ICAP CAF CAF-4: Business Law Dynamics Flashcards

24 sample cards from the CAF-4: Business Law Dynamics deck

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

1. Define a promissory note under the Negotiable Instruments Act, 1881 (Sec 4).

   A promissory note is an instrument in writing (not a bank/currency note) containing an unconditional undertaking, signed by the maker, to pay a certain sum of money only to, or to the order of, a certain person, or to the bearer of the instrument. It has two parties: the maker and the payee.

2. Define a bill of exchange (Sec 5) and name its parties.

   A bill of exchange is an instrument in writing containing an unconditional order, signed by the maker, directing a certain person to pay a certain sum of money only to, or to the order of, a certain person, or to the bearer of the instrument. Its three parties are the drawer, the drawee (who becomes acceptor on acceptance), and the payee.

3. Define a cheque (Sec 6) and state how it differs from a bill of exchange.

   A cheque is a bill of exchange drawn on a specified banker and not expressed to be payable otherwise than on demand (including electronic/truncated cheques). Differences from a bill: a cheque is always drawn on a banker, always payable on demand, needs no acceptance, requires no stamp, and may be crossed.

4. Compare a promissory note, a bill of exchange and a cheque on key features.

   Promissory note: 2 parties, contains a promise to pay, no acceptance needed, maker is primarily liable. Bill of exchange: 3 parties, contains an order to pay, requires acceptance, drawer is liable. Cheque: a bill drawn on a banker, always on demand, no acceptance, can be crossed, no stamp duty.

5. What is the primary objective of the Anti-Money Laundering Act, 2010?

   To prevent money laundering and the financing of terrorism by criminalising laundering of proceeds of crime, providing for forfeiture of property derived from such offences, and establishing institutions (such as the Financial Monitoring Unit) for investigation, reporting and prosecution.

6. Under the AML Act, 2010, what constitutes the offence of money laundering?

   A person commits money laundering if he: (a) acquires, converts, possesses, uses or transfers property knowing or having reason to believe it is proceeds of crime; (b) conceals or disguises the true nature, origin, location, ownership or control of such property; or (c) holds, participates in, assists or counsels such acts or knowingly aids in their commission.

7. What is the role of the Financial Monitoring Unit (FMU) under the AML Act, 2010?

   The FMU is the central agency that receives, analyses and disseminates Suspicious Transaction Reports (STRs) and Currency Transaction Reports (CTRs) from reporting entities (banks, financial institutions, etc.), and shares information with investigating/supervisory agencies to combat money laundering and terrorist financing.

8. State the punishment for the offence of money laundering under the AML Act, 2010.

   Rigorous imprisonment of up to ten years and a fine which may extend to twenty-five million rupees, together with forfeiture of property involved in money laundering. (For a company, the fine may extend to one hundred million rupees.)

9. What is the purpose and scope of the Arbitration Act, 1940?

   It provides the legal framework for settlement of disputes by arbitration (outside ordinary courts) by referring them to one or more arbitrators whose decision (award) is binding. It covers three kinds: (1) arbitration without court intervention, (2) arbitration with court intervention where no suit is pending, and (3) arbitration in suits (pending court proceedings).

10. Define an 'arbitration agreement' and an 'award' under the Arbitration Act, 1940.

    An arbitration agreement is a written agreement to submit present or future differences to arbitration, whether or not an arbitrator is named. An award is the decision/determination made by the arbitrator(s) on the matters referred; once filed and a decree is passed upon it by the court, it is enforceable like a court decree.

11. On what grounds may a court set aside an arbitration award under the Arbitration Act, 1940?

    An award may be set aside if: (a) an arbitrator/umpire has misconducted himself or the proceedings; (b) the award was made after the court superseded the arbitration or after proceedings became invalid; or (c) the award was improperly procured or is otherwise invalid. Application must generally be made within 30 days of notice of filing of the award.

12. What does a company's 'object clause' in its memorandum determine, and what is the doctrine of ultra vires?

    The object clause states the purposes for which the company is formed and the scope of its activities. Under the doctrine of ultra vires, any act beyond the company's stated objects/powers is void and cannot be ratified even by all shareholders, protecting both shareholders and creditors.

13. What is meant by 'incorporation' of a company and what is its key legal effect?

    Incorporation is the process of legally registering a company with the registrar (SECP) to bring it into existence as a body corporate. Its key effect is separate legal personality (Salomon v. Salomon): the company is distinct from its members, has perpetual succession, can own property, sue and be sued, and members enjoy limited liability.

14. List the documents required to be filed with the SECP for incorporation of a company.

    (1) Memorandum of Association; (2) Articles of Association; (3) declaration of compliance; (4) particulars/address of registered office; (5) particulars and consent of directors, chief executive, etc.; and the prescribed registration fee. On approval the registrar issues the Certificate of Incorporation.

15. Classify companies on the basis of members' liability.

    (1) Company limited by shares (liability limited to unpaid amount on shares); (2) Company limited by guarantee (liability limited to the amount members undertake to contribute on winding up); and (3) Unlimited company (members' liability is unlimited).

16. Distinguish a private company from a public company under the Companies Act, 2017.

    A private company: restricts the right to transfer shares, limits members to 50 (excluding employees), and prohibits public invitation to subscribe for shares; minimum 1 member (single-member) or 2. A public company: has no such restrictions, may invite the public, requires minimum 3 members, and minimum 3 directors (7 if listed).

17. What is a single-member company (SMC) and what is the minimum/maximum membership for private and public companies?

    An SMC is a private company with only one member (one director plus a nominee director required). Membership: SMC = 1; private company = 2 to 50; public company = minimum 3, no maximum; listed public company requires minimum 7 directors.

18. Distinguish between a holding company and a subsidiary company.

    A holding company controls another company (the subsidiary) by either holding more than 50% of its shares/voting power or controlling the composition of its board of directors. The subsidiary is the controlled company. This relationship requires preparation of consolidated financial statements.

19. What are the two main methods by which a company issues shares?

    (1) Issue of shares for cash through a prospectus / offer for sale to the public (public offer), and through (2) private placement or rights issue. Shares may also be issued for consideration other than cash. A public company inviting the public must issue a prospectus complying with the Companies Act.

20. What is a 'right issue' of shares and on what basis are such shares offered?

    A right issue is a further issue of shares offered first to existing shareholders in proportion to their existing shareholding (pre-emptive right), so as not to dilute their proportionate interest. Shareholders may accept, renounce, or reject the offer; shares not taken up may be offered to others as the directors decide.

21. Distinguish between shares issued at par, at a premium, and at a discount.

    At par: issued at face value. At a premium: issued above face value; the premium is credited to a share premium account with restricted use. At a discount: issued below face value, allowed only subject to strict statutory conditions (authorisation, time limits and approvals) under the Companies Act.

22. What is a 'charge' or 'mortgage' on a company's assets, and why must it be registered?

    A charge/mortgage is security created over a company's assets/property in favour of a creditor to secure repayment of a debt. It must be registered with the SECP so that the public and other creditors have notice of the encumbrance and the priority of secured creditors is established.

23. Within what time must a charge or mortgage be registered with the registrar, and what is the effect of non-registration?

    Particulars of the charge must be filed with the SECP within 30 days of its creation (extendable for a further period on payment of additional fee). If not registered, the charge is void against the liquidator and other creditors (though the debt itself remains payable and immediately repayable), and the company/officers may face penalties.

24. What is meant by registration of 'modification' and 'satisfaction' of a charge?

    Modification of a charge (change in terms, amount, or property charged) must be notified to and registered with the SECP. On full repayment, the company must report 'satisfaction' (memorandum of complete discharge) of the charge so the registrar enters a memorandum of satisfaction and the asset is freed of the encumbrance.

What this deck covers

CAF-4: Business Law Dynamics flashcards FAQ