CA Intermediate (Batch Aug 2023)

SOLUTION – Test of Chapter 11 and 12

Chapter 11 – Companies incorporated outside India

Chapter 12 – LLP

Part 1- MCQ questions

Q1 (a) Q2. (c) Q3. (d) Q4. (d) Q5. (d)

Q6. (d) Q7. (d) Q8. (b) Q9. (c) Q10. (d)

Part II – Descriptive questions

1. Foreign company means a 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

Electronic mode means carrying out electronically based, whether main server is installed in India or not,
including, but not limited to -

a. business to business and business to consumer transactions, data interchange and other digital supply
transactions;
b. offering to accept deposits or inviting deposits or accepting deposits or subscriptions in securities, in India
or from citizens of India;
c. financial settlements, web-based marketing, advisory and transactional services, database services and
products, supply chain management;
d. online services such as telemarketing, telecommuting, telemedicine, education and information research;
and
e. all related data communication services

Now, in the current case –

a. In the given situation, M/s Red Stone Limited is registered in Singapore. However, it does not have a place
of business in India whether by itself or through an agent, physically or through electronic mode; and does
not conduct any business activity in India in any other manner. Mere holding of board meetings and
executing business decisions in India cannot be termed as conducting business activity in India. Hence, M/s
Red Stone Limited is not a foreign company as per the Companies Act, 2013.

b. In the given situation, M/s Blue Star is registered in Thailand. It has authorised Mr. Y in India to find
customers and enter into contract on behalf of the company. Thus, it can be said that M/s Blue Star Limited
has both place of business in India through an agent, physically or through electronic mode; and is
conducting business activity in India. Hence, M/s Blue Star Limited is a foreign company as per the
Companies Act, 2013.

c. In the given situation, M/s Xex Limited Liability Company is registered in Dubai and has installed its main
server in Dubai for maintaining office automation software by Cloud Computing for its client in India. Thus,
it can be said that M/s Xex Limited Liability Company has a place of business in India through electronic
mode and is conducting business activity in India. Hence, M/s Xex Limited Liability Company is a foreign
company as per the Companies Act, 2013.

2. An LLP may be wound up by the Tribunal, -

a. if the LLP decides that LLP be wound up by the Tribunal;
b. if, for a period of more than 6 months, the number of partners of the LLP is reduced below two;

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 c. if the LLP has acted against the interests of the sovereignty and integrity of India, the security of the State
or public order;
d. if the LLP has made a default in filing with the Registrar the Statement of Account and Solvency or annual
return for any 5 consecutive financial years; or
e. if the Tribunal is of the opinion that it is just and equitable that the LLP be wound up.

3. Section 379 of the Companies Act 2013 deals with application of Act to foreign companies.

Sub-section 2 to section 379 provides where not less than fifty percent of the paid-up share capital (whether
equity or preference or partly equity and partly preference) of a foreign company is held by
a. one or more citizens of India or
b. one or more companies or bodies corporate incorporated in India, or
c. one or more citizens of India and one or more companies or bodies corporate incorporated in India,

Whether singly or in the aggregate, such company shall comply with the provisions of this Chapter and such
other provisions of this Act as may be prescribed with regard to the business carried on by it in India as if it
were a company incorporated in India.

Total of ordinary shares held by Indian citizen or corporation in aggregate are 3 million (i.e. 2932780 and
67220) whose paid-up value is ₤6 million

Total of preference stock held by Indian citizen or corporation in aggregate are 0.645 million (i.e. 109,205,
142,320, and 393,475) whose paid-up value is ₤6.45 million

Since out of paid-up capital of ₤24 (i.e. ₤12 million ordinary share capital + ₤12 million preference share capital)
of ZPL, ₤12.45 million held by citizens of India along with companies incorporated in India, in aggregate hence
ZPL shall comply with the provisions of this Chapter and such other provisions of this Act as may be prescribed
with regard to the business carried on by it in India as if it were a company incorporated in India. Opinion of
Registrar is legally valid and shall prevail.

4. (1)

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.

Further, branch offices are generally considered as reflection of the Parent Company’ office. Thus, branch offices
of a company incorporated outside India are considered as a place of business for conducting business activity
in India and will be required to follow provisions of this chapter and such other provisions as may be specified
elsewhere under Companies Act, 2013.

(2)

Under section 380(1) of the Companies Act, 2013 every foreign company shall, within 30 days of the
establishment of place of business in India, deliver to the Registrar for registration the following documents:
(a) a certified copy of the charter, statutes or memorandum and articles, of the company or other instrument
constituting or defining the constitution of the company.
(b) the full address of the registered or principal office of the company;
(c) a list of the directors and secretary of the company containing their respective details as per the rules.
(d) the name/s and address/s of one or more persons resident in India authorised to accept on behalf of the
company service of process and any notices or other documents required to be served on the company;
(e) the full address of the office of the company in India which is deemed to be its principal

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5.
Books of Account

The LLP shall maintain such proper books of account as may be prescribed relating to its affairs for each year
of its existence on cash basis or accrual basis and according to double entry system of accounting and shall
maintain the same at its registered office for such period as may be prescribed.

Statement of Account and Solvency

Every LLP shall, within a period of 6 months from the end of each financial year, prepare a Statement of Account
and Solvency for the said financial year as at the last day of the said financial year in such form as may be
prescribed, and such statement shall be signed by the designated partners of the LLP.

Every LLP shall file within the prescribed time, the Statement of Account and Solvency with the Registrar every
year within 60 days from the closure of the Financial year.

Audit

The accounts of LLPs shall be audited in accordance with such rules as may be prescribed.

Provided that CG may, by notification in the Official Gazette, exempt any class or classes of LLP from the
requirements of this sub-section.
As per the rules, the accounts are audited by a Chartered Accountant in practise.

Provided that an LLP whose

 TURNOVER does not exceed, in any financial year, INR 40 lakh, and
 whose CONTRIBUTION does not exceed INR 25 lakh
shall NOT be required to get its accounts audited

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