BCOC 135 Solved Guess Paper 2026 for IGNOU Company Law (Bachelor of Commerce BCOMG)

Nature of a Company and Lifting of the Corporate Veil

Exam question: "A company is an artificial person created by law with a perpetual succession and is different from the members constituting it." Comment. Also explain when the corporate veil can be lifted.

Meaning of a company. A company is a person, artificial, invisible, intangible and existing only in the eyes of law. Lord Haney describes it as an incorporated association which is an artificial person created by law, having a separate entity, a perpetual succession and a common seal. Section 2(20) defines a company as one incorporated under the Act or under any previous company law.

Main features of a company.

1. Creation of law: it exists only on registration, with a minimum of two members for a private company and seven for a public company.
2. Artificial person: created by law rather than born, yet clothed with rights and obligations.
3. Separate legal entity: distinct from its members, settled in Salomon v. Salomon & Co. Ltd. (1895 to 1899).
4. Limited liability: a member is liable only for the unpaid value of shares or the amount guaranteed.
5. Separate property: a shareholder has no insurable interest in company property, held in Macaura v. Northern Assurance Co. (1925).
6. Perpetual succession: members may come and go, but the company continues uninterrupted.
7. Transferability of shares: shares of a public company are freely transferable under Section 58.
8. Common seal: the official signature of the company, made optional by the Amendment Act, 2015.
9. May sue and be sued: as a juristic person it litigates in its own name.

Lifting the corporate veil. Prof. Gower observes that when the law disregards the corporate entity and looks at the individual members behind the legal façade, the veil is said to be lifted. Courts do this where incorporation has been used for fraud or dishonesty.

The grounds fall under two heads. The first is express statutory provisions, such as misstatement in a prospectus, failure to return application money and misdescription of the company name. The second is judicial interpretation, covering fraud, enemy character, and evasion of tax or of existing obligations.

Conclusion. A company is therefore an artificial legal person with a distinct identity, limited liability and perpetual succession. Only where incorporation is turned to fraud or dishonesty does the law pierce the veil to reach the persons standing behind it.

Memorandum of Association, Meaning and Clauses

Exam question: What is the meaning and purpose of Memorandum of Association? Explain the various clauses which are included in the Memorandum of Association. (5 + 15)

Meaning and purpose. Palmer describes the memorandum of association as a document of great importance in relation to the proposed company, one that defines as well as confines the powers of the company. Defined in Section 2(56), it is the charter and constitution of the company.

In Ashbury Railway Carriage & Iron Co. v. Riche (1875), Lord Cairns held that the memorandum states affirmatively what the company may do and negatively that nothing beyond shall be done. Anything ultra vires the memorandum is void. It lets shareholders, creditors and outsiders know the permitted range of activity before they commit money.

Clauses of the memorandum.

1. Name clause: states the name ending with Limited or Private Limited, and the name must not be undesirable or identical to an existing one.
2. Registered office clause: states the State in which the registered office sits, which fixes the company's domicile.
3. Objects clause: states the objects for which the company is incorporated, and any act beyond these is ultra vires and void.
4. Liability clause: states whether liability is limited by shares, meaning the unpaid amount, or by guarantee, meaning the amount guaranteed.
5. Capital clause: states the authorised share capital and its division into shares of a fixed amount.
6. Association or subscription clause: subscribers declare their desire to be formed into a company, each writing the number of shares taken against his name, with seven signatories for a public company, two for a private company and one for an OPC.

Conclusion. The memorandum is the foundation document that defines a company's identity and powers through these six clauses. It can be altered by special resolution under the Act, yet it remains the charter that confines the company's scope of activity.

Kinds of Shares and Types of Preference Shares

Exam question: What are the different kinds of shares that a company can issue? Explain equity shares and the various types of preference shares. (8 + 12)

Meaning of a share. A share is a share in the share capital of a company and includes stock. It represents a bundle of rights and obligations, an interest measured by money. Under Section 43, a company limited by shares may issue only two kinds of shares, equity shares and preference shares.

Equity shares. Equity shares are those which are not preference shares. They carry no fixed dividend, and once preference shareholders are satisfied the equity holders share the remaining distributable profits. Every equity shareholder may vote on every resolution, the voting right being proportionate to paid up equity capital. Equity shares may carry ordinary voting rights or differential rights as to dividend or voting.

Preference shares. Preference shares carry two preferential rights: a preferential dividend at a fixed amount or rate during the life of the company, and priority in repayment of capital on winding up.

Types of preference shares.

1. Participating and non participating: participating shares share surplus profits and assets with equity holders after a fixed dividend. Where the articles are silent, shares are non participating.
2. Cumulative and non cumulative: cumulative shares carry unpaid dividend forward to future years, non cumulative shares do not. Shares are treated as cumulative unless stated otherwise.
3. Redeemable and irredeemable: under Section 55 no irredeemable preference shares may be issued, and redeemable shares are redeemed within twenty years, extended to thirty years for infrastructure projects.

Conclusion. A company limited by shares issues only equity and preference shares. Equity carries a variable dividend with full voting rights, while preference shares enjoy priority in dividend and repayment and are classified as participating, cumulative or redeemable.

Company Meetings, Resolutions and Quorum

Exam question: Discuss the different kinds of company meetings. Explain the various types of resolutions and the rules regarding quorum.

Kinds of company meetings. Decisions of members at a general meeting are expressed by way of resolutions, a resolution being a definite proposal in the form of a motion, discussed and passed by the requisite majority.

1. Meetings of shareholders: the annual general meeting, the extraordinary general meeting, and the class meeting.
2. Meetings of directors: meetings of the Board and meetings of committees of directors.
3. Other meetings: meetings of debenture holders, of creditors, and of creditors and contributories on winding up.

Types of resolutions.

1. Ordinary resolution under Section 114(1): passed by simple majority where votes in favour exceed votes against, used to declare dividend, appoint auditors and elect directors.
2. Special resolution under Section 114(2): passed by a three fourths majority with the intention stated in the notice, required to change the name, alter the articles, reduce capital or buy back shares.
3. Resolution requiring special notice under Section 115: an ordinary resolution preceded by prior notice, for example to appoint an auditor other than the retiring one or to remove a director.

Quorum for meetings under Section 103. Quorum is the minimum number of members who must be present for a valid meeting. Unless the articles prescribe a larger number, a public company needs 5 members where membership is up to 1,000, 15 members where it is between 1,000 and 5,000, and 30 members where it exceeds 5,000. A private company needs two members personally present.

Conclusion. Company meetings are held by shareholders, directors and other stakeholders. Decisions are taken through ordinary, special or special notice resolutions, and every valid meeting must satisfy the quorum prescribed under Section 103.

Short Notes on Winding Up, Interim Dividend, Quorum and Auditor Rights

Exam question: Write short notes on any four of the following: (a) Winding up of a company (b) Interim dividend (c) Quorum (d) Rights of an auditor. (4 × 5)

(a) Winding up of a company. Gower describes winding up as the process whereby the life of a company is ended and its property administered for the benefit of creditors and members. A liquidator is appointed who collects assets, pays debts and distributes the surplus. Winding up is the prior stage and dissolution the final one. Under the 2013 Act a company is wound up by the Tribunal, while insolvency based liquidation falls under the Insolvency and Bankruptcy Code, 2016.

(b) Interim dividend. Interim dividend is a dividend distributed out of profits before the final accounts are passed and the final dividend is declared at the annual general meeting, as recognised in Section 123(3). It is declared by the Board out of the surplus in the profit and loss account or out of the profits of the year in which it is declared.

(c) Quorum. Quorum is the minimum number of members who must be present to constitute a valid meeting under Section 103. Unless the articles provide otherwise, a public company requires 5, 15 or 30 members personally present depending on whether membership is up to 1,000, between 1,000 and 5,000, or above 5,000. A private company requires two members.

(d) Rights of an auditor.

1. Right of access to the books and accounts of the company at all times.
2. Right to obtain explanations and information from officers of the company.
3. Right to sign the audit report and to receive notice of general meetings.
4. Right to visit branch offices and to claim remuneration.

Conclusion. Winding up ends a company's life through a liquidator, interim dividend is paid ahead of the final accounts, quorum keeps a meeting valid, and an auditor holds statutory rights of access, information, signature and remuneration.