CMA Foundation Fundamentals of Laws and Ethics Flashcards

24 sample cards from the Fundamentals of Laws and Ethics deck

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

1. Define a company under the Companies Act, 2013.

   A company is an association of persons incorporated under the Companies Act (Sec. 2(20)) having a separate legal entity, perpetual succession, common seal, and limited liability of members.

2. What are the key features of a company as a separate legal entity?

   Separate legal personality (Salomon v Salomon), perpetual succession, limited liability, transferability of shares, common seal, capacity to sue and be sued, and ownership of property in its own name.

3. Distinguish between a private company and a public company.

   A private company restricts share transfer, limits members to 200, prohibits public invitation for shares, and needs minimum 2 members/2 directors. A public company has minimum 7 members/3 directors, no transfer restriction, and can invite the public.

4. What is a One Person Company (OPC)?

   An OPC (Sec. 2(62)) is a private company with only one member. It must nominate a nominee who becomes member on the death/incapacity of the sole member, and needs a minimum of one director.

5. What are the stages in the formation of a company?

   Promotion, Incorporation (registration with Registrar and obtaining Certificate of Incorporation), Capital subscription, and Commencement of business (filing declaration before starting business/borrowing).

6. What is the Memorandum of Association (MOA) and what are its clauses?

   The MOA is the charter defining the company's constitution and scope. Clauses: Name, Registered Office (situation), Objects, Liability, Capital, and Subscription/Association clause.

7. Distinguish between the Memorandum and Articles of Association.

   The MOA is the charter defining the company's powers and external relations; the AOA contains internal rules and regulations for management. MOA is supreme; AOA is subordinate to MOA and the Act.

8. What is the doctrine of 'ultra vires' in company law?

   Acts beyond the powers/objects stated in the MOA are ultra vires (beyond the powers) and void; they cannot be ratified even by all shareholders, protecting creditors and investors.

9. What is a prospectus under the Companies Act?

   A prospectus (Sec. 2(70)) is any document inviting offers from the public for the subscription or purchase of shares/debentures of a company or for any securities (includes red herring, shelf, and abridged prospectus).

10. Distinguish between shares and debentures.

    A share represents ownership/capital; shareholders are owners earning dividends and have voting rights. A debenture is a loan/debt; debenture holders are creditors earning fixed interest with no voting rights, often secured against assets.

11. What are the main types of share capital?

    Authorised (nominal) capital, Issued capital, Subscribed capital, Called-up capital, Paid-up capital, and Reserve capital. Shares are mainly of two types: equity shares and preference shares.

12. What is the minimum quorum and notice for a company general meeting?

    Notice of at least 21 clear days must be given for a general meeting. Quorum for a private company is 2 members; for a public company it is 5, 15, or 30 members depending on the number of members.

13. Distinguish between an ordinary resolution and a special resolution.

    An ordinary resolution is passed by a simple majority (votes in favour exceed votes against). A special resolution requires votes in favour to be at least three times (75%) the votes against, with notice specifying the intention.

14. What is ethics and how does it relate to business?

    Ethics is the branch of philosophy dealing with moral principles distinguishing right from wrong conduct. Business ethics applies these moral principles and standards to business behaviour and decision-making.

15. Why is ethics important in business?

    It builds trust and reputation, ensures legal compliance, improves employee commitment and customer loyalty, protects stakeholders, reduces risk, and contributes to long-term sustainability and profitability.

16. What is corporate governance?

    Corporate governance is the system of rules, practices, and processes by which a company is directed and controlled, balancing the interests of stakeholders such as shareholders, management, customers, and the community.

17. What are the key principles of good corporate governance?

    Transparency, Accountability, Fairness (equitable treatment), Responsibility, and Independence. These ensure ethical conduct and protection of stakeholder interests.

18. What is Corporate Social Responsibility (CSR)?

    CSR is a company's commitment to operate ethically and contribute to economic development while improving the quality of life of the workforce, their families, the local community, and society at large.

19. What is the statutory CSR requirement under Sec. 135 of the Companies Act, 2013?

    Companies meeting thresholds (net worth ≥ Rs.500 crore, or turnover ≥ Rs.1000 crore, or net profit ≥ Rs.5 crore) must spend at least 2% of their average net profit of the preceding three financial years on CSR activities.

20. What is the difference between a contingent contract and a wagering agreement?

    A contingent contract (Sec. 31) depends on a collateral uncertain event and parties have a real interest; it is valid. A wagering agreement is a bet where parties have no interest beyond the stake; it is void.

21. What is 'consensus ad idem' and why is it essential?

    Consensus ad idem means 'meeting of minds' — both parties agree on the same thing in the same sense. It is essential for valid consent; absence of it (as in mutual mistake) makes the agreement void.

22. What is the difference between existing goods, future goods, and contingent goods?

    Existing goods are owned/possessed by the seller at the time of contract; future goods are to be manufactured/acquired after making the contract; contingent goods are a type of future goods whose acquisition depends on an uncertain event.

23. What is meant by 'days of grace' for a negotiable instrument?

    When an instrument is not payable on demand, three days of grace are added to the due date to calculate the date of maturity. Instruments payable on demand have no days of grace.

24. What is the doctrine of 'lifting/piercing the corporate veil'?

    It is disregarding the separate legal entity of a company to hold the members/directors personally liable, applied in cases of fraud, improper conduct, tax evasion, or where the company is a sham/facade.

What this deck covers

Fundamentals of Laws and Ethics flashcards FAQ