KSLU Solved Question Papers
Company Law
Previous Year Question Paper with Solution
B.A. LL.B. (Five Years) · Sem 6
2022 Apr (LL.B. paper) Examination
munotes.in
Mumbai
B.A. LL.B. (Five Years) Sem 6 Company Law 2022 Apr (LL.B. paper) Question Paper with Solutions
First published on munotes.in on 21 October 2026.
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The question paper reproduced here is the paper as set by Karnataka State Law University at the 2022 Apr (LL.B. paper) examination.
Contents
The questions below are the paper as Karnataka State Law University set it at the 2022 Apr (LL.B. paper) examination, in the order it was set.
MarksPage
MarksPage
The Paper as Set
The questions in this volume are the questions asked at the 2022 Apr (LL.B. paper) examination, reproduced as Karnataka State Law University set them, in the order it set them. Long reading passages are shortened to their first and last lines and our summary; the original paper prints them in full. Only the answers are ours. See the original question paper.
Duration 3 hours · Total marks 80 · 20 questions answered
Instructions printed on the paper
- N.B. (1) Answer all five Units. (2) One essay type question and short note/problems is compulsory from each Unit. (3) Figures to the right indicate marks. (4) Answer should be written either in English or Kannada completely.
How to use this volume
Solve the paper first, under exam conditions and against the clock. Then read the answers here and mark your own. Reading a solution before attempting the question feels productive and teaches very little, because recognising an answer is not the same as being able to write one.
Q1
Unit I
(a)Explain briefly the advantages of incorporation of a company.[10]
Answer
For full marks, cover: what incorporation is (registration, certificate under section 7(2), effect under section 9); each advantage tied to its section: separate legal person, limited liability, perpetual succession, own property, transferable shares, capacity to sue and contract, borrowing and raising capital, management by a Board; Salomon, Bacha F. Guzdar and Tata Engineering (TELCO) explained; a table against the partnership firm; the limits (lifting of the veil, the price in formalities).
What incorporation means
Incorporation is the process by which a group of persons becomes a company in law. They file the memorandum, the articles and the other documents with the Registrar under section 7 of the Companies Act 2013. The Registrar then issues a certificate of incorporation under section 7(2).
Section 9 states the effect. From the date in the certificate, the subscribers and all later members "shall be a body corporate". The body has perpetual succession. It has power to acquire, hold and dispose of property, to contract, and to sue and be sued, in its own name. Almost every advantage of incorporation comes from these words.
The advantages
- A separate legal person. The company is a person distinct from its members. It can deal even with its own members as an outsider would. A member may lend to it, sell to it or work for it.
- Limited liability. In a company limited by shares, a member's liability is limited to the amount unpaid on his shares (section 2(22)). In a company limited by guarantee, it is limited to the amount he promised to contribute on winding up (section 2(21)). His house and savings are safe from the company's creditors. This is the main reason people choose a company over a firm.
- Perpetual succession. Under section 9 the company lives on whatever happens to its members. Members may die, become insolvent or sell their shares. The company ends only when it is wound up or its name is struck off.
- Its own property. The property belongs to the company, not to the members. A change of members does not disturb the title. Creditors of a member cannot seize the company's assets for his debts.
- Transferable shares. Under section 44 shares are movable property, transferable as the articles provide. A shareholder can leave by selling, and the business is not disturbed. In a public company the shares are freely transferable (section 58(2)).
- Capacity to sue and be sued. The company sues and is sued in its own name. There is no need to join every member to a suit.
- Raising capital and borrowing. A public company can invite the public to buy its securities through a prospectus. Any company can issue debentures and give security, including a floating charge over its changing assets. A firm cannot create a floating charge.
- Professional management. The members need not manage. Management rests with a Board of directors (section 179). Owners can therefore invest without running the business.
- Continuity of contracts and licences. Contracts, licences and goodwill stay with the company when members change.
Three decided cases
Salomon v. A. Salomon and Co. Ltd., [1897] AC 22 (House of Lords). Aron Salomon, a boot manufacturer, sold his business to a company he formed. The other members were his own family, and he held almost all the shares and secured debentures. The business failed. The unsecured creditors argued that the company was only Salomon in another form. The House of Lords held that the company was validly incorporated and was a person distinct from Salomon. His motives and the one-man nature of the business did not matter. So his secured debentures ranked before the unsecured creditors. The case is the foundation of separate personality and limited liability.
Bacha F. Guzdar v. Commissioner of Income-Tax, Bombay, AIR 1955 SC 74. Mrs. Guzdar held shares in tea companies whose income was largely agricultural and exempt from tax. She claimed that her dividends were also agricultural income. The Supreme Court disagreed. A shareholder gets no interest in the company's assets by buying shares. He has only a right to share in profits when the company divides them. This shows the advantage of separate property in action. The company owns its assets; the member owns shares.
Tata Engineering and Locomotive Co. Ltd. v. State of Bihar, AIR 1965 SC 40. Companies, joined by shareholders, filed writ petitions claiming fundamental rights under Article 19. The Supreme Court held the petitions incompetent. A corporation is in law a person entirely separate from its shareholders. Article 19 belongs to citizens, and a company is not a citizen. The Court would not lift the veil to borrow the shareholders' citizenship. Separate personality therefore works both ways: it is an advantage, but its consequences must be accepted.
Company and partnership compared
| Point | Company | Partnership firm |
|---|---|---|
| Legal person | Yes, section 9 | No; the firm is the partners |
| Liability | Limited, if limited by shares or guarantee | Unlimited and joint |
| Life | Perpetual succession | Affected by death or retirement of partners |
| Transfer of interest | Shares transferable, section 44 | Only with consent of all partners |
| Property | Owned by the company | Owned by the partners |
| Management | Board of directors | Every partner, as agent of the firm |
The limits of these advantages
The advantages are not absolute. The courts and the Act lift the corporate veil where the company is used for fraud or to evade the law. Section 339 makes persons who carried on business fraudulently personally liable. Section 7(7) deals with incorporation obtained by false information. Section 3A applies where members fall below seven in a public company or two in a private company. If business goes on for over six months, the members who know of it lose limited liability.
Incorporation also has a price. There are formalities in forming the company and continuing duties of filing, audit and disclosure. A company cannot keep its affairs secret as a firm can. Since 29 May 2015 a common seal is no longer compulsory, so the old list of advantages that includes a "common seal" is out of date.
Conclusion. Incorporation creates a new legal person under section 9. From it flow the main advantages: limited liability, perpetual succession, separate property, transferable shares, the capacity to sue and contract, and easier access to capital. Salomon makes the company's separate existence the starting point of company law. Bacha F. Guzdar shows that the company, not the member, owns the assets. TELCO shows that the separation must be accepted along with its benefits. The advantages hold so long as the company is not used as a cloak for fraud, when the veil is lifted.
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