Analyzing True Statements About Corporations

Let's carefully examine each statement provided regarding corporations to determine its truthfulness based on common principles of company law.

Statement Analysis

• (A) Memorandum of Association is also known as statement in Lieu of Prospectus.

  This statement is false.

  The Memorandum of Association (MoA) is the primary document of a company, defining its fundamental characteristics, objectives, and scope of activities. It is often referred to as the constitution of the company. A Statement in Lieu of Prospectus, on the other hand, is a document that a public company, which has not issued a prospectus or has issued a prospectus but not proceeded to allotment, must file with the Registrar of Companies before allotting shares. These are distinct legal documents with different purposes.

• (B) Paid-up capital can exceed called-up capital.

  This statement is false.

  Called-up capital is the part of the company's issued capital that the directors have asked the shareholders to pay. Paid-up capital is the amount that shareholders have actually paid towards the called-up capital. Shareholders cannot pay more than what has been called up by the company. Therefore, paid-up capital can be equal to or less than called-up capital, but it can never exceed it.

• (C) Capital reserves are created from capital profits.

  This statement is true.

  Capital reserves are amounts set aside from capital profits, not generated from the company's ordinary trading activities. Examples of capital profits include profit on the sale of fixed assets, premium received on the issue of shares or debentures, profit prior to incorporation, and profits on the revaluation of assets. These reserves are generally not available for distribution as dividends.

• (D) The part of capital which can be called up only on winding up of the company is called Reserve Capital.

  This statement is true.

  Reserve Capital is a specific portion of the uncalled share capital of a company limited by shares or guarantee and having a share capital. The company can decide by a special resolution that this portion shall not be capable of being called up except in the event and for the purposes of the company being wound up. This provides security for the company's creditors.

• (E) Minimum subscription must be at least 90% of the shares issued.

  This statement is true.

  According to relevant company laws (such as the Companies Act in many jurisdictions), a public company offering shares to the public for subscription cannot proceed with the allotment of shares unless a minimum amount, known as the minimum subscription, is received. This minimum subscription is typically set at a certain percentage of the shares offered, often 90%.

Summary of True Statements

Based on the analysis:

• Statement (A) is false.
• Statement (B) is false.
• Statement (C) is true.
• Statement (D) is true.
• Statement (E) is true.

Therefore, the true statements are (C), (D), and (E).

Matching with Options

We need to find the option that includes only statements (C), (D), and (E).

• Option 1: (C), (D), and (E) only - This matches our findings.
• Option 2: (A) and (B) only - This is incorrect as (A) and (B) are false.
• Option 3: (A), (B), and (C) only - This is incorrect as (A) and (B) are false.
• Option 4: (A), (D), and (E) only - This is incorrect as (A) is false.

The correct option is the one stating that (C), (D), and (E) are true.

Statements (C), (D), and (E) are correct statements about a corporation.

Revision Table: Key Corporation Concepts

Additional Information: Company Capital Structure

Understanding the different types of capital is fundamental to comprehending corporate finance and accounting. Here's a brief overview:

• Authorized Capital: The maximum amount of share capital a company is authorized to issue by its Memorandum of Association.
• Issued Capital: The part of authorized capital that the company offers to the public for subscription.
• Subscribed Capital: The part of the issued capital for which applications have been received from the public.
• Called-up Capital: The part of the subscribed capital that the company has asked shareholders to pay.
• Paid-up Capital: The part of the called-up capital that shareholders have actually paid.
• Uncalled Capital: The part of the subscribed capital that has not yet been called up.
• Reserve Capital: A part of uncalled capital specifically reserved for winding up.

The relationship between these can be visualized as a hierarchy, starting from Authorized Capital as the largest amount, and progressively narrowing down to Paid-up Capital.

\(\text{Authorized Capital} \geq \text{Issued Capital} \geq \text{Subscribed Capital} \geq \text{Called-up Capital} \geq \text{Paid-up Capital}\)

Understanding these terms is crucial for interpreting a company's balance sheet and financial health.