Unit 7: Formation of a Company
### 1. What is the first stage in the formation of a company?
- A. Capital Subscription
- B. Promotion
- C. Incorporation
- D. Registration
**Answer:** B. Promotion
### 2. Who is responsible for promoting a company?
- A. Investors
- B. Bankers
- C. Promoters
- D. Directors
**Answer:** C. Promoters
### 3. What document defines the objectives of a company?
- A. Articles of Association
- B. Memorandum of Association
- C. Prospectus
- D. Certificate of Incorporation
**Answer:** B. Memorandum of Association
### 4. Which clause in the Memorandum of Association defines the company’s purpose?
- A. Name Clause
- B. Liability Clause
- C. Capital Clause
- D. Objects Clause
**Answer:** D. Objects Clause
### 5. What does the 'Certificate of Incorporation' signify?
- A. The legal birth of the company
- B. Approval of the company’s name
- C. The commencement of business
- D. Registration of directors
**Answer:** A. The legal birth of the company
### 6. How many stages are involved in the formation of a public company?
- A. One
- B. Two
- C. Three
- D. Four
**Answer:** C. Three
### 7. Which of the following is included in the Articles of Association?
- A. Business objectives of the company
- B. Maximum capital limit of the company
- C. Internal management rules and procedures
- D. Names of the initial shareholders
**Answer:** C. Internal management rules and procedures
### 8. Which document must be submitted to the Registrar to confirm the registered office of a company?
- A. Prospectus
- B. Articles of Association
- C. Registered Office Notice
- D. Certificate of Commencement
**Answer:** C. Registered Office Notice
### 9. What does a Director Identification Number (DIN) prevent?
- A. A person from being a promoter in multiple companies
- B. Multiple registrations for the same individual as a director
- C. A person from purchasing shares
- D. Public companies from appointing new directors
**Answer:** B. Multiple registrations for the same individual as a director
### 10. Which type of company does not need to follow the capital subscription stage?
- A. Public Company
- B. Private Company
- C. Holding Company
- D. Subsidiary Company
**Answer:** B. Private Company
### 10. Which of the following is NOT a type of feasibility study conducted by promoters during the promotion stage?
- A. Technical feasibility
- B. Financial feasibility
- C. Operational feasibility
- D. Economic feasibility
**Answer:** C. Operational feasibility
### 11. Who issues the Certificate of Incorporation to a newly formed company?
- A. Ministry of Corporate Affairs
- B. Securities and Exchange Board of India (SEBI)
- C. Registrar of Companies
- D. Board of Directors
**Answer:** C. Registrar of Companies
### 12. What is a 'Prospectus' in the context of company formation?
- A. A summary of the Articles of Association
- B. An invitation to the public to subscribe to the company's capital
- C. A document detailing the company's expenses
- D. A certificate confirming the commencement of business
**Answer:** B. An invitation to the public to subscribe to the company's capital
### 13. What is the minimum percentage of subscription required as per SEBI guidelines for a public company to proceed with allotment?
- A. 50%
- B. 75%
- C. 90%
- D. 100%
**Answer:** C. 90%
### 14. Which document contains the rules for the internal management of a company?
- A. Memorandum of Association
- B. Articles of Association
- C. Prospectus
- D. Certificate of Incorporation
**Answer:** B. Articles of Association
### 15. Which of the following is a type of contract entered into by promoters before the incorporation of the company?
- A. Final contracts
- B. Memorandum contracts
- C. Preliminary contracts
- D. Operational contracts
**Answer:** C. Preliminary contracts
### 16. What does SEBI stand for?
- A. Securities and Equity Board of India
- B. Securities and Exchange Board of India
- C. Stock Exchange Board of India
- D. State Economic Board of India
**Answer:** B. Securities and Exchange Board of India
### 17. Which type of company allows only one person to be a member?
- A. Private Limited Company
- B. One Person Company
- C. Partnership Company
- D. Public Limited Company
**Answer:** B. One Person Company
### 17. In which clause of the Memorandum of Association is the maximum capital of a company specified?
- A. Liability Clause
- B. Capital Clause
- C. Objects Clause
- D. Subscription Clause
**Answer:** B. Capital Clause
### 19. What is the purpose of obtaining the Director Identification Number (DIN)?
- A. To register as a promoter
- B. To confirm financial eligibility
- C. To identify individuals intending to be appointed as directors
- D. To approve the company’s name
**Answer:** C. To identify individuals intending to be appointed as directors
### 20. Which clause in the Articles of Association deals with share transfers?
- A. Capital Clause
- B. Liability Clause
- C. Share Transfer Clause
- D. Nomination Clause
**Answer:** C. Share Transfer Clause
### 21. What is the role of underwriters in the context of company formation?
- A. They manage internal operations of the company.
- B. They guarantee the sale of shares if public subscription is inadequate.
- C. They provide financial reports to SEBI.
- D. They oversee the company's marketing activities.
**Answer:** B. They guarantee the sale of shares if public subscription is inadequate.
### 22. What is the purpose of the statutory declaration submitted during incorporation?
- A. To verify the financial stability of the company
- B. To declare that all legal requirements for registration have been met
- C. To disclose the qualifications of directors
- D. To specify the company’s office location
**Answer:** B. To declare that all legal requirements for registration have been met
### 23. What is required if a public company raises funds from friends and relatives instead of the public?
- A. Filing a prospectus with the Registrar of Companies
- B. Issuing a Certificate of Incorporation
- C. Filing a Statement in Lieu of Prospectus
- D. Obtaining SEBI approval
**Answer:** C. Filing a Statement in Lieu of Prospectus
### 24. What does the term "minimum subscription" refer to?
- A. The minimum number of directors required for the company
- B. The minimum amount of capital that must be raised for share allotment
- C. The minimum number of shares a director must hold
- D. The minimum subscription fee for registering a company
**Answer:** B. The minimum amount of capital that must be raised for share allotment
### 25. What type of company is not permitted to issue a prospectus to the public?
- A. Public Limited Company
- B. Private Limited Company
- C. One Person Company
- D. Non-Profit Company
**Answer:** B. Private Limited Company
### 26. The Certificate of Incorporation is considered conclusive evidence of:
- A. The company’s financial health
- B. The company’s legal existence
- C. The eligibility of its directors
- D. The company’s business success
**Answer:** B. The company’s legal existence
### 27. What is a key characteristic of a One Person Company (OPC)?
- A. It requires at least seven members.
- B. It operates solely as a public company.
- C. It has only one member who is a natural person.
- D. It must issue shares to the public.
**Answer:** C. It has only one member who is a natural person.
### 28. The Memorandum of Association must be signed by a minimum of how many people in the case of a public company?
- A. One
- B. Two
- C. Five
- D. Seven
**Answer:** D. Seven
### 29. Which document specifies the name, objectives, and registered office location of a company?
- A. Articles of Association
- B. Certificate of Commencement
- C. Memorandum of Association
- D. Prospectus
**Answer:** C. Memorandum of Association
### 30. A "Return of Allotment" is submitted to the Registrar after:
- A. Incorporation of the company
- B. SEBI approval is obtained
- C. Allotment of shares is completed
- D. The company begins business operations
**Answer:** C. Allotment of shares is completed
### 31. In case of non-disclosure by promoters, the company can:
- A. Register the company under a different name
- B. Void the contract and claim damages
- C. Continue business without issuing shares
- D. Bypass the Certificate of Incorporation
**Answer:** B. Void the contract and claim damages
### 32. Which clause limits the liability of members to the amount unpaid on their shares?
- A. Objects Clause
- B. Liability Clause
- C. Capital Clause
- D. Registered Office Clause
**Answer:** B. Liability Clause
### 33. The Corporate Identity Number (CIN) is assigned to a company by:
- A. SEBI
- B. Registrar of Companies
- C. The Central Government
- D. The Board of Directors
**Answer:** B. Registrar of Companies
### 34. A public company must receive SEBI approval at which stage?
- A. Promotion
- B. Incorporation
- C. Capital Subscription
- D. Commencement of Business
**Answer:** C. Capital Subscription
### 35. Which of the following is prohibited for a One Person Company?
- A. Engaging in financial investments
- B. Appointing more than one director
- C. Registering under the Memorandum of Association
- D. Applying for a Director Identification Number
**Answer:** A. Engaging in financial investments
### 36. Who is primarily responsible for identifying a business opportunity during the formation of a company?
- A. Directors
- B. Shareholders
- C. Promoters
- D. Auditors
**Answer:** C. Promoters
### 37. Which clause in the Memorandum of Association states the state where the company's registered office is located?
- A. Registered Office Clause
- B. Liability Clause
- C. Name Clause
- D. Capital Clause
**Answer:** A. Registered Office Clause
### 38. What is the purpose of a feasibility study during the promotion stage?
- A. To determine the company's shareholders
- B. To assess the technical, financial, and economic viability of a business idea
- C. To finalize the Articles of Association
- D. To register the company’s name with the Registrar
**Answer:** B. To assess the technical, financial, and economic viability of a business idea
### 39. What is the main document required for the registration of any company?
- A. Articles of Association
- B. Memorandum of Association
- C. Certificate of Commencement
- D. SEBI Approval Document
**Answer:** B. Memorandum of Association
### 40. Which of the following is true about a "Preliminary Contract"?
- A. It is signed after the company is incorporated.
- B. It is binding on the company after its incorporation.
- C. It is signed by promoters on behalf of the company before incorporation.
- D. It cannot be signed by the promoters.
**Answer:** C. It is signed by promoters on behalf of the company before incorporation.
### 41. Which statement about the Certificate of Incorporation is correct?
- A. It can be revoked by the Registrar at any time.
- B. It is only a temporary approval for company formation.
- C. It serves as legal proof of the company's existence.
- D. It indicates SEBI's approval of the company.
**Answer:** C. It serves as legal proof of the company's existence.
### 42. Which document, when signed, confirms the directors’ commitment to buy qualification shares?
- A. Memorandum of Association
- B. Consent of Directors
- C. Articles of Association
- D. Certificate of Commencement
**Answer:** B. Consent of Directors
### 43. In which case can the company be legally wound up even after receiving a Certificate of Incorporation?
- A. If the registered office location changes
- B. If the company’s objectives become illegal
- C. If there is a disagreement between promoters
- D. If the directors do not hold qualification shares
**Answer:** B. If the company’s objectives become illegal
### 44. When is a "Statement in Lieu of Prospectus" required?
- A. When a public company issues a prospectus
- B. When a private company raises funds from the public
- C. When a public company raises funds privately
- D. When SEBI grants approval for a new company
**Answer:** C. When a public company raises funds privately
### 45. Which of these statements best describes the "Capital Clause"?
- A. It defines the maximum capital a company can raise through shares.
- B. It sets the name of the company.
- C. It outlines the internal rules of the company.
- D. It lists the directors of the company.
**Answer:** A. It defines the maximum capital a company can raise through shares.
### 46. What must a company do if it fails to meet the minimum subscription requirement?
- A. Apply to SEBI for a waiver
- B. Return all application money to subscribers
- C. Issue a revised prospectus
- D. Seek additional funding from underwriters
**Answer:** B. Return all application money to subscribers
### 47. Which of the following is a characteristic of a One Person Company (OPC)?
- A. It must have at least two directors.
- B. It has only one member.
- C. It can invite public to subscribe to its shares.
- D. It must hold an annual general meeting.
**Answer:** B. It has only one member.
### 48. In which of the following scenarios can a name be deemed undesirable for a company?
- A. If the name is too long
- B. If it is identical or similar to an existing company’s name
- C. If it includes the word “Limited”
- D. If it reflects the company’s line of business
**Answer:** B. If it is identical or similar to an existing company’s name
### 49. Which of the following statements is true about a public company issuing shares?
- A. It must have a minimum of 50 shareholders.
- B. It must obtain SEBI approval before issuing shares.
- C. It cannot appoint underwriters.
- D. It does not need a prospectus.
**Answer:** B. It must obtain SEBI approval before issuing shares.
### 59. Who must sign the Memorandum of Association for a private company?
- A. At least five members
- B. All the company’s employees
- C. At least two members
- D. Only the directors
**Answer:** C. At least two members
### 60. Which document must be filed by a public company at least three days before allotting shares without a prospectus?
- A. Memorandum of Association
- B. Articles of Association
- C. Statement in Lieu of Prospectus
- D. Consent of Directors
**Answer:** C. Statement in Lieu of Prospectus
### 61. The liability of members in a company is limited under which clause?
- A. Objects Clause
- B. Capital Clause
- C. Liability Clause
- D. Registered Office Clause
**Answer:** C. Liability Clause
### 62. In a Memorandum of Association, which clause specifies the company’s name as approved by the Registrar?
- A. Name Clause
- B. Objects Clause
- C. Liability Clause
- D. Capital Clause
**Answer:** A. Name Clause
### 63. Who is primarily responsible for drafting the Memorandum of Association and Articles of Association?
- A. Shareholders
- B. Promoters
- C. Auditors
- D. Company Secretary
**Answer:** B. Promoters
### 64. Which of the following is NOT required for incorporation of a private company?
- A. Memorandum of Association
- B. Statement in Lieu of Prospectus
- C. Articles of Association
- D. Consent of Directors
**Answer:** B. Statement in Lieu of Prospectus
### 65. What is the purpose of a “Return of Allotment”?
- A. To report the names and addresses of the company’s shareholders
- B. To disclose the company's financial position
- C. To apply for a Director Identification Number (DIN)
- D. To obtain SEBI approval for share issuance
**Answer:** A. To report the names and addresses of the company’s shareholders
### 66. A Certificate of Incorporation protects the company’s existence even if:
- A. The directors are unqualified
- B. The registration documents have minor errors
- C. The company does not have a registered office
- D. The company fails to obtain SEBI approval
**Answer:** B. The registration documents have minor errors
### 67. What is the effect of the Certificate of Incorporation?
- A. It authorizes the company to begin business activities.
- B. It provides evidence of the company’s legal formation.
- C. It confirms the capital limit of the company.
- D. It grants SEBI approval to issue shares.
**Answer:** B. It provides evidence of the company’s legal formation.
### 68. A promoter can be best described as someone who:
- A. Invests money in a company
- B. Manages a company’s day-to-day operations
- C. Takes the initiative in forming a company
- D. Audits the company’s financial records
**Answer:** C. Takes the initiative in forming a company
### 69. When does a company gain the status of a separate legal entity?
- A. After the issuance of Certificate of Incorporation
- B. When all shareholders meet
- C. When SEBI issues its approval
- D. After receiving the Certificate of Commencement
**Answer:** A. After the issuance of Certificate of Incorporation
### 70. What is the role of bankers in the context of public share issuance?
- A. To act as underwriters
- B. To hold application money until shares are allotted
- C. To prepare the Articles of Association
- D. To manage the company's internal affairs
**Answer:** B. To hold application money until shares are allotted
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