Free Company Law Basics MCQs with Answers

• A. The shareholders own the company’s physical assets directly
• B. The directors become personally liable for all debts
• C. The company becomes legally distinct from its members
• D. The company is exempt from all government regulation

Explanation: Incorporation creates a legal person separate from its shareholders and directors.

• A. Articles of association
• B. Certificate of incorporation
• C. Annual return
• D. Memorandum of association

Explanation: The memorandum sets out fundamental matters such as the company’s name, registered office and objects.

• A. To record the company’s annual profit
• B. To replace the certificate of incorporation
• C. To provide evidence of every company debt
• D. To regulate the company’s internal management

Explanation: Articles of association contain internal rules concerning matters such as meetings, directors and share procedures.

• A. A private company has no legal personality
• B. A private company restricts the transfer of its shares
• C. A private company cannot own any property
• D. A private company is always owned by the government

Explanation: A private company generally restricts the transfer of its shares and does not invite the public to subscribe for its securities.

• A. A public company with one director
• B. A partnership with one registered partner
• C. A private company with a single member
• D. A company owned by one government department

Explanation: A one-person company is a form of private company formed with only one member.

• A. The shareholder is liable for every company debt
• B. The shareholder must personally manage company operations
• C. The shareholder can never lose the investment
• D. The shareholder’s loss is normally limited to the unpaid amount on shares

Explanation: In a company limited by shares, a shareholder’s liability is normally limited to any unpaid amount on the shares held.

• A. Debenture
• B. Preference share
• C. Ordinary share
• D. Bonus share

Explanation: A debenture generally evidences debt owed by the company to its holder.

• A. The transaction is automatically a criminal offence
• B. The transaction may be considered ultra vires the company
• C. The shareholders become ordinary employees
• D. The company immediately becomes a partnership

Explanation: An act beyond the company’s stated objects may be described as ultra vires the company.

• A. The registrar of companies
• B. The company’s external auditor
• C. The board of directors
• D. The company’s creditors

Explanation: The board of directors normally manages or supervises the company’s affairs within the authority given by law and the company’s…

• A. To invite the public to subscribe for securities
• B. To appoint the company’s internal auditor
• C. To transfer all company debts to directors
• D. To dissolve the company without court approval

Explanation: A prospectus provides information and invites the public to subscribe for securities such as shares or debentures.

• A. Certificate of commencement
• B. Certificate of incorporation
• C. Statement of capital
• D. Annual return

Explanation: The certificate of incorporation is issued by the registrar and confirms that the company legally exists.

• A. Operate without appointing directors
• B. Avoid filing statutory documents
• C. Continue despite changes in its members
• D. Distribute profits without approval

Explanation: Perpetual succession means the company continues to exist even when members die, transfer shares or leave the company.

• A. State Bank of Pakistan
• B. Competition Commission of Pakistan
• C. Federal Board of Revenue
• D. Securities and Exchange Commission of Pakistan

Explanation: The Securities and Exchange Commission of Pakistan, or SECP, administers company law and regulates Pakistan's corporate and securities…

• A. To report updated corporate information
• B. To obtain a bank loan
• C. To appoint the external auditor
• D. To replace the company constitution

Explanation: An annual return provides the registrar with current information about matters such as members, directors and share capital.

• A. Class meeting
• B. Annual general meeting
• C. Creditors’ meeting
• D. Board committee meeting

Explanation: An annual general meeting, commonly called an AGM, deals with recurring matters such as financial statements, reports and the appointment…

• A. Approval by the registrar
• B. Unanimous approval of all members
• C. Two-thirds of issued shares
• D. Simple majority of votes cast

Explanation: An ordinary resolution normally passes when votes in favour exceed votes against among the votes validly cast.

• A. Special resolution
• B. Routine board decision
• C. Proxy appointment
• D. Director’s notice

Explanation: A special resolution requires a statutory supermajority, commonly at least three-fourths of the votes cast, subject to the applicable…

• A. To manage the company’s daily operations
• B. To express an opinion on financial statements
• C. To approve every shareholder transfer
• D. To set the company’s selling prices

Explanation: An external auditor independently examines the financial statements and reports whether they present a true and fair view under the…

• A. The company’s solvency for all debts
• B. The holder’s title to specified shares
• C. A guaranteed dividend payment
• D. A loan secured by company assets

Explanation: A share certificate is evidence of the shareholder’s title to the number and class of shares stated in it.

• A. Its shares become government securities
• B. Its directors automatically become creditors
• C. Its assets are collected and used to settle liabilities
• D. Its annual filing duties disappear immediately

Explanation: Liquidation involves collecting and realising company assets, paying liabilities according to legal priorities, and distributing any…