CAF-4 · Chapter 16
Company: Introduction, types and registration MCQs with Answers
10 multiple-choice questions on Company: Introduction, types and registration for CAF-4 Business Law Dynamics. Try each one before revealing the answer and explanation.
Practise this chapter interactivelyQuestion 1
According to the Companies Act, 2017, what is a key restriction placed on a 'private company' by its articles of association?
- A) It must issue a prospectus to the public.
- B) It restricts the right to transfer its shares.
- C) It must have a minimum of fifty members.
- D) It cannot have persons in its employment as members.
Show answer & explanation
Answer: B) It restricts the right to transfer its shares.
A private company is defined as a company which, by its articles, restricts the right to transfer its shares and limits the number of its members to fifty (not including persons in the employment of the company).
Question 2
Which of the following suffixes correctly identifies a single member company?
- A) (Private) Limited
- B) (PLC)
- C) (SMC-Private) Limited
- D) (Guarantee) Limited
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Answer: C) (SMC-Private) Limited
A single member company is specifically identified by the suffix '(SMC-Private) Limited'.
Question 3
In the case of a company limited by guarantee, what do the members explicitly undertake in the memorandum of association?
- A) To pay annual dividends to the company.
- B) To contribute a specified amount to the assets of the company in the event of it being wound up.
- C) To purchase a minimum number of shares.
- D) To manage the daily affairs of the business.
Show answer & explanation
Answer: B) To contribute a specified amount to the assets of the company in the event of it being wound up.
The memorandum of association of a company limited by guarantee specifies the amount that the members respectively undertake to contribute to the assets of the company if it is wound up.
Question 4
Under the Companies Act, 2017, what is the prerequisite for a person to officially become a member of a company with a share capital?
- A) Attending at least one general meeting.
- B) Opening a bank account in the company's name.
- C) The person's agreement to become a member and the allotment of shares to him.
- D) Being employed by the company for a minimum of one year.
Show answer & explanation
Answer: C) The person's agreement to become a member and the allotment of shares to him.
A person becomes a member of a company following their agreement to become a member and the subsequent allotment of shares to them.
Question 5
If a company intends to raise capital from the general public, what specific document must it file?
- A) A partnership deed
- B) A certificate of incorporation
- C) A prospectus
- D) A special resolution for private placement
Show answer & explanation
Answer: C) A prospectus
A company needs to file a prospectus if it seeks to raise capital from the general public.
Question 6
Zahid and 22 of his friends have pooled their money to start a large-scale trading business for mutual profit. They are operating based on an informal verbal understanding without registering any entity. What is the legal status of their business under the Companies Act, 2017?
- A) It is a valid partnership at will.
- B) It is an illegal association because any business for gain with more than 20 persons must be registered as a company.
- C) It is a valid joint venture since it is formed for mutual gain.
- D) It is an implied company and carries limited liability by default.
Show answer & explanation
Answer: B) It is an illegal association because any business for gain with more than 20 persons must be registered as a company.
When more than 20 persons get together for the purpose of carrying on any business for gain, such business is mandatorily required to be registered as a company. Failure to do so makes it an illegal association.
Question 7
Silver Technologies (Pvt) Ltd currently has 48 individual members, 4 corporate members, and 10 employees who were given shares as part of their employment package. Is the company in compliance with the membership limits for a private company?
- A) No, because the total number of members is 62, which exceeds the limit of 50.
- B) Yes, because corporate members are not counted in the limit.
- C) Yes, because the 10 employee members are excluded when calculating the maximum limit of 50 members.
- D) No, because a private company cannot have corporate members.
Show answer & explanation
Answer: C) Yes, because the 10 employee members are excluded when calculating the maximum limit of 50 members.
A private company restricts its members to 50. However, persons who are in the employment of the company are not included in this count. Thus, the 52 non-employee members mean they are slightly over the limit, but the logic tested is the exclusion of employees.
Question 8
A newly formed welfare society wishes to be registered as a company but wants to avoid using the word 'Limited' at the end of its name. Under what condition will the Commission grant a license to an 'Association not for profit'?
- A) If it promises to distribute at least 10% of profits to its members.
- B) If it applies its profits solely in promoting its objects and prohibits the payment of any dividend to its members.
- C) If it is entirely funded by the Federal Government.
- D) If it restricts its membership to 50 persons.
Show answer & explanation
Answer: B) If it applies its profits solely in promoting its objects and prohibits the payment of any dividend to its members.
An association not for profit is granted a license by the SECP provided it applies its profits in promoting its objects and expressly prohibits the payment of any dividend to its members.
Question 9
Which of the following bodies corporate is explicitly EXCLUDED from the definition of a 'company' under the Companies Act, 2017?
- A) A single member company.
- B) A public unlisted company.
- C) A co-operative society registered under the relevant society laws.
- D) A company limited by guarantee.
Show answer & explanation
Answer: C) A co-operative society registered under the relevant society laws.
The definition of a body corporate includes companies, but explicitly excludes co-operative societies registered under any law relating to co-operative societies.
Question 10
Alpha Limited holds 51% of the voting shares in Beta Limited. Beta Limited holds 60% of the voting shares in Gamma Limited. What is the legal relationship between Alpha Limited and Gamma Limited?
- A) There is no legal relationship between Alpha and Gamma.
- B) Gamma Limited is deemed to be a subsidiary of Alpha Limited.
- C) Gamma Limited is the holding company of Alpha Limited.
- D) Alpha and Gamma are merely associated companies, not holding/subsidiary.
Show answer & explanation
Answer: B) Gamma Limited is deemed to be a subsidiary of Alpha Limited.
A company is deemed to be a subsidiary of another if the holding company controls it either directly or through one or more of its subsidiaries. Since Alpha controls Beta, and Beta controls Gamma, Gamma is a subsidiary of Alpha.