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CMA Intermediate · Business Laws and Ethics · Company Types, Promotion, Formation and Related Procedures

A Producer Company has paid-up capital of ₹4 crore and free reserves of ₹6 crore. Under section 378ZL, it, together with its subsidiaries, wishes to invest in shares of other companies (other than the Producer Company share acquisition and capital subscription permitted for promoting its objects). Without the special resolution and prior Central Government approval route, what is the maximum amount it may invest?

The ceiling is thirty per cent of paid-up capital plus free reserves. Here that is thirty per cent of ₹10 crore, or ₹3 crore. Investing more requires a special resolution in general meeting together with prior approval of the Central Government.

  1. A₹1.2 crore
  2. B₹2 crore
  3. C₹3 croreCorrect
  4. D₹5 crore

Explanation

Section 378ZL(4) caps such investment at thirty per cent of the aggregate of paid-up capital and free reserves. The aggregate is ₹4 crore + ₹6 crore = ₹10 crore, and 30% of it is ₹3 crore. The ₹1.2 crore figure wrongly applies 30% to paid-up capital alone. Exceeding the limit needs a special resolution and prior Central Government approval.

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