CPA
Intermediate Leval
Company Law November 2017
Suggested Solutions

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Auditing company accounts serves several important purposes that contribute to the overall financial health and credibility of a company.

Reasons why Tenti Ltd. should consider appointing auditors despite the need to save on costs:

➧ Financial Accuracy and Reliability: Auditing ensures the accuracy and reliability of the financial information presented in the company's accounts. Auditors review the financial records, transactions, and statements to verify their integrity and adherence to accounting standards. This provides confidence to stakeholders, including investors, lenders, and shareholders, that the financial information is trustworthy.

➧ Compliance with Legal and Regulatory Requirements: Auditing helps ensure compliance with applicable laws, regulations, and financial reporting standards. By engaging auditors, Tenti Ltd. can demonstrate its commitment to transparency and accountability in financial reporting, thereby avoiding legal issues and penalties associated with non-compliance.

➧ Fraud Detection and Prevention: Auditors play a vital role in detecting and preventing fraudulent activities within a company. Their independent and objective assessment helps identify potential financial irregularities, misstatements, or manipulation. This enhances the company's internal control systems and reduces the risk of financial fraud.

➧ Evaluation of Internal Controls: Auditors assess the effectiveness of the company's internal control systems and recommend improvements where necessary. This evaluation helps identify weaknesses or deficiencies in processes, policies, and procedures, allowing management to implement corrective measures to safeguard company assets and improve overall operational efficiency.

➧ Credibility and Stakeholder Confidence: Having audited financial statements adds credibility and instills confidence in the company among investors, creditors, and other stakeholders. Audited accounts provide an independent and unbiased assessment of the company's financial position, performance, and prospects, which aids stakeholders in making informed decisions and maintaining trust in the organization.

➧ Facilitating Business Relationships: Many business relationships, such as securing loans, entering into partnerships, or attracting potential investors, often require audited financial statements. By appointing auditors, Tenti Ltd. positions itself favorably in such scenarios, making it easier to establish and maintain important business relationships.

NOTE

While saving costs is important for a new company, the benefits of appointing auditors outweigh the potential expenses. Auditing not only ensures financial accuracy and compliance but also helps Tenti Ltd. build a strong reputation and gain trust among stakeholders, contributing to the long-term success and growth of the company.

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➧ Exemption by Law or Accounting Standards: Some jurisdictions or accounting standards provide exemptions for the consolidation of subsidiary accounts based on certain criteria. For example, small subsidiaries or subsidiaries operating in specific industries or sectors may be exempted from consolidation requirements.

➧ Lack of Control: If the holding company does not have control over its subsidiary, consolidation may not be required. Control is typically determined by owning more than 50% of the voting rights or having the power to govern the financial and operating policies of the subsidiary. If the holding company does not meet the criteria for control, the subsidiary's accounts may not be consolidated.

➧ Temporary Control: If the holding company has acquired a subsidiary with the intention of reselling it within a short period, it may be classified as a "held-for-sale" subsidiary. In such cases, the subsidiary's accounts may be presented separately from the group accounts as per the accounting standards related to discontinued operations.

➧ Dissimilar Business Activities: If the subsidiary operates in a significantly different line of business or industry, the holding company may choose not to consolidate its accounts. This is more common when the subsidiary's operations are not integral to the overall activities or strategy of the group.

➧ Materiality Threshold: In some cases, if the financial impact of a subsidiary is immaterial to the group as a whole, the holding company may exclude its accounts from consolidation. Materiality is determined based on quantitative and qualitative factors, such as the subsidiary's size, assets, liabilities, and its overall impact on the consolidated financial statements.

➧ Restrictive Agreements: If there are legal or contractual restrictions that prevent the holding company from accessing or controlling the subsidiary's financial information, consolidation may not be possible. For example, if the subsidiary operates in a foreign jurisdiction with strict information-sharing regulations, consolidation may be impractical.

➧ Impracticality: Consolidation may be impractical when it is not feasible to gather the necessary financial information or exercise control over the subsidiary's operations. This could be due to legal, operational, or logistical reasons, making it difficult or impossible to include the subsidiary's accounts in the group consolidation.

➧ Disproportionate Expense or Delay: If the cost or time required to consolidate the subsidiary's accounts is excessive compared to the value it provides to the members of the company, exclusion from consolidation may be justifiable. This consideration is based on a cost-benefit analysis, weighing the practicality and usefulness of consolidation against the associated expenses or delays.

➧ Misleading Results: Consolidation may be avoided if including the subsidiary's accounts would lead to a distorted or misleading representation of the group's financial position, performance, or prospects. This could occur when significant differences exist in accounting policies, reporting periods, or other relevant factors that make meaningful consolidation unachievable or deceptive.

➧ Harmful Impact on Business: If consolidating the subsidiary's accounts would have a detrimental effect on the business operations, reputation, or competitive position of either the holding company or the subsidiary, exclusion may be considered. This could arise when disclosure of sensitive information or association with the subsidiary's activities could negatively impact stakeholders or business relationships.

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(i) Summarise four rules governing the appointment of the first auditors of a company.

➧ Appointment by Directors: The first auditors of the company are typically appointed by the directors before the Annual General Meeting (AGM). The directors have the authority to select and appoint the auditors, who will hold office until the conclusion of the first AGM.

➧ Appointment by the AGM: At each AGM, it is mandatory for the company to appoint an auditor to hold office from the conclusion of that meeting until the conclusion of the next AGM. The shareholders, present at the AGM, have the power to appoint the auditor based on their judgment and voting.

➧ Appointment by the Registrar: In the event that the AGM fails to appoint an auditor or if no auditor is deemed to be reappointed, the registrar (the government authority responsible for company registration) may step in and appoint a person to fill the vacancy. This ensures that the company has a duly appointed auditor to fulfill its auditing obligations.

➧ Appointment by Court: In cases where both the general meeting and the directors fail to appoint an auditor, the court has the authority to step in and appoint an auditor. The court's intervention ensures that the company complies with the legal requirement of having an auditor in place.

(ii) A company auditor can receive remuneration in various ways, depending on the arrangements made between the auditor and the company.

Some common ways in which a company auditor might receive their remuneration:

➧ Fixed Fee: The company and the auditor may agree on a fixed fee for the audit services. The fee can be determined based on factors such as the size, complexity, and risk profile of the company. This fixed fee is paid to the auditor for their services rendered during the audit engagement.

➧ Hourly Rate: In some cases, auditors may charge their clients based on an hourly rate. The auditor keeps track of the time spent on audit-related tasks and bills the company accordingly. This method is typically used for specific audit services or additional work requested by the company outside the scope of the regular audit engagement.

➧ Retainer Fee: A retainer fee is a predetermined amount paid to the auditor on a regular basis, usually monthly or quarterly, to secure their availability for any audit-related matters or consultations that may arise during the financial year. The retainer fee ensures that the auditor is accessible to the company whenever needed.

➧ Performance-Based Fee: In certain situations, auditors may receive a fee that is contingent upon achieving specific performance objectives or outcomes. This could be based on factors such as the completion of the audit within a specified timeframe, meeting quality standards, or providing additional value-added services to the company.

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➧ Poison Pill: A poison pill is a defensive tactic where the targeted company issues new shares to its existing shareholders or rights to purchase shares at a discounted price. This dilutes the ownership stake of the acquiring company, making the takeover more expensive and less attractive. Poison pills can make the acquisition financially unattractive or create significant hurdles for the acquiring company.

➧ Shareholder Rights Plan: A shareholder rights plan, also known as a "flip-in" provision, gives existing shareholders the right to purchase additional shares at a discounted price if a hostile takeover bid is launched. This increases the cost of the acquisition for the acquiring company and allows existing shareholders to acquire more shares, thereby diluting the acquiring company's ownership.

➧ Staggered Board: A staggered or classified board structure divides the board of directors into different classes, with each class serving a different term. This makes it challenging for an acquiring company to gain control of the board quickly. By having a staggered board, the targeted company can resist a hostile takeover bid by requiring multiple elections over an extended period.

➧ Golden Parachutes: Golden parachutes are contractual agreements between the targeted company and its top executives. In the event of a change of control or hostile takeover, these agreements provide substantial financial benefits to the executives, such as severance pay, bonuses, or stock options. Golden parachutes act as a deterrent by making it expensive for the acquiring company to replace key executives and potentially reducing the attractiveness of the target.

➧ White Knight Strategy: In a white knight strategy, the targeted company seeks a more favorable alternative buyer to acquire its shares instead of the hostile bidder. The targeted company actively searches for another company willing to acquire it, which aligns better with its interests and goals. This strategy allows the targeted company to maintain control over the direction of the company while avoiding an unwanted hostile takeover.

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(i) Statutory Duties of a Company Secretary:

➧ Compliance with Corporate Laws: A company secretary ensures that the company complies with relevant corporate laws, regulations, and statutory requirements. They keep the company updated on legal changes, maintain the statutory registers, and ensure filings with government authorities, such as annual returns, financial statements, and other required documents.

➧ Board Meetings and Shareholder Meetings: The company secretary facilitates the organization and administration of board meetings and shareholder meetings. They prepare meeting agendas, provide notice of meetings, draft minutes, and ensure that all meetings are conducted in accordance with legal requirements and proper corporate governance practices.

➧ Corporate Governance and Disclosure: The company secretary plays a key role in promoting good corporate governance practices within the company. They advise the board on governance matters, assist in the development and implementation of corporate policies, and ensure compliance with disclosure obligations, including the filing of required reports with regulatory bodies.

➧ Shareholder Relations: Company secretaries maintain effective communication with shareholders and handle shareholder-related matters. They coordinate the issuance of shares, manage share transfers, process dividend payments, handle share repurchases, and respond to shareholder inquiries or requests for information.

➧ Legal Documentation and Contracts: Company secretaries assist in the preparation, review, and execution of legal documents and contracts on behalf of the company. They ensure legal compliance, maintain proper record-keeping of contracts, and provide advice on legal implications and risks associated with various business transactions.

➧ Taking Minutes at Board Meetings: The company secretary is responsible for recording accurate minutes of meetings held by the board of directors. This includes capturing discussions, decisions, and resolutions made during the meetings, ensuring proper documentation and compliance with legal requirements.

➧ Issuing Notices to Members: The company secretary is responsible for issuing formal notices to the company's members regarding general meetings, board meetings, or any other meetings required by law. They ensure that notices are sent in a timely manner and contain all necessary information as per legal requirements.

➧ Accepting or Receiving Notices on Behalf of Members: The company secretary may receive or accept notices, proxies, or other communications on behalf of the company's members. This ensures that members' communications reach the appropriate channels within the company and are handled in accordance with legal procedures.

➧ Filing the Annual Returns of the Company: It is the duty of the company secretary to prepare and file the company's annual returns with the relevant regulatory authorities. Annual returns provide important information about the company, including details of shareholders, directors, and the company's financial status.

➧ Registering Charges Created by the Company: The company secretary is responsible for registering charges created by the company, such as mortgages, debentures, or other forms of security, with the appropriate registry or registrar. This ensures that charges are properly recorded and disclosed to interested parties.

➧ Registering Special Resolutions: Special resolutions, which require a higher majority vote by the company's members, must be registered with the regulatory authorities. The company secretary is responsible for ensuring that special resolutions are properly prepared, registered, and maintained in compliance with statutory requirements.

(ii) Administrative Duties of a Company Secretary:

➧ Record-Keeping and Documentation: Company secretaries are responsible for maintaining accurate and up-to-date company records, including registers of members, directors, and shareholders. They manage company documents, such as the Articles of Association, Memorandum of Association, and other constitutional documents.

➧ Company Policies and Procedures: Company secretaries contribute to the development and implementation of internal policies and procedures. They ensure that the company's policies align with legal requirements, industry standards, and best practices. They also oversee the dissemination and communication of policies throughout the organization.

➧ Insurance and Risk Management: Company secretaries play a role in managing insurance and risk-related matters. They assist in obtaining appropriate insurance coverage for the company, assess risks, develop risk management strategies, and ensure compliance with insurance requirements and claims procedures.

➧ Record of Resolutions and Decisions: The company secretary maintains a record of resolutions and decisions made by the board of directors and shareholders. They ensure that all required resolutions are properly documented, signed, and stored securely. These records serve as legal evidence of the company's actions and decisions.

➧ Corporate Communication and Shareholder Relations: Company secretaries are responsible for managing corporate communication, both internally and externally. They oversee the distribution of company information to shareholders, stakeholders, and regulatory authorities. They also manage the company's website, investor relations activities, and handle correspondence with external parties.

➧ Certifying Transfers: The company secretary plays a role in certifying the transfer of shares from one shareholder to another. They verify and authenticate share transfer documents, ensuring that transfers are executed in accordance with legal and company requirements.

➧ Issuing Share or Debenture Certificates: The company secretary is responsible for issuing share certificates or debenture certificates to shareholders or debenture holders. These certificates serve as proof of ownership and are provided upon the allotment or transfer of shares or debentures.

➧ Publishing the Company's Name as Required by Law: The company secretary ensures that the company's name is published and displayed as required by law. This includes displaying the company's name at its registered office, place of business, and on its official documents and communications.

➧ Countersigning Documents with the Company Seal: The company secretary may countersign documents on behalf of the company when the company seal is placed or used. This ensures the authenticity and validity of documents executed by the company.

➧ Maintaining Custody of the Company Seal: The company secretary is often responsible for the custody and safekeeping of the company seal. The company seal is an official stamp or embossment used to authenticate company documents and contracts.

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➧ Civil and criminal liability:

The company and its directors may face civil and criminal liability for contravening this provision. Civil penalties may include fines, damages, and potential liability for any losses suffered by shareholders or creditors as a result of the contravention. Criminal penalties may include fines and potential imprisonment for the directors involved.

➧ Voidability of the transaction:

Any financial assistance provided in contravention of the provision may be voidable, meaning the transaction can be challenged and potentially set aside. This could result in the shares purchased being treated as if they were never acquired, and the company having to return any consideration or assets received as part of the transaction.

➧ Personal liability of directors:

Directors who were knowingly involved in the contravention may be personally liable for any losses suffered by the company or its shareholders. They may be required to compensate the company or shareholders for any harm caused as a result of the prohibited financial assistance.

➧ Regulatory sanctions:

Regulatory bodies, such as securities commissions or financial authorities, may impose additional penalties or sanctions on the company and its directors for violating this provision. These can include fines, restrictions on future activities, or even disqualification of directors from holding similar positions in the future.

(ii) Exceptions to the general prohibition on offering financial assistance for purchasing its own shares may exist in certain circumstances:

➧ The financial assistance is provided in connection with an employee share purchase scheme:

Companies may be permitted to provide financial assistance to employees as part of an approved employee share purchase scheme. These schemes allow employees to acquire shares in the company, often at favorable terms, as a means of incentivizing and retaining key personnel.

➧ The financial assistance is part of a statutory reduction of capital:

In some jurisdictions, a company may be allowed to offer financial assistance in connection with a reduction of its share capital, subject to specific statutory requirements. This typically involves a formal process where the company reduces its share capital, utilizes the proceeds to repurchase its own shares, and cancels those shares.

➧ Ordinary Course of Business:

An exception exists when the lending of money is part of the ordinary business of the company and is conducted in the regular course of business. For example, if a company operates as a lending institution, providing loans would be considered a normal business activity rather than a form of corporate restructuring.

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(i) Even though Vulture’s son is 18 years old, he cannot be appointed as a director by his father. The power to appoint a director is vested in a general meeting by passing an ordinary resolution.

(ii) Directors must avoid conflicts of interest. If a director has a personal interest in a contract made by the company, he must disclose the interest at a board meeting. Failure to do so makes the contract voidable at the expense of the company.

(iii) Peacock has the right to take part in the affairs of the company. He can sue them and even petition for windup of the company on the ground of just and equitable ground on the basis of exclusion from management.

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➧ Authorization: The issuance of redeemable preference shares must be authorized by the company's articles of association.

➧ Source of Redemption: Shares can only be redeemed using profits or the proceeds from a fresh issue specifically made for that purpose.

➧ Full Payment: Redeemable preference shares must be fully paid for by the shareholders.

➧ Premium Payment: If a premium is involved in the redemption, it must be paid from the company's profits or the share premium account.

➧ Capital Redemption Reserve: In cases where the shares are redeemed using sources other than the proceeds of a fresh issue, a capital redemption reserve fund must be created.

➧ Member Authorization: The redemption of shares must be authorized by an ordinary resolution passed by the company's members.

➧ Registrar Notification: A notice of the redemption must be delivered to the registrar of companies within 30 days of the redemption taking place.

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Participating Preference Shares:

Participating preference shares have the right to participate in the distribution of profits or assets of a company in addition to their fixed preference dividend. If the company pays dividends or distributes assets to shareholders, participating preference shareholders receive their fixed preference dividend first. However, after receiving the fixed dividend, they also have the right to share in any remaining profits or assets on a pro-rata basis with the common shareholders. This means that participating preference shareholders have the potential to receive additional dividends or benefits beyond their fixed preference dividend.

Non-Participating Preference Shares:

Non-participating preference shares, on the other hand, do not have the right to participate in any additional profits or assets beyond their fixed preference dividend. Once the fixed preference dividend is paid to non-participating preference shareholders, they do not have any further claims on the company's profits or assets. Any remaining profits or benefits are distributed among the common shareholders. Non-participating preference shareholders typically receive a fixed dividend amount and do not share in the company's success beyond that predetermined amount.

Summary

Participating preference shares give their holders the right to receive a fixed preference dividend and also participate in any additional profits or assets, while non-participating preference shares only entitle their holders to the fixed preference dividend without any further participation. The terms of preference shares are determined by the company and outlined in the shareholders' agreement or other relevant legal documents.

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➧ Certification by the Registrar: The foreign certificate of registration must be certified by the registrar of the company in the relevant jurisdiction. This certification serves as conclusive evidence that the foreign company has complied with the registration requirements and is authorized to operate within the jurisdiction.

➧ Required Documents: The foreign company must submit all the necessary documents as mandated by the jurisdiction. This typically includes the Memorandum of Association (MOA) and Articles of Association (AOA), which outline the company's purpose, internal regulations, and governance structure. Additionally, a list of directors and secretary is usually required. In some cases, a statement of subsidiary charges may also be necessary, disclosing any registered charges against the company's assets.

➧ Local Representation: The certificate should provide the names and postal addresses of any local representatives appointed by the foreign company. These representatives act as the company's local point of contact and may handle certain administrative or legal matters on behalf of the company within the jurisdiction.

➧ Country of Incorporation: The certificate must clearly state the country in which the foreign company is incorporated. This information helps establish the jurisdiction under which the company is governed and subject to relevant laws and regulations.

➧ Liability of Members: The certificate should specify the liability of members (shareholders or owners) of the foreign company. This information clarifies the extent of liability that members have in case of any obligations, debts, or legal claims against the company.

➧ Legal Structure: The certificate should clearly indicate the legal structure of the foreign company, such as whether it is a corporation, limited liability company (LLC), partnership, or any other recognized form of business entity. This information helps determine the rights, obligations, and liability of the company and its shareholders or members.

➧ Name and Registered Address: The certificate should include the full legal name of the foreign company, ensuring it complies with the naming rules and conventions of the jurisdiction. Additionally, the registered address or principal place of business should be stated, serving as the official address where legal notices and documents can be sent.

➧ Purpose and Scope of Business: The certificate may require the foreign company to specify its intended purpose or scope of business activities within the jurisdiction. This information helps authorities determine whether the company's activities align with the local laws and regulations governing that particular industry or sector.

➧ Shareholders or Owners: The certificate should identify the shareholders, owners, or members of the foreign company. This information is crucial for establishing ownership and determining the rights and responsibilities of the individuals or entities involved in the company.

➧ Capital Structure: The certificate may outline the capital structure of the foreign company, including details about authorized capital, paid-up capital, and any specific requirements related to minimum capitalization or shareholding thresholds.

➧ Compliance with Regulations: The certificate should demonstrate that the foreign company has fulfilled all regulatory requirements and complied with relevant laws to be eligible for registration. This may include submitting necessary documentation, paying registration fees, and meeting specific criteria set by the jurisdiction.

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➧ Contractual Liabilities: If the local representative enters into contracts or agreements on behalf of the foreign company, they may be personally liable for fulfilling the obligations and responsibilities outlined in those contracts. This means they could be held responsible for any breach of contract or failure to perform as required.

➧ Legal and Regulatory Liabilities: The local representative may be held liable for non-compliance with local laws, regulations, and licensing requirements. If they fail to ensure the foreign company's operations are in line with the legal framework of the jurisdiction, they may face legal consequences, fines, or penalties.

➧ Financial Liabilities: If the local representative handles financial matters for the foreign company, such as managing finances, making payments, or handling tax obligations, they could be personally liable for any errors, omissions, or fraudulent activities that result in financial losses or legal repercussions.

➧ Employment Liabilities: If the foreign company has employees within the jurisdiction, the local representative may have responsibilities related to employment matters. They could be held liable for violations of labor laws, workplace safety regulations, or any misconduct or mistreatment of employees.

➧ Regulatory Reporting and Record-Keeping Liabilities: If the local representative is responsible for maintaining records, submitting reports, or ensuring compliance with regulatory requirements, they may be held liable for any inaccuracies, omissions, or non-compliance with reporting obligations.

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Circumstances under which a member of a company might be held liable beyond their limited liability:

➧ Agreement to Increase Liability: In the case of a company limited by shares, if a member agrees in writing to alter the Memorandum of Association and Articles of Association in a way that compels them to subscribe to additional shares, thereby increasing their liability, they can be held personally liable for the obligations associated with those shares.

➧ Re-registration as an Unlimited Company: If all members of a limited company agree in writing to re-register the company as an unlimited company, and the re-registration takes place, the members may become personally liable for the debts and obligations of the company without the protection of limited liability.

➧ Reduction of Members Below Statutory Minimum: If the number of members in a company falls below the statutory minimum required for that type of company (e.g., 2 for a private company, 7 for a public company), and the company continues to carry on its business for more than six months, the remaining members can be held personally liable for the company's debts and obligations incurred during that period.

➧ Fraudulent Trading: If, during the winding-up process of the company, it is revealed that the business of the company has been conducted with fraudulent intent or wrongful purpose, any members who were knowingly party to such fraudulent trading can be held personally liable for the company's debts and liabilities.

➧ Misfeasance: If a member, with knowledge of the facts, allows the payment of dividends or the return of capital to members in a manner that is in violation of company law or in a way that harms the company's creditors, they may be held personally liable for the amount wrongfully paid out.

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(i) Categories of public companies.

Companies Limited by Shares:

➢ The liability of the members is limited by the Memorandum of Association (M.O.A) to the amount unpaid on the shares they hold.
➢ Members' personal assets are not at risk beyond the amount unpaid on their shares.
➢ If the company becomes insolvent or is wound up, members are only liable to contribute the remaining unpaid amount on their shares.
➢ This is the most common type of company structure and is often used by businesses seeking to raise capital by selling shares.

Companies Limited by Guarantee:

➢ The liability of members is limited by the M.O.A to the specific amount they have agreed to contribute to the company in the event of its winding up.
➢ Instead of shares, members provide a guarantee stating the amount they will contribute if the company faces insolvency.
➢ This type of company is typically used by non-profit organizations, charities, clubs, or professional associations.
➢ Members' personal assets are not at risk beyond the guaranteed amount stated in the M.O.A.

Unlimited Companies:

➢ These companies do not have their members' liability limited by the M.O.A.
➢ Members are fully responsible for the company's debts and obligations, even to the extent of losing their personal assets.
➢ Unlimited companies are relatively rare and usually found in smaller businesses or family-owned enterprises.
➢ This type of company structure may provide more flexibility but carries higher personal financial risk for the members.

(ii) Procedure of registering a limited liability company,

Reservation of a Company's Name:

➢ Submit a written application to the registrar to reserve a name for the company.
➢ The registrar reserves the name for a specific period (typically 30 to 60 days) during which it cannot be used by others.

➧ Assembly of Resources:

➢ Gather the necessary resources, such as capital, assets, and human resources, required to establish and operate the company.

➧ Preparation of Constitutive Documents and Other Documents:

➧ Prepare the following documents:

(i) Memorandum of Association (M.O.A): It outlines the company's objectives, share capital, and the members' liability.
(ii) Articles of Association (A.O.A): It defines the company's internal regulations, such as the rights and duties of members and
directors. (iii) Statement of Nominal Capital: It specifies the amount of capital the company is authorized to issue.
(iv) Declaration of Compliance: It confirms that all legal requirements for company registration have been met.
(v) List of Persons Consenting to Act as Directors, etc.

➧ Stamping of Documents:

➢ The constitutive and other documents need to be presented for assessment and payment of stamp duty, which is a tax on legal documents.

➧ Presentation of Documents:

➢ Submit the constitutive and other documents to the registrar for the registration of the company.
➢ The documents should be complete, accurate, and comply with the legal requirements.

Registration and Issuance of Certificate of Registration:

➢ The registrar reviews the documents and, if satisfied, registers the company.
➢ Upon registration, the registrar issues a Certificate of Registration, certifying that the company is duly incorporated.

Note:

For a private company, it can commence business immediately after receiving the Certificate of Registration.
For a public company, it must wait for the Certificate of Trading before commencing business. The Certificate of Trading indicates that the company is authorized to offer its shares to the public.

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(i) Ways in which a liquidator might be appointed:

There are typically three main ways in which a liquidator can be appointed:

➧ By Members' Voluntary Liquidation (MVL):

➢ In the case of a solvent company, the members (shareholders) can pass a special resolution to voluntarily wind up the company.
➢ They appoint a liquidator to oversee the winding-up process and distribution of assets to creditors and shareholders.

➧ By Creditors' Voluntary Liquidation (CVL):

➢ If a company is insolvent and unable to meet its financial obligations, the directors, after holding a meeting of the company's creditors, can propose a resolution for voluntary liquidation.
➢ The creditors then vote on the resolution, and if approved, a liquidator is appointed to realize the company's assets and distribute them to creditors.

➧ By Compulsory Liquidation:

➢ This is the most common method of liquidation and occurs when a company is forced into liquidation by a court order.
➢ It typically happens in cases where the company is unable to pay its debts or has engaged in fraudulent activities.
➢ The court appoints a liquidator to take control of the company's affairs, sell its assets, and distribute the proceeds to creditors.

(ii) Powers of a liquidator exercisable without sanction of the court:

➧ Investigation Powers:

➢ A liquidator has the authority to investigate the affairs of the company, including examining its books, records, and transactions.
➢ They can summon and examine witnesses, require the production of documents, and seek professional advice if necessary.

➧ Asset Realization:

➢ The liquidator has the power to sell and realize the company's assets, including property, inventory, investments, and intellectual property.
➢ They can take necessary actions to maximize the value of these assets and convert them into cash for distribution to creditors.

➧ Claims Adjudication:

➢ The liquidator assesses and adjudicates the claims made by creditors against the company.
➢ They determine the validity and priority of these claims and make appropriate distributions from the company's available funds.

➧ Recovery of Assets:

➢ The liquidator can take legal action to recover any assets or funds owed to the company, including pursuing outstanding debts, initiating litigation, or challenging transactions made by the company that may be deemed fraudulent or preferential.

➧ Dissolving the Company:

➢ Once the liquidation process is complete, the liquidator has the power to apply for the dissolution of the company.
➢ This involves submitting final accounts, reports, and other necessary documents to the relevant authorities to officially close the company's legal existence.

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➧ Legal Principle Applicable: The legal principle applicable in this case relates to the effects of non-registration of a charge. Non-registration can have serious consequences on the validity, enforceability, and priority of the charge.

➧ Time Limit for Registration: Generally, a company is required to register a charge within a specific time frame, such as 30 days after the creation of the charge. Failure to register within the prescribed time may result in the charge being considered void.

➧ Invalidity of the Charge: Non-registration of a charge renders the charge void. This means that the charge is not legally effective and cannot be relied upon by the creditor to secure its claim against the company's assets.

➧ Acceleration of Payment: In cases of non-registration, the sum lent or the outstanding loan amount typically becomes immediately payable. This means that the lender can demand the full balance of the loan, even if the borrower is otherwise complying with the terms of the loan agreement, such as making regular installment payments.

➧ Void Against Subsequent Lenders: An unregistered charge is generally considered void against subsequent lenders. If another lender has obtained a registered charge over the same assets, their charge would typically take priority over the unregistered charge of East Bank Ltd.

➧ Void Against the Liquidator: In the event of liquidation, an unregistered charge is also considered void against the liquidator. The liquidator, who oversees the winding-up process and the distribution of assets to creditors, takes priority over the unregistered charge.

➧ Unsecured Creditor Status: As a result of non-registration, East Bank Ltd. would be treated as an unsecured creditor. This means that the bank's claim would be ranked lower in priority compared to secured creditors and certain preferential creditors, such as employees, during the liquidation process. The bank may have to rely on the remaining assets of the company after the satisfaction of higher-ranking claims.

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➧ Advice for Mose Shida regarding his rights to request an Annual General Meeting (AGM):

➧ Legal Principle Applicable: The legal principle applicable in this case relates to the rights of a member against directors for the failure to convene an AGM. Shareholders have certain rights and protections under company law.

➧ Requirement to Hold an AGM: According to the law, every public company is required to hold an AGM within six months, including the day following its accounting reference date, each year. The AGM provides an opportunity for shareholders to receive reports, ask questions, and vote on important matters.

➧ Requesting a General Meeting: As a shareholder, Mose Shida, along with other members, may require the directors to convene a general meeting. If members representing at least 10% of the paid-up capital or total voting rights make the request, the directors are obliged to convene the meeting as soon as practicable.

➧ Timelines for Convening the Meeting: Once requested, the directors must hold the meeting within 21 days from the date of the request. The meeting itself should be scheduled within 28 days from the date of the notice convening the meeting.

➧ Failure of Directors to Convene the Meeting: If the directors fail to convene the meeting within the specified time frame, the members who requested the meeting (or any of them representing more than half of the total voting rights) have the right to convene the general meeting themselves.

➧ Gathering Support from Other Members: Mose Shida can seek support from other shareholders who collectively hold at least 10% of the share capital or voting rights of the company. If they join him in making the application, it strengthens their request for the directors to hold the AGM.

➧ Self-Convening or Petitioning the Court: If the directors still do not hold the meeting within 21 days after the request, Mose Shida, along with the supportive members representing more than half of the total voting rights, can either convene the meeting themselves or petition the court to order the directors to convene the AGM.

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➧ Polling Papers: These are the documents used to record the votes cast by shareholders during a poll. They typically contain the details of the resolution being voted on and provide space for shareholders to mark their choice.

➧ Board Resolutions: The board resolutions or resolutions passed by the directors may specify the decision to conduct a poll rather than a show of hands for a particular resolution. These resolutions provide the legal basis for conducting the poll and ensure compliance with the company's articles of association.

➧ Register of Members: The register of members contains the details of the company's shareholders, including their names, addresses, and shareholding information. It is used to verify the eligibility of individuals to cast votes during the poll.

➧ Attendance Registers: These registers are used to record the attendance of shareholders or their representatives at the company meeting. They may contain information such as the name, address, and number of shares held by each attendee.

➧ Proxy Registers: If shareholders appoint proxies to vote on their behalf, the proxy registers record the details of the proxies, including their names, addresses, and the shareholders they represent. These registers ensure transparency and accuracy in proxy voting.

➧ Specimen Signature of Members: The specimen signature of members is a document that contains the authorized signatures of the shareholders. It serves as a reference for verifying the authenticity of signatures on voting papers or proxy forms.

➧ Proxy Forms Received: If shareholders have appointed proxies, the proxy forms received from shareholders or their representatives are necessary documents. These forms provide evidence of the proxy appointments and outline the voting instructions given by the shareholders to their proxies.

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➧ Mergers and Acquisitions (M&A): M&A involves combining two or more companies into a single entity. It can take the form of a merger, where two companies merge to form a new entity, or an acquisition, where one company acquires another. M&A aims to create synergies, expand market presence, or gain access to new technologies or resources.

➧ Spin-Offs: A spin-off occurs when a company separates a division or business unit into a new independent company. The new company "spins off" from the existing company, allowing both entities to focus on their respective core competencies and pursue separate strategic directions.

➧ Divestitures: Divestiture refers to the sale or disposal of a company's assets, subsidiaries, or business units. It can be a strategic decision to streamline operations, eliminate non-core businesses, or raise funds for other investments or debt reduction.

➧ Restructuring of Debt: Debt restructuring involves renegotiating the terms and conditions of existing debt agreements to alleviate financial strain. It may include modifying repayment schedules, reducing interest rates, or exchanging debt for equity.

➧ Joint Ventures: Joint ventures occur when two or more companies collaborate to form a new entity for a specific purpose, such as entering a new market, sharing resources, or developing new products or technologies. Joint ventures allow companies to leverage each other's strengths and share risks and rewards.

➧ Financial Restructuring: Financial restructuring involves changing a company's financial structure, often in response to financial distress. It may involve raising new capital, restructuring debt obligations, or adjusting equity ownership to improve the company's financial health and sustainability.

➧ Strategic Alliances: Strategic alliances are partnerships or agreements between companies to pursue common objectives, such as research and development, marketing, or distribution. They can be formal or informal collaborations that enable companies to leverage each other's strengths without a complete merger or acquisition.

➧ Management Buyouts (MBOs): An MBO occurs when the existing management team or a group of managers acquires a controlling interest in the company from its current owners. MBOs allow managers to take ownership and control of the company's operations and strategic direction.

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