Formation of a Company Class 11 Business Studies Important Questions

Important Questions Class 11

Please refer to Formation of a Company Class 11 Business Studies Important Questions with solutions provided below. These questions and answers have been provided for Class 11 Business Studies based on the latest syllabus and examination guidelines issued by CBSE, NCERT, and KVS. Students should learn these problem solutions as it will help them to gain more marks in examinations. We have provided Important Questions for Class 11 Business Studies for all chapters in your book. These Board exam questions have been designed by expert teachers of Standard 11.

Class 11 Business Studies Important Questions Formation of a Company

Very Short Answer Type Questions

Question. State the three stages in the formation of a company?
Answer :
Three stages in the formation of a company :
1. Promotion
2. Incorporation
3. Subscription of capital

Question. Who is the first directors of the company?
Answer :
Promoters have to decide about the members who will be signing the Memorandum of Association of the proposed company. People signing memorandum are also the first Directors of the Company

Question. In a public company how many members must sign Memorandum of association?
Answer :
Atleast seven members must sign the memorandum of association.

Question. Explain technical feasibility?
Answer :
Technical feasibility refers to analysis of an idea which may be good but technically not possible to execute. It may be so because the required raw material or technology is not easily available

Question. Explain Economic feasibility?
Answer :
Project is technically viable and financially feasible but the chance of it being profitable is very little.

Short Answer Type Questions

Question. List down the documents needed for registration for incorporation.
Answer :
o The Memorandum of Association duly stamped, signed and witnessed. In case of a public company, at least seven members must sign it. For a private company however the signatures of two members are sufficient
o The Articles of Association duly stamped and witnessed as in case of the Memorandum
o Written consent of the proposed directors to act as directors and an undertaking to purchase qualification shares.
o The agreement, if any, with the proposed Managing Director, Manager or whole-time director.
o A copy of the Registrar’s letter approving the name of the company.
o A statutory declaration affirming that all legal requirements for registration have been complied with. This must be duly signed.
o A notice about the exact address of the registered office may also be submitted along with these documents
o Documentary evidence of payment of registration fees.

Long Answer Type Questions

Question. Explain the process of capital subscription?
Answer :  The following steps are required for raising funds from the public:
1. SEBI Approval:
• SEBI (Securities and Exchange Board of India) which is the regulatory authority in our country has issued guidelines for the disclosure of information and investor protection.
• A public company inviting funds from the general public must make adequate disclosure of all relevant information and must not conceal any material information from the potential investors.
2. Filing of Prospectus:
• A copy of the prospectus or statement in lieu of prospectus is filed with the Registrar of Companies.
• A prospectus is ‘any document described or issued as a prospectus including any notice, circular, advertisement or other document inviting deposits from the public or inviting offers from the public for the subscription or purchase of any securities of, a body corporate’.
3. Appointment of Bankers, Brokers, Underwriters:
• Raising funds from the public is a stupendous task. The application money is to be received by the bankers of the company.
• The brokers try to sell the shares by distributing the forms and encouraging the public to apply for the shares. Underwriters undertake to buy the shares if these are not subscribed by the public
4. Minimum Subscription:
• In order to prevent companies from commencing business with inadequate resources, it has been provided that the company must receive applications for a certain minimum number of shares before going ahead with the allotment of shares. According to the Companies Act, this is called the ‘minimum subscription’.
• Applications received for the shares are for an amount less than 90 per cent of the issue size, the allotment cannot be made and the application money received must be returned to the applicants.
5. Application to Stock Exchange:
• An application is made to at least one stock exchange for permission to deal in its shares or debentures.
• If such permission is not granted before the expiry of ten weeks from the date of closure of subscription list, the allotment shall become void and all money received from the applicants will have to be returned to them within 8 days
6. Allotment of Shares:
• Till the time shares are allotted, application money received should remain in a separate bank account and must not be used by the company.
• In case the number of shares allotted is less than the number applied for, or where no shares are allotted to the applicant, the excess application money, if any, is to be returned to applicants or adjusted towards allotment money due from them.
• Allotment letters are issued to the successful allottees. ‘Return of allotment’, signed by a director or secretary is filed with the Registrar of Companies within 30 days of allotment

Question. Jindal and his brothers wanted to start a new business of steel. To start up a business what documents are required to be submitted by them to the registrar of companies?
Answer :

Memorandum of Association
It defines the objectives of the company.
• No company can legally undertake activities that are not contained in its MoA
• MoA contains following clauses:
• Name Clause: contains the name of the company which has already been approved by the Registrar of Companies
• Registered office clause: contains the name of the state,in which the registered office of the company is proposed to be situated. Exact address is not required but the same must be notified to the Registrar within thirty days of the incorporation of the company.
• Objects clause: It defines the purpose for which the company is formed. A company is not legally entitled to undertake an activity, which is beyond the objects stated in this clause
• Liability clause: This clause limits the liability of the members to the amount unpaid on the shares owned by them.
• Capital clause: This clause specifies the maximum capital which the company will be authorised to raise through the issue of shares. The authorised share capital of the proposed company along with its division into the number of shares having a fixed face value is specified
Articles of Association
• They are the rules regarding internal management of a company.
• These rules are subsidiary to the Memorandum of Association and hence, should not contradict or exceed anything stated in the Memorandum of Association
• According to section 2(5) of The Companies Act, 2013, ‘articles’ means the article of association of a company as originally framed or as altered from time to time or applied in pursuance of any previous company law or of this Act
Consent of Proposed Directors
• Apart from the Memorandum and Articles of Association, a written consent of each person named as a director is required confirming that they agree to act in that capacity and undertake to buy and pay for qualification shares
•The agreement which the company enters with individual as Director or a whole time Director or Manager is another document which is required to be submitted to the Registrar for getting the company registered under the Act
Statutory Declaration
•A declaration stating that all the legal requirements pertaining to registration have been complied with is to be submitted to the Registrar with the above mentioned documents for getting the company registered under the law.
Receipt of Payment of fee
•Necessary fees has to be paid for the registration of the company.
•The amount of such fees shall depend on the authorised share capital of the company Receipt of