Possible Technical Questions

I. Contracts Act...........................................................................................................................5

1. What are the essential elements of a valid contract?............................................................5

2. Is consideration necessary for a contract? (Interview).........................................................6

3. What is the difference between an agreement and a contract? (Interview)..........................6

4. What is the difference between a void and voidable contract?.............................................6

5. Is a contract with a minor valid? (Interview)........................................................................6

6. Difference between rescind, repudiate and revocation.........................................................6

7. What is anticipatory breach of contract?..............................................................................7

8. What are the modes of discharge of contracts?....................................................................7

9. Difference between damage and damages(Interview)..........................................................7

10. Difference between contract of service and contract for service......................................7

11. What is a promissory estoppels.........................................................................................7

12. Difference between guarantee and indemnity (Interview) (Both interviews)...................8

13. What is a bank guarantee?................................................................................................8

14. Is the liability of a surety coextensive with the judgment debtor?....................................8

15. What is bailment?..............................................................................................................8

16. Difference between bailment and sale..............................................................................8

17. What is the duty of care imposed on a bailee...................................................................8

18. What is lien (general lien and particular lien)...................................................................9

19. What are the requirements to impose a particular lien......................................................9

20. What is a pledge, pledgee, pawnbroker, pledgor?............................................................9

21. What are the rights and liabilities of the pledgor and pledge............................................9

22. Difference between Lien And Pledge:............................................................................10

23. Difference between hypothecation, mortgage, pledge:...................................................11

24. Difference between Pledge and Bailment.......................................................................12

25. Who is an agent...............................................................................................................13

26. When will be an agent responsible for the actions of the Agent?...................................13

27. Will the principle be responsible for a sub agent?..........................................................13

28. What is agent’s lien.........................................................................................................14

29. Difference between agent and servant............................................................................14

30. Difference between Liquidated & Unliquidated damages..............................................15

31. Prerequisites to claim Liquidated Damages....................................................................15

32. Unliquidated Damages....................................................................................................15

33. Difference between damages & Indemnity:....................................................................16

34. When does the indemnity clause kick in?.......................................................................17

35. Remoteness of damages – indirect losses.......................................................................17

36. Is there a duty to mitigate in Indemnity?........................................................................17

1. Difference between Liquidated damages and capped Indemnity Claus.............................17

37. Exclusive remedy indemnification clause with limitation of liability............................17

38. Difference between Indemnity, Guarantee & warranty..................................................18

39. Difference between Fraud & Misrepresentation.............................................................20

40. Difference between General and Special Damages........................................................20

41. What are nominal Damages and substantial damages?..................................................20

42. What are speculative damages?......................................................................................21

43. Difference between aggravated and exemplary damages:..............................................21

44. What is doctrine of privity and what are the exceptions to the same?............................22

45. Type of relief granted on the breach of contract.............................................................22

46. What is an injunction and the types of injunction...........................................................22

 47. What is Section 27?.........................................................................................................22

48. What are the reliefs when time is of the essence of the contract....................................22

49. What is frustration of contract?.......................................................................................22

50. What are non compete clauses........................................................................................22

51. What is a partnership?.....................................................................................................22

52. Difference between sale & hire purchase agreement?....................................................24

II. Companies Act:.....................................................................................................................25

53. Difference between Public & Private Company:............................................................25

54. Difference between members and shareholders..............................................................32

55. Difference between Company & a partnership:..............................................................33

56. What is a LLP?................................................................................................................35

57. Difference between partnership & LLP:.........................................................................36

58. Difference between LLP & Company............................................................................36

59. What are preference and equity shares:..........................................................................37

Convertible preference shares:..............................................................................................37

1. Difference between equity & preference shares.................................................................38

60. Difference between Bond and debentures......................................................................39

61. Difference between Debentures and shares....................................................................41

62. Difference between fixed and variable floating rates.....................................................44

63. What is private placement and what are the conditions for private placement?.............46

64. What is rights issue of shares?........................................................................................46

65. What is buyback of shares?.............................................................................................47

66. What are related party transactions:................................................................................47

67. What are interested directors?.........................................................................................48

68. Section 184(1) General Disclosure of interest by director..............................................48

69. What is the difference between MoA and AoA?............................................................48

70. What are the type of clauses to be included in MoA?....................................................50

71. Difference between Limited and Unlimited Company...................................................51

72. Difference between company limited by shares & limited by Guarantee......................51

73. What is a prospectus? What are the types of prospectus?...............................................52

74. What are the benefits if the company over other forms of entities?...............................53

75. When is Company form of organisation advisable?..................................................53

76. When is Partnership form of organisation advisable?..............................................54

77. What are the duties of the director?................................................................................54

78. What is capital? What are the classifications of capital?................................................54

79. What are sweat equity shares?........................................................................................55

80. What are Bonus Shares?.................................................................................................56

81. What is ESOP scheme?...................................................................................................56

82. What is Preferential Offer?.............................................................................................57

83. Difference between Alteration of share capital and reduction of share capital..............58

84. What is the difference between share and stock.............................................................58

85. Mergers, acquisitions & Amalgamation:........................................................................59

86. What is a demerger?........................................................................................................60

87. What is insider trading?..................................................................................................61

88. Prevention of oppression and mismanagement:..............................................................61

89. What are the rights of the shareholders?.........................................................................62

90. What are the kinds of resolutions that are passed by the company?...............................62

91. What is a right to First offer and rights to first refusal...................................................62

92. What is a shareholders’ agreement?................................................................................62

93. What is Lifting of corporate veil?...................................................................................63

 94. What are the stages of Merger........................................................................................63

95. Stages of acquisition.......................................................................................................63

96. Recent MnA deals in India..............................................................................................63

97. Recent changes in laws pertaining to MnA....................................................................63

III. IBC:.....................................................................................................................................63

98. How does winding up take place under IBC...................................................................63

99. Difference between Financial Creditors and operational creditors.................................63

100. Who can initiate CIRP against CD..............................................................................63

101. What is Committee of Creditors..................................................................................63

102. Why does COC only comprise of Financial Creditors................................................63

103. What is Moratorium under IBC?.................................................................................63

104. What is Waterfall Mechanism?...................................................................................63

I. CONTRACTS ACT
1. WHAT ARE THE ESSENTIAL ELEMENTS OF A VALID CONTRACT?

Section 10 of the contracts act states that, “all the agreements are contract if they are made
with free consent of the parties, competent to contract with lawful object & lawful
consideration and has nit been declared expressely void.

- Free consent
- Competence to contract
- Lawful object
- Lawful consideration
- Intention to enter to legal relationship
- Not declared expressly void
 2. IS CONSIDERATION NECESSARY FOR A CONTRACT? (INTERVIEW)

Yes, consideration means the act or abstinence to do something on the behest of

the promisor

3. WHAT IS THE DIFFERENCE BETWEEN AN AGREEMENT AND A CONTRACT? (INTERVIEW)

An agreement is a compromise, which may or may not have legal effect. Contract is
an agreement formed by the parties with an intention to enter into legal relationship.

4. WHAT IS THE DIFFERENCE BETWEEN A VOID AND VOIDABLE CONTRACT?

Void contract cannot be enforced by any party – voidable contract can be enforced at the
option of one party

5. IS A CONTRACT WITH A MINOR VALID? (INTERVIEW)

Contract with a minor is void ab initio - No Restitution: No order can be made for
compensation against a minor for a benefit obtained under void agreement.

Minor Beneficiary: A contract becomes valid if it gives some benefit and not to required
minor to bear any obligation.

• Services by a Minor under contract: The Contract of Apprenticeship is valid and

binding upon the minor.

• No Ratification

6. DIFFERENCE BETWEEN RESCIND, REPUDIATE AND REVOCATION

Rescind: The contract is treated as if it did not come into existence

Repudiate: If any party refuses to perform its obligation under the contract – other party
may accept the repudiation and terminate the contract
Revocation: Offer or acceptance may be revoked before it reaches the other party

7. WHAT IS ANTICIPATORY BREACH OF CONTRACT?

If one party refuses to honour its obligations under the contract – other party may accept
the repudiation and terminate the contract – since repudiation happens prior to the actual
breach, it is known as anticipatory breach of contract

8. WHAT ARE THE MODES OF DISCHARGE OF CONTRACTS?

- Discharge by performance:
- Discharge by agreement:
- Discharge by impossibility of performance
- Discharge by lapse of time
- Discharge by operation of law

9. DIFFERENCE BETWEEN DAMAGE AND DAMAGES(INTERVIEW)

Damage means any loss or injury caused to the party – damages – compensation paid for
any loss or injury caused to any party

10. DIFFERENCE BETWEEN CONTRACT OF SERVICE AND CONTRACT FOR SERVICE

Contract of service: Employer enjoys control over the activities of the servant – the
servant is bound to obey the instructions of the master

Contract for service: The independent contractor takes on an obligation to produce a

particular result – the employer does not have control over the actions of the contractor –
the independent contractor has the discretion to use any method that it wants

11. WHAT IS A PROMISSORY ESTOPPELS

Promissory estoppels – a promisor makes a promise to the promisee and based on that
promise the promisor does something to change his position
It is not necessary that the promisee suffers any detriment – just the fact that the promisee
has changed its position is enough

12. DIFFERENCE BETWEEN GUARANTEE AND INDEMNITY (INTERVIEW) (BOTH INTERVIEWS)

INDEMNITY: A promise to be responsible for the loss caused by the actions of the
promisor as well as the third party – Only one contract and two parties – Indemnifier
and indemnified party – Indemnifier can be called upon by the indemnified party once
the liability has been caused -

Guarantee: A promise to pay of the debt if the principal debtor fails to do so -

13. WHAT IS A BANK GUARANTEE?

BG: Guarantee from the bank that it will pay off the debt if the principal debtor fails to do
so

14. IS THE LIABILITY OF A SURETY COEXTENSIVE WITH THE JUDGMENT DEBTOR?

Upon Breach: both the guarantor and surety become co judgment debtors

15. WHAT IS BAILMENT?

- Contractual transfer of property for a specific objective

- The Bailor still the owner of the goods – the bailee cannot use them according to
its own wish – ownership still remains with the bailor – possession bailee

16. DIFFERENCE BETWEEN BAILMENT AND SALE

Transfer of ownership happens in sale – bailment transfer of property for a specific

purpose for a limited period of time

17. WHAT IS THE DUTY OF CARE IMPOSED ON A BAILEE

If it is an exclusive bailment – then duty of care is extraordinary – however, if the benefit

arising out of the bailment is mutual – then duty of care is reasonable
 18. WHAT IS LIEN (GENERAL LIEN AND PARTICULAR LIEN)

Lien: It is the right of the party to retain the goods till the liability or promise has been
discharged – Lien can only be exercised when any skill or labour has been expounded on
the product – mere custody will not work

General Lien: The right to retain any property till the liability or promise has been
discharged – for a general balance of account –

Particular Lien: The right to retain a particular property – bailment is particular lien only

19. WHAT ARE THE REQUIREMENTS TO IMPOSE A PARTICULAR LIEN

- Lien only when labour or skill has been expounded

- Lien only when work has been completed on time
- Lien only when Payment is due

20. WHAT IS A PLEDGE, PLEDGEE, PAWNBROKER, PLEDGOR?

Pledge is used when the lender (pledgee) takes actual possession of assets (i.e.
certificates, goods ). Such securities or goods are movable securities. In this case the
pledgee retains the possession of the goods until the pledgor (i.e. borrower) repays the
entire debt amount. In case there is default by the borrower, the pledgee has a right to
sell the goods in his possession and adjust its proceeds towards the amount due (i.e.
principal and interest amount). Some examples of pledge are Gold /Jewellery Loans,
Advance against goods,/stock, Advances against National Saving Certificates etc.

 What kind of possessions are there

21. WHAT ARE THE RIGHTS AND LIABILITIES OF THE PLEDGOR AND PLEDGE

- Pledge is for the benefit of the parties – bound to exercise only ordinary care
- Has the right to sell the property if debt not paid
- In case of wrongful sale of pledge – the pledge needs to pay the amount due then
can recover the pledge
 22. DIFFERENCE BETWEEN LIEN AND PLEDGE:

Sr.
No. Basis Lien Pledge

1 Origin The origin is a statute. The origin is a contract.

The object is to retain

the goods or property
in possession of the
holder until all the
claims of the holder The object is to provide security
(of the lien) are for the payment of a loan or the
2 Object satisfied. performance of a promise.

The holder of a lien

can only retain the
goods till his demands On the non-payment of a debt or
are met. He cannot sell non- performance of a
Right Of the goods that he promise,thepawnee has the right to
3 Sale retains. sell the goods.

Termination is only on the

payment of a loan or the
The lien terminates as performance of a promise Even if
soon as the holder the pawnee returns the goods
releases the goods before the payment of a debt,his
4 Termination under his retentiopn. right does not terminate.
 23. DIFFERENCE BETWEEN HYPOTHECATION, MORTGAGE, PLEDGE:

Basis of
Pledge Mortgage
Comparison

Meaning Pledge is the method of creating a charge Mortgage is the method of creating a charge
over movable properties. immovable properties.

Defined Under Section 172, Indian Contract Act 1872 Section 58, Transfer of Property Act 1882

Possession of Lender/ financial institution Borrower/Debtor

Property

Assets/Property Movable Assets Immovable Assets

Point of Difference Pledge Hypothecation Mortgage

Hypothecation is creation of
Pledge means bailment of charge on movable property It is transfer of an interest in s
goods as security against without delivering them to the immovable property as se
Meaning the loan. lender. against loan.
Immovable (example: house,
building or any property wh
Type of Security / Movable (Gold, Jewellery, Movable (Vehicles, Stock and permanently fixed to the ea
Property Stock, NSC etc. debtors.) attached to the land)
Possession of the
security / Property Remains with lender. Remains with Borrower. Remains with Borrower.
Examples of Loan Gold Loan, Advance Vehicle Loans, Advances against Housing Loans
against NSCs, Advances stock and debtors
 Basis of
Pledge Mortgage
Comparison

against goods (also given

under hypothecation)
Parties Pledgor and Pledgee Hypothecator and Hypothecatee Mortgagor and Mortgagee
Since lender does not have
physical possession, he can file a Mortgagee can file a suit in co
suit to take possession and take possession of mor
Remedy for default Lender can sell the asset to dispose it off to recover debt property and sell it to recove
by borrower recover debt amount. amount. amount.

24. DIFFERENCE BETWEEN PLEDGE AND BAILMENT

Bailment Pledge

Transfer of goods from one person to Transfer of goods from one person to another as
another for a specific purpose is known security for repayment of debt is known as the
as the bailment. pledge.

It is defined under section 148 of the It is defined under section 172 of the Indian
Indian Contract Act, 1872. Contract Act, 1872.

The person who delivers the bailed The person who delivers the pledged goods is
goods is known as Bailor and the person known as Pledger or Pawnor and the person
receiving such goods is known as receiving such goods is known as Pledgee or
Bailee. Pawnee.

Bailment can be for many reasons A pledge is bailment done for a specific type of
ranging for reward to gratuitous. purpose, which is to secure a loan or
 Bailment Pledge

performance of a promise.

The consideration may or may not be Consideration is always there.

present.

The bailee does not get a right to sell the A pawnee has a right to sell the goods in case
goods. of default.

The bailee only get a right of lien over A pawnee gets a right of retainer and a special
the goods. interest in the goods, which is more that just the
lien.

The bailee can use the goods bailed. The pawnee has no right to use the goods.

The bailee is not responsible for the The pawnee is absolutely liable for the upkeep
loss, destruction, or deterioration if he of the goods.
uses the goods with reasonable care.

25. WHO IS AN AGENT

26. WHEN WILL BE AN AGENT RESPONSIBLE FOR THE ACTIONS OF THE AGENT?

27. WILL THE PRINCIPLE BE RESPONSIBLE FOR A SUB AGENT?

The responsibility of the principal depends on two factors:

1. Whether the agent had the right to appoint a sub agent

2. Whether the sub agent was appointed properly
3. If then sub-agent is properly appointed:
 1) the principal is bound by and responsible for the acts of a sub agent;
2) the agent is responsible to the principal for the acts of the sub-agent;
3) the sub agent is responsible for his acts to the agent, but not to the principal
except in case of fraud or willful wrong- there is no privity of contract between
principal and agent – principal can go after the agent in case where fraud has been
committed

28. WHAT IS AGENT’S LIEN

In the absence of any contract to the contrary, an agent is entitled to retain goods,
papers, and other property, whether movable or immovable of the principal
received by him, until the amount due to himself for commission, disbursements
and services in respect of the same has been paid or accounted for to him.

29. DIFFERENCE BETWEEN AGENT AND SERVANT

Agent Servant
Authority to create contractual relationship No such authority
with subagents
Independent contractor – not subject to Subject to the instructions of the
the control of the principal principal
Commission for the acts done by the Paid salary by the master
agent
Principal is liable for only those acts A master is liable for the wrongs of his
which are within the scope of the servants committed in the course of
authority given to the agent employment
May work for number of masters at the Works for only one employer
same time
 30. DIFFERENCE BETWEEN LIQUIDATED & UNLIQUIDATED DAMAGES.

Under the Indian Contract Act, the word ‘damages’ is understood as compensation under a
contract that is paid by the defaulting party to the non-defaulting party. This compensation is
awarded to the non-defaulting party to compensate for actionable wrongs of the former

Under a contract, the parties may agree to pay a certain sum upon breach of the terms of the
contract. When the agreement between the parties stipulates the sum payable for non-
performance, the damages hence paid are known as liquidated damages. Unliquidated damages
are awarded by the courts or arbitral tribunals after assessing the loss or injury caused to the
party suffering from such breach of contract.

31. PREREQUISITES TO CLAIM LIQUIDATED DAMAGES

 Breach of Contract
 Proof of Damage????
 Causation
 Remoteness of damage
 Mitigation
 The compensation granted cannot exceed the amount specified in the contract.

32. UNLIQUIDATED DAMAGES

Section 73 deals with actual damages resulting from infringement of the contract and the injury
arising from such infringement which is in the nature of unliquidated damages since such
damages are granted by the courts on the basis of an evaluation of the loss or injury caused to the
party against which the infringement occurred.
Damages that are claimed for unforeseeable losses are called Unliquidated Damages. These
damages are commonly awarded for cases involving a breach of contract. These damages apply
to any breach of contract that does not contain a liquidated damages clause. It can, however, be
difficult to estimate the compensation amount to be claimed by the complainant since the amount
is “unliquidated.” Industries like construction and engineering generally affect liquidated
damages and not unliquidated damages.

In order to award unliquidated damages to the plaintiff, the court opts for a compensatory
approach:

 Recover the loss incurred by the complainant

 Return the complainant to the position he had before the breach
 Minimize penalizing the respondent
 Avoid enhancing the complainant’s position over and above where it would have been if
the breach did not take place.

33. DIFFERENCE BETWEEN DAMAGES & INDEMNITY:

Damages Indemnity
Only party to the contract can claim Third party claims can be made under
damages indemnity
Actual loss has to be proved Indemnity does not need actual causal of
loss
Consequential, indirect and remote losses They cover remote losses also
are not covered under this section
There needs to be a causal link between the Need not be
breach and the damage caused
There is duty to mitigate damages in case No duty to mitigate
of a breach
 34. WHEN DOES THE INDEMNITY CLAUSE KICK IN?

Courts have held that indemnity holder can claim indemnity even before the loss has
accrued – therefore the indemnity holder can claim indemnity once the liability has been
incurred

35. REMOTENESS OF DAMAGES – INDIRECT LOSSES

There needs to be a causal link between the damage caused and the breach of the contract
in case of damages – however in case of indemnity there need not be

36. IS THERE A DUTY TO MITIGATE IN INDEMNITY?

No

1. DIFFERENCE BETWEEN LIQUIDATED DAMAGES AND CAPPED INDEMNITY CLAUSe

Liquidated damages Capped Indemnity Clause

Concept of reasonability is applicable

37. EXCLUSIVE REMEDY INDEMNIFICATION CLAUSE WITH LIMITATION OF LIABILITY

In order to contractually determine the extent of liability, parties may agree to limit their
exposure to a well drafted and substantially limited indemnity provision largely immune
from the discretion of the courts. An illustration for such a clause is set out below:

(a) Exclusive Remedy Clause: The clause should state that, “indemnity provided under this
clause shall be its sole remedy in relation to the transactions contemplated under this
agreement to the exclusion of all other rights and remedies (including those in tort or arising
under statute)”; and
 (b) Limitation of Liability: Limitation of liability clause which states that the total liability
under the agreement shall be limited to the amount and conditions stipulated for the
indemnity. in the above construct, the courts are likely to hold that damages as a remedy is
ruled out and the only remedy is that of seeking indemnity subject to the limitations set out
thereunder. This becomes important in situations where an indemnified party may try to
claim for losses/ damages, over and above the indemnity cap on grounds of equity or
reasonableness.

38. DIFFERENCE BETWEEN INDEMNITY, GUARANTEE & WARRANTY

BASIS INDEMNITY WARRANTY GUARANTEE

It includes three
No. of parties i.e. Principal
It has two parties. It has two parties.
parties Debtor, surety,
creditor.

It has two contracts.

One is the Principal
No. of
It has only one contract. It has only one contract. contract and the other
Contracts
is the guarantee
contract.
 Its nature is to Its nature is to
compensate someone for compensate someone
loss and is independent for loss and is
of the obligations of the independent of the Its nature is to create
Nature
party whose covenants obligations of the party secondary obligations.
are being reinforced by whose covenants are
the provision of being reinforced by the
indemnity. provision of warranty.

It has only primary It has It has two liabilities.

only primary liability. It It has a primary liability Primary and
provides that the liability only towards the person secondary. Primary is
Liability
of the indemnifier is to who he gives the with Principal Debtor
run with any loss by the warranty. and secondary which
person he indemnifies. lies with the surety.

Under it, obligation of

Obligation under guaranty contract is
Obligation under
warranty arises out of triggered by a demand
Obligations indemnity arises out of
demand by the other which says the
occurrence of an event.
person. principal debtor is at
fault.

In it liability remains When the guarantor

under the transaction pays the sum for
Same as the contract of
Discharge notwithstanding that the which he is liable then
indemnity.
debtor is discharged he extinguishes his
under the main contract. liability.

Remedy Under the contract of Under it, if there is a In guarantee, if surety

indemnity the claimant breach of warranty then makes payment to
 can recover all the loss if creditor, surety can
the warrantor has to
there is a breach of a recover that amount
bear all the damages.
contract. from principal debtor.

Under the contract of Under it, the buyer has Under it, the buyer has
Proof of
indemnity, a buyer can to proof the loss to proof the loss
loss
recover any losses suffered due to breach suffered due to breach
without having to prove of warranty to be entitle of guarantee to be
that loss. for damages entitle for damages.

The limitation period The limitation period

Limitations starts from the date when starts from the date of –
loss is suffered. breach of warranty.

39. DIFFERENCE BETWEEN FRAUD & MISREPRESENTATION

The main difference between fraud and misrepresentation is that fraud happens when a person or
a party intentionally and willfully represents false information to deceive another party. In
contrast, misrepresentation happens when a person or a party unintentionally represents false
information to another party.

40. DIFFERENCE BETWEEN GENERAL AND SPECIAL DAMAGES

General damages: : Likely to arise after a breach of contract – Are generally presumed
to follow after the breach of contact

Special Damages: Parties are of the opinion that such damages may arise – Specific proof
is required
 41. WHAT ARE NOMINAL DAMAGES AND SUBSTANTIAL DAMAGES?

Nominal Damages: Damages provided when there is a breach of contract but no damage
has been done to the parties

Substantial damages: extent of breach of contract is proved but uncertainty regarding the
calculation of damage

42. WHAT ARE SPECULATIVE DAMAGES?

Uncertain damages, which are not the certain result of a breach or a wrong, are not
recoverable. However, damages which are definitely attributable to the wrong and only
uncertain in respect of their amount, may be recovered

43. DIFFERENCE BETWEEN AGGRAVATED AND EXEMPLARY DAMAGES:

These damages are of such nature that they exceed the damages ascertained, mostly resulting
from the mala fide conduct of the defendant. Aggravated damages gain significance where
the damage caused to the plaintiff are aggravated due to the motives, conduct or manner of
inflicting injury, whereby the plaintiff’s feelings and dignity are adversely affected resulting
in mental distress.

Aggravated damages are mostly compensatory in nature since they aim at compensating the
plaintiff for the aggravated loss suffered. On the other hand, exemplary damages are punitive
in nature since they intend to punish the defendant and not merely compensating or depriving
the defendants of the profits made.

Nevertheless, courts in the U.K. and India have been strict regarding grant of punitive
damages in case of contractual breaches. Similarly, in India, courts have held that the nature
of compensation should be such that the award of compensation for damages cannot be
considered either punitive or in the nature of a reward.
 44. WHAT IS DOCTRINE OF PRIVITY AND WHAT ARE THE EXCEPTIONS TO THE SAME?

Doctrine of privity states that only parties to the contract can claim the rights and obligations
arising out of the contract & no third party will be eligible to do the same.

Exceptions:

i. Trust
ii. Assignment of contract
iii. Acknowledgment or estoppels

45. TYPE OF RELIEF GRANTED ON THE BREACH OF CONTRACT

Suit for Rescission

if one party breaches the contract, then the other party need not oblige to the contract. The
contract stands cancelled if the aggrieved party cancels it. The aggrieved party can file for the
damages. Generally, the suit for the damages accompanies the cancellation of the contract by the
aggrieved party. This suit is for obtaining the damages of the breach.

Suit for Injunction

A restraint order from the court is an injunction. The court has the power to restrain a person
from doing a certain act. If the defendant does something that he should not perform, then the
aggrieved party can file a suit for injunction. This shall be temporary or permanent.

Suit for Specific Performance

A remedy which is given by the court to both parties to perform according to the contract. This is
one of the most common suits. The aggrieved party will not receive adequate relief of the
monetary compensation.
Suit for Quantum Meruit

Quantum Meruit for contracts means the reasonable value of services. If a person hires someone
and the contract is incomplete or un-performable, then the employer can sue the defendant for
the services and the value of improvements made. The law states that the employer has to pay the
employee an amount that he deserves for his services. If the employee is under an express
contract for a specific amount, then he cannot abandon the contract and suit for the Quantum
Meruit.

Suit for Damages

46. WHAT IS AN INJUNCTION AND THE TYPES OF INJUNCTION

47. WHAT IS SECTION 27?

48. WHAT ARE THE RELIEFS WHEN TIME IS OF THE ESSENCE OF THE CONTRACT

49. WHAT IS FRUSTRATION OF CONTRACT?

50. WHAT ARE NON COMPETE CLAUSES

51. WHAT IS A PARTNERSHIP?

Araangement between parties to share their profits or lossess arising on the account of
activities undertaken by all of them or one representating everyone

- Partnership act arises out of an agreement or contract – husband and wife carrying
out a business cannot be termed as partners – Anyone gaining any benefits out of
the arrangement won’t be considered as the partner
2. What are the rights and obligations of the partners

The Partnership Deed contains the mutual rights, duties and obligations of the partners

Rights of the partner:

 1. Day to day management of the firm
2. Right to be consulted and heard while taking any decision regarding the
business.
3. Right of access to books of accounts and call for the copy of the same.
4. Right to share the profits equally or as agreed upon by the partners.
5. Right to get interest on capital contributed by the partners to the firm.
6. Right to avail interest on advances paid by the partners for business purpose.
7. Right to be indemnified in respect of payment made or liabilities incurred or for protecting the firm
from losses.
8. Right to the use of partnership property exclusively for partnership business only not himself.
9. Right as agent of the firm and implied authority to bind the firm for any act done in carrying the
business.

3. Does a partnership have to be in writing?

Agreements can be oral or in writing, however it is advised that the partnership

agreement should be in writing – since it helps in tax issues

4. Characteristics of partnership:

- Partnership

• How formed?

- Agreement to share the profits of a business carried on jointly by all of them.

- agreement to share profit is essential but not to share loss.

- mutual agency with each other and the firm, they are principals to each other also. Bound
by each other’s acts.

• firm is not a juristic person- it is an association of individuals. Suit can be filed against the
name of the firm but is actually suit against all the partners.
 • liabilities: personally liable, joint and severally liable.

• mutual rights and duties are given in the deed or are implied. If a partner acts in his one
name and there is nothing to show that her act expressed or implied an interest to bind the
firm. P is individually liable.

• 28: holding out: Anyone who knowingly (orally, by conduct or by writing) represents
himself as a partner shall be liable as such to anyone who on this basis has given credit to
the firm. Regardless of if the pretend P knows this or not. Also, continued use of name of a
dead partner does not make heirs liable.

• Even if partner’s interest is transferred, the transferee cannot interfere with business of the
firm.

• 32: retired partner

- consent, or express agreement or with written notice of intention (PaW).

- discharged from liability to 3rdP, once public notice of retirement is given.

• 30: minor: cannot be partner but can get benefit of partnership. share property and profits
and inspect accounts. Minor’s share is liable for losses but minor is not personally liable.

• praetorship at will- section 7: no provision in the deed for duration or determination of

partnership.
52. DIFFERENCE BETWEEN SALE & HIRE PURCHASE AGREEMENT?

S.No. Points of Difference Sale Hire Purchase Agreement

1. Governing Law Sale of Goods Act, 1930 Hire Purchase Act, 1972

2. Type of contract It is a contract of sale. It is an agreement to sell.

3. Possession of goods Possession of goods need not Possession of goods is

be transferred immediately. transferred immediately.
4. Status of ownership of Ownership of goods is Ownership of goods is
goods transferred immediately. transferred on the payment of
the last installment.

5. Right to end the The buyer has no right to end The hirer can end the
contract the contract of sale. agreement at any time before
the ownership is transferred.

6. Right to repossess the The seller has no right to The seller has a right to
goods repossess the goods. He can repossess the goods if the hire-
sue for the price. purchaser defaults.

7. Transfer of goods title The buyer can transfer the title The hirer purchaser cannot
to third party to goods to third party because transfer the title to goods to
ownership of goods has been third party because ownership
transferred. of goods has not been
transferred.

8. Written or otherwise A contract of sale need not The Hire Purchase Agreement
necessarily be in writing. should be in writing.

9. Benefits The benefits of implied The benefits of implied

conditions and warranties are conditions and warranties are
available. not available.

10. Levy of Sales tax In case of sale of taxable In case of hire of even taxable
goods, sales tax is levied. goods, sales tax is not levied.

11. Payment Vs Hire The payment made by the The payment made by the hire
Charges buyer is treated as payment purchases is treated as hire
toward the price of goods charges for the use of goods till
the option to purchase the
goods is exercised.
 II. COMPANIES ACT:
53. DIFFERENCE BETWEEN PUBLIC & PRIVATE COMPANY:

Criteria Public Private Advantages- Disadvantages Public

Company Company Public/ Private / Private

Legal Existence Separate legal Same For Public & For Public &
existence different Private– Private– No
from shareholders disadvantage
it gives the
perpetual
existence of
entity not linked
to shareholders

Liability of Limited liability of Same For both. The For both. No

shareholders shareholders personal assets disadvantage
of shareholders
are not to be
taken for
liabilities of the
company

Name during Should have name at Same For both- as it For both. Change of
incorporation the time of establishes an name is a legally
incorporation identity, cumbersome process
existence and the
 brand which help
in business

Registered office Should have a Same For both- as For both.

registered office within through this
Shifting of Registered
30 days of office
office is a legally
incorporation communication
cumbersome process
and jurisdictional
position are
established

MoA & AoA Memorandum of Same For both– the For both– These
Association as a legal parameters documents could
constitution of the for the existence become restrictive for
company and Articles of the company doing any new
of association for the and its day to business or for having
functioning of the working are any flexibility in
company are required clearly laid working.
for incorporation. down.

Number of Minimum Minimum For Public For both– restricting

shareholders seven shareholders, no two and company, it the numbers can
maximum maximum of helps in raising affect the flexibility
200 funds from the of starting & doing
shareholders public at large business

For Private
Company,
limiting the
number helps in
keeping the close
 & private
character of the
entity

Number of Minimum three Minimum is For both. Helps For Both. Restricts
directors directors who should two the Board of the doing of business
be individuals and at directors and Directors to be of by limiting the Board
least should stay in rest are same the standard size size.
India for not less than within the
182 days in a financial specified
year. The maximum is numbers
15 directors

Annual General Annual General AGM has to For both. The For both. Taking
Meeting meeting {AGM} has be held shareholders’ shareholders’
to be held each year similarly but approval is approval, annually,
and quorum of the quorum is obtained with the minimum
shareholders to be two members annually on number of members
present – 5 to be present matters like present {quorum}
(members>1000),15 personally approval of final may be problematic
(1000<members<5000 audited accounts, for carrying out
) 30 (members>5000) the appointment business on many
of auditors and occasions.
appointment of
directors, etc.,
together with
other critical
matters like
 borrowings,
investments etc.,

Remuneration of Managerial No such For public For public

KMP remuneration of restriction company , helps company this
directors, Managing in keeping the restriction may
Director, {MD} Whole cost of hamper attracting
Time Director {WTD} remuneration good talent. Does not
etc., is restricted for within limits. apply to private
public companies company.
For private
linked to the
company they
percentage of profits.
are free to pay as
the financials
will permit.

Transferability Shares can be listed There is the For Public For public
of shares and publicly traded. restriction in company, listing company there can be
transferability or free a dilution of control
Liquidity of shares &
of shares. transferability and change of
easily transferable
helps in raising majority ownership.
funds from
For private
public . For
company fundraising
Private
could be a problem.
company, the
private or closely
held nature is
kept.

Compliances Under rigorous There are For Public For Public

compliance regime. many company, this company, cost of
 Reporting exemptions gives confidence compliance goes up.
requirements are to the authorities
For Private
elaborate. and public which
company, fundraising
in turn helps in
from outside can be
fundraising and
problematic.
getting other
permissions for
doing business.

For private
company, the
close working of
the company
with minimum
outside
interference is
possible.

Disclosures of Financial affairs are Financial For public For public company,
financial affairs public affairs are not company it there is more scrutiny
generally gives confidence and accountability.
needed to be to the authorities
For private
made public and the public
company , it
for funding &
generally doesn’t
carrying out
support in raising
business.
funds
For private
company, the
 close nature of
the business is
maintained.

Management and Management Control Control may For both: Helps For public company,
control of the rests with Board of rest with in maintaining control may be
company directors and majority Board and continuity of changed due to public
shareholders who may shareholders management transactions of
be outsiders who may be a shares. For Private
close group company , undesirabl
or e groups may be
individual/s harmful to the
business.

Winding up of Can be wound up by Same For both: Helps For both: Time
company due process of law in bringing an consuming and
end to the legal cumbersome. New
entity with Insolvency and
equitable Bankruptcy Code
meeting of 2016 can bring out a
liabilities and quick end to the
distribution of insolvent company.
assets
 54. DIFFERENCE BETWEEN MEMBERS AND SHAREHOLDERS.

BASIS FOR
MEMBER SHAREHOLDER
COMPARISON

Meaning A person whose name is The person who owns the

entered in the register of shares of a company is known
members of a company, is as shareholder.
the registered member of
the company.

Defined in Section 2 (55) Not defined

Share Warrant The holder of a share The holder of a share warrant

warrant is not a member. is a shareholder.

Company Every company must have The company limited by

a minimum number of shares can have shareholders.
members.

Memorandum The person who signs the After signing the

memorandum of memorandum, a person can be
association with the a shareholder only when the
company becomes a shares are allotted to him.
member.

Minimum and Members: Public

maximum number in
 BASIS FOR
MEMBER SHAREHOLDER
COMPARISON

a company

The liabilities of members are limited to the amount of shares held by them in the case of
a company having share capital while in the case of a company limited by guarantee the
liability of members is limited to the amount of guarantee given by them. But, in the case
of an unlimited company the members have to contribute from his personal assets to pay
the debts.

An individual who owns the share of a public or a private company is known as a

‘Shareholder.’ A subscriber of shares is not regarded as the shareholder until the shares
are actually allotted to him.

55. DIFFERENCE BETWEEN COMPANY & A PARTNERSHIP:

BASIS FOR COMPARISON PARTNERSHIP FIRM COMPANY

Meaning When two or more A company is an

persons agree to carry on association of persons
a business and share the who invests money
profits & losses mutually, towards a common
it is known as a stock, for carrying on a
Partnership firm. business and shares the
profits & losses of the
business.

Governing Act Indian Partnership Act, Indian Companies Act,

1932 2013
BASIS FOR COMPARISON PARTNERSHIP FIRM COMPANY

How it is created? Partnership firm is created The company is created

by mutual agreement by incorporation under
between the partners. the Companies Act.

Registration Voluntary Obligatory

Minimum number of persons Two Two in case of private

company and Seven in
case of public company.

Maximum number of persons 100 partners 200 in case of a private

company and a public
company can have
unlimited number of
members.

Audit Not Mandatory Mandatory

Management of the concern Partners itself. Directors

Liability Unlimited Limited

Contractual capacity A partnership firm cannot A company can sue and

enter into contracts in its be sued in its own name.
own name

Minimum capital No such requirement 1 lakh in case of private

BASIS FOR COMPARISON PARTNERSHIP FIRM COMPANY

company and 5 lakhs in

case of public company.
(CHECK)

Separate legal entity No Yes

Mutual agency Yes No

Mutual agency is the legal relationship between

partners in a partnership where each partner has
authorization powers and the ability to enter the
partnership into business contracts. In other
words, each partner in the partnership is an agent
in the business and the authority to make
business decisions that commit or bind the
partnership, as a whole, to a business agreement
with a third party or entity

56. WHAT IS A LLP?

LLP:

• LLP is an alternative corporate business form that gives the benefits of limited liability of a
company and the flexibility of a partnership.

• The LLP can continue its existence irrespective of changes in partners. It is capable of
entering into contracts and holding property in its own name.

• The LLP is a separate legal entity, is liable to the full extent of its assets but liability of the
partners is limited to their agreed contribution in the LLP.
• Further, no partner is liable on account of the independent or un-authorized actions of other
partners, thus individual partners are shielded from joint liability created by another partner’s
wrongful business decisions or misconduct.

• Mutual rights and duties of the partners within a LLP are governed by an agreement
between the partners or between the partners and the LLP as the case may be. The LLP,
however, is not relieved of the liability for its other obligations as a separate entity.

Since LLP contains elements of both ‘a corporate structure’ as well as ‘a partnership firm
structure’ LLP is called a hybrid between a company and a partnership.

LLP shall be a body corporate and a legal entity separate from its partners. It will have
perpetual succession.

57. DIFFERENCE BETWEEN PARTNERSHIP & LLP:

Under “traditional partnership firm”, every partner is liable, jointly with all the other partners
and also severally for all acts of the firm done while he is a partner.
• Under LLP structure, liability of the partner is limited to his agreed contribution. Further,
no partner is liable on account of the independent or un-authorized acts of other partners, thus
allowing individual partners to be shielded from joint liability created by another partner’s
wrongful acts or misconduct.

58. DIFFERENCE BETWEEN LLP & COMPANY

A basic difference between an LLP and a joint stock company lies in that the internal
governance structure of a company is regulated by statute (i.e. Companies Act, 1956)
whereas for an LLP it would be by a contractual agreement between partners.

• The management-ownership divide inherent in a company is not there in a limited liability

partnership.

• LLP will have more flexibility as compared to a company.

 • LLP will have lesser compliance requirements as compared to a company.

59. WHAT ARE PREFERENCE AND EQUITY SHARES:

Preference Shares:

As the name suggests, this type of share gives certain preferential rights as compared to other
types of share. The main benefits that preference shareholders have are:

They get first preference when it comes to the payout of dividend, i. e. a share of the profit
earned by the company With preference shares, a company promises its shareholders a fixed
amount as dividend. And the preference shares take precedence over ordinary shares or equity
shares.

 When the company winds up, preference shareholders have the first right in terms of
getting repaid

Convertible preference shares:

As the name suggests, these shares are convertible. Convertible shareholders can convert
their preference shares into equity shares at a specific period of time. However, the
conversion of shares will need to be authorized by the Articles of Association (AoA) of
the company.

Equity Shares:

Equity shares are also known as ordinary shares. The majority of shares issued by the company
are equity shares. This type of share is traded actively in the secondary or stock market. These
shareholders have voting rights in the company meetings. They are also entitled to get dividends
declared by the board of directors. However, the dividend on these shares is not fixed and it may
vary year to year depending on the company’s profit. Equity shareholders receive dividends after
preference shareholders. Come with voting rights. equity shareholders receive dividends when
all other entitlements a company is bound to pay out of its profits are met. Therefore, such
stakeholders do not receive any fixed amount of dividend or even a guarantee of dividend
receipt.
 1. DIFFERENCE BETWEEN EQUITY & PREFERENCE SHARES?

Preference shares have specific rights over ordinary shares or equity shares of a company.

- Preference shareholders do not have any rights when it comes to voting, whereas equity
shareholders do. However, under a few circumstances, preference shareholders can gain the right
to vote. For instance, if there hasn’t been dividend payment in over two years.

- Preference shareholders do not reserve any claims to bonus shares, while one of the biggest
merits of equity shares includes them having access to bonuses.

- Preference shareholders have the right to receive dividends, but equity shareholders do not have
any such rights. A dividend is paid out only if the company makes a profit to distribute.

- Also, in a given year, if a dividend is not paid out to preference shareholders, the same would
be accumulated and needs to be paid out later. However, the same is not true for equity
shareholders. If a dividend is not declared for equity shareholders, the same does not accrue.

- One of the limitations of preference shares is that shareholders do not have any claims in the
management of the company, whereas equity shareholders do.

- Preference shareholders can convert their shares to equity shares, but the reverse is not
possible.
60. DIFFERENCE BETWEEN BOND AND DEBENTURES
 61. DIFFERENCE BETWEEN DEBENTURES AND SHARES

BASIS FOR
SHARES DEBENTURES
COMPARISON

Meaning The shares are the owned funds The debentures are the borrowed
of the company. funds of the company.

What is it? Shares represent the capital of Debentures represent the debt of
the company. the company.

Holder The holder of shares is known as The holder of debentures is known

shareholder. as debenture holder.

Status of Holders Owners Creditors

Form of Return Shareholders get the dividend. Debenture holders get the interest.

Payment of return Dividend can be paid to Interest can be paid to debenture

shareholders only out of profits. holders even if there is no profit.

Allowable deduction Dividend is an appropriation of Interest is a business expense and

profit and so it is not allowed as so it is allowed as deduction from
deduction. profit.

Security for payment No Yes

Voting Rights The holders of shares have The holders of debentures do not
BASIS FOR
SHARES DEBENTURES
COMPARISON

voting rights. have any voting rights.

Conversion Shares can never be converted Debentures can be converted into

into debentures. shares.

Repayment in the event Shares are repaid after the Debentures get priority over
of winding up payment of all the liabilities. shares, and so they are repaid
before shares.

Quantum Dividend on shares is an Interest on debentures is a charge

appropriation of profit. against profit.

Trust Deed No trust deed is executed in case When the debentures are issued to
of shares. the public, trust deed must be
executed.
62. DIFFERENCE BETWEEN FIXED AND VARIABLE FLOATING RATES
 63. WHAT IS PRIVATE PLACEMENT AND WHAT ARE THE CONDITIONS FOR PRIVATE

PLACEMENT?

- Private placement means offering yiyr securities to a select group of people rather than
offering it to the public in general through a private placement letter.
- Can only be made to a select group of people – identified by the board generally
- Cannot advertise it in television or any other public platform
- Alternative to IPO
- Conditions:

- Maximum Number of Persons: An offer for private placement can be made to not more
than 200 people in a financial year.
- Minimum amount of offer for an individual: The value of the Offer per person shall
not be less than INR 20,000 of ‘face value’ of securities.
- Persons to whom an offer can be made: All offers shall be made only to those persons
whose names are recorded by the company prior to the invitation to subscribe and allotments can
be made only to such persons who have been addressed and the offer is made along with the
Offer letter.
- No advertisement of offer: No company offering securities under private placement
shall release any public advertisements or utilize any media, marketing or distribution channels
or agents to inform the public at large about such an offer.
- Minimum gap between two offers: A company can come with a new offer after
completion of the earlier offer. However, no fresh offer or invitation shall be made unless the
allotments with respect to any previous offer or invitation have been completed or been
withdrawn or abandoned by the company.

64. WHAT IS RIGHTS ISSUE OF SHARES?

Company makes an offer to the existing shareholders to buy additional shares at a discounted
price. Unlike IPO, a rights issue is not offered to the general public, but only to the existing
shareholders in proportion of their existing holdings. The eligible shareholders can either
subscribe to the rights issue partly or fully; or can let the offer lapse by not opting to exercise
their rights to purchase the additional shares; or can transfer their rights entitlements to other
persons

Why does the company do it?

The company does it to raise capital without taking loans from the bank. Solves the issue of
additional capital and shareholders can retain their voting rights.

65. WHAT IS BUYBACK OF SHARES?

A buyback, also known as a share repurchase, is when a company buys its own outstanding
shares to reduce the number of shares available on the open market.

Companies buy back shares for a number of reasons, such as to increase the value of
remaining shares available by reducing the supply or to prevent other shareholders from taking
a controlling stake.

 A buyback is when a corporation purchases its own shares in the stock market.
 A repurchase reduces the number of shares outstanding, thereby inflating (positive)
earnings per share and, often, the value of the stock.
 A share repurchase can demonstrate to investors that the business has sufficient cash set
aside for emergencies and a low probability of economic troubles.
A buyback allows companies to invest in themselves. Reducing the number of shares outstanding
on the market increases the proportion of shares owned by investors. A company may feel its
shares are undervalued and do a buyback to provide investors with a return.

Another reason for a buyback is for compensation purposes. Companies often award their
employees and management with stock rewards and stock options. To offer rewards and options,
companies buy back shares and issue them to employees and management. This helps avoid
the dilution of existing shareholders.

66. WHAT ARE RELATED PARTY TRANSACTIONS:

Every company in its day-to-day business enters into various transactions with parties with
whom they are related or have common interests. Although such transactions are themselves
legal, they may create conflicts of interest or impel other illegal situations and can impact the
financial position of the company. Therefore in order to protect the interest of stakeholders and
maintain transparency in business such kind of transactions with Related Parties are being
regulated.

Section 188 states that Whenever a Company enters into any Related Party Transaction u/s 188
up to limits mentioned above, prior approval by way of resolution from the Board of Directors of
the Company will be required. Provided that, If a director is interested in any contract or
arrangement with a related party, such director shall not be present at the meeting during
discussions on such resolution.

67. WHAT ARE INTERESTED DIRECTORS?

A Director can be considered as interested if, his personal interest conflict with the interest of the
company. A director can also be considered as interested even he himself is not interested, but
his relatives are interested. Moreover, the interest need not to be pecuniary interest always.

68. SECTION 184(1) GENERAL DISCLOSURE OF INTEREST BY DIRECTOR

As per section 184(1) of the Companies Act 2013 read with Rule 9 of Companies (Meetings
of Board and its Powers) Rules, 2014 Every director shall at the first meeting of the Board
in which he participates as a director and thereafter at the first meeting of the Board in
every financial year or whenever there is any change in the disclosures already made, then
at the first Board meeting held after such change, disclose his concern or interest in any
company or companies or bodies corporate , firms, or other association of individuals
which shall include the shareholding, by giving a notice in writing in Form MBP-1 to the
company.
 69. WHAT IS THE DIFFERENCE BETWEEN MOA AND AOA?

BASIS FOR MEMORANDUM OF ARTICLES OF

COMPARISON ASSOCIATION ASSOCIATION

Meaning Memorandum of Association is a Articles of Association is a

document that contains all the document containing all the
fundamental information which are rules and regulations that
required for the incorporation of the governs the company.
company.

Type of Information Powers and objects of the company. Rules of the company.
contained

Status It is subordinate to the Companies It is subordinate to the

Act. memorandum.

Retrospective The memorandum of association of The articles of association can

Effect the company cannot be amended be amended retrospectively.
retrospectively.

Major contents A memorandum must contain six The articles can be drafted as
clauses. per the choice of the
company.

Obligatory Yes, for all companies. Only a private company is

required to frame its articles
while a public company
limited by shares can adopt
BASIS FOR MEMORANDUM OF ARTICLES OF
COMPARISON ASSOCIATION ASSOCIATION

Table F in place of articles.

Compulsory filing Required Not required at all.

at the time of
Registration

Alteration Alteration can be done, after passing Alteration can be done in the
Special Resolution (SR) in Annual Articles by passing Special
General Meeting (AGM) and previous Resolution (SR) at Annual
approval of Central Government (CG) General Meeting (AGM)
or Company Law Board (CLB) is
required.

Relation Defines the relation between company Regulates the relationship

and outsider. between company and its
members and also between
the members inter se.

Acts done beyond Absolutely void Can be ratified by

the scope shareholders.

70. WHAT ARE THE TYPE OF CLAUSES TO BE INCLUDED IN MOA?

Name Clause – Any company cannot register with a name that CG may think unfit and also
with a name that too nearly resembles the name of any other company.

Situation Clause – Every company must specify the name of the state in which the
registered office of the company is located.
 Object Clause – Main objects and auxiliary objects of the company.

Liability Clause – Details regarding the liabilities of the members of the company.

Capital Clause – The total capital of the company.

Subscription Clause – Details of subscribers, shares taken by them, witnesses, etc.

71. DIFFERENCE BETWEEN LIMITED AND UNLIMITED COMPANY

In case of an unlimited company, the liability of the members is unlimited whereas in case of
a company limited by shares, the liability of the members is restricted by the amount unpaid
on their share. For a company limited by guarantee, the liability of the members is restricted
by the amount each member has agreed to contribute.

72. DIFFERENCE BETWEEN COMPANY LIMITED BY SHARES & LIMITED BY GUARANTEE

Sl. no Basis of Distinction Limited by Guarantee Limited by Shares

“Company Limited by
Guarantee” means a company“Company Limited by
having the liability of itsShares” means a company
members limited by thehaving the liability of its
Definition as per thememorandum to the amount asmembers limited by the
1
Companies Act, 2013 the members may agree bymemorandum to the amount,
contract to bestow the assets ofif any, unpaid on the shares
the company in the event of itsrespectively held by them. [As
being wound up. [As per Sectionper Section 2(22)].
2(21)]

Memorandum states thatMemorandum states that

Meaning- Required as
2 members shall have limitedmembers shall have limited
to Memorandum
liability to the extent of the liability to the extent of the
amount that they have guaranteedamount unpaid, if any, on the
 to pay to the company at the time
shares held by them.
of its winding up.

They are formed to provide

They are formed for profit-
specific services to the public and
making business and have
are non-profit making business.
very general objectives and
3 Object Therefore, it has specific objects
the clauses which allow them
& detailed rules pertaining to
to pursue any legal activity or
which areas they want to work
trade.
upon.

May or may not have share

4 Share Capital Must have share capital
capital

There are no shares – hence there

Owners of shares are called
5 Shareholders are no shareholders. Instead, the
shareholders of the company.
company will have members.

Companies limited by guarantee

are non-profitable organization.Companies limited by shares
6 Company
They are specially designed forare profit making organization
charitable purposes.

73. WHAT IS A PROSPECTUS? WHAT ARE THE TYPES OF PROSPECTUS?

A prospectus is defined as a legal document describing a company’s securities that have been put
on sale. The prospectus generally discloses the company’s operations along with the purpose of
the securities being offered.
 1. *Deemed Prospectus *- As per Section 25(1) of the Companies Act, 2013, a document
will be deemed to be a prospectus if the company agrees to allot or offer securities to the
public.

2. Abridged Prospectus - It is defined as the brief summary of the prospectus, which

includes all useful and materialistic information filed before the registrar. As per Section
33(1) of the Companies Act, 2013, an abridged prospectus must be included with the
documents for the purchase of securities issued by a company.

3. Red Herring Prospectus - It is the prospectus that is required to be filed before the
registrar prior to the offer. The prospectus generally lacks information such as the
particular price or quantum of securities being offered.

4. Shelf Prospectus - It is defined as the prospectus issued by a company, bank or financial

institution for more than one class of securities.

74. WHAT ARE THE BENEFITS IF THE COMPANY OVER OTHER FORMS OF ENTITIES?

- Helps to generate capital

- Separate entity

- Limited Liability

- Transferability of shares

75. WHEN IS COMPANY FORM OF ORGANISATION ADVISABLE?

A Company form of organisation is preferred wherein the business has grown big in size
and the no. of members who have contributed capital in the business is also large.
Moreover, in case the company intends to raise capital through an IPO or through any
other means from the public, it will have to convert itself into a Company as Partnerships
cannot raise money from the public.
However, it should be noted that the compliance requirements and cost of running a
company are fairly high as compared to a Partnership Firm.

76. WHEN IS PARTNERSHIP FORM OF ORGANISATION ADVISABLE?

It is quite evident from the above mentioned points that setting up a partnership is an easy
process and there are not many compliance requirements as well. Thus, for small business
it is also advisable to opt for Partnership form of business structure as not only the cost of
setting up is less but also because of the fact that there are statutory regulations to be
complied with.

77. WHAT ARE THE DUTIES OF THE DIRECTOR?

 Duty to act in the best interests of the Company. ...

 Duty NOT to misapply company assets. ...
 Duty NOT to make secret profits. ...
 Duty of confidentiality. ...
 Duty to NOT permit conflict of interest. ...
 Duty to attend meetings. ...
 Duty NOT to exceed powers

78. WHAT IS CAPITAL? WHAT ARE THE CLASSIFICATIONS OF CAPITAL?

- Capital is the sum of financial assets that are required to produce goods or services.

- Nominal, Authorised or Registered Capital: As per Section 2(8), “authorised capital” or

“nominal capital” means such capital as is authorised by the Memorandum of a company to be
the maximum amount of share capital of the company.
- (b) Issued Capital: As per Section 2(50), “issued capital” means such capital as the
company issues from time to time for subscription. It is that part of the authorised or nominal
capital which the company issues for the time being for public subscription and allotment. This is
computed at the face or nominal value.
- (c) Subscribed Capital: According to Section 2(86), “subscribed capital” means such
part of the capital which is for the time being subscribed by the members of a company. It is that
portion of the issued capital at face value which has been subscribed for or taken up by the
subscribers of shares in the company. It is clear that the entire issued capital may or may not be
subscribed.
- (d) Called up Capital: As per Section 2(15), “called-up capital” means such part of the
capital, which has been called for payment. It is that portion of the subscribed capital which has
been called up or demanded on the shares by the company
- (e) Paid-up Share Capital: As per Section 2(64), “paid-up share capital” or “share
capital paid-up” means such aggregate amount of money credited as paid-up as is equivalent to
the amount received as paid-up in respect of shares issued and also includes any amount credited
as paid-up in respect of shares of the company, but does not include any other amount received
in respect of such shares, by whatever name called.

79. WHAT ARE SWEAT EQUITY SHARES?

Issue of Sweat Equity Shares

· According to Section 2(88), sweat equity shares mean equity shares issued by a
company to its directors or employees at a discount or for consideration, other than cash for
providing know-how or making available rights in the nature of intellectual property rights or
value additions, by whatever name called.

· The issue needs to be authorised by a special resolution.

2. What IS REDEMPTION OF SHARES? HOW IS IT DIFFERENT FROM REPURCHASE OF SHARES?

Redemptions are when a company requires shareholders to sell a portion of their

shares back to the company. For a company to redeem shares, it must have
stipulated upfront that those shares are redeemable, or callable. Redeemable
shares have a set call price, which is the price per share that the company agrees to
pay the shareholder upon redemption. The call price is set at the onset of the share
issuance. Shareholders are obligated to sell the stock in a redemption.
Repurchases are when a company that issued the shares repurchases the shares back
from its shareholders. During a repurchase or buyback, the company pays
shareholders the market value per share. With a repurchase, the company can
purchase the stock on the open market or from its shareholders directly. Share
repurchases are a popular method for returning cash to shareholders and are strictly
voluntary on the part of the shareholder.

A company may choose a repurchase over a redemption for several reasons. When
the stock is trading below the call price of redeemable shares, the company can
obtain the shares for a lower cost per share by buying them from shareholders
through a stock repurchase. The company might offer, as an incentive, to repurchase
the shares at a higher price than the current market, but below the call price of the
redeemable shares. When a company enacts a redemption, the call price will typically
be at or above the current market price, otherwise shareholders could incur a loss.

80. WHAT ARE BONUS SHARES?

Bonus shares:

A company may, if its Articles provide, capitalize its profits by issuing fully-paid bonus
shares. The issue of bonus shares by a company is a common feature. When a company is
prosperous and accumulates large distributable profits, it converts these accumulated profits
into capital and divides the capital among the existing members in proportion to their
entitlements. Members do not have to pay any amount for such shares. They are given free.

81. WHAT IS ESOP SCHEME?

ESOP Scheme:

The term ‘Employee Stock Option’ (ESOP) has been defined under Sub-Section (37) of
Section 2 of the Companies Act, 2013, according to which “employees’ stock option” means
the option given to the directors, officers or employees of a company or of its holding
company or subsidiary company or companies, if any, which gives such directors, officers or
employees, the benefit or right to purchase, or to subscribe for, the shares of the company at a
future date at a pre-determined price.

82. WHAT IS PREFERENTIAL OFFER?

The expression ‘Preferential Offer’ means an issue of shares or other securities, by a

company to any select person or group of persons on a preferential basis and does not include
shares or other securities offered through a public issue, rights issue, employee stock option
scheme, employee stock purchase scheme or an issue of sweat equity shares or bonus shares
or depository receipts issued in a country outside India or foreign securities;

Difference between alteration of share capital and reduction of share capital

 83. DIFFERENCE BETWEEN ALTERATION OF SHARE CAPITAL AND REDUCTION OF SHARE

CAPITAL

3. What is diminution of Capital?

84. WHAT IS THE DIFFERENCE BETWEEN SHARE AND STOCK

Share Stock

1. A share has a nominal value 1. A stock has no nominal value.

2. A share has a distinctive number 2. A stock bears no such number.
which distinguishes it from other 3. A company cannot make an original issue of
shares. stock. Stock can be issued by an existing
 3. Originally Shares can only be
issued.
4. A share may either be fully paid- company by converting its fully paid-up shares.
up or partly paid up. 4. A stock can never be partly paid-up, it is always
5. A share cannot be transferred in fully paid-up.
fractions. It is transferred as a 5. A stock may be transferred in any fractions.
whole. 6. Stock may be of different denomina- tions.
6. All the shares of a class are of
equal denomination.

85. MERGERS, ACQUISITIONS & AMALGAMATION:

Basis of Differences Merger Acquisition Amalgamation

Definition a merger requires An acquisition refers An amalgamation is a

the consolidation of to a corporate type of merger in which
two companies into transaction wherein two or more companies
a single entity with a a company join their businesses to
new ownership and purchases a portion create an entirely new
management or entire company/entity. It is an
structure. shares/assets of adequate arrangement of
another company. two or more companies
The acquisition is that operates the same
ideally processed to industry;
take charge of the thus; amalgamation plays
target company’s a vital role in reducing
strengths and seize the operational cost.
synergies.

Required Number of Minimum 2 Minimum 2 Minimum 3 companies

Entities companies are companies are are required since
required as only one required wherein one amalgamation of 2 results
company will remain company takes over in a new entity.
after absorbing the the shares and assets
 target company. of another company.

Size of the Both the companies Small to medium The sizes of the target
Companies involved are equal in size firms are companies are
terms of size. acquired by the comparable.
larger companies.

Impact on Shares Shares of the The buyer company Shares of the new entity
absorbing company purchases more than are given to the
are given to the 50% shares of the shareholders of existing
shareholder of target company. firms.
absorbed company.

Resultant Entity One of the existing The acquired Existing companies lose
companies absorbs company ceases to their identity to form an
the target company exist and becomes entirely new company.
for to retain its the part of acquiring
identity. company.

Driver for Mergers are usually Acquisition is driven Amalgamation is initiated

Consolidation driven by the by the buyer by both the companies
absorbing company. company with or with equal interest.
without consent of
the acquired
company.

Accounting Assets and liabilities One firm acquires all Assets and liabilities of
Treatment of absorbed the assets and the existing firms are
company are liabilities of the transferred into the
consolidated. target firm. balance sheet of the
newly form company.

86. WHAT IS A DEMERGER?

A de-merger is a corporate restructuring in which a business is broken into components,

either to operate on their own, to be sold or liquidated.
87. WHAT IS INSIDER TRADING?

the illegal practice of trading on the stock exchange to one's own advantage through having access to confidential
information.

88. PREVENTION OF OPPRESSION AND MISMANAGEMENT:

Section 397(1) of the Companies Act provides that any member of a company who
complains that the affair of the company are being conducted in a manner prejudicial to
public interest or in a manner oppressive to any member or members may apply to the
Tribunal for an order thus to protect his /her statutory rights.

Sub-section (2) of Section 397 lays down the circumstances under which the tribunal may
grant relief under Section 397, if it is of opinion that :-

(a)the company’s affairs are being conducted in a manner prejudicial to public interest or in a
manner oppressive to any member or members ; and

(b) to wind up the company would be unfairly and prejudicial to such member or members ,
but that otherwise the facts would justify the making of a winding up order on the ground
that it was just and equitable that the company should be wound.

Section 397 of the Companies Act states the members of a company shall have the right to
apply under Section 397 or 398 of the Companies Act. According to Section 399 where the
company is with the share capital, the application must be signed by at least 100 members of
the company or by one tenth of the total number of its members, whichever is less, or by any
member, or members holding one-tenth of the issued share capital of the company. Where
the company is without share capital, the application has to be signed by one-fifth of the total
number of its members. A single member cannot present a petition under section 397 of the
Companies Act
 89. WHAT ARE THE RIGHTS OF THE SHAREHOLDERS?

- Appointment of directors: An ordinary resolution is required to be passed by the

shareholders for the appointment.

- Legal actions against the director: If the director acts against the interests of the company,
commits fraud or acts against the constitution or beyond the law then the shareholder can bring
actions against the same

- Voting rights: Have the right to attend the Annual General meeting and vote

- Right to call for general meetings

- Right to get dividends.

90. WHAT ARE THE KINDS OF RESOLUTIONS THAT ARE PASSED BY THE COMPANY?

- Ordinary resolution: Votes cast for exceed the votes cast against – used during AGM to
run ordinary business.

- Special resolution: 75% vote required to pass the same. Used for altering MoA, AoA,
changing the registered office of the company.

91. WHAT IS A RIGHT TO FIRST OFFER AND RIGHTS TO FIRST REFUSAL.

A ROFR provides the non-selling shareholders with a right to either accept or refuse an offer from a selling
shareholder after the selling shareholder has received a third party offer for its shares.
A ROFO provides the non-selling shareholders with the right to make an offer for the selling shareholder's
shares before the selling shareholder can solicit for third party offers for its shares.

92. WHAT IS A SHAREHOLDERS’ AGREEMENT?

A shareholders’ agreement (SHA) is a contract between a company’s shareholders and often

the company itself. A SHA specifies shareholders’ rights and obligations, regulates the
management of the company, ownership of shares, privileges, voting and various protective
 provisions for shareholders. A SHA aims to bind shareholders to rules to preempt issues that
could become contentious in the future.

93. WHAT IS LIFTING OF CORPORATE VEIL?

- Normally the company has a separate distinct identity from its members – However, in
certain offences, the corporate veil is lifted to punish the individuals actually responsible for the
mishappenings

94. WHAT ARE THE STAGES OF MERGER

 Formulation of Strategy.
 Identification of Cost-Benefit Analysis.
 Due Diligence Process.
 Valuation Process.
 Post-Integration Issue.
 95. STAGES OF ACQUISITION

96. RECENT MNA DEALS IN INDIA

97. RECENT CHANGES IN LAWS PERTAINING TO MNA

III. IBC:
98. HOW DOES WINDING UP TAKE PLACE UNDER IBC

99. DIFFERENCE BETWEEN FINANCIAL CREDITORS AND OPERATIONAL CREDITORS

100. WHO CAN INITIATE CIRP AGAINST CD

101. WHAT IS COMMITTEE OF CREDITORS

102. WHY DOES COC ONLY COMPRISE OF FINANCIAL CREDITORS

103. WHAT IS MORATORIUM UNDER IBC?

104. WHAT IS WATERFALL MECHANISM?