SEBI GRADE A

50 MOST
IMPORTANT
COMPANIES ACT
MCQS
FREE PRACTICE QUESTIONS

FOR SEBI GRADE A EXAM

 SEBI Grade A 2020

Lecture 1

50 MOST IMPORTANT QUESTIONS

Coverage:
CHAPTER III-Part1
 Practice Questions

Question No.1

Q.1)According to Section 23 of Companies Act,2013 ,in how may ways can a public company raise funding
?(1M)

A) Through Public Offering

B) Through Private placement
C) Through existing shareholders
D) A and C
E) All of the above

Answer: Option E
COMPANIES ACT
 Practice Questions

Question No.2
Q.2) Power of securities and exchange board to regulate issue and transfer of securities is dealt under
which of the following section of Companies Act,2013?(1 M)

A) Section 24
B) Section 25
C) Section 26
D) Section 27
E) Section 28

Answer: Option A
 COMPANIES ACT

Section 24- Power of Securities and Exchange Board to regulate issue and
transfer of securities, etc.

The provisions contained in this Chapter, Chapter IV and in section 127 shall,—

(a) in so far as they relate to —

(i) issue and transfer of securities; and
(ii) non-payment of dividend,
by listed companies or those companies which intend to get their securities listed on
any recognised stock exchange in India, except as provided under this Act, be
administered
by the SEBI by making regulations in this behalf;

(b) in any other case, be administered by the Central Government.

Explanation.—For the removal of doubts, it is hereby declared that all powers relating
to all other matters relating to prospectus, return of allotment, redemption of
preference
shares and any other matter specifically provided in this Act, shall be exercised by the
Central Government, the Tribunal or the Registrar, as the case may be.
 Practice Questions

Question No.3
Q.3) Which of the following is correct with respect to Shelf Prospectus?(1 M)

A) It does not need a separate prospectus for each offering.

B) It is a prospectus that lacks complete particulars about the quantum or price of the securities.
C) The validity period of the shelf prospectus cannot exceed more than 2 years.
D) A and C
E) None of the above

Answer: Option A
COMPANIES ACT
 Practice Questions

Question No.4
Q.4) Which of the following section in the Companies Act,2013 mentions about Red Herring Prospectus?(1
M)

A) Section 30
B) Section 31
C) Section 32
D) Section 33.
E) Section 34

Answer: Option C
COMPANIES ACT
 Practice Questions

Question No.5
Q.5) According to Section 29,Demat( Dematerialized form) is compulsory for which of the following?(1 M)

A) Companies going for public offer.

B) Companies going for private placement.
C) Prescribed unlisted companies.
D) A and C
E) All of the above

Answer: Option D
 COMPANIES ACT

Section 29: Public offer of securities to be in dematerialised form

• Section 29 of the Act required public companies or classes

of public companies, prescribed by the Central Government, to
compulsorily issue its securities in dematerialised form.
• The new amendment removes the word “public” from Section 29(1)(b),
and the section is now applicable to all “other class or classes of
companies as may be prescribed” by the Central Government.
• Further, a new Section 29(1A) has been added, which states: “In case of
such class or classes of unlisted companies as may be prescribed, the
securities shall be held or transferred only in dematerialised form in the
manner laid down in the Depositories Act, 1996 and the regulations
made thereunder”.
• As such, those classes of unlisted companies, public or otherwise,
prescribed by the Government shall be mandatorily required to hold as
well as transfer the shares in the dematerialised format and will have to
comply with the provisions of the Depositories Act, 1996 and its
regulations
 Practice Questions

Question No.6
Q.6) Global depository receipt is mentioned in which of the following sections of Companies Act,2013?(1
M)

A) Section 38

B) Section 39.

C) Section 40.

D) Section 41

E) Section 42

Answer: Option D
COMPANIES ACT
 Practice Questions

Question No.7
Q.7) Which of the following are correct with respect to Private Placement.?(2 M)
1. It is mentioned in Section 40 of Companies Act ,2013
2. Maximum limit for the private placement in a financial year cannot exceed 200.
3. Private placement must be made within 60 days.

A) 1 and 2
B) 2 and 3
C) 1 and 3
D) 3 only
E) ALL of the above

Answer: Option B
COMPANIES ACT
 COMPANIES ACT

Who can issue private placement?

A public company or private company can issue shares on private placement basis.
Maximum number of person to whom private placement can be made
Private placement can be made to maximum 50 persons or higher number prescribed in
a financial year, excluding (a) Qualified Institutional Buyer (QIB)(b) employees under
stock option scheme under section 62(1)(b) of Companies Act, 2013.

Maximum limit for making offer for Private placement

Offer or invitation can be made to not more than two hundred persons in the aggregate
in a financial year, excluding offer to QIB and Employees stock option. This restriction
would be reckoned individually for each kind of security that is equity share, preference
share or debenture [i.e. 200 for equity shares, 200 for preference shares and 200 for
debentures]. However, unless allotment with respect to one kind of security is
completed, another kind of security shall not be issued. For example, if equity shares are
issued first, preference shares or debentures cannot be issued unless allotment of equity
shares is completed. This restriction does not apply to issues by NBFC registered with RBI
and housing finance companies registered with NHB (National Housing Bank). If RBI or
NHB has not specified similar regulation, the provision of Companies Act shall apply.
 Practice Questions

Question No.8
Q.8) Which of the following legislations regulate the public issue in India?(1 M)

A) Companies Act 2013

B) Securities (Contract) Regulation Act,1952
C) Securities and Exchange Board of India,1992
D) A and B
E) All of the above

Answer: Option E
 COMPANIES ACT

LAWS REGULATING PUBLIC OFFER

•Provisions of the Companies Act, 2013

Chapter 3, Part I is dedicated to public offer. Amid the new amendments of 2018 there
has been drastic changes in Section 26. Matters related to prospectus will now be dealt
with SEBI in consultation with the central government. Till the SEBI notifies matters
related to prospectus the companies can refer to the information and reports on
financial information under the regulations made by the Securities and Exchange Board
under the Securities and Exchange Board of India Act, 1992.
•SEBI rules & regulations
SEBI rules & regulations like The SEBI (Issue of Capitals and Disclosure Requirements)
regulation 2009 and SEBI (Listing obligations and Disclosure Requirements), Regulations
2015 ( The Listing Regulations) are the two most important regulations when it comes to
public issues.
•Other Regulations
Compliance of Listing Agreement with the concerned stock exchanges after the listing of
securities. Securities Contracts (Regulations) Act, 1956, RBI regulations in case of
foreign/NRI equity participation.
 Practice Questions

Question No.9
Q.9)Which of the following cases will be acted upon based on Section 38,Companies Act,2013?(1 M)

A) A person fraudulently inducing persons to invest money in securities.

B) A person making an application in a fictitious name.
C) Mis-Statements in the prospectus.
D) A and C
E) All of the above

Answer: Option B
 COMPANIES ACT

Punishment for Personation for Acquisition, etc., of Securities.

38. (1) Any person who—

(a) makes or abets making of an application in a fictitious name to a company for
acquiring, or subscribing for, its securities; or
(b) makes or abets making of multiple applications to a company in different names or in
different combinations of his name or surname for acquiring or subscribing for its
securities; or
(c) otherwise induces directly or indirectly a company to allot, or register any transfer of,
securities to him, or to any other person in a fictitious name,
shall be liable for action under section 447
(2) The provisions of sub-section (1) shall be prominently reproduced in every prospectus
issued by a company and in every form of application for securities.
(3) Where a person has been convicted under this section, the Court may also order
disgorgement of gain, if any, made by, and seizure and disposal of the securities in
possession of, such person.
(4) The amount received through disgorgement or disposal of securities under sub-
section (3) shall be credited to the Investor Education and Protection Fund.
 Practice Questions

Question No.10
Q.10) Variation of the terms of contract or objects in prospectus is mentioned in which of the following
sections of Companies Act,2013?(1 M)

A) Section 27
B) Section 25
C) Section 29
D) Section 32
E) Section 39

Answer: Option A
 COMPANIES ACT

Section 27 in The Companies Act, 1956

27. Regulations required in case of unlimited company, company

limited by guarantee or private company limited by shares.
(1) In the case of an unlimited company, the articles shall state the
number of members with which the company is to be registered
and, if the company has a share capital, the amount of share
capital with which the Company is to be registered.
(2) In the case of a company limited by guarantee, the articles
shall state the number of members with which the company is to
be registered.
(3) In the case of a private company having a share capital, the
articles shall contain provisions relating to the matters specified in
sub- clauses (a), (b) and (c) of clause (iii) of sub- section (1) of
section 3; and in the case of any other private company, the
articles shall contain provisions relating to the matters specified in
the said sub- clauses (b) and (c).
 SEBI Grade A 2020

Lecture 2

50 MOST IMPORTANT QUESTIONS

Coverage:
CHAPTER IV-Part2
 Practice Questions

Question No.1

Q.1)According to Section 43 of Companies Act,2013 ,How many types of share capital exists?(1M)

A) 2
B) 3
C) 4
D) 5
E) None of the above

Answer: Option A
COMPANIES ACT
 Practice Questions

Question No.2
Q.2) Which of the following Section of the Companies Act,2013 mentions about the voting rights of the
members?(1 M)

A) Section 47
B) Section 45
C) Section 46
D) Section 49
E) Section 50

Answer: Option A
 COMPANIES ACT

Section 47 of the Companies Act 2013 relates to voting

rights of shareholders in a Company.

equity share holders→will have a right to vote on every

resolution related to the company.

The voting right on a poll will be in percentage of his

share in the paid-up equity share capital associated with
the company.
Hence, if a shareholder owns 51% of the company in
terms of paid-up equity, he will have the rights to
exercise majority control over the company.
COMPANIES ACT
 Practice Questions

Question No.3
Q.3) Which of the following is incorrect with respect to shares with differential rights?(1 M)

A) They are a issued as a part of preferential shares.

B) Companies (share capital and debenture) rules 2014,mention the condition for issue of shares with
differential voting rights.
C) It cannot exceed 26% of the total post issue paid up capital.
D) A and C
E) All of the above

Answer: Option D
COMPANIES ACT

Amendments to SCDR,2019.

A company to have a consistent track record of

distributable profits for the previous 3 (three) years
in order to be eligible to issue DVR shares was
DELETED.

Imposed a limit of 26% on the percentage of shares

with differential rights out of the total post-issue
paid up equity share capital was amended and the
aforesaid→ limit was increased to 74% .
 Practice Questions

Question No.4
Q.4) Preference shareholders have the right to vote in which of the following cases?(1 M)

A) On every resolution of the company.

B) Resolutions which affect their rights.
C) Resolution for winding up of the company.
D) A and B.
E) B and C

Answer: Option E
 COMPANIES ACT

Preference shareholders do not enjoy normal voting rights like equity

shareholders. But under certain circumstances voting rights will also be
available to the preference shareholders of the company.

(i) Where resolutions → directly affects the rights to his preference

shares and
(ii) Any resolution for the winding up of the company or for the repayment
or reduction of its equity or preference share capital and
The voting right on a poll shall be in proportion to his share in the paid up
preference share capital of the company

Where the dividend is not paid such class of preference shares for a period
of 2 years or more, such class of preference shareholders shall have a right
to vote on all the resolutions placed before the meeting.
 Practice Questions

Question No.5
Q.5) According to Section 48 of Companies Act,2013, the rights attached to the shares of any class can be
varied with the consent of ___ of the shareholders of that class? (1 M)

A) 1/3rd
B) 1/2
C) 1/4th
D) 3/4th
E) None of the above

Answer: Option D
 COMPANIES ACT

Variation of Shareholders' Rights.

• 48. (1) Where a share capital of the company is
divided into different classes of shares, the rights
attached to the shares of any class may be varied
with the consent in writing of the holders of not less
than three-fourths of the issued shares of that class
or by means of a special resolution passed at a
separate meeting of the holders of the issued shares
of that class
• (2) Where the holders of not less than ten per cent of
the issued shares of a class did not consent to such
variation or vote in favour of the special resolution for
the variation, they may apply to the Tribunal to have
the variation cancelled, and where any such
application is made, the variation shall not have
effect unless and until it is confirmed by the Tribunal:
 Practice Questions

Question No.6

Q.6) Company can issue shares at premium under which of the following sections of Companies
Act,2013?(1 M)

A) Section 50
B) Section 49.
C) Section 51.
D) Section 52
E) Section 53

Answer: Option D
COMPANIES ACT
COMPANIES ACT
 Practice Questions

Question No.7
Q.7) Sweat Equity Shares can be issued to which of the following employees?(2 M)

A) A permanent employee of the company who is working in India.

B) A permanent employee of the company who is working outside India.
C) A director of the company working in the subsidiary of the holding company.
D) A director of the company working outside India.
E) All of the above

Answer: Option E
COMPANIES ACT

‘‘Employee’’ means-
(a) a permanent employee of the company who
has been working in India or outside India; or
(b) a director of the company, whether a whole
time director or not; or
(c) an employee or a director as defined in sub-
clauses (a) or (b) above of a subsidiary, in India
or outside India, or of a holding company of the
company;
 Practice Questions

Question No.8
Q.8) Incase of a unlisted startup company, the sweat equity share should not increase more than ____ of
paid up capital up to 5 years from the date of incorporation?(1 M)

A) 30%
B) 35%
C) 40%
D) 45%
E) 50%

Answer: Option E
 COMPANIES ACT

Quantum of issue of Sweat Equity Shares

For One The Company shall not issue Sweat Equity Shares
time: for more than 15% of existing paid-up share
capital or issue value of shares Rs.5,00,00,000/-
(Rupees Five Crores), whichever is higher.
For The Company shall not issue Sweat Equity shares
lifetime: for more than 25% of the paid-up Equity
Capital at any time.

Further the limit for issuance of Sweat Equity Shares for Start-
up Company shall not exceed 50% of its paid-up capital upto 5
years from the date of its incorporation or registration.
 Practice Questions

Question No.9
Q.9)CRR is mentioned in Companies Act 2013.What does CRR stand for?(1 M)

A) Current Redemption Reserve.

B) Cash Reserve Ratio
C) Capital Redemption Reserve
D) Cash Redeemable Reserve
E) Capital Reserve Redemption

Answer: Option C
 COMPANIES ACT

Companies Act – Capital Redemption Reserve

Capital Redemption Reserve (CRR) is a requirement under the Companies Act which
applies to buy-back schemes and redemptions of preference capital.

The provisions relating to the CRR are available in Section 69 of the Act.

When a company engages in redemption or buy-back of capital, the capital base is

reduced.
To compensate for the reduction→a portion of the available reserves should be
separately allocated. The allocated portion should be transferred to the CRR.
The purpose of the CRR is to ensure that companies maintain the capital base intact
in the event of a capital diminution.
A capital diminution refers to a depletion in the paid-up capital of a company. It can
be caused when a company redeems preference capital or opts to undertake a buy-
back scheme.
 Practice Questions

Question No.10
Q.10) Which section of companies act mentions about the transfer and transmission of shares?(1 M)

A) Section 52
B) Section 53
C) Section 54
D) Section 55
E) Section 56

Answer: Option E
 COMPANIES ACT

• Section 56-Transfer and Transmission of

SECTION -44
securities

Shares and Debentures-Movable property • TransferDeed-FormSH-4,stamped,dated and

Public-freely transferable
signed
• One needs to send Form SH 4 to the company
Private –With restrictions by the transferor or the transferee of the
shares within 60 days from the date of
execution, of the share transfer agreement
COMPANIES ACT
 SEBI Grade A 2020

Lecture 3

50 MOST IMPORTANT QUESTIONS

Coverage:
CHAPTER IV-Part3
 Practice Questions

Question No.1

Q.1)Which of the following is the new category of company introduced in Companies Act 2013?(1M)

A) Public Private Partnership

B) Two Person Company
C) Limited Liability Partnership
D) One Person Company
E) None of the above

Answer: Option D
 COMPANIES ACT

One Person Company is a

private company which is one
formed by one person by
subscribing their names or his
name to a memorandum and
complying with the
requirements of Companies
Act
 Practice Questions

Question No.2
Q.2) Which among the following is type of share issued to existing shareholders to increase its subscribed
share capital?(1M)

A) Bonus Shares
B) ESOP
C) Right Issue
D) Preference Shares
E) None of the above

Answer: Option C
 COMPANIES ACT

• When a company needs additional capital and

keeps the voting rights of the existing
shareholders proportionately balanced, the
company issues Rights shares.
• The issue is called so as it gives the existing
shareholders a pre-emptive right to buy new
shares at a price that is lesser than market
price.
• The Rights issue is an invitation to the existing
shareholders to buy new shares in proportion
to their existing shareholding.
 Practice Questions

Question No.3
Q.3) Which of the following alterations of share capital requires the approval of NCLT(National Company
Law Tribunal)?(1 M)

A) Increase of authorized share capital.

B) Consolidation and division all or any share capital which results in increase in voting percentage of
shareholders.
C) Conversion of all or any of the fully paid-up shares into stock.
D) Cancellation of shares.
E) Sub-division of shares or any of them into smaller amount.

Answer: Option B
 COMPANIES ACT

Alteration of Share Capital- Sec 61 of Companies Act, 2013

• Increase or decrease of authorized share capital

of a company is known as alteration of share
capital.
• Power of a company to alter its share capital is
defined and explained in section 61 of the
Companies Act, 2013.
• It can be done by ordinary resolution of the
company, thus it is not necessary to confirm the
alteration of the share capital of the company
from the tribunal except in certain situations.
 COMPANIES ACT

Types of alteration of share capital :

(a) Increase of authorized share capital;.

(b) Consolidation and division all or any of share capital into shares of a larger
amount than existing shares (consolidation and division which results in changes in
the voting percentage of shareholders shall require the approval of NCLT);.

(c) Conversion of all or any of the fully paid-up shares into stock, and vice versa;

(d) Sub-division of shares;

(e) Cancelation of shares which, have not been taken or agreed to be taken by any
person, and diminish the amount of its share capital by the amount of the shares so
cancelled. (this shall not be deemed as reduction in share capital)
 Practice Questions

Question No.4
Q.4) Section 62 ,Companies Act 2013 mentions about further issue of share capital is applicable to which
of the following companies?(1 M)

A) Private Companies.
B) Public Companies.
C) Listed Companies.
D) Unlisted Companies
E) All of the above

Answer: Option E
 COMPANIES ACT

According to Section 62 (1) of the Companies Act 2013, the procedure for issue
of shares is as follows:
1.Issue of notice of Board meeting
2.Convene the First Board Meeting
3.Issue Letter of Offer:min-15 days,max-30 days
4. File MGT – 14:
The form MGT 14 is mandatory for a public limited company
5.Receive application money
6.Convene the Second Board Meeting
7.File the forms with ROC
8.Issue of Share Certificates:
Within 2 months from the date of allotment of shares. The share certificate
must be signed by at least 2 directors. The share certificates must be issued in
Form SH -1.
 Practice Questions

Question No.5
Q.5) Which of the following section of Companies Act,2013 deals with bonus shares ? (1 M)

A) Section 45
B) Section 52
C) Section 59
D) Section 63
E) None of the above

Answer: Option D
COMPANIES ACT
 Practice Questions

Question No.6

Q.6) Bonus shares shall be issued from which of the following reserves?(1 M)

A) Capitalizing reserves created by revaluation of assets.

B) Capital Redemption Reserve Account
C) Free Reserves
D) B and C
E) All of the above

Answer: Option D
 COMPANIES ACT

Bonus shares.—(1) A company may issue fully paid-up

bonus shares to its members, in any manner whatsoever,
out of

(i) its free reserves;

(ii) the securities premium account; or
(iii) the capital redemption reserve account:

NOT:
• Bonus shares shall not be made by capitalising
reserves created by the revaluation of assets.
• The bonus shares shall not be issued in lieu of
dividend.
 Practice Questions

Question No.7
Q.7) Buyback means repurchase by a company of its own shares. Which of the following is correct with
respect to buy back shares?(2 M)

A) It is exercised to increase the number of shares of a company.

B) It eliminates the threats from shareholders who may be looking for a controlling stake.
C) A company cannot buy back its equity shares.
D) A and B.
E) B and C

Answer: Option B
COMPANIES ACT

The power of company to purchase its own securities (section 68) is

called as buy – back.

Purchase its own shares or other specified securities can be out of –

(a) Its free reserve;

(b) The securities premium account; or

(c) The proceeds of the issue of any shares or other specified

securities.
No buy – back of any kind of shares or other securities shall be made
out of the proceeds of an earlier issue of the same kind of share or
other specified securities.
 COMPANIES ACT

(a) The buy – back must be authorised by its articles;

Every buy – back shall be completed within a
(b) A special resolution needs to be passed.
period of one year from the date of passing of
the special resolution or the resolution, as the
However the same is not required when:
case may be.
1.The buy-back is 10% or less of the total paid-up equity
The buy – back may be –
capital and free reserves of the company; and
(a) From the existing shareholders or security
2.Such buy-back has been authorized by the Board by
holders on a proportionate basis;
means of a resolution passed at its meeting
(b) From the open market; or
(c) By purchasing the securities issued to
(c) The buy – back is 25% or less of the aggregate of
employees of the company pursuant to a
paid–up capital and free reserve of the company;
scheme of stock option or sweat equity.
 Practice Questions

Question No.8
Q.8) Which of the following are incorrect with respect to debentures?(1 M)

A) A company may issue debentures with an option to be converted into shares wholly or partly.
B) It can be issued with or without voting rights.
C) A company cannot issue debentures to more than 500 people without appointing a debenture trustee.
D) A and C
E) B and C

Answer: Option B
 COMPANIES ACT

Section 71 -Companies Act, 2013
A Company may issue debentures with an
option to convert into shares, wholly or partly, at
the time of redemption but cannot issue
debentures with voting rights.
Things to keep in mind while issuing debentures:
1.Debentures cannot be issued with voting
rights.
A company cannot issue a prospectus or make an offer or invitation to
the public or to its members for the subscription of its debentures to
more than 500 people without appointing a debenture trustee,
whose duty would be to protect the interest of Debenture Holders and
redress their grievances.
A debenture trustee shall take steps to protect the interests of the
debenture-holders and redress their grievances in accordance with
such rules as may be prescribed.

On issue of debenture a company shall create a

Debenture Redemption Reserve. (DRR) o0ut of the
profits of the company available for payment of dividend
and the amount credited to such account shall not be
utilised by the company except for the redemption of
debentures.
 Practice Questions

Question No.9
Q.9)The power to look into issues of capital reduction of a company vests with which of the following
organization?(1 M)

A) High courts and appeal with Supreme court.

B) Supreme Court
C) NCLT
D) SEBI
E) None of the above

Answer: Option C
 COMPANIES ACT

Reduction of Share Capital- Section 66 of Companies Act, 2013

• Reduction of share capital is the process of

decreasing company’s share capital (apart from
Redemption of preference shares and Buy Back of
shares which are governed separately).
• In simple words it can be regarded as ‘Cancellation
of Uncalled Capital’ i.e. part of subscribed share
capital.

Reduction of Share capital can be
affected in any of the following
manner:
After “Capital Reduction” the
number of shares in the company
will decrease by the reduction
amount.
COMPANIES ACT
I II III
Cancel any paid-up share pay off any paid-up
Extinguish or reduce capital, which is lost, or share capital which is in
the liability on any of its is not represented by excess of the wants of
shares in respect of the available assets. the company
share capital not paid- this may be achieved either with or without
up extinguishing or reducing liability on any of its
shares
⇓ ⇓ ⇓
For example, if the For example, out of the
shares are of face value shares of face value of
of INR 100 each of INR 75 each fully paid-up
For example, shares of
which INR 75 has been is represented by INR 50
face value of INR 75each
paid, the company may worth of assets. In such
fully paid-up can be
reduce them to INR 75 a case, reduction of
reduced to face value of
fully paid-up shares and share capital may be
INR 50 each by paying
thus relieve the effected by cancelling
back INR 25 per share.)
shareholders from INR 25 per share and
liability on the uncalled writing off similar
capital of INR 25/share); amount of assets); or
 Practice Questions

Question No.10
Q.10) As per Companies Act 2013, what is maximum tenure of preference shares except for infrastructure
projects?

A)20 years
B)15 years
C)10 years
D)5 years
E)25 years

Answer: Option A
 COMPANIES ACT

• A company limited by shares may, if so

authorised by its articles, issue preference
shares which are liable to be redeemed
within a period not exceeding twenty
years from the date of their issue.
• A company may issue preference shares for
a period exceeding twenty years for
infrastructure projects
 SEBI Grade A 2020

Lecture 4

50 MOST IMPORTANT QUESTIONS

Coverage:
CHAPTER IV-Part4
 Practice Questions

Question No.1

Q.1)Declaration of Dividend is mentioned in which of the following Sections of Company Act 2013?(1M)

A) Section 120
B) Section 121
C) Section 122
D) Section 123
E) Section 125

Answer: Option D
 COMPANIES ACT

Declaration of dividend- Sec 123 of Companies Act,

2013
Dividend connotes that portion of company’s profit, which is not retained
in the business but distributed by the company among its shareholders,
as a return on their investments, based on the shares held by them.
 Practice Questions

Question No.2
Q.2) Which among the following is correct with respect to Interim Dividend?(1M)

A) It is declared during Annual General Meeting.

B) It is recommended by the Directors and approved by the Share Holders.
C) An interim dividend is typically one of two dividends given out by a company that is providing
shareholders with income on a semi-annual basis.
D) A and B
E) B and C

Answer: Option E
 COMPANIES ACT
BASIS FOR COMPARISON INTERIM DIVIDEND
Meaning Interim dividend is one that is
declared and paid in the middle
of an accounting year, i.e.
before the finalization of
accounts for the year.
Announcement Announced by the company's
Board of Directors
Time of declaration Before preparation of financial
statements.
Revocation It can be revoked with the
consent of all shareholders.
Rate of dividend Less
FINAL DIVIDEND
Final dividend implies the
dividend declared by the board
of directors, at the company's
Annual General Meeting, after
the close of financial year.
Recommended by the Board at
the board meeting and
announced by the Members of
the company at the AGM
After preparation of financial
statements.
It cannot be revoked.
Comparatively higher
 Practice Questions

Question No.3
Q.3) As per the Companies Act, which of the following are the sources of the dividend?(1 M)

A) Current years Profit of the Company

B) Undistributed or Accumulated Profits of the previous years.
C) Free Reserves
D) A and B.
E) All of the above

Answer: Option E
 COMPANIES ACT

123.Declaration of dividend.—(1) No dividend shall be declared or

paid by a company for any financial year except—

(a) out of the profits of the company for that year arrived at after
providing for depreciation in accordance with the provisions of sub-
section (2), or out of the profits of the company for any previous
financial year or years arrived at after providing for depreciation in
accordance with the provisions of that sub-section and remaining
undistributed, or out of both; or

(b) out of money provided by the Central Government or a State

Government for the payment of dividend by the company in
pursuance of a guarantee given by that Government

no dividend shall be declared or paid by a company from its reserves

other than free reserves:
 Practice Questions

Question No.4
Q.4) As per the Companies Act, 2013, declaration of dividends can be declared out of surplus reserves on
which of the following conditions ?(1 M)

A) The amount of declared dividend can’t be more than that of an average rate of dividends which was
declared in past 2 years.
B) The amount drawn from the reserves shall not exceed the amount which is equal to 1/10th of the sum
paid up capital and free reserves.
C) The remaining balance of the reserve shall not fall below 20% of the paid up capital.
D) B and C.
E) A and C

Answer: Option B
 COMPANIES ACT

Declaring Dividend out of Surplus Reserves in case of insufficient

current year’s profit:
The company can declare the dividend out of surplus reserve in case of
insufficient current year’s profit subject to the following conditions:
•Rate of Dividend: The dividend rate shall not exceed the average of
the declared dividend of three immediately preceding years.
•Withdrawal amount: The total amount of withdrawal from
accumulated reserve shall not exceed 1/10th of the paid-up share
capital and free reserves as per the latest audited financial statement.
•Utilization of money withdrawn: Such withdrawn money from
accumulated reserve shall be first used to set off the previous year’s
loss before declaring a dividend for the current year.
•Balance: Balance of surplus reserve after withdrawal shall not fall
below 15% of its paid-up share capital as per its latest financial
statement.
 Practice Questions

Question No.5
Q.5) Appointment of 1st Auditor in case of government company is made within______ days from the date
of registration ? (1 M)

A) 15 days
B) 30 days
C) 45 days
D) 60 days
E) None of the above

Answer: Option D
 COMPANIES ACT

Listed/Specified
Company & Non-Government Government Company
Companies
-Appointed by the Comptroller and
Auditor General of India.
-Within 60 days from the date of
-Appointed- By Board Of Directors.
Registration.
-Within 30 days from the date of
-In case of failure to do within
Registration.
60days, appointment can also be
-In case BOD fail, Appointment can
done by Board Of Directors within
be done by Members at
30 days of incorporation
Extraordinary General Meeting
-In case of further failure, Members
within 90 days of the information
can appoint at an Extraordinary
General Meeting within 60 days of
Information
COMPANIES ACT
 Practice Questions

Question No.6

Q.6) The amount in the Unpaid Dividend Account of companies can be transferred to the Fund Investor
Education and Protection Fund if it remains unpaid or unclaimed for a period of _____ years?(1M)

A) 4
B) 5
C) 6
D) 7
E) 8

Answer: Option D
 COMPANIES ACT

Investor Education and Protection Fund

Provisions of Investor Education and Protection

fund:
Transfer of Dividend:
Any money transferred to the Unpaid Dividend
Account of a company in pursuance of this section
which remains unpaid or unclaimed for a period of
seven years (7 year and 37 days from the date of
declaration of dividend) from the date of such
transfer shall be transferred by the company along
with interest accrued, if any, thereon to Investor
education and protection fund.
 Practice Questions

Question No.7
Q.7) What is the procedure for removal of an auditor before the expiry of the term?(2 M)

A) An ordinary resolution by the board of Directors of the Company.

B) An ordinary resolution by the Shareholders of the Company..
C) Special resolution with the approval by the Central Government
D) An ordinary resolution by SEBI .
E) None of the above.

Answer: Option C
 COMPANIES ACT

Removal of Auditor before expiry of his term

• According to Section 140(1) of the Act, an auditor of

an Indian company can be removed before the expiry
of its term, subject to the shareholders of the
company approving such removal by way of a special
resolution, and after obtaining the approval of the
Central Government.
• The Act also necessitates the auditor to be given a
reasonable opportunity of being heard before such
removal
 Practice Questions

Question No.8
Q.8) According to provisions of Companies Act, 2013 an individual auditor cannot be appointed for more
than ____ consecutive years?

A) 4
B) 5
C) 6
D) 7
E) 8

Answer: Option B
 COMPANIES ACT

Tenure of Auditors appointed under Companies Act,2013

The following class of Companies shall not appoint or reappoint:-

(a) an individual as auditor for more than one term of five consecutive years;
and
(b) an audit firm as auditor for more than two terms of five consecutive years:
The class of companies shall mean the following classes of companies excluding
one person companies and small companies:-
(a) all unlisted public companies having paid up share capital of rupees ten
crore or more;
(b) all private limited companies having paid up share capital of
rupees twenty crore or more;
(c) all companies having paid up share capital of below threshold limit
mentioned in (a) and (b) above, but having public borrowings from financial
institutions, banks or public deposits of rupees fifty crores or more.
 Practice Questions

Question No.9
Q.9)Which of the following is responsible for prescribing the standards of auditing according to Section
143(10) of Companies Act?(1 M)

A) Central Government
B) National Financial Reporting Authority
C) Institute of chartered Accountants of India
D) B and C
E) A and B

Answer: Option A
COMPANIES ACT
 Practice Questions

Question No.10
Q.10) Which of the following situations is considered as the casual vacancy in case of the post of an
auditor?(1M)

A)Vacancy caused by Death

B)Vacancy caused by Disqualification
C)Vacancy caused by expiry of term
D)A and B
E)All of the above

Answer: Option D
 COMPANIES ACT

Casual Vacancy of the Auditor means a vacancy caused due to death, resignation,
disqualification etc. of the auditor after accepting a valid appointment because of which
the auditor cease to act as auditor of the company.

How to fill Casual Vacancy arising due to resignation by the Auditor(s)?

1. A COMPANY→ ACCOUNTS ARE SUBJECT TO AUDIT BY AN AUDITOR APPOINTED BY

CAG:
Any casual vacancy of the auditor in the office shall be filled by the Comptroller and
Auditor General of India within thirty days.
2. OTHER COMPANIES:
If Casual Vacancy is arising due to the resignation of auditor, it shall be filled within 30
days by the Board of Directors, and the recommendation so made by the Board shall be
approved in a general meeting convened within 3 months from the date of
recommendation of the Board.
Any auditor appointed in a Casual Vacancy shall hold office until the conclusion of the
next Annual General Meeting.
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