TEST TOPIC :- Preliminary & Incorporation of Company and Matters Incidental Thereto

TIME :- 1 HRS MARKS :- 30

1. In view of the fact that a private company enjoys a number of privileges, Orange Pharma Limited
having 20 members is proposing to convert itself into a private company. For this purpose, the company
needs to alter its articles by inserting three restrictive clauses as specified in Section 2(68) and the
consequent change in the name of the company requires:
(a)A special resolution and prior approval of the Central Government.

(b)A special resolution prior approval of the National Company Law Tribunal (NCLT).

(c)A special resolution and prior approval of the Registrar of Companies (ROC).
(d)A special resolution and prior approval of the State Government.

2.Anupam incorporated a ‘One Person Company’ (OPC) with his sister Alpana as the nominee and about three
years have passed satisfactorily. Anupam does a number of charitable works and is associated with three NGOs.
His business under his OPC has also flourished. Now he is planning to
convert the OPC into a Section 8 company (i.e. a company formed with charitable objects). Choose the
correct option.
(a) Since the company belongs to Anupam, he has full discretion to convert the OPC either as a Section 8
company or as a private or public company
(b)Since the company was formed as a private company, the only option available with Anupam is
to convert it into a public limited company.
(c)There is specific prohibition on converting OPC into a Section 8 company; otherwise it can be converted
into a private or public company without any hindrance.
(d) Since Anupam does a lot of charitable works there is no prohibition on converting his OPC into a
Section 8 company.

3. Namita Ceramic Goods Limited having 152 members was incorporated with the main objects of
manufacture of ceramic goods, glazed, unglazed floor and wall tiles, etc. and to carry on trading in such
products. After three years of successful operation, it wants to diversify its business by entering into the field
of manufacturing electronic goods for which it is required to alter its objects clause. Advise the companyin
relation to alteration of Memorandum.
(a) The company can alter its Memorandum of Association by passing an ordinary resolution and
obtaining the confirmation of the Regional Director (RD).
(b) The company can alter its Memorandum of Association by passing a special resolution at the
shareholders’ meeting.
(c) The company can alter its Memorandum of Association in relation to the objects clause by passing a
special resolution at the shareholders’ meeting and obtaining the confirmation of the Regional
Director (RD).
(d) The company can alter its Memorandum of Association in relation to the objects clause by passing a
special resolution at the shareholders’ meeting and simultaneously publishing the contents of special
resolution in two newspapers (one in English and the other one in vernacular language) circulating in
that area
4. Vinay and Sanjay made a name reservation application accompanied by requisite fee to the Registrar for
forming a new private company. The Registrar accorded its approval for reservation of most preferred name
Vinanjay Softwares Private Ltd. on 7th July, 2018. By which date necessary documents for incorporation of
the company must be submitted to the Registrar so that the reserved name does not get lapsed.
(a)Latest by 20th July, 2018
(b)Latest by 27th July, 2018
(c)Latest by 4th August, 2018
(d)Latest by 4th September, 2018

LAW TEST 1 TIME :- 1 HRS MARKS :- 30

5. A Ltd. is the holding company of B Ltd. Another company C Ltd. is the subsidiary company of B Ltd. Is there
any relationship between A Ltd. and C Ltd.
(a) There is no relationship between A Ltd. and C Ltd.
(b) C Ltd. is deemed to be the subsidiary of A Ltd.
(c) A Ltd. shall be deemed to be the holding company of C Ltd. provided A Ltd. acquires at least 10% stake in C
Ltd.
(d) C Ltd. shall be deemed to be the subsidiary of A Ltd. if the latter company acquires minimum 10% stake in the
former company within six months after C Ltd. becomes subsidiary of B Ltd.

6. Rajesh has formed a ‘One Person Company (OPC)’ with his wife Roopali as nominee. For the last two
years his wife Roopali is suffering from terminal illness and due to this hard fact he wants to change her as
nominee. He has a trusted and experienced friend Ramnivas who could be made nominee or his (Rajesh)
son Rakshak who is of seventeen years of age. Whom should he nominate as nominee in place of his
wife?
(a) Since blood relation can only be appointed as nominee in case of OPC, Rajesh needs to appoint his son
Rakshak.
(b) Rajesh can appoint his friend Ramnivas as nominee in his OPC
(c) Roopali is not agreeable to the proposal of Rajesh and hence, Rajesh cannot change her as the nominee
(d) Either Rakshak or Mr. Ramnivas can be appointed as nominee
Questions Answers

1 A

2 C

3 B

4 B

5 B

6 B

Question 1
MNP Private Ltd. Is a company registered under the Companies Act, 2013 with a, Paid up Share Capital of
Rs.45 lakh and turnover of Rs.3 crores. Explain the meaning of the “Small Company” and examine the
following in accordancewith the provisions of the Companies Act, 2013
i. Whether the MNP Private Ltd. Can avail the status of small company?
[ 4 marks ]

Answer : Small Company: According to Section 2(85) of the Companies Act, 2013, Small Company means a
company, other than a public company

i. paid-up share capital of which does not exceed fifty lakh rupees or such higher amount as may
be prescribed
which shall not be more than ten crore rupees; and
ii. turnover of which as per its last profit and loss account for the immediately preceding financial year 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.

LAW TEST 1 TIME :- 1 HRS MARKS :- 30

 As per Rule 2(1)(t) of Companies ( Specification of Definitions Details) Rules, 2014 Paid up Capital and

Turnover of the Small company shall not exceed Rupees 2 crores and Rupees 20 crores respectively.

In the present case, MNP Private Ltd., a company registered under the Companies Act, 2013 with a paid up share
capital of Rs.45 lakh and having turnover of Rs.3 crore.
Since both the criteria of share capital a n d the second criteria of turnover is met and the provisions require both the
criteria to be met in order to avail the status of a small company, MNP Ltd. can avail thestatus of small
company.
Question 2
AJD Pvt. Ltd. is having paid up share capital of Rs. 45 Lakhs and annual turnover of Rs. 185 Lacs. It is a
wholly owned subsidiary of K Ltd.- a listed company. Can AJD Pvt. Ltd. be called a small company as
per the provisions ofthe Companies Act, 2013.
[ 4 marks ]
Answer
As per Section 2(85) of the Companies Act 2013 read with Rule 2(1)(t) of the Companies (Specification of definitions
Details) Rules, 2014, “Small Company’’ means a company, other thana public company, having-
i. paid-up share capital of which does not exceed two crores rupees; and
ii. turnover of which as per profit and loss account for the immediately preceding financial year does not
exceed twentycrore rupees.
As per Rule 2(1)(t) of Companies ( Specification of Definitions Details) Rules, 2014 Paid up Capital and
Turnover of the
Small company shall not exceed Rupees 2 crores and Rupees 20 crores respectively.
Provided that 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;
In the given case, AJD Pvt. Ltd. satisfies the turnover and paid up share capital criteria to be small company,
but being asubsidiary of K Ltd (a listed), it falls under the exclusions to the definition and hence is not a small Company.
Question 3
MNO a One Person company (OPC) was incorporated during the year 2015 -16 with an authorized capital of
Rs. 45 lakhs (4.5 lakhs shares of Rs.10 each). The capital was fully subscribed and paid-up. Turnover of
the company during 2015-16 and 2016-17 was Rs. 2 crores and Rs.2.5 crores respectively. Promoter of the
company seeks your advice in the following circumstances, whether MNO (OPC) can convert into any other
kind of company during 2017-18. Please advise with reference to relevant provisions of the Companies Act, 2013
in the below mentioned circumstances :
i. If promoter increases the paid up capital of the company by Rs.10 lakhs during 2017-18
ii. If turnover of the company during 2017-18 was Rs.3 crores.
[ 4 marks ]
Answer
As per Rule 3 of the Companies (Incorporation) Rules, 2014, One Person Company (OPC) can convert voluntarily
into any kind of company except into a company under section 8 of the Act at any time after its incorporation.
Besides, Section 18 of the Companies Act, 2013 provides that a company of any class registered under this Act
may convert itself as a company of other class under this Act by alteration of memorandum and articles of the
company in accordance with the provisions of the Chapter II of the Act.
According to the above provisions, following are the answers to the given circumstances
i. Where if the promotors increase the paid up capital of the company by Rs. 10.00 lakh during 2017-2018
i.e., to Rs. 55 lakh (45+10= 55), MNO (OPC) may convert itself voluntarily into any other kind of
company.
ii. Where if the turnover of the MNO during 2017-18 was Rs. 3.00 crore, there will
be no change in the answer, as there is no restriction on conversion of OPC into
LAW TEST 1 TIME :- 1 HRS MARKS :- 30
 any other class of company except companyregistered under section 8.

Question 4
Vintage security equipment limited is a manufacturer of CCTV cameras. It has raised Rs. 100 crores through
public issue of its equity shares for starting one more unit of CCTV camera manufacturing. It has utilized 10
crores rupees and then it realized that its existing business has no potential for expansion because government
has reduced customsduty on import of CCTV camera hence imported cameras from China are cheaper than its
own manufacturing. Now it wants to utilize remaining amount in mobile app development business by adding a
new object in its memorandum of association.
Does the Companies Act, 2013 allow such change of object. If not then what advise will you give to company. If
yes, then give steps to be followed.
[ 4 marks ]
Answer
According to section 13 of the Companies Act, 2013 a company, which has raised money from public through prospectus
and still has any unutilized amount out of the money so raised, shall not change its objects for which it raised the money
through prospectus unless a special resolution is passed by the company and-
i. the details in respect of such resolution shall also be published in the newspapers (one in English and one
in vernacular language) which is in circulation at the place where the registered office of the company is
situated and shall also be placed on the website of the company, if any, indicating therein the justification
for such change.
ii. the dissenting shareholders shall be given an opportunity to exit by the promoters and shareholders
having controlin accordance with SEBI regulations.
Question 5:
XY Ltd. Has its registered office at Mumbai in the State of Maharashtra. For better administrative
conveniences the company wants to shift its registered office from Mumbai to Pune (within the State of
Maharashtra). What formalities the company has to comply with under the provisions of the Companies Act,
2013 for shifting its registered office as stated above? Explain
[ 4 marks ]
Answer
The Companies Act, 2013 under section 13 provides for the process of altering the Memorandum of a
company. Since the location or Registered Office clause in the Memorandum only names the state in which its
registered office is situated, a change in address from Mumbai to Pune, does not result in the alteration of the
Memorandum and hencethe provisions of section 13 (and its sub sections) do not apply in this case.
However, under section 12 (5) of the Act which deals with the registered office of company, the change in
registered office from one town or city to another in the same state, must be approved by a special resolution
of the company. Further, presuming that the Registrar will remain the same for the whole state of
Maharashtra, there will be no need for thecompany to seek the confirmation to such change from the
Regional Director.
Question 6
The paid-up share capital of Altar Private Limited is Rs.1 crore, consisting of 8 lacs Equity Shares of Rs. 10
each, fully paid-up and 2 lacs Cumulative Preference Shares of Rs. 10 each, fully paid-up. New Private Limited
and Ultra Private Limited are holding 3 lacs Equity Shares and 50,000 Equity Shares respectively in Altar
Private Limited. New Private Limited and Ultra Private Limited are the subsidiaries of PQR Private
Limited. With reference to the provisions of the Companies Act, 2013 examine whether Altar Private Limited
is a subsidiary of PQR Private Limited? Would your answer be different if PQR Private Limited has 8 out of
9 Directors on the Board of Altar Private Limited?
[ 4 marks ]
Answer : In terms of section 2 (87) of the Companies Act 2013 "subsidiary company" or "subsidiary", in relation to
any other company (that is to say the holding company), means a company in which the holding company :-
i. controls the composition of the Board of Directors or
ii. exercises or controls more than one-half of the total voting power either at its own or together with
oneor more of its subsidiary companies
Explanation—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.
the composition of a company's Board of Directors shall be deemed to be controlled by another company
LAW TEST 1 TIME :- 1 HRS MARKS :- 30
 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 present case, New Pvt. Ltd. and Ultra Pvt. Ltd. together hold less than one half of the total share capital
i.e. less than one-half of total voting power. Hence, PQR Private Ltd. (holding of New Pvt. Ltd. and Ultra Pvt. Ltd)will
not be a holding company of Altar Pvt. Ltd.
However, if PQR Pvt. Ltd. has 8 out of 9 Directors on the Board of Altar Pvt. Ltd. i.e. controls the composition ofthe
Board of Directors; it (PQR Pvt. Ltd.) will be treated as the holding company of Altar Pvt. Ltd.

LAW TEST 1 TIME :- 1 HRS MARKS :- 30