Business law topic 7 Flashcards
What does a structural modification in capital companies typically entail?
a) Minor adjustments to daily operations.
b) Legal and equity changes surpassing by-law amendments.
c) Changes to the office interior design.
d) Shifts in employee hierarchy and reporting structures.
Answer: b) Legal and equity changes surpassing by-law amendments.
Explanation: Structural modifications involve significant legal and equity adjustments that go beyond simple amendments to the company’s by-laws, impacting the company’s legal framework and equity distribution.
Which operation does NOT classify as a structural modification?
a) Merger.
b) Division.
c) Change in company logo.
d) International transfer of registered office.
Answer: c) Change in company logo.
Explanation: Changing a company’s logo is a branding decision, not a structural modification, which involves major changes like mergers, divisions, or the transfer of a registered office.
In the context of mergers, what is the ‘exchange equation’ primarily used for?
a) Determining the proportional shares/stakes attributed to members of the merging companies.
b) Calculating the new logo size for the merged entity.
c) Estimating the total number of employees post-merger.
d) Deciding the location of the new headquarters.
Answer: a) Determining the proportional shares/stakes attributed to members of the merging companies.
Explanation: The exchange equation is crucial for establishing how shares or stakes are proportionally distributed among the members of the companies being merged, ensuring equity is maintained based on their previous holdings.
What characterizes a ‘total demerger’ as opposed to other types of division?
a) It involves the creation of at least one new department within the existing company.
b) The complete extinction of the original company with its equity divided among new or existing companies.
c) It is always executed without the approval of the general meeting.
d) It results in a merger instead of division.
Answer: b) The complete extinction of the original company with its equity divided among new or existing companies.
Explanation: A total demerger is characterized by the original company ceasing to exist and its equity being split and transferred to newly created or already existing companies, unlike partial demergers or segregations.
Which statement accurately reflects the process of a ‘partial demerger’?
a) A part of the company’s equity is transferred, reducing its capital accordingly.
b) The company temporarily suspends operations to redistribute resources.
c) All members must resign and reapply for their positions.
d) The company’s name and legal status remain unchanged, but its location is altered.
Answer: a) A part of the company’s equity is transferred, reducing its capital accordingly.
Explanation: In a partial demerger, segments of the company’s equity are allocated to other companies, leading to a reduction in the original company’s capital but allowing it to continue its existence.
Under which condition can a company proceed with ‘segregation’?
a) When it decides to change its core business services or products.
b) If there’s a need to downsize the workforce for economic reasons.
c) Block transfer of a part of its equity to other companies, receiving shares/stakes in return.
d) Whenever the company seeks to adopt a new technology platform.
Answer: c) Block transfer of a part of its equity to other companies, receiving shares/stakes in return.
Explanation: Segregation involves the transfer of part of a company’s equity to one or more companies, with the original company receiving shares or stakes in those companies in exchange.
What triggers the dissolution of a capital company?
a) A unanimous vote for new by-laws.
b) Inability to pursue the corporate purpose, among other statutory reasons.
c) A temporary halt in operations.
d) Relocation of the company’s primary office.
Answer: b) Inability to pursue the corporate purpose, among other statutory reasons.
Explanation: Dissolution can be triggered by various statutory reasons, such as the inability to carry out the corporate purpose, often due to operational paralysis or insurmountable losses.
What phase follows the dissolution of a company?
a) Rebranding phase.
b) Expansion phase.
c) Liquidation phase.
d) Merger phase.
Answer: c) Liquidation phase.
Explanation: Following dissolution, a company enters the liquidation phase, focusing on satisfying creditors and distributing any remaining assets among the members.
