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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 ₹60 lakh and free reserves of ₹40 lakh. Acting by itself or with its subsidiaries, it wishes to invest in shares of a company that is not a Producer Company, without special approval from the Central Government. What is the maximum amount it may invest under the Companies Act, 2013?

The maximum is ₹30 lakh. The limit is thirty per cent of paid-up capital plus free reserves, which is 30% of ₹100 lakh. Exceeding this needs a special resolution and prior approval of the Central Government.

  1. A₹20 lakh
  2. B₹30 lakhCorrect
  3. C₹18 lakh
  4. D₹40 lakh

Explanation

The limit is thirty per cent of the aggregate of paid-up capital and free reserves. The aggregate is 60 + 40 = ₹100 lakh, and 30% of it is ₹30 lakh. ₹18 lakh wrongly applies 30% to paid-up capital alone. ₹40 lakh simply takes the free reserves. Going beyond ₹30 lakh needs a special resolution plus prior Central Government approval.

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