Entrepreneurial Planning MCQ Quiz - Objective Question with Answer for Entrepreneurial Planning - Download Free PDF

The correct answer is - Minimum of 3 Directors are required to form a Public Limited Company

Key Points

• Minimum of 3 Directors are required to form a Public Limited Company
  • A Public Limited Company (PLC) is a type of company that offers its shares to the general public.
  • According to the Companies Act, 2013 in India, a minimum of 3 directors is required to establish a Public Limited Company.
  • This requirement ensures that there is sufficient governance and oversight in the company’s operations.
  • Having multiple directors helps in decision-making processes and ensures that the company adheres to legal and regulatory compliances.

Additional Information

• Minimum of 2 Directors are required to form a Private Limited Company
  • A Private Limited Company in India requires a minimum of 2 directors.
  • It restricts the right to transfer its shares and limits the number of its members to 200.
• Minimum of 4 Directors are required to form a One Person Company
  • A One Person Company (OPC) in India can be formed with just one director and one member.
  • This type of company provides a single entrepreneur with the benefits of a corporate framework.
• Minimum of 6 Directors are required to form a Large Scale Public Limited Company
  • There is no specific requirement for a minimum of 6 directors to form any type of company under Indian law.
• None of the above
  • This option is incorrect as the correct requirement is clearly specified as a minimum of 3 directors.

The correct answer is - Withdrawing his capital

Key Points

• Withdrawing his capital
  • A member can resign from a cooperative society by withdrawing his capital investment.
  • This process involves the member formally notifying the cooperative society of their intent to resign and requesting the return of their invested capital.
  • The cooperative society will then process the request according to its bylaws and return the member's capital after settling any outstanding dues or obligations.
  • Withdrawing capital signifies the member's exit from the society and relinquishment of any rights or responsibilities associated with membership.

Additional Information

• Transferring his share to another person
  • This option is generally not allowed as cooperative societies often have specific rules regarding membership and share transferability.
  • Transfer to an external person who is not a member of the cooperative society may not comply with the society's regulations.
• Transfer his shares to a fellow member
  • While this might be allowed in some societies, it usually requires approval from the society's board and adherence to specific procedures.
  • Not a straightforward method for resignation as it involves internal transactions and approvals.
• By transferring all his shares to his relatives
  • Similar to transferring to another person or fellow member, this method also requires compliance with the society's rules and may not be a direct method of resignation.
  • Relatives may not automatically qualify as members, making this option less viable.
• None of the above
  • This option is incorrect as there is a clear method for a member to resign from a cooperative society by withdrawing their capital.

The correct answer is - 2

Key Points

• Minimum Number of Members in a Private Company
  • According to the Companies Act, 2013, a private company must have at least 2 members.
  • This requirement distinguishes private companies from public companies, which need a minimum of 7 members.
  • Private companies enjoy certain exemptions and privileges under the Companies Act, including less stringent regulatory requirements compared to public companies.

Additional Information

• Other Options Explained
  • Option 1 (5 members): This number is incorrect for a private company but is closer to the minimum requirement for some other types of business structures.
  • Option 3 (6 members): This number does not correspond to any specific legal requirement for private companies under current Indian corporate law.
  • Option 4 (7 members): This is the minimum number required for a public company, not a private company.
  • Option 5 (8 members): This number exceeds the minimum required for both private and public companies, but it is not a legal requirement for either.

The correct answer is - Minimum 7 shareholders

Key Points

• Minimum 7 shareholders
  • A Public Limited Company requires a minimum of 7 shareholders to be registered.
  • This requirement ensures a broader base of ownership and greater public participation.
  • It facilitates the ability to raise capital from the public through the issuance of shares.
  • Having more shareholders helps in better decision-making and distribution of risk.

Additional Information

• Minimum 5 shareholders
  • This number is more commonly associated with Private Limited Companies, which require a minimum of 2 and a maximum of 200 shareholders.
• Minimum 10 shareholders
  • While more shareholders can be beneficial, requiring a minimum of 10 is not a standard criterion for Public Limited Companies.
• Minimum 6 shareholders
  • This number does not align with the legal requirements for a Public Limited Company, which specifically require 7 shareholders.
• Minimum 8 shareholders
  • Having 8 shareholders exceeds the minimum requirement and is not necessary according to the legal standards.

The correct answer is - Active partner

Key Points

• Active partner
  • An active partner is a person who is actively involved in the day-to-day operations and management of the partnership.
  • This partner contributes both capital and expertise to the business.
  • They are responsible for making business decisions and carrying out the policies of the partnership.
  • Active partners share in the profits and losses of the partnership and are usually listed as general partners.
  • They often have unlimited liability for the debts of the partnership, meaning their personal assets can be used to settle business debts.

Additional Information

• Inactive partner
  • An inactive partner, also known as a silent partner, does not participate in the daily operations of the business.
  • They invest capital into the business and share in its profits and losses, but they do not have a role in managing the business.
• Sleeping partner
  • A sleeping partner is similar to an inactive partner, in that they invest capital into the business but do not take part in its daily operations.
  • They are not known to the public as a partner of the business.
• Nominal partner
  • A nominal partner does not invest capital or participate in the operations of the business.
  • They lend their name and reputation to the partnership, often for a fee or a share in the profits.
  • They have no real authority or responsibility in the business.
• Secret partner
  • A secret partner is involved in the business and shares in its profits and losses, but their association with the business is not disclosed to the public.
  • They participate in management decisions but their identity as a partner is kept confidential.

The correct answer is - Minimum of 3 Directors are required to form a Public Limited Company

Key Points

• Minimum of 3 Directors are required to form a Public Limited Company
  • A Public Limited Company (PLC) is a type of company that offers its shares to the general public.
  • According to the Companies Act, 2013 in India, a minimum of 3 directors is required to establish a Public Limited Company.
  • This requirement ensures that there is sufficient governance and oversight in the company’s operations.
  • Having multiple directors helps in decision-making processes and ensures that the company adheres to legal and regulatory compliances.

Additional Information

• Minimum of 2 Directors are required to form a Private Limited Company
  • A Private Limited Company in India requires a minimum of 2 directors.
  • It restricts the right to transfer its shares and limits the number of its members to 200.
• Minimum of 4 Directors are required to form a One Person Company
  • A One Person Company (OPC) in India can be formed with just one director and one member.
  • This type of company provides a single entrepreneur with the benefits of a corporate framework.
• Minimum of 6 Directors are required to form a Large Scale Public Limited Company
  • There is no specific requirement for a minimum of 6 directors to form any type of company under Indian law.
• None of the above
  • This option is incorrect as the correct requirement is clearly specified as a minimum of 3 directors.

The correct answer is - Withdrawing his capital

Key Points

• Withdrawing his capital
  • A member can resign from a cooperative society by withdrawing his capital investment.
  • This process involves the member formally notifying the cooperative society of their intent to resign and requesting the return of their invested capital.
  • The cooperative society will then process the request according to its bylaws and return the member's capital after settling any outstanding dues or obligations.
  • Withdrawing capital signifies the member's exit from the society and relinquishment of any rights or responsibilities associated with membership.

Additional Information

• Transferring his share to another person
  • This option is generally not allowed as cooperative societies often have specific rules regarding membership and share transferability.
  • Transfer to an external person who is not a member of the cooperative society may not comply with the society's regulations.
• Transfer his shares to a fellow member
  • While this might be allowed in some societies, it usually requires approval from the society's board and adherence to specific procedures.
  • Not a straightforward method for resignation as it involves internal transactions and approvals.
• By transferring all his shares to his relatives
  • Similar to transferring to another person or fellow member, this method also requires compliance with the society's rules and may not be a direct method of resignation.
  • Relatives may not automatically qualify as members, making this option less viable.
• None of the above
  • This option is incorrect as there is a clear method for a member to resign from a cooperative society by withdrawing their capital.

The correct answer is - 2

Key Points

• Minimum Number of Members in a Private Company
  • According to the Companies Act, 2013, a private company must have at least 2 members.
  • This requirement distinguishes private companies from public companies, which need a minimum of 7 members.
  • Private companies enjoy certain exemptions and privileges under the Companies Act, including less stringent regulatory requirements compared to public companies.

Additional Information

• Other Options Explained
  • Option 1 (5 members): This number is incorrect for a private company but is closer to the minimum requirement for some other types of business structures.
  • Option 3 (6 members): This number does not correspond to any specific legal requirement for private companies under current Indian corporate law.
  • Option 4 (7 members): This is the minimum number required for a public company, not a private company.
  • Option 5 (8 members): This number exceeds the minimum required for both private and public companies, but it is not a legal requirement for either.

The correct answer is - Minimum 7 shareholders

Key Points

• Minimum 7 shareholders
  • A Public Limited Company requires a minimum of 7 shareholders to be registered.
  • This requirement ensures a broader base of ownership and greater public participation.
  • It facilitates the ability to raise capital from the public through the issuance of shares.
  • Having more shareholders helps in better decision-making and distribution of risk.

Additional Information

• Minimum 5 shareholders
  • This number is more commonly associated with Private Limited Companies, which require a minimum of 2 and a maximum of 200 shareholders.
• Minimum 10 shareholders
  • While more shareholders can be beneficial, requiring a minimum of 10 is not a standard criterion for Public Limited Companies.
• Minimum 6 shareholders
  • This number does not align with the legal requirements for a Public Limited Company, which specifically require 7 shareholders.
• Minimum 8 shareholders
  • Having 8 shareholders exceeds the minimum requirement and is not necessary according to the legal standards.

The correct answer is - Active partner

Key Points

• Active partner
  • An active partner is a person who is actively involved in the day-to-day operations and management of the partnership.
  • This partner contributes both capital and expertise to the business.
  • They are responsible for making business decisions and carrying out the policies of the partnership.
  • Active partners share in the profits and losses of the partnership and are usually listed as general partners.
  • They often have unlimited liability for the debts of the partnership, meaning their personal assets can be used to settle business debts.

Additional Information

• Inactive partner
  • An inactive partner, also known as a silent partner, does not participate in the daily operations of the business.
  • They invest capital into the business and share in its profits and losses, but they do not have a role in managing the business.
• Sleeping partner
  • A sleeping partner is similar to an inactive partner, in that they invest capital into the business but do not take part in its daily operations.
  • They are not known to the public as a partner of the business.
• Nominal partner
  • A nominal partner does not invest capital or participate in the operations of the business.
  • They lend their name and reputation to the partnership, often for a fee or a share in the profits.
  • They have no real authority or responsibility in the business.
• Secret partner
  • A secret partner is involved in the business and shares in its profits and losses, but their association with the business is not disclosed to the public.
  • They participate in management decisions but their identity as a partner is kept confidential.

The correct answer is - Nominal partner

Key Points

• Nominal Partner
  • A nominal partner allows their name to be used by the partnership firm but does not invest capital or participate in the management.
  • They lend their name and reputation to the business, potentially enhancing the firm's credibility.
  • Despite not being involved in day-to-day operations, a nominal partner can be held liable to third parties for the obligations of the firm.
  • This role is often taken by individuals who have a significant reputation but do not wish to engage actively in the business.

Additional Information

• In Active Partner
  • An inactive partner (more commonly known as a "sleeping partner") does not participate in the day-to-day operations but contributes capital and shares in the profits and losses.
• Sleeping Partner
  • A sleeping partner, also known as a silent partner, invests capital into the business but does not partake in the management or daily operations.
  • They have a share in the profits and losses but remain behind the scenes.
• Secret Partner
  • A secret partner is involved in the business but their association is not known to the public.
  • They can participate in management and share in the profits and losses without public awareness.
• Active Partner
  • An active partner (also known as a general partner) takes an active role in the management and day-to-day operations of the business.
  • They invest capital and share in the profits and losses, actively engaging in business decisions.

The correct answer is - Sleeping partner

Key Points

• Sleeping partner
  • A sleeping partner, also known as a silent partner, is an individual who invests capital in a business but does not participate in its day-to-day operations.
  • This type of partner typically earns a share of the profits without being involved in management decisions or the operational aspects of the business.
  • The primary role of a sleeping partner is to provide financial support, while leaving the management and running of the business to the active partners.

Additional Information

• Inactive partner
  • An inactive partner is a general term that can refer to any partner who is not involved in the daily operations of the business, including a sleeping partner.
  • However, the term is not as specific as "sleeping partner" and can include other types of partners who might not be active for various reasons.
• Nominal partner
  • A nominal partner is someone who allows their name to be used by the business for the benefit of its reputation, but does not invest capital or participate in management.
  • This type of partner does not share in the profits or losses of the business.
• Secret partner
  • A secret partner is an individual whose association with the business is not publicly known.
  • This partner invests capital and shares in the profits and losses, but their involvement is kept confidential to the public.
• Active partner
  • An active partner, also known as a managing partner, is involved in the daily operations and management of the business.
  • This type of partner takes an active role in making decisions, overseeing business activities, and handling the operational aspects of the business.

The correct answer is - Company

Key Points

• Company
  • A company is a legal entity formed by a group of individuals to engage in and operate a business enterprise.
  • Registration of a company is mandatory under the Companies Act, 2013 in India (or respective company law in other countries).
  • Registration provides the company with a separate legal identity, limited liability for its shareholders, and perpetual succession.
  • Through registration, the company can own assets, incur liabilities, sue, and be sued in its own name.
  • It also ensures compliance with statutory requirements and helps in gaining the trust of stakeholders, including investors, customers, and employees.

Additional Information

• Sole Proprietorship
  • A sole proprietorship is a type of business entity owned and run by one individual, where there is no distinction between the owner and the business.
  • Registration is not compulsory for sole proprietorships, but it may be beneficial for legal and tax purposes.
• Partnership
  • A partnership is a business organization where two or more individuals manage and operate a business in accordance with terms set out in a partnership agreement.
  • Registration of a partnership firm is optional but recommended for legal clarity and to facilitate dispute resolution among partners.
• Joint Hindu Family Business
  • A Joint Hindu Family Business is a unique form of business organization found only in India, governed by Hindu Law.
  • It is managed by the head of the family known as 'Karta' and includes all members of the Hindu Undivided Family (HUF).
  • Registration is not required for a Joint Hindu Family Business as it is formed by operation of law.

The correct answer is - Ease of Raising Capital

Key Points

• Ease of Raising Capital
  • This is actually an advantage of a Private Limited Company.
  • Private Limited Companies can raise capital more easily compared to sole proprietorships or partnerships.
  • They can issue shares to existing shareholders or new investors, making it easier to gather funds for expansion.
  • This ability to raise capital contributes to their growth and development, which is why it's not considered a disadvantage.

Additional Information

• Complex Accounts
  • Private Limited Companies are required to maintain detailed financial records and comply with various accounting standards.
  • This complexity can be a disadvantage due to the need for professional accounting services.
• Shared Ownership
  • Ownership in a Private Limited Company is divided among shareholders.
  • This shared ownership can lead to conflicts and disagreements among shareholders, particularly if their interests do not align.
• Lack of Flexibility
  • Private Limited Companies have to adhere to strict regulatory frameworks and corporate governance standards.
  • This can limit the flexibility in making quick decisions, as compared to sole proprietorships.
• Personal Financial Liability
  • Unlike sole proprietorships, the liability of the shareholders is limited to their investment in the company.
  • This means they are not personally liable for the company’s debts and liabilities, which is actually an advantage, not a disadvantage.

The correct answer is - One Man One Vote

Key Points

• One Man One Vote
  • In a cooperative society, the principle of "One Man One Vote" ensures that each member has equal voting power, regardless of the number of shares they hold.
  • This principle promotes democratic decision-making within the cooperative society, giving all members an equal voice in the governance and operation of the society.
  • The "One Man One Vote" principle is fundamental to the cooperative movement, ensuring fairness and equality among members.
  • This principle helps prevent domination by a few members and ensures that the interests of all members are considered in decision-making processes.

Additional Information

• One Man Multiple Votes
  • This option would allow individuals to have more than one vote, which contradicts the democratic principles of cooperatives.
  • Such a system could lead to unequal influence and control by a few members, undermining the cooperative's democratic nature.
• One Share, One Vote
  • This principle is typically followed in corporate or shareholder-based organizations where voting power is proportional to the number of shares held.
  • In a cooperative society, this would go against the principle of equality and fairness among members.
• No Vote
  • This option would imply that members have no voting rights, which is contrary to the cooperative model that emphasizes member participation and democratic control.
  • Without voting rights, members would have no say in the decision-making processes of the cooperative.
• None of the above
  • This option indicates that none of the provided answers are correct, which is not the case here as "One Man One Vote" is the correct answer.