited are holding 60,000 and 50,000 shares respectively in XYZ (Private) Co. Limited.Examine with reference to the provisions of the Companies Act, 1956, whether XYZ (Private)Limited is subsidiary of ABC (Private) Limited. Would your answer be difference if DEF (Private)Limited is holding 1,10,000 shares in XYZ (Private) Co. Limited and no shares are held by ABC(Private) Limited in XYZ (Private) Co. Limited?
Write about Holding & Subsidiary Companies in the above Question.
Further shares held by any person as a nominee for the Company shall be treated as being heldby the said Company. Thus, the shares held by a subsidiary shall be treated as held by theholding Company.Here ABC Private Limited is holding 60,000 shares in XYZ Private Limited and 50,000 shares heldby DEF private limited. Therefore, ABC Limited will be deemed to be holding 1,10,000 Equityshares in XYZ Limited i.e. more than half in nominal value of the Equity Share Capital of XYZPrivate Ltd. Hence XYZ Private Limited is subsidiary of ABC Private Limited. The answer will remain the same in the second case but holding-subsidiary relationship isestablished by virtue of Chain relationship i.e. a subsidiary of one Company’s subsidiary will alsobe considered as the subsidiary of the second mentioned Company.
Due to oversight some of the share transfers were registered in the Company due towhich the number of members in a private Company increased from 28 to 52. What is the effectof such transfers and what is the remedy available to the Company.
In that case, since the number of shareholder’s has crossed 50, the Company will be namedas public Company. However the NCLT, on being satisfied that the failure to comply with theconditions laid down by Sec.3 was accidental or un intentional and it is just and equitable to grantrelief, may, on the application of the Company or any other person interested and on suchconditions as seem to the NCLT reasonable, order that the Company be relieved from suchconsequences as aforesaid.
On acceptance of deposits a private Company becomes a Public Company.
False. A private Company becomes a public Co. on acceptance of deposits from publicthrough issue of advertisement. However the private Co. can accept the deposit from itsshareholders, directors, from their relatives and even then the private Co. does not become a
Corporate & Other Laws Practical Questions________________________________
Master Minds (For CA\CWA\CS)

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