Important questions or sample questions

Q1. Short notes on:

a. Reinsurance
b. Co-insurance

The percentage of costs of a covered health care service you pay (20%, for example) after you've
paid your deductible. Let's say your health insurance plan's allowed amount for an office visit is $100
and your coinsurance is 20%. If you've paid your deductible: You pay 20% of $100, or $20. The
insurance company pays the rest.

If you haven't met your deductible: You pay the full allowed amount, $100.

Example of coinsurance with high medical costs: Let's say the following amounts apply to your plan
and you need a lot of treatment for a serious condition. Allowable costs are $12,000.

Deductible: $3,000

Coinsurance: 20%

Out-of-pocket maximum: $6,850

You'd pay all of the first $3,000 (your deductible).

You'll pay 20% of the remaining $9,000, or $1,800 (your coinsurance).

So your total out-of-pocket costs would be $4,800 — your $3,000 deductible plus your $1,800
coinsurance. If your total out-of-pocket costs reach $6,850, you'd pay only that amount, including
your deductible and coinsurance. The insurance company would pay for all covered services for the
rest of your plan year.

c. Non-Performing Assets

A nonperforming asset (NPA) is a debt instrument where the borrower has not made any previously
agreed upon interest and principal repayments to the designated lender for an extended period of
time. The nonperforming asset is, therefore, not yielding any income to the lender in the form of
interest payments.

For example, a mortgage in default would be considered nonperforming. After a prolonged period of
non-payment, the lender will force the borrower to liquidate any assets that were pledged as part of
the debt agreement. If no assets were pledged, the lender might write-off the asset as a bad debt
and then sells it at a discount to a collections agency.

Banks usually categorize loans as nonperforming after 90 days of nonpayment of interest or

principal, which can occur during the term of the loan or for failure to pay principal due at maturity.
For example, if a company with a $10 million loan with interest-only payments of $50,000 per month
fails to make a payment for three consecutive months, the lender may be required to categorize the
loan as nonperforming to meet regulatory requirements. A loan can also be categorized as
nonperforming if a company makes all interest payments but cannot repay the principal at maturity.

Carrying nonperforming assets, also referred to as nonperforming loans, on the balance sheet places
three distinct burdens on lenders. The nonpayment of interest or principal reduces cash flow for the
lender, which can disrupt budgets and decrease earnings. Loan loss provisions, which are set aside to
cover potential losses, reduce the capital available to provide subsequent loans. Once the actual
losses from defaulted loans are determined, they are written off against earnings.

d. NBFC

A Non-Banking Financial Company (NBFC) is a company registered under the Companies Act, 1956
engaged in the business of loans and advances, acquisition of
shares/stocks/bonds/debentures/securities issued by Government or local authority or other
marketable securities of a like nature, leasing, hire-purchase, insurance business, chit business but
does not include any institution whose principal business is that of agriculture activity, industrial
activity, purchase or sale of any goods (other than securities) or providing any services and
sale/purchase/construction of immovable property. A non-banking institution which is a company
and has principal business of receiving deposits under any scheme or arrangement in one lump sum
or in installments by way of contributions or in any other manner, is also a non-banking financial
company (Residuary non-banking company).

NBFCs lend and make investments and hence their activities are akin to that of banks; however
there are a few differences as given below:

i. NBFC cannot accept demand deposits;

ii. NBFCs do not form part of the payment and settlement system and cannot issue cheques drawn
on itself;

iii. deposit insurance facility of Deposit Insurance and Credit Guarantee Corporation is not available
to depositors of NBFCs, unlike in case of banks.

e. Partial Lien and General Lien

f. Memorandum of Association

Memorandum of Association (MOA) is a legal document that specifies the scope of business
activities of the company and information about the shareholding of the company. The MoA is a
document prepared for the Company registration procedure.
The Memorandum of Association (MoA) helps establish the extent and scope of the business
activities that a particular company can carry out. The company can perform business activities that
they have specified in the Memorandum of Association (MoA). If you wish to expand your business
activities into other areas of the market, you will have to make changes to the memorandum
accordingly.

A Memorandum of Association (MOA) is a legal document applicable to limited liability companies.

Limited Liability Companies include Private Limited Company (Pvt Ltd) and Limited Liability
Partnership (LLP).

Name Clause

The name of the company is its first unique identity. Thus the name clause of the memorandum
consists of the authentic, legal and approved name of the company. Company names should not
bear any similarities to a company registered with a similar name because many times these
companies protect the name of their companies via a Trademark Registration procedure.

Registered Office Clause

This clause specifies the name of the State in which the registered office of the company is situated.
This helps to determine the jurisdiction of the Registrar of Companies.

Objects Clause

Objects Clause constitutes the main body of the memorandum. It provides a list of all the operations
of the company. Every motive and operation the company indulges in must be mentioned in the
object clause. Also, any such operation which is not mentioned in the object clause is considered to
be beyond the reach of the company.

The objects of a company fall into two categories as prescribed below:

 The proposed objects of the company for which it is being incorporated

 Matters considered necessary in furtherance thereof

Apart from just stating out the objectives of the company the statement of objects in the company’s
MoA empowers the people associated with the company with the following benefits.
  It gives protection to the subscribers as they have complete knowledge of where their
valuable money is being invested.
 Protects the individuals and/ or companies that deal with the concerned company as they
have knowledge of the extent of the companies powers.
 The board of directors of the company is restricted from using the funds of the company
only to the objects specified in the Memorandum.

Liability Clause

Liability Clause mentions the liability of every member of the Company. It simply states that every
member of the company has limited liability. The clause also specifies the amount of contribution of
agreed upon for each individual participant in case the company is closing or winding up.
Irrespective of the financial state of the company, no member can be told to pay more than the
amount that remains unpaid on his/her shares.

Capital Clause

This clause mentions the share capital with which the company is registered. In addition to this, the
capital clause should also mention the types of shares, the number of each type of share, and the
face value of each share.

Private companies and public companies not intended to be listed in the stock exchange may
assume any face value depending on a number of factors however, public companies to be listed will
have a prescribed face value of the shares.

Subscription Clause

The last and final clause of the Memorandum of Association is called the subscription clause. The
subscription clause basically lists down the motives of the shareholders behind the incorporation of
the company and also states that the subscribers are agreeing to take up shares in the company. It
also specifies the number of shares taken up by each subscriber. It is all according to the details
specified in the MoA Subscriber Sheet.

g. Articles of association
Articles of association form a document that specifies the regulations for a company's operations
and defines the company's purpose. The document lays out how tasks are to be accomplished within
the organization, including the process for appointing directors and the handling of financial records.

Articles of association can be thought of as a user's manual for a company, defining its purpose and
outlining the methodology for accomplishing necessary day-to-day tasks. Articles of association
often identify the manner in which a company will issue shares, pay dividends, audit financial
records, and provide voting rights. This set of rules can be considered a user's manual for the
company because it outlines the methodology for accomplishing the day-to-day tasks that must be
completed.

While the content of the articles of association and the exact terms used vary from jurisdiction to
jurisdiction, the document is quite similar throughout the world and generally contains provisions on
the company name, the company's purpose, the share capital, the company's organization, and
provisions regarding shareholder meetings.

h. Types of prospectuses

The prospectus is a legal document for market participants and investors to pursue, detailing the
features, prospects, and promise of a financial product. It is mandated by the law to be supplied to
prospective customers.

The company provides prospectus with capital raising intention. Prospectus helps the investors to
make a well-informed decision because of the prospectus all the required information of the
securities which are offered to the public for sale. Whenever the company issues the prospectus, the
company must file it with the regulator. The prospectus includes the details of the company’s
business, financial statements.

 To notify the public of the issue

 To put the company on record with regards to the terms of the issue and allotment process
 To establish accountability on the part of the directors and promoters of the company

Types of prospectus

According to Companies Act 2013, there are four types of prospectus.

Deemed Prospectus – Deemed prospectus has mentioned under Companies Act, 2013 Section 25
(1). When a company allows or agrees to allot any securities of the company, the document is
considered as a deemed prospectus via which the offer is made to investors. Any document which
offers the sale of securities to the public is deemed to be a prospectus by implication of law.

Red Herring Prospectus – Red herring prospectus does not contain all information about the prices
of securities offered and the number of securities to be issued. According to the act, the firm should
issue this prospectus to the registrar at least three before the opening of the offer and subscription
list.

Shelf prospectus – Shelf prospectus is stated under section 31 of the Companies Act, 2013. Shelf
prospectus is issued when a company or any public financial institution offers one or more securities
to the public. A company shall provide a validity period of the prospectus, which should not be more
than one year. The validity period starts with the commencement of the first offer. There is no need
for a prospectus on further offers. The organization must provide an information memorandum
when filing the shelf prospectus.

Abridged Prospectus – Abridged prospectus is a memorandum, containing all salient features of the
prospectus as specified by SEBI. This type of prospectus includes all the information in brief, which
gives a summary to the investor to make further decisions. A company cannot issue an application
form for the purchase of securities unless an abridged prospectus accompanies such a form.

i. Doctrine of constructive notice

j. Doctrine of Indoor Management (Turquand rule)

k. Transfer of shares
l. Transmission of shares

m. Pledge

A pledge is a bailment that conveys possessory title to property owned by a debtor (the pledgor) to a
creditor (the pledgee) to secure repayment for some debt or obligation and to the mutual benefit of
both parties. The term is also used to denote the property which constitutes the security. The pledge
is a type of security interest.
n. Corporate Veil

The Corporate Veil is a shield that protects the members from the action of the company. In simple
terms, if a company violates any law or incurs any liability, then the members cannot be held liable.
Thus, shareholders enjoy protection from the acts of the company.

Any established organization has a legal identity of its own, and which is separate even from the
identity of its employees. A company itself isn’t a living body and thus, various members come
together to work in the name and behalf of the company, living under a shadow/veil. This is simply
termed as “Corporate Veil”. Under certain urgent occasions and circumstances, the corporate veil is
removed and it’s known as the ‘piercing of the corporate veil’, which enables the company to check
frauds committed by members.

It also safeguards the shareholders from being guilty of the actions of the company. The court has
the right to determine the guilty party. This method exercised by the court is called “piercing the
corporate veil in which the court can directly charge the investors of the company as responsible for
debts or frauds and put aside the limited liability of the shareholders. The effectiveness of piercing
the corporate veil can be mostly observed in closed and small corporations which have limited
shareholders and assets. But, it is more convenient to abstain from uplifting this veil unless some
serious breach of affairs and misconduct take place.

o. Directors (types)
p. Bonus Shares

Sometimes Companies are not able to pay Dividend in cash, due to shortage of funds, despite profit
in the Companies. In such a situation, the Companies Issue Bonus Share to existing shareholders
instead of paying the Dividend in cash to the shareholders. Bonus Shares are issued without paying
any cost in the proportion of the shares. Earlier under the 1956 Companies Act, no specific
provisions were regulating the Bonus Shares. The Controller of the Capital Issues issued certain
norms, but after the emergence of SEBI as a regulator, it was also removed. Now in the new
Companies Act, 2013, Section 63, when reading with Rule 14 (Companies Share Capital and
Debenture) Rules, 2014 states for the Issue of Bonus Shares to the shareholders.

Under Section 63 of Companies Act, 2013, the Issue of Bonus Shares can be done of fully paid-up
equity shares:

 Through Company’s Free Reserves

 Through The Securities Premium Account
 The Capital Redemption Reserve Account

Furthermore, the Company cannot Issue Bonus Shares in the following situations:

 When through revaluation of assets, Capitalizing Reserve is created in the Company.

 The Issue of Shares cannot be done in lieu of Dividend.

What are the SEBI guidelines on Issue of Bonus Shares?

The main guidelines of the Securities and Exchange Board of India (SEBI) for Issue of Bonus Shares
are as follows:

 No Dilution of other issues by the Bonus Shares.

 The Bonus Shares shall only be issued out of the Free Reserves.
 The Reserve formed by the revaluation of an asset cannot be capitalized for Bonus Shares.
 In lieu of Dividend, the Bonus Shares cannot be issued.
 The availing Company registration, the entity should implement the proposal of Bonus
Shares within 6 months of the date of approval of the proposal in the Board Meeting.
 The Bonus Shares proposal cannot be withdrawn by the Company if once made.
 There should not be default in payment of interests of the Company issuing Bonus Shares.
 The Issue of Bonus should not be done within 12 months of the Public Issue.
 There should be a suitable provision for the Capitalization of Reserves in the Articles of
Association (AoA). If no provision is there, then alter the AoA accordingly.
 If necessary, the Company can increase its authorized capital to permit the Bonus Share
proposal.

q. Sweat Equity Share

Sweat equity shares are shares issued by a company to its employees or Directors, either at a
discount or for consideration other than cash. Sweat equity shares are often issued for providing the
know-how or creation of valuable intellectual property rights or key value additions to the company.
Sweat equity shares can only be issued by a company to its Directors or Employees, at a discount or
for a consideration other than cash, for their providing of know-how or creation of intellectual
property rights like trademark, patent, copyright or value additions.

Sweat equity shares can be issued to:

 Permanent employee of the company who has been working in India or outside India, for at
least the last one year;
 Director of the company, whether a whole time Director or not;
 Employee or Director above of a subsidiary of the company, in India or outside india, or of a
holding company of the company.

Sweat equity shares are issued for value additions of the Director or Employee. Value additions
mean actual or anticipated economic benefits derived or to be derived by the Company from an
Expert or Professional from providing know-how or making available rights in the nature of
intellectual property rights. For sweat equity shares to be issued, the employee’s renumeration for
value addition should not have been paid or included in the normal remuneration payable, under
the contract of employment or monetary consideration payable under any other contract.
r. Quorum

s. Voting

The word vote has come from the Latin word votum which means a vow or wish. Voting means
formally expressing pinion or wish in response to a proposed decision or as an indication of approval
or disapproval of a proposal or candidate for office.

At a meeting voting takes place for both the purposes:

(a) Expressing opinion in favour or disfavour of a proposal and

(b) Choosing a candi-date for office. Voting is also known as ascertaining the sense of the house.
House means all the members present taken together.

The results of voting may be of the following types:

(1) The resolution is adopted by a simple majority of votes. Votes cast in favour of the proposal are
more than cast against it. It is an ordinary resolution.

(2) Three-fourths or two-thirds (or more) of the votes have been cast in favour of the proposal, as
required. It is a special resolution.

(3) All the members present have cast their votes and they have cast- their votes in favour of the
proposal. The resolution is passed unanimously.

(4) All the members have not cast their votes but those who have cast their votes they have cast the
votes in favour of the resolution. Some members have abstained from voting. The resolution is
passed nem. con. (nemine contradicente), i.e. no one contradicting. This is not exactly an unanimous
resolution. It is also called nem. dis. (nemine dissentient), i.e. no one dissenting.

(5) Any member or members, voting against the proposal requests or request the chairman that his
or their note of dissent be recorded in the minutes.

Q2. Differentiate between:

a. Bailment and pledge

b. Indemnity and guarantee

c. Condition and warranty

1) A condition is an obligation which requires being fulfilled before another proposition takes
place. A warranty is a surety given by the seller regarding the state of the product.
2) The term condition is defined in section 12 (2) of the Indian Sale of Goods, Act 1930 whereas
warranty is defined in section 12 (3).
3) The condition is vital to the theme of the contract while Warranty is ancillary.
4) Breach of any condition may result in the termination of the contract while the breach of
warranty may not lead to the cancellation of the contract.
5) Violating a condition means violating a warranty too, but this is not the case with warranty.
6) In the case of breach of condition, the innocent party has the right to rescind the contract as
well as a claim for damages. On the other hand, in breach of warranty, the aggrieved party
can only sue the other party for damages.

d. Public company and Private company

e. Transfer and Transmission of shares

f. Equity Share Capital and Preference Share Capital

g. MOA and AOA

Q3. State the different types/categories of companies.

As per Company Act, the company is defined as a person, artificial, invisible, intangible and existing
only in the contemplation of law. Hence it has properties which are characteristics of its creation
confers upon or is either expressed in its existence. It is a group of people who contributes towards
it in terms of money and share the profit or loss arising as a result. It is a kind of investment which
comes with its own risks.

Private Company:

A private company allows its shareholders to transfer its shares. In such a case the company limits
the number of its members to 50 and do not entertain any kind of invitation to public to subscribe of
its shares. The private companies are of limited liability and have some restriction on the ownership
of its shareholders. It can have maximum of fifty member and minimum two members are required
in order to form a private company which do not include its employees and shareholders. It is
usually a company which is formed with an intend to have all the advantages of a corporate world
and have limited liability and control of business is with very few people. In a private company a
single individual can enjoy the complete control of its entire business firm.

Public Company:

A public company requires at least seven members to come into existence. There is no cap on how
many members a public company could have. In fact, a prospectus is issued by the public companies
in order to invite people to buy its shares. However, the liability of members of a public company is
limited to their shareholding. The shares of a public company are sold and caught without any kind
of restrictions in stock market.

Companies Limited by Guarantee:

In such companies, every member has promised to a fixed amount towards commencement of the
company, in case it needs to be liquidated. This amount is known as guarantee. There is no liability
of any sort other than the values of share and guarantee towards the members of such a company.
Some examples of such companies are charities, community projects, clubs, societies etc. Most of
such companies are formed into non-profit making companies and are mostly considered to be a
private company which offers limited liability to its members. A guarantee company can substitute
the share capitals with guarantors who are willing to pay the guarantee amount on its liquidation.

Companies Limited by Share:

In such companies, the shareholders pay a nominal amount as his contribution towards the share
capital and this payment can be done either at single instance or in installments. The members do
not pay anything more than a fixed value towards the shares and companies are limited by its shares
are most popular among the registered companies. These kinds of companies are required to have
Limited at the end of the name of their organization so that people intending to vest into them know
the liability of its members is limited.

Unlimited Company:

An unlimited company are such which have unlimited liability of its shareholders like case of a
partnership firm. Such companies are only in books and are not known to exist in physical form.
Shareholders of such a company are liable to donate whatever sum are required as outstanding
debts of the company while its liquidation in order to meet insufficient funds of the company to pay
its liabilities. However, members or shareholder do not have a direct liability towards its creditors or
security holders.
Q4. Discuss the qualifications and disqualifications of a director.
Q5. State the instances in which a contract of agency can be terminated.

An agency or agency agreement could also be terminated in any of the

 subsequent ways:
 Agreement
 Revocation by the Principal
 Revocation by Agent
 Completion of business of Agency
 Expiry of Time
 Death of the Principal or Agent
 The Insanity of the Principal or Agent
 Insolvency of the Principal or Agent
 Destruction of Subject matter
 Principal or Agent becomes Alien enemy
Q6. State any 5 functions of IRDA.

(Same as answer of Q7.)

Q7. State any 5 duties of IRDA.

Q8. What are the advantages of incorporation of a company?

Limited Liability

For many business owners, the primary appeal of incorporation is the limited liability status of an
incorporated company. Unlike other forms of business models, in an incorporated company an
individual shareholder’s liability is limited to the amount she or he has invested in the company. If
you currently run your business as a sole proprietor or partnership your personal assets are exposed
for potential creditors. As a shareholder in a corporation your personal assets are only exposed to
potential creditors if you have provided a personal guarantee or another form of security to
encumber your personal assets.
Separate Legal Entity

A corporation has the same rights and obligations under Canadian law as a natural person. It can
acquire assets, go into debt, enter into contracts, sue or be sued, and even be found guilty of
committing a crime. A corporation’s money and other assets belong to the corporation and not to its
shareholders.

Lower Corporate Tax Rates

Corporations are taxed separately from their owners. In Canada the corporate tax rate is generally
lower than the individual tax rate.

Income Splitting

Corporations pay dividends to their shareholders which are derived from the earnings of the
company. A shareholder does not have to be actively involved in the business of the corporation to
receive these dividends. Your spouse and/or children could be shareholders in your corporation,
giving you the opportunity to redistribute income from the business throughout your family. The
goal of income splitting is to pass funds to individuals in lower tax brackets.

Income Control

One of the largest tax advantages of incorporating a corporation is that it enables business owners
to decide how and how much they will be paid, which could result in a substantial tax advantage.
Instead of ‘receiving’ your income when the company is paid, being incorporated allows you to defer
this income to a time in the future when you may pay less tax.

Tax Deferrals

Incorporating your company provides an opportunity for a potential tax deferral. By deferring
payment, and the subsequent tax, a business owner may be able to realize savings if they are then in
a lower tax bracket or if the tax rate has fallen.

Continuance

Unlike a sole proprietorship, an incorporated company has an unlimited life span. The corporation
will continue to exist even if the shareholders die or leave the business, or if the ownership of the
business changes.

Access to External Funding

While corporations are able to incur debt and borrow funds as a separate legal entity, they can also
sell shares to raise equity capital. This can be a significant advantage over other forms of business as
equity capital does not always have to be repaid and rarely incurs interest. It must be noted that the
raising of equity capital through the sale of shares may dilute an individual’s percentage of
ownership (and decision making) in the company.
Q9. Discuss the powers/duties of RBI.

Section 21 – Power of Reserve Bank to control advances by banking companies: Reserve Bank has
the powers to determine policies and direct banking companies to follow the same.

Section 22 – Licensing of banking companies: All Banking companies need to get a licence from RBI
and it issues licence only after ‘tests of entry’ are fulfilled.

Section 24A- Power to exempt a Co-operative bank: Without prejudice to the provisions of section
53, the RBI by notification in the Official Gazette, declare that, the whole or any part of the
provisions of section 18 or section 24, as may be specified therein, shall not apply to any co-
operative bank.

Section 27 – Monthly returns and power to call for other returns and information: At any time, the
RBI may direct a banking company to furnish it with such statements and information relating to the
business or affairs of the banking company (including any business or affairs with which such
banking company is concerned) as RBI may consider necessary or expedient to obtain for the
purposes of this Act, apart from calling for information every half-year regarding the investments of
a banking company and the classification of its advances in respect of industry, commerce and
agriculture.

Section 29A – Power in respect of associate enterprises: The RBI may direct a banking company to
annex to its financial statements or furnish to it separately, within such time or intervals, necessary
statements and information relating to the business or affairs of any associate enterprise of the
banking company. It can also conduct an inspection of any associate enterprise of a banking
company and its books of account jointly by one or more of its officers or employees or other
persons along with the Board or authority regulating such associate enterprise.

Section 30 – Power to order Special audit : In the public interest or in the interest of the banking
company or its depositors, the RBI may at any time by order direct that a special audit of the banking
company’s accounts.

Section 35 – Inspection of Banking Companies: Reserve Bank on its own or being directed so to do by
the Central Government, inspect any banking company and its books and accounts and supply to the
banking company a copy of its report on such inspection.

Section 35A – Power of the Reserve Bank to give directions : In the public interest or in the interest
of Banking policy RBI has powers to issue, modify or cancel as it deems fit, and the banking
companies or the banking company, are bound to comply with such directions.

Section 36 – Further powers and functions of Reserve Bank : RBI may caution or prohibit banking
companies or any banking company in particular against entering into any particular transaction or
class of transactions

Q10. Rights of Indemnity Holder/Indemnifier

A contract of indemnity basically involves one party promising the other party to make good its
losses. These losses may arise either due to the conduct of the other party or that of somebody else.
To indemnify something basically means to make good a loss. In other words, it means that one
party will compensate the other in case it suffers some losses.

There are generally two parties in indemnity contracts. The person who promises to indemnify for a
loss is the Indemnifier. On the other hand, the person whose losses the indemnifier promises to
make good is the Indemnified. We can also refer to the Indemnified party as the Indemnity Holder.

When parties expressly make a contract of indemnity, they can determine their own terms and
conditions. However, sometimes they may not do so. In such a case, the indemnity holder can
enforce the following rights against the indemnifier:

1) The indemnifier will have to pay damages which the indemnity holder will claim in a suit.

2) The indemnity holder can even compel the indemnifier to pay the costs he incurs in litigating the
suit.

3) If the parties agree to legally compromise the suit, the indemnifier has to pay the compromise
amount.

Q11. Circumstances in which Corporate Veil can be lifted

If it is found that the members are misusing the statutory privilege then the individuals concerned
will not be allowed to take shelter behind the corporate personality. The Court will break through
the corporate shell and apply the principle/doctrine of what is called as “lifting of or piercing the
corporate veil”. Cases where the court has ordered lifting up of veil-

 In case the Company commits a Fraud.

 Where the company do not have a physical presence, it is just on instruments.
 If the company has an enemy character because of its association with the enemy country.
 If the criminal activities are being hidden behind the company’s name.

Further, the lifting of the corporate veil can be Statutory Lifting or Judicial Lifting.

Statutory Lifting: If the company violates the Companies Act, 2013 and the act provides for the lifting
of the veil for the same, then it is termed to be Statutory Lifting.

Judicial Lifting: If the company violates the Companies Act, 2013 and the act does not provide for the
lifting of the veil then the judges can order the lifting of the veil which is known as Judicial Lifting.

Q12.Different clauses of MOA

Name Clause

The name of the company is its first unique identity. Thus the name clause of the memorandum
consists of the authentic, legal and approved name of the company. Company names should not
bear any similarities to a company registered with a similar name because many times these
companies protect the name of their companies via a Trademark Registration procedure.

Registered Office Clause

This clause specifies the name of the State in which the registered office of the company is situated.
This helps to determine the jurisdiction of the Registrar of Companies.

Objects Clause

Objects Clause constitutes the main body of the memorandum. It provides a list of all the operations
of the company. Every motive and operation the company indulges in must be mentioned in the
object clause. Also, any such operation which is not mentioned in the object clause is considered to
be beyond the reach of the company.

The objects of a company fall into two categories as prescribed below:

 The proposed objects of the company for which it is being incorporated

 Matters considered necessary in furtherance thereof

Apart from just stating out the objectives of the company the statement of objects in the company’s
MoA empowers the people associated with the company with the following benefits.

 It gives protection to the subscribers as they have complete knowledge of where their
valuable money is being invested.
 Protects the individuals and/ or companies that deal with the concerned company as they
have knowledge of the extent of the companies powers.
 The board of directors of the company is restricted from using the funds of the company
only to the objects specified in the Memorandum.

Liability Clause

Liability Clause mentions the liability of every member of the Company. It simply states that every
member of the company has limited liability. The clause also specifies the amount of contribution of
agreed upon for each individual participant in case the company is closing or winding up.
Irrespective of the financial state of the company, no member can be told to pay more than the
amount that remains unpaid on his/her shares.

Capital Clause

This clause mentions the share capital with which the company is registered. In addition to this, the
capital clause should also mention the types of shares, the number of each type of share, and the
face value of each share.
Private companies and public companies not intended to be listed in the stock exchange may
assume any face value depending on a number of factors however, public companies to be listed will
have a prescribed face value of the shares.

Subscription Clause

The last and final clause of the Memorandum of Association is called the subscription clause. The
subscription clause basically lists down the motives of the shareholders behind the incorporation of
the company and also states that the subscribers are agreeing to take up shares in the company. It
also specifies the number of shares taken up by each subscriber. It is all according to the details
specified in the MoA Subscriber Sheet.

Q13. Elaborate on the different categories of NPAs.

A nonperforming asset (NPA) refers to a classification for loans or advances that are in default or in
arrears. A loan is in arrears when principal or interest payments are late or missed. A loan is in
default when the lender considers the loan agreement to be broken and the debtor is unable to
meet his obligations. Nonperforming assets (NPAs) are recorded on a bank's balance sheet after a
prolonged period of non-payment by the borrower.

1) Standard Assets: It is a kind of performing asset which creates continuous income and
repayments as and when they become due. These assets carry a normal risk and are not NPA
in the real sense of the word. Hence, no special provisions are required for standard assets.
2) Sub-Standard Assets: Loans and advances which are non-performing assets for a period of
12 months, fall under the category of Sub-Standard Assets.
3) Doubtful Assets: The Assets considered as non-performing for a period of more than 12
months are known as Doubtful Assets.
4) Loss Assets: All those assets which cannot be recovered by the lending institutions are
known as Loss Assets.

Q14. Provisions of Audit as per Banking Regulation Act.

https://www.yourarticlelibrary.com/accounting/accounting-for-banks/principal-provisions-of-
banking-regulation-act-11-provisions-bank-accounting/68744
Q15. Different types of meetings as per Companies Act.
Q16. Rights of a Pledgor and Pledgee