CA Foundation PAPER 2: BUSINESS LAWS Flashcards

24 sample cards from the PAPER 2: BUSINESS LAWS deck

Sampled from the end of the deck, so these are different cards from the ones shown on the syllabus page.

1. Classify companies on the basis of liability under the Companies Act, 2013.

   (1) Company limited by shares — liability limited to unpaid amount on shares; (2) company limited by guarantee — liability limited to amount members agree to contribute; (3) unlimited company — members have unlimited liability.

2. Distinguish a private company from a public company under the Companies Act, 2013.

   Private company: minimum 2 members, maximum 200, restricts share transfer, prohibits invitation to public for securities, minimum 2 directors. Public company: minimum 7 members, no maximum, freely transferable shares, may invite public, minimum 3 directors.

3. What is a One Person Company (OPC) and its key restriction?

   An OPC is a private company with only one member (introduced by the Companies Act, 2013). It must nominate a nominee who becomes the member on the sole member's death/incapacity; it has relaxed compliance but certain restrictions (e.g., on conversion thresholds and NBFC activities).

4. Describe the main types of share capital of a company.

   Authorised (nominal/registered) capital — maximum a company can issue per MOA; Issued capital — part offered to public; Subscribed capital — part of issued capital taken up; Called-up capital — amount called on subscribed shares; Paid-up capital — amount actually paid by members.

5. Distinguish equity shares from preference shares.

   Equity shares carry voting rights and dividends vary with profits (no fixed rate, paid after preference). Preference shares carry a fixed/preferential rate of dividend and priority in repayment of capital on winding up, but usually limited voting rights.

6. What documents must be filed for incorporation of a company under Section 7?

   Memorandum and Articles of Association, declaration by professional and subscribers, address for correspondence, particulars of subscribers and first directors (with DIN), and the SPICe+ form, filed with the Registrar of Companies along with prescribed fees.

7. What is the legal effect of a 'certificate of incorporation'?

   It is conclusive evidence that the company is duly registered and the company comes into existence as a body corporate from the date mentioned; the company acquires a separate legal personality and perpetual succession.

8. Define the Memorandum of Association (MOA) and list its clauses.

   The MOA is the charter/constitution defining the company's powers and scope of activities. Clauses: Name clause, Registered Office (situation) clause, Object clause, Liability clause, Capital clause, and Subscription/Association clause (plus Nominee clause for OPC).

9. What is the 'doctrine of ultra vires' in relation to the MOA?

   Any act done by a company beyond the powers/objects stated in its MOA is ultra vires (beyond powers) and void; it cannot be ratified even by all shareholders. It protects shareholders and creditors by confining the company to its stated objects.

10. Define the Articles of Association (AOA) and state their relationship with the MOA.

    The AOA are the internal rules and regulations for the management of the company and the rights of members. They are subordinate to the MOA — if they conflict, the MOA prevails; AOA cannot exceed the powers in the MOA.

11. Explain the 'doctrine of constructive notice'.

    Every person dealing with a company is deemed to have notice of the contents of its public documents (MOA and AOA) registered with the Registrar, whether or not they have actually read them, and is presumed to understand them.

12. Explain the 'doctrine of indoor management' (Turquand Rule) and its exceptions.

    Outsiders dealing with a company in good faith may assume that internal procedures/formalities have been duly complied with (Royal British Bank v. Turquand). Exceptions: knowledge of irregularity, suspicion of irregularity, forgery, negligence, and acts void/ultra vires.

13. Define a 'negotiable instrument' under Section 13 of the Negotiable Instruments Act, 1881.

    A negotiable instrument means a promissory note, bill of exchange, or cheque, payable either to order or to bearer. ('Negotiable' = transferable by delivery or endorsement and delivery, passing a good title to a bona fide holder for value.)

14. List the essential characteristics of a negotiable instrument.

    Free transferability, transferee gets good title (holder in due course), title free of defects, holder can sue in his own name, payable to order or bearer, must be in writing and signed, contains an unconditional promise/order to pay a certain sum of money, and presumptions under Sec 118 apply.

15. Distinguish a promissory note from a bill of exchange.

    A promissory note is an unconditional written promise by the maker to pay (2 parties: maker and payee). A bill of exchange is an unconditional written order by the drawer directing the drawee to pay (3 parties: drawer, drawee/acceptor, payee). A note requires no acceptance; a bill usually does.

16. Define a 'cheque' under Section 6 of the Negotiable Instruments Act.

    A cheque is a bill of exchange drawn on a specified banker and not expressed to be payable otherwise than on demand; it includes the electronic image of a truncated cheque and a cheque in electronic form.

17. Classify negotiable instruments as 'bearer' and 'order' instruments.

    A bearer instrument is payable to whoever holds it and is transferable by mere delivery. An order instrument is payable to a specified person or his order and is transferable by endorsement followed by delivery.

18. What is the difference between an 'inland instrument' and a 'foreign instrument'?

    An inland instrument (Sec 11) is drawn or made in India and payable in, or drawn upon a person resident in, India. A foreign instrument (Sec 12) is any instrument that is not an inland instrument (e.g., drawn outside India or payable outside India).

19. Define 'negotiation' under Section 14 and state how bearer and order instruments are negotiated.

    Negotiation is the transfer of an instrument to another so as to constitute the transferee the holder. A bearer instrument is negotiated by delivery; an order instrument is negotiated by endorsement and delivery.

20. What is an 'endorsement', and name its main types?

    Endorsement is signing on the back (or face/allonge) of an instrument for the purpose of negotiation. Types: blank (general) endorsement, full (special) endorsement, restrictive endorsement, partial endorsement (invalid), conditional/qualified endorsement, and sans recourse endorsement.

21. Who is a 'holder in due course' under Section 9?

    A person who, for valuable consideration, becomes the possessor (or payee/endorsee) of a negotiable instrument before its maturity, in good faith and without notice of any defect in the title of the transferor. He gets a better title than the transferor.

22. What is 'presentment for acceptance' and which instrument requires it?

    Presentment for acceptance is showing a bill of exchange to the drawee to obtain his acceptance. Only bills of exchange payable after sight (or where expressly required) must be presented for acceptance; promissory notes and cheques do not require acceptance.

23. What is 'presentment for payment' and the consequence of non-presentment?

    Presentment for payment is demanding payment of the instrument from the maker/acceptor/drawee on or after maturity. If an instrument is not presented for payment when required, the other parties (e.g., endorsers) are generally discharged from liability.

24. State the rules of compensation (damages) for dishonour under Sections 117 of the Negotiable Instruments Act.

    The holder is entitled to the amount due plus interest at the rate specified (or 18% p.a. if none specified) from the date of dishonour/notice, plus expenses of noting and protest; for instruments dishonoured outside India, compensation is calculated as per usual rate of exchange and re-exchange.

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