MEPL CLASSES

Company Law
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Mail Id: - d2hclasses@mohitsir.com
Main Centre- 59 Jatindra Mohan Avenue Shobhabazar Kolkata-700005
(Time allowed: 60 minutes) (Marks: 40 marks)

Question 1 (6 marks)
ABC Pvt Ltd is a company registered under the Companies Act, 2013 with a paid up share capital of ₹ 70
lakhs and turnover of ₹ 30 crores. Explain the meaning of small company and examine the following in
accordance with the provisions of the Companies Act, 2013:
a) Whether ABC Pvt Ltd can avail the status of small company?
b) What will be your answer if the turnover of the company is ₹ 15 crores?
Answer 1
Small Company: According to Section 2(85) of the Companies Act, 2013, Small Company means a
company, other than a public company—
(1) paid-up share capital of which does not exceed fifty lakh rupees or such higher amount as may be
prescribedwhich shall not be more than ten crore rupees; and
(2) turnover of which as per its last profit and loss account does not exceed two crore rupees or such
higher amount as may be prescribed which shall not be more than one hundred crore rupees.
Nothing in this clause shall apply to—
(A) a holding company or a subsidiary company;
(B) a company registered under section 8; or
(C) a company or body corporate governed by any special Act.

As per the Companies (Specification of Definitions Details) Rules, 2014, for the purposes of sub-clause (i)
and sub-clause (ii) of clause (85) of section 2 of the Act, paid up capital and turnover of the small company
shall not exceed rupees four crores and rupees forty crores respectively.

(i) In the present case, MNP Private Ltd., a company registered under the Companies Act, 2013 with a
paid up share capital of ₹70 lakh and having turnover of ₹ 30 crore. Since both the criteria are being
satisfied, MNP PRIVATE LTD shall be regarded as a small company
(ii) Even if the turnover is 15 crores, it shall be regarded as a small company, since it fulfills all the criteria
mentioned above.
Question 2 (4 marks)
Gupta Limited was registered as a public company. There are 230 members in the company as noted
below:
a. Directors and their relatives 50
b. Employees 15
c. Ex-employees (shares were allotted when they were employees) 10
d. 5 couples holding shares jointly in the name of husband and wife (5*2) 10
e. Others 145

The Board of Directors of the company propose to convert it into a private company. Also advise whether
reductionin the number of members is necessary.
Answer 2
According to section 2(68) of the Companies Act, 2013, "Private company" means a company having a
minimum paid-up share capital as may be prescribed, and which by its articles, except in case of One
Person Company, limits the number of its members to two hundred.
However, where two or more persons hold one or more shares in a company jointly, they shall, for the
purposes of this clause, be treated as a single member.
It is further provided that -
(A) persons who are in the employment of the company; and
(B) persons who, having been formerly in the employment of the company, were members of the
company while in that employment and have continued to be members after the employment
ceased, shall not be included in the number of members.
In the instant case, Flora Fauna Limited may be converted into a private company only if the total members
of the company are limited to 200. Total Number of members
a. Directors and their relatives 50
b. 5 couples (5*1) 5
c. Others 145
TOTAL 200
Therefore, there is no need for reduction in the number of members since existing number of members are
200 whichdoes not exceed maximum limit of 200.

Question 3 (2 marks)
A company is not a separate legal entity with perpetual succession for lawful purpose
(a) True
(b) False
(c) Partly true
(d) None of the above
Question 4 (2 marks)
Person who initiate promotion of a company are known as
(a) Demoters
(b) Promoters
(c) Contractors
(d) Members

Question 5 (2 marks)
The Companies Act 2013 defines the term promoter under Section 2(69) which means a person who
(a) Has been named as such in a prospectus or is identified by the company in the annual return referred
to in Section 92.
(b) Has not been named such in a prospectus or is identified by the company.
(c) Has been named as such in a prospectus or is identified by the company in the annual returns suffered
to in Section 91.
(d) Is not identified by the company.

Question 6 (2 marks)
Persons acting only in a professional capacity, eg., the solicitor, banker, accountant, etc., are not regarded
as promoter
(a) True
(b) False
(c) Partly true
(d) Partly false

Question 7 (2 marks)
It can be a possibility that a company may or may not have a
(a) Common seal
(b) Director
(c) President
(d) Employees

Question 8 (5 marks)
Geeta Private Limited is a start-up company. Mr. Prabodh has been appointed as Accounts Manager of
Geeta Private Limited. The Board meeting for approval of accounts is to be held on 01.08.2022 and he has
to prepare the financial statements for approval by the Board. Referring to section 2(40) of the Companies
Act, 2013, advise Mr. Prabodh about the statements that are required to be prepared.
Answer 8
As per section 2(40) of the Companies Act, 2013, Financial Statement in relation to a company, includes—
(i) a balance sheet as at the end of the financial year;
(ii) a profit and loss account, or in the case of a company carrying on any activity not for profit, an income
and expenditure account for the financial year;
(iii) cash flow statement for the financial year;
(iv) a statement of changes in equity, if applicable; and
(v) any explanatory note annexed to, or forming part of, any document referred to in subclause (i) to sub-
clause (iv):

Exemption: As per the proviso to section 2(40), the financial statement, with respect to one person
company, small company, dormant company and private company (if such private company is a start-up)
may not include the cash flow statement.

In the instant case, Mr. Prabodh has to prepare the above financial statements except Cash Flow
Statement; since Geeta Private Limited is a start-up private company.

Question 9 (5 marks)
The information extracted from the audited Financial Statement of CCD Private Limited as at 31st March, 2020 is as
below –
i. Paid-up equity share capital 60,00,000 divided into 6,00,000 equity shares (carrying voting rights) of
10 each. There is no change in the paid-up share capital thereafter.
ii. The turnover is 19,00,00,000. It is further understood that BARISTA Limited, which is a public limited
company, is holding 3,00,000 equity shares, fully paid-up, of CCD Private Limited.

You are to advise on the following points explaining the provisions of the Companies Act, 2013 –
a. Whether CCD Private Limited shall be deemed to be a small company whose significant equity shares
are held by a public company?
b. Is there any relation between CCD Private Limited and BARISTA Limited?

Answer 9
(a) According to section 2(85) of the Companies Act, 2013, small company means a company, other than
a public company, having-
(A) paid-up share capital not exceeding 50 lakh rupees or such higher amount as may be prescribed
which shall not be more than ten crore rupees; and
(B) turnover as per profit and loss account for the immediately preceding financial year not exceeding
two crore rupees or such higher amount as may be prescribed which shall not be more than one
hundred crore rupees:
Provided that nothing in this clause shall apply to
 (a) holding company or a subsidiary company.
(b) A company registered under section 8; or
(c) A company or body corporate government by any special Act;

As per the Companies (Specification of Definitions Details) Rules, 2014, for the purposes of sub-clause (i)
and sub-clause (ii) of clause (85) of section 2 of the Act, paid up capital and turnover of the small company
shall not exceed rupees four crores and rupees forty crores respectively.

In the above case, it is seen that the paid-up share capital (₹60 lakhs) and turnover (₹19 crores) is within
the limit as prescribed under section 2(87), hence, CCD Private Limited can be categorized as a small
company

(b) According to section 2(87), subsidiary company, in relation to any other company (that is to say the
holding company), means a company in which the holding company exercises or controls more than
one-half of the total voting power either at its own or together with one or more of its subsidiary
companies OR controls the composition of the Board of Directors.
In the above case, BARISTA LIMITED (PUBLIC LIMITED COMPANY) holds 3,00,000 equity shares of
CCD PRIVATE LIMITED (having paid up share capital of 6,00,000 equity shares @ ₹10 totaling ₹60
lakhs). Hence, CCD Private Limited is not a subsidiary of Barista Limited and hence it is a private
company and not a deemed public company.

Question 10 (5 Marks)
The paid-up share capital of Saras Private Limited is ₹1 crore consisting of 8 lakh equity shares of ₹10 each
and 2 lakh cumulative preference shares of ₹10 each. Jeevan Private Limited and Sudhir Private Limited
are holding 2 lakh equity shares and 2,50,000 equity shares respectively in Saras Private Limited. Jeevan
Private Limited and Sudhir Private Limited are the subsidiaries of Piyush Private Limited.
With reference to the provisions of Companies Act, 2013 examine whether Saras Private Limited is a
subsidiary of Piyush Private Limited?
Would your answer be different if Piyush Private Limited has 5 out of 9 Directors on the Board of Saras
Private Limited?

Answer 10
According to section 2(87), subsidiary company, in relation to any other company (that is to say the
holding company), means a company in which the holding company exercises or controls more than
one-half of the total voting power either at its own or together with one or more of its subsidiary
companies OR controls the composition of the Board of Directors

Provided that such class or classes of holding companies as may be prescribed shall NOT have layers of
subsidiaries beyond such numbers (“2”) as may be prescribed.
For the purposes of this clause –
(a) a company shall be deemed to be a subsidiary company of the holding company even if the
control referred to in sub-clause (i) or sub-clause (ii) is of another subsidiary company of the
holding company;
(b) the composition of a company's Board of Directors shall be deemed to be controlled by another
company if that other company by exercise of some power exercisable by it at its discretion can
appoint or remove all or a majority of the directors.

In the given case, the total equity share capital of SARAS PRIVATE LIMITED is ₹80 lakh rupees,
Equity share capital held by Jeevan Private Limited = ₹20 lakh rupees
Equity share capital held by Sudhir Private Limited = ₹25 lakh rupees.
Hence, total equity share held by Piyush Private Limited is = ₹45 lakh rupees

Since, Piyush Private Ltd. held more than half of the Total voting power, Saras Private Limited is a
subsidiary of Piyush Private Ltd.
The answer would remain same in case Piyush Private Limited controls the composition of Board of
Directors of Saras Private Limited.

Note: The presumption for preference share capital is that they are not entitled to any voting rights

Question 11 (5 marks)
Tesla Ltd. is a company registered in New York (U.S.A.). The company has no place of business established
in India, but it is doing online business through data interchange in India (the main sever being located in
New York itself).
Explain with reference to relevant provisions of the Companies Act, 2013 whether Tesla Ltd. will be treated
as Foreign Company.

Answer 11
According to Section 2(42) of the Companies Act, 2013
"Foreign company" means any company or body corporate incorporated outside India which –
(a) has a place of business in India whether by itself or through an agent, physically or through electronic
mode; and
(b) conducts any business activity in India in any other manner
As per Rule 2, ‘Electronic Mode’ means carrying out electronically based, whether main server is installed
in India or not, including, but not limited to –
(i) business to business and business to consumer transactions, data interchange and other digital supply
transactions;
(ii) offering to accept deposits or inviting deposits or accepting deposits or subscriptions in securities, in
 India or from citizens of India;
(iii) financial settlements, web-based marketing, advisory and transactional services, database services
and products, supply chain management;
(iv) online services such as telemarketing, telecommuting, telemedicine, education and information
research; and
(v) all related data communication services,

In the given case, it is evident that even though Tesla Ltd. has no place of business established in India
(physically or through its agent), but is conducting business through electronic mode.
‘Electronic Mode’ means carrying out electronically based, whether main server is installed in India or not,
and it includes online business through data interchange.
Hence, Tesla Ltd. shall be treated as a Foreign Company under Companies Act,2013.