Questions and Answers
What distinguishes a guarantee company from a company limited by shares regarding member liability?
In a guarantee company, members' liability can be called upon only after winding up, while in a company limited by shares, liability can be called upon at any time.
How do guarantee companies typically raise their initial working funds?
Guarantee companies do not raise initial working funds from their members; they rely on other sources such as endowments, fees, and donations.
What is the significance of the ruling in Narendra Kumar Agarwal vs. Saroj Maloo regarding guarantee companies?
The ruling clarifies that the right of a guarantee company to refuse member interest transfers differs fundamentally from that of companies limited by shares.
Define an unlimited company as per Section 2(92) of the Companies Act, 2013.
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What happens to the liability of a member in an unlimited company when they cease to be a member?
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What must the Articles of Association state if an unlimited company has share capital?
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Can the members of a guarantee company face liability during the company's lifetime?
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What unique privileges might the membership of a guarantee company carry compared to ordinary shareholders?
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What is the minimum fine a company faces for non-compliance with the section requirements?
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What are the potential fines for directors and officers of a defaulting company?
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What happens if a company conducts its affairs fraudulently?
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List two significant characteristics of a Section 8 Company.
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What is the requirement concerning share capital for Section 8 Companies?
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What type of license does a Section 8 Company need to operate?
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What can the Central Government direct a Section 8 Company to do upon license revocation?
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How many days' notice must a Section 8 Company give for a general meeting?
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What defines a 'subsidiary company' in relation to a holding company?
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What is meant by controlling the composition of the Board of Directors?
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How is a company identified as a subsidiary in a multi-tier structure?
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Can a subsidiary company also be a holding company for another subsidiary?
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What is the significance of holding more than 50% of the share capital?
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What does the term 'layer' refer to in the context of holding companies?
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Is it possible for a holding company to have a prescribed number of layers?
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What happens to the subsidiary relationship if the holding company appoints or removes directors?
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What are the requirements for a memorandum to be validly signed?
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Who cannot be a signatory to the memorandum and why?
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What are the compulsory clauses in a memorandum of association?
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What is meant by the term 'ultra vires' in company law?
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What happens if a memorandum contains provisions contrary to the Companies Act?
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How must the particulars about signatories be documented in the memorandum?
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Can a company act through an agent in subscribing to the memorandum?
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What is the significance of the doctrine of ultra vires in relation to company activities?
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What does constructive notice imply for a person dealing with a company?
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What kind of documents is a person presumed to have constructive notice of when dealing with a company?
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What happens if a contract exceeds the powers of a company as defined in its memorandum?
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Explain the Doctrine of Indoor Management in relation to constructive notice.
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Which landmark case is associated with the Doctrine of Indoor Management?
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Why is it important for individuals to be aware of the doctrine of constructive notice?
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What is the key distinction between constructive notice and the Doctrine of Indoor Management?
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What is implied about a person’s understanding of a company's documents under constructive notice?
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Study Notes
Types of Companies
- Members of a guarantee company are liable only upon winding up and under certain conditions, while in unlimited companies, liability can arise at any time.
- Guarantee companies do not raise funds from members; instead, they rely on alternate sources such as donations and fees.
- Membership rights in guarantee companies can differ significantly from regular shareholders' rights.
Unlimited Company
- Defined as having no limit on member liability according to Section 2(92) of the Companies Act, 2013.
- Members’ liability extends to the total debts of the company but they can seek contribution from other members.
- Articles of Association must specify share capital amounts if the company has share capital.
Definition of Subsidiary Company
- A subsidiary is controlled by a holding company that has the authority over the board composition or voting power exceeding fifty percent.
- Control can also apply through subsidiary companies of the holding company.
- Examples illustrate how ownership and board control determine subsidiary status across layers of companies.
Penalties for Non-compliance
- Companies defaulting on requirements may face fines ranging from ten lakh to one crore rupees.
- Directors and defaulting officers can incur fines from twenty-five thousand to twenty-five lakh rupees.
Section 8 Company - Key Features
- Established to promote various fields like commerce, art, and charity without any minimum share capital requirement.
- Profits must be reinvested into the promotion of the company's objectives, with no dividends declared to members.
- Operates under a special license from the Central Government and can adopt non-standard company names.
- License may be revoked and conditions can include conversion, winding up, or amalgamation with similar entities.
- Requires a 14-day notice for general meetings instead of the typical 21 days.
Memorandum of Association
- Must be signed by at least seven persons (two for private companies, one for One Person Companies) and includes detailed particulars about signatories.
- A company can use agents to subscribe, but minors cannot sign; guardians can only sign on behalf of minors in personal capacity.
- Cannot contain provisions contrary to the Companies Act; non-compliance nullifies legal effect.
Doctrine of Ultra Vires
- “Ultra vires” means acts done beyond powers; essential for ensuring the company’s actions align with its memorandum.
- Deals with implied notice—persons dealing with a company are presumed to be aware of the contents of memorandums and articles, known as constructive notice.
Doctrine of Indoor Management
- Serves as an exception to the doctrine of constructive notice, allowing outsiders to assume that internal company procedures have been followed.
- The principle is exemplified in the case of Royal British Bank vs. Turquand, where outsiders are protected under the assumption of formalities being observed.
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Description
This quiz explores the different types of companies, focusing on guarantee companies and unlimited companies as per the Companies Act, 2013. It also delves into the definition and control of subsidiary companies. Test your knowledge on these corporate structures!