How to Use This Page
This page provides complete exercise solutions for Chapter 26: Companies Act 2013 from the Tamil Nadu State Board Class 12 Commerce textbook.
- Start with the Key Concepts table to quickly revise important terms and definitions.
- MCQs test your recall of provisions, timelines, and classifications — read all options carefully.
- Fill in the Blanks and True/False check precise knowledge of sections, limits, and legal terms.
- Match the Following connects terms to their meanings — essential for quick revision.
- Brief and Detailed answers follow textbook language; use the sub-point format in exams.
- Common Mistakes highlights frequent confusions between similar concepts.
- Exam Checklist at the end is a quick final revision tool before your exam.
Key Concepts (Quick Recap)
| Term | Definition |
|---|---|
| Share | A fraction or portion of the total capital of a company; represents ownership |
| Debenture | A debt instrument acknowledging a loan to the company with a fixed rate of interest |
| Share Certificate | Legal proof of ownership of shares; issued within 3 months of allotment |
| Share Warrant | Negotiable instrument issued by a public limited company against fully paid-up shares; transferable by delivery |
| MOA (Memorandum of Association) | Charter document dealing with external management; contains 6 clauses |
| AOA (Articles of Association) | Second most important document; rules and regulations for internal management |
| Sweat Equity Shares | Shares issued to employees or directors at a discount for providing know-how or intellectual property rights |
| Bonus Shares | Shares issued free to existing shareholders from accumulated profits (capitalisation of profit) |
| Rights Shares | Shares offered first to existing equity shareholders, often at a reduced price |
| Private Placement | Offer to subscribe securities to a selected group through private placement offer letter |
| Authorised Capital | Maximum capital a company is authorised to raise, as stated in the MOA |
| Issued Capital | Portion of authorised capital offered to the public for subscription |
| Equity Share | Share without preferential rights; also called ordinary share |
| Preference Share | Share with preferential rights regarding dividend at fixed rate and capital repayment on winding up |
| Stock | Fully paid-up shares converted into stock by ordinary resolution; has no nominal value |
I. Choose the Best Answer (MCQs)
Textbook MCQs
Q1. Within how many days must a company give notice of its registered office?
- a) 15 days b) 20 days c) 30 days d) 45 days
Q2. A person who envisages the idea to form a company is called
- a) Director b) Manager c) Secretary d) Promoter
Q3. Capital for which the company pays prescribed fees at registration is called
- a) Issued Capital b) Authorised Capital c) Subscribed Capital d) Called-up Capital
Q4. Shares issued to raise capital from existing shareholders are called
- a) Bonus Shares b) Rights Shares c) Sweat Equity Shares d) Preference Shares
Q5. Resolution for shifting registered office within the same town is passed by
- a) Shareholders b) General Meeting c) EGM d) Board
Q6. Who can issue stock?
- a) Public company b) Private company c) OPC d) Government company
Q7. Document under the Negotiable Instruments Act
- a) Share Certificate b) Debenture c) Share Warrant d) Prospectus
Q8. Shares offered free to existing shareholders from accumulated profits
- a) Bonus Share b) Rights Share c) Sweat Equity Share d) Preference Share
Q9. Shares offered first to existing shareholders at a reduced price
- a) Bonus Share b) Preference Share c) Right Share d) Equity Share
Q10. The Companies Act 2013 prohibits issue at
- a) Premium b) Par c) Discount d) Both a and b
Additional MCQs
Q11. Maximum number of members for a private company
- a) 200 b) 50 c) 100 d) Unlimited
Q12. Minimum number of members for a public limited company
- a) 2 b) 5 c) 6 d) 7
Q13. A person whose advice the Board is accustomed to act on
- a) Director b) Manager c) Promoter d) Secretary
Q14. A fraction or portion of the total capital of a company
- a) Debenture b) Share c) Stock d) Warrant
Q15. Odd one out: Redeemable Shares, Redeemable Debentures, Ir-redeemable Shares, Converting Shares
- a) Redeemable Shares b) Redeemable Debentures c) Ir-redeemable Shares d) Converting Shares
Q16. Odd one out: NCD, PCD, QCD, BCD
- a) NCD b) PCD c) QCD d) BCD
Q17. Not correctly matched
- a) NCLT – National Company Law Tribunal b) ROC – Registrar of Companies c) CLB – Company Legislative Board d) SEBI – Securities and Exchange Board of India
II. Fill in the Blanks
1. A company must give notice of its registered office within 30 days of incorporation. 2. The maximum number of members in a private company is 200. 3. The minimum number of members required for a public limited company is 7. 4. Shares issued at face value are said to be issued at par. 5. Shares issued above face value are said to be issued at a premium. 6. The Companies Act 2013 generally prohibits the issue of shares at a discount. 7. The person who envisages the idea of forming a company is called a Promoter. 8. Sweat equity shares are issued to employees or directors at a discount for providing know-how. 9. A share warrant is a negotiable instrument issued only by a public limited company. 10. The charter document that deals with the external management of a company is the Memorandum of Association (MOA).
III. True or False (with corrections)
IV. Match the Following
Match Q1.
| Column A | Column B |
|---|---|
| Bonus Shares | 4. Capitalisation of profit |
| Sweat Equity Shares | 3. Issued to Employees |
| Right Shares | 2. Existing Equity Shareholders |
| Private placement | 1. Subscribed to selected Group |
Match Q2.
| Column A | Column B |
|---|---|
| Issued at par | 4. Face value |
| Issued at premium | 3. Above face value |
| Issued at discount | 2. Below face value |
| Public Issue | 1. Through Prospectus |
Match Q3.
| Column A | Column B |
|---|---|
| Shares | 2. Capital |
| Debentures | 3. Loan |
| Stock | 4. No nominal value |
| Warrant | 1. Negotiable Instrument |
V. Assertion and Reason
Assertion (A): Debentures are debt instruments of a company. Reason (R): Debentures constitute a loan and carry a fixed rate of interest.
VI. Answer Briefly (2-mark)
Q1. What is Stock? Stock is created when fully paid-up shares are converted into stock by passing an ordinary resolution. Unlike shares, stock has no nominal value and does not have a definite number.
Q2. What is a Share Certificate? A share certificate is a legal proof of ownership of shares. It contains the company name, date of issue, shareholder details, number of shares held, and the nominal and paid-up value of shares.
Q3. Name the stages to form a company. The four stages are: (1) Promotion, (2) Registration, (3) Capital Subscription, and (4) Commencement of Business.
Q4. What is MOA? MOA (Memorandum of Association) is the charter document of a company that deals with external management. It contains six clauses: Name, Object, Situation, Capital, Liability, and Subscription clauses.
Q5. What is AOA? AOA (Articles of Association) is the second most important document of a company. It contains the rules and regulations for the internal management of the company.
Q6. What is Issue at Par? When shares are issued at their face value, they are said to be issued at par. For example, if a share of face value Rs 10 is issued at Rs 10, it is issued at par.
Q7. What are Sweat Equity Shares? Sweat equity shares are shares issued to employees or directors at a discount for providing know-how or making available intellectual property rights to the company.
Q8. What is Private Placement? Private placement is the offer to subscribe securities to a selected group of persons through a private placement offer letter, rather than to the general public through a prospectus.
VII. Answer in Detail (5-mark)
Q1. Distinguish between Debentures and Shares.
| Basis | Debentures | Shares |
|---|---|---|
| Constitute | Loan capital | Ownership capital |
| Asset Charge | May create charge on assets | No charge on assets |
| Rate of Return | Fixed interest | Variable dividend |
| Level | Creditors of the company | Owners of the company |
| Payment Nature | Interest (charge against P&L) | Dividend (appropriation of profit) |
| Voting | No voting rights | Voting rights |
| Repayment | Repaid on maturity | Repaid on winding up |
Q2. Explain the stages in the formation of a company. 1. Promotion — Identifying a business opportunity, forming the idea, conducting feasibility study, and taking steps to register the company. 2. Registration — Filing MOA, AOA, and other documents with the Registrar; obtaining the Certificate of Incorporation. The company comes into existence from the date of incorporation. 3. Capital Subscription — Raising capital from the public through prospectus or through private placement. 4. Commencement of Business — Obtaining the Certificate of Commencement of Business under Section 11 by filing a declaration signed by a director/secretary.
Q3. Explain the kinds of debentures.
- By Registration: Registered debentures (name recorded in the register) and Bearer debentures (payable to the bearer).
- By Security: Secured debentures (charge on assets) and Unsecured debentures (no charge on assets).
- By Redemption: Redeemable debentures (repaid after a fixed period) and Irredeemable debentures (repaid only on winding up).
- By Convertibility: Fully Convertible Debentures (FCD), Partly Convertible Debentures (PCD), Optionally Convertible Debentures (OCD), and Non-Convertible Debentures (NCD).
Q4. Explain the formalities for commencement of business (Section 11). A company must file a declaration signed by a director or secretary stating that: 1. Every subscriber to the MOA has paid the value of shares agreed to be taken. 2. The paid-up capital is not less than Rs 5 lakhs for a public company. 3. The prospectus or statement in lieu of prospectus has been filed.
Only after obtaining the Certificate of Commencement can a public company start its business operations.
Q5. Distinguish between Share Certificate and Share Warrant.
| Basis | Share Certificate | Share Warrant |
|---|---|---|
| Transfer | By execution of transfer deed | By mere delivery |
| Amount paid | Fully or partly paid | Fully paid only |
| Meaning | Proof of title to shares | Negotiable instrument |
| Issued by | Any company | Public limited company only |
| Time limit | Within 3 months of allotment | No specific time limit |
Q6. Explain the kinds of preference shares. 1. Cumulative Preference Shares — Dividend accumulates if not paid in a particular year and must be paid before any dividend to equity shareholders. 2. Redeemable Preference Shares — Repaid after a fixed period as per the terms of issue. 3. Convertible Preference Shares — Can be converted into equity shares after a specified period. 4. Participating Preference Shares — Share surplus profit after equity dividend is paid, in addition to their fixed dividend.
Q7. Explain the issue of securities at premium. When shares are issued above their face value, they are said to be issued at a premium. Example: A share of face value Rs 10 issued at Rs 12 has a premium of Rs 2. The premium amount is credited to the Securities Premium Account. Uses of securities premium: writing off preliminary expenses, writing off issue expenses, providing for premium payable on redemption of debentures, issuing fully paid bonus shares, and paying commission on issue.
Common Mistakes to Avoid
- Shares vs debentures: Shares = ownership (equity); debentures = debt (loan). Debenture holders are creditors, not owners.
- Rights vs Bonus shares: Rights shares are offered at a price (often discounted); bonus shares are issued free from accumulated profits.
- Discount issue prohibition: Companies Act 2013 prohibits share issue at discount (except sweat equity). Debentures CAN be issued at discount.
- Share certificate vs Share warrant: Certificate = proof of title; warrant = negotiable instrument. Only public limited companies issue warrants.
- MOA vs AOA: MOA = external management (charter document); AOA = internal management (rules and regulations).
- Authorised vs Issued capital: Authorised = maximum capital in MOA; Issued = portion actually offered to public.
- Stock vs Share: Stock has no nominal value and no definite number; shares have both. Stock can only be created from fully paid-up shares.
- Private placement vs Public issue: Private placement targets a selected group; public issue is through a prospectus to the general public.
Exam Checklist
- [ ] Four stages of company formation with brief explanation
- [ ] Shares vs debentures on at least 5 parameters
- [ ] Six clauses of MOA by name and purpose
- [ ] Types of debentures (registration, security, redemption, convertibility)
- [ ] Bonus, rights, sweat equity shares, private placement — define and differentiate
- [ ] Share certificate vs share warrant (5 differences)
- [ ] Issue at par, premium, discount with examples
- [ ] 30 days for registered office notice; discount issue prohibited
- [ ] Kinds of preference shares: cumulative, redeemable, convertible, participating
- [ ] Formalities for commencement under Section 11
- [ ] Uses of securities premium account
- [ ] Difference between authorised, issued, subscribed, called-up, and paid-up capital