QB365 provides detailed and simple solution for every
Creative Questions in class 11 Commerce Subject. It
will helps to get more idea about question pattern in every Creative questions with solution.

Download Tamil Nadu 11th Standard Commerce question papers, model tests, one-mark questions, important questions, and public exam papers in PDF format. Free study materials and answer keys for TN State Board students.

Questions:

Generic 5

5 x 5 = 25

Differentiate between Private Limited company and Public Limited Company. (Any Five).

What are the disadvantages of company?

Describe the characteristics of company.

Ashok is an industrial designer by training. He had the opportunity to learn the technology of fibre glass manufacture while he was in Germany for his training. He plans to set up a plant for the manufacture of fibre glass in India and is able to interest some financiers and technologists. It is estimated that the initial investment in the plant will be of the order of Rs 50 lakhs. Ashok and others decide to set up a company for the purpose. Should they set up a public limited company for the purpose? If so, how should they go about it? If not, what-alternative would you suggest? What formalities will be required of Ashok and his associates if they choose the alternative form of organization suggested by you?

Explain the following types of Companies.
(i) On the basis of incorporation
(ii) On the basis Membership

Visit QB365-SLMS - https://www.qb365.in/slms/

Answers Key:

Generic 5

5 x 5 = 25

S.No	Basis of difference	Private limited companies	public limited companies
(i)	Number of Members	In the case of a private limited company, the minimum number of members is two while the maximum is not to exceed 50 (excluding itsemployee members) whether past or present.	As for the public limited company while the minimum number of members is 7, the maximum is unlimited.
(ii)	Name	The words "Private Limited" must be added at the end of the name of the private limited company	The name of a public limited company must end with the word 'Limited'.
(iii)	Articles of association	A private limited company has to file the Articles of Association of its own with the Registrar of companies.	A public limited company can have either its own Articles or can adopt model set of articles as provided in Table A of the Companies Act
(iv)	Minimum Subscription	The question of minimum subscription does not arise in the case of a private limited company.	A public limited company has to collect minimum subscription as specified in the prospectus, i.e., minimum of 90%of the shares issued by the company
(v)	Allotment of shares	Conditions to be satisfied before allotment of shares do not apply to a private limited company.	In the case of public limited companies only after collecting minimum subscription and after allotting shares to existing shareholders, allotment to new applicants can begin.
(vi)	Directors	A private limited company must have at least two directors. They need not retire by rotation. One can act as a director in any number of private limited companies	In the case of a public limited company, it should have at least three directors. They are subject to retirement by rotation, A person can act as a director for a maximum of 15 companies.
(vii)	Statutory meeting	A private limited company need not hold any statutory meeting.	A public limited company should hold it within six months from the date of the commencement of business.
(viii)	Qualification Shares	The directors of a private limited company need not acquire qualification shares so as to be eligible for election as directors.	In the case of public limited companies, the directors should acquire the prescribed qualification shares.
(ix)	Quorum	The minimum number of members to be present in a meeting so as to constitute a valid meeting is two in aprivate company.	Whereas it is five in a public limited company
(x)	Managerial remuneration	In a private limited company, no limit has been placed on managerial remuneration.	In a public limited company, the overall managerial remuneration shall not exceed 11% of the net profits. However if thereis no profit in any-year r if the profits are inadequate,such remuneration shall not exceed the limits prescribed in the act.
(xi)	Sales of shares	A private company cannot invite general public for purchase of shares	A public company can invite the general public for purchase of shares.
(xii)	Registration	A private limited company need not submit many documents such as list of persons who have given their consent to become the first director of the company.	A public limited company has to file these documents .such as written consent of the directors, etc., with the Registrar of companies along with the. application in the office of the Registrar of companies.
(xiii)	Transfer of share	There is restriction on the transfer of shares in ·this company.	Shares of public company are freely transferable
(xiv)	Right issue	Rights issue does not arise	Right issue must be offered first to the old members
(xv)	Issue of share warrant	A private company cannot issue share warrant	A public company on the shares being fully paid up share warrant can be issued.
(xvi)	Retirement of directors	In a private company, a director is not required to retire at the age of sixty five years. Again, in this company directors are not required to retire by rotation.	Public company directors have to retire. at the age of sixty five years. Again, at least two third of the directors of a public company must be retiring directors and one third of them must retire by. rotation every year.

The disadvantages of company are:
(i) Costly and difficult to form:
Number of legal formalities must be observed in the formation of the company. To observe these legal formalities, promoters have to spend much time and money.
(ii) Scope for dishonest and unscrupulous management:
The directors manage the company with the help of paid officers, If the directors are dishonest, they may make personal gain at the expense of the company. They may misuse their power and position.
(iii) Management oligarchy:
A few rich persons may secure control over the affairs of the company. Thus, the, management of a joint stock company might become oligarchic in character. (Oligarchy means a small group of people having control)
(iv) Speculation:
A few individuals may corner the shares to gain control over the company.
(v) Lack of interest:
The officers of the company do not have incentive to work hard. They are not usually inclined to take risks. They lack initiative.
(vi) Lack of good labour relations:
In sole trading business personal supervision is possible. But in company form of organisation there is lack of personal contact between owners and workers. As a result, there is scope for more industrial disputes in a company form of organisation.
(vii) High taxation:
Joint stock companies have to pay tax at higher rates compared to other forms of organisations.

A company as an entity has many distinct features which together make it a unique organisation. The essential characteristics of a company are as follows:
(i) Separate legal entity:
Under Incorporation a company becoines a separate legal entity as compared to its members. The company is distinct and different from its members. It has its own seal and its own name, its assets and liabilities are separate and distinct from those of its members. It is capable of owning property, incurring debt, and borrowing money, employing people, having a bank account, entering into contracts and suing and being sued separately. In short, it is considered as an artificial person created by law.
(ii) Limited liability:
The liability of the members of the company is limited to contribution to the assets of the company up to the face value of shares held by him. A member is liable to pay only the uncalled money due on shares held by him. If the assets of the company are not sufficient to pay liabilities, the personal properties of the shareholders are not held responsible.
(iii) Perpetual succession:
A company does not cease to exist unless it is specifically wound up or the task for which it was formed has been completed. Membership of a company may keep on changing from time to time but that does not affect life of the company. A company is created by law and it can be windup only through legal process.
(iv) Separate property:
A company is a distinct legal entity. A member cannot claim to be owner of the company's property during the existence of the company.
(v) Transferability of shares:
Shares in a company are freely transferable. When a member transfers his shares to another person, the transferee steps into the shoes of the transferor and acquires all the rights of the transferor in respect of those shares. There are restrictions in the transferability of shares in case of private companies.
(vi) Common seal:
A company is an artificial person and does not have a physical presence. Thus, it acts through its Board of Directors for carrying out its activities and entering into various agreements. Such contracts must be under the seal of the company. Thecommon seal is the officialsignature of the company. The name of the company must be engraved on the common seal.Any document not bearing the seal of the company may not be accepted as authentic and may not have any legal force.
(vii) Capacity to sue and being sued:
A company can sue or be sued in its own name as distinct from its members.
(viii) Separate management:
A company is administered and managed by its managerial personnel i.e. the Board of Directors. The shareholders are simply the holders of the shares in the company and need not necessarily the managers of the company.
(ix) One Share-One Vote:
The principle of voting in a company is one share-one vote i.e. if a person has 10 shares, he has 10 votes in the company. This is in direct distinction to the voting principle of a co-operative society where the "One Member - One Vote" principle applies i.e. irrespective of the number of shares held, one member has only one vote.

(i) If he and his friends selected to start public limited company. They can start with more formalities.
1. Issue of prospectus
2. Huge capital
3. Shares can be issued and substituted in huge level of capital (i.e. Authorized capital)
4. Minimum 7 members to start a public company.
5. Maximum number of limit
6. The public company does not restrict the right to transfer its share
(ii) If he decides to start private limited company, my suggestions are as follows
1. Investment arranged privately with his friends
2. He can collect capital with limited capital
3. Private company cannot issue prospectus
4. One person company also can start, but capital of initial investment can be arranged privately.

(i) On the basis of incorporation:
Companies of this kind are three types.
(1) Chartered Companies:
(a) Chartered Companies are established by the King or Queen of a Country.
(b) Powers and privileges of Chartered Company are specified in the Charter.
(c) Examples: East India Company and Bank of England.
(2) Statutory Companies:
(a) Companies are established by a special Act made in parliament/state Assembly.
(b) Constitution of the company is specified in the Memorandum of Association.
(c) Rules relating to day-to-day Management of Statutory Companies are specified in the Articles of Association.
(d) Examples: Reserve Bank of India, Life Insurance Corporation of India.
(3) Association Not for Profit:
According to Section 25, the Central Government may, by license, grant that an Association may be registered as a Company with limited liability, without using the words 'Limited' or 'Private Limited' as part of its name.
(ii) On the basis of Membership:
(1) Private Company:
(a) Private Limited Company is a company which has a minimum paid up capital of rupees one lakh or such higher paid-up Capital as may be prescribed.
(b) Maximum 200 persons can become shareholders in a Private Company.
(2) Public Company:
(a) Public Company means a Company which is not a Private Company.
(b) Minimum number of person is seven and there is no limit to the maximum number of shareholders.