CA Inter P2 · Chapter 1
Preliminary MCQs with Answers
9 multiple-choice questions on Preliminary for CA Inter P2 Corporate and Other Laws. Try each one before revealing the answer and explanation.
Practise this chapter interactivelyQuestion 1
Which of the following is NOT a restriction that the articles of a private company must contain under section 2(68)?
- A) A prohibition on any invitation to the public to subscribe for its securities
- B) A restriction on the company accepting loans from its directors
- C) A restriction on the right to transfer its shares
- D) A limit on the number of its members to two hundred, except in the case of a One Person Company
Show answer & explanation
Answer: B) A restriction on the company accepting loans from its directors
Section 2(68) requires the articles of a private company to restrict the right to transfer shares, limit the number of members to 200 (except an OPC) and prohibit any invitation to the public to subscribe for its securities. The Act places no such restriction on accepting loans from directors.
Question 2
Megha Ltd is a subsidiary of Trident Ltd, a public company. The articles of Megha Ltd contain all the restrictions applicable to a private company. Megha Ltd will be treated as:
- A) A private company, because its articles contain the restrictions of section 2(68)
- B) Neither a private nor a public company, but a deemed foreign company
- C) A private company, unless the Central Government declares it to be public
- D) A public company, because a subsidiary of a public company is deemed to be a public company
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Answer: D) A public company, because a subsidiary of a public company is deemed to be a public company
The proviso to section 2(71) states that a company which is a subsidiary of a company that is not a private company is deemed to be a public company for the purposes of the Act. This applies even if the subsidiary's articles keep the restrictions of a private company.
Question 3
Under section 2(20) of the Companies Act, 2013, the term 'company' means:
- A) A company incorporated under the Companies Act, 2013 only
- B) A company incorporated under the Companies Act, 2013 or under any previous company law
- C) Any body corporate, whether incorporated in India or outside India
- D) Any association of persons carrying on business for profit and registered with the Registrar
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Answer: B) A company incorporated under the Companies Act, 2013 or under any previous company law
Section 2(20) defines 'company' as a company incorporated under the Companies Act, 2013 or under any previous company law. A body corporate (section 2(11)) is a wider term and includes a company incorporated outside India. Companies registered under earlier Acts such as the Companies Act, 1956 are also 'companies'.
Question 4
Kaveri Tools Private Limited has the following members: 170 individuals who are neither present nor past employees (this figure includes 6 pairs of joint holders), 20 current employees who hold shares, and 9 former employees who became members while in employment and continue as members. For the limit on members in section 2(68), how many members are counted?
- A) 170
- B) 199
- C) 164
- D) 193
Show answer & explanation
Answer: C) 164
Under section 2(68), employee-members and former employees who became members while in employment and continue to be members are excluded from the 200 limit. Joint holders are treated as a single member. Of the 170 non-employee members, 12 persons form 6 joint holdings, so they count as 6 rather than 12: 170 - 12 + 6 = 164. The 20 employees and 9 former employees are ignored.
Question 5
As per section 2(87), Company X will be a subsidiary of Company Y if Company Y:
- A) Exercises or controls more than one-half of the total voting power of Company X, either on its own or together with its subsidiaries
- B) Is a major supplier of raw material to Company X under a long-term contract
- C) Has significant influence over Company X through holding 20% of its voting power
- D) Holds exactly one-half of the total share capital of Company X
Show answer & explanation
Answer: A) Exercises or controls more than one-half of the total voting power of Company X, either on its own or together with its subsidiaries
Under section 2(87), a holding company either controls the composition of the board of directors of the other company, or exercises or controls more than one-half of its total voting power. This can be on its own or together with one or more of its subsidiaries. Significant influence through 20% of voting power makes a company an associate under section 2(6), not a subsidiary. Exactly one-half is not 'more than one-half'.
Question 6
Under the Explanation to section 2(6), 'significant influence' for identifying an associate company means control of at least ______ of the total voting power, or control of or participation in business decisions under an agreement.
- A) Ten per cent
- B) More than fifty per cent
- C) Twenty-six per cent
- D) Twenty per cent
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Answer: D) Twenty per cent
The Explanation to section 2(6) defines significant influence as control of at least 20% of the total voting power, or control of or participation in business decisions under an agreement. An associate company also includes a joint venture company.
Question 7
Which of the following companies can be a 'small company' under section 2(85), provided it meets the capital and turnover criteria?
- A) A private company that is neither a holding nor a subsidiary company
- B) A company registered under section 8
- C) A company governed by a special Act
- D) A private company that is a subsidiary of another private company
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Answer: A) A private company that is neither a holding nor a subsidiary company
Section 2(85) excludes a holding company, a subsidiary company, a company registered under section 8 and a company or body corporate governed by any special Act. A small company must also be a company other than a public company. A standalone private company within the prescribed limits qualifies.
Question 8
As per section 2(51), which of the following is NOT automatically a Key Managerial Personnel?
- A) The Company Secretary
- B) A general manager two levels below the directors
- C) The Chief Financial Officer
- D) A whole-time director
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Answer: B) A general manager two levels below the directors
Key managerial personnel under section 2(51) are the CEO, managing director or manager, the company secretary, the whole-time director and the CFO. The board may also designate an officer in whole-time employment who is not more than one level below the directors. An officer two levels below the directors cannot be designated, so the general manager is not a KMP.
Question 9
Mr. Arjun is a director of Sunrise Ltd. Which of the following is a 'related party' of Sunrise Ltd under section 2(76)?
- A) A public company in which Mr. Arjun holds 3% of the shares but is not a director
- B) A private company in which Mr. Arjun's brother is a member
- C) A firm in which Mr. Arjun's cousin is a partner
- D) A public company in which Mr. Arjun is a director and, together with his relatives, holds 1.5% of the paid-up share capital
Show answer & explanation
Answer: B) A private company in which Mr. Arjun's brother is a member
Section 2(76) includes a private company in which a director or manager, or his relative, is a member or director. A brother is a relative under section 2(77) and the related rules. A public company is related only if the director or manager is a director of it AND holds, with relatives, more than 2% of its paid-up capital. A cousin is not a relative under the Act.