CPA
Intermediate Leval
Company Law November 2020
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Common law duties of a promoter in relation to formation of a company.

A promoter is the founder or organizer of a company or business. A person who takes the initiative to start or organize a business.

The following are the common law duties of a Promoter.

➧ Company registration obligations.

➧ Obligation to bear initial costs.

➧ Obligation to acquire assets for Company Use

➧ An obligation to ensure that the incorporated company has an independent board of directors.

➧ Obligation to ensure the services of directors.

➧ Obligation to prepare a prospectus.

➧ Obligation to define and regulate the company name.

➧ Preparatory obligations for incorporation and other documents Required for incorporation

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Rules that govern pre-incorporation contracts.

This is a contract entered into by persons purporting to act on behalf of the company before its incorporation.

➧ Pre-incorporation agreements are void after Enforceable by or against the company.

➧ Any contract purportedly made by or with a non-existent person is void Newborne v Sensolid (GB) Ltd.

➧ If you enter into a new contract that is similar to a previous contract, the company may be bound by the pre-incorporation contract. Mawagora Farmers Co., Kannia and others.

➧ The company cannot ratify the pre-incorporation agreement. Natal Land Co. v Pauline Colliery Syndicate, Price v Kelsal.Also, directors cannot approve or confirm pre-incorporation agreements after the incorporation of the company. North Sydney Investments, V Higgins etc.

➧ Pre-incorporation agreements are not binding on the company. A company is incorporated on the date of incorporation as indicated in the deed of incorporation. Prior to the date of incorporation, the company did not exist and was incapable of contracting with Kelner.v.Baxter.

➧ Before incorporation, the company has no legal capacity and cannot have representatives.

➧ A person who attempts to enter into a contract on behalf of a non-existent client is personally responsible for the contract. Kellner v. Baxter.

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A company may wish to change its share capital for economic reasons. If permitted by the Articles of Incorporation, a company may change its share capital during a shareholders' meeting by:

➧ Increase share capital by issuing new shares.

➧ Convert all or any fully paid up shares into stock.

➧ Reconvert stock into fully paid up shares.

➧ Consolidate and split all or part of your share capital into larger par shares. This only reduces the total number of shares, but the amount of share capital remains the same.

➧ Cancel unsubscribed or expired shares. As a result, its share capital is reduced by the number of shares canceled. The law does not equate the cancellation of shares with the reduction of share capital, so there is no need to follow procedures for reducing share capital.

➧ Split all or part of your shares into smaller denominations. This is called a "share split." The number of shares increases, but the amount of share capital remains the same.

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The rights of the Bank.

If a third party advances money in collateral on shares and the third party discloses that collateral to the company before the company's lien has arisen, the third party has priority.

In Bradford Banking Cov Briggs and Co. (1886), shareholders took a fair mortgage on their shares by depositing a space in a stock certificate as collateral for an overdraft and the bank notifying the company of the deposit. Did. The shareholders then became indebted to the company, resulting in a lien in favor of the company, and the bank was given priority because of the company's lien after the disclosure of the equitable mortgage The bank is entitled to enforce the lien on the shares since its lien has priority over that of the company. This position is consistent with the holding in Bradford Banking Co. v Briggs and Co. (1886)

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The rights of the xyz Supermarket.
XYZ Supermarket Ltd cannot enforce its lien since the banks lien has priority

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Items of agenda that might be discussed at the Annual General Meeting (AGM) of a company.

➧ Review of the auditor's accounts and reports.

➧ Declaration of Dividends.

➧ Appointment or re-appointment of auditors and determination of their remuneration.

➧ Election or re-election of directors

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Classes of persons who might effectively demand for a poll during a general meeting. Voting by poll can be demanded by;

➫The chairman.

➫At least two members present.

➫Holders of not less than 5% of the voting rights.

➫Proxy

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Merger documents which members of each of the merging companies are entitled to inspect.

➧ A copy of the merger documents for the company and each company merging.
➧ Audited financial statements for the last three years. ➧ Latest annual reports;
➧ Board resolutions and related documents regarding the merger decision.
➧ A breakdown of employees.

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Disadvantages of merger of companies.

➧ Communication gaps: Companies that agree to merge may have different cultures. This can create gaps in communication and impact employee performance.

➧ Higher prices for products and services: Mergers reduce competition and increase market share. This gives the new company exclusive rights and the ability to increase the price of its products and services.

➧ Hinders economies of scale: Achieving synergies can be difficult when there is little commonality between companies. Also, large companies may not be able to motivate their employees and achieve the same level of control. Therefore, the new entity may not achieve economies of scale.

➧ Creating unemployment: In an aggressive merger, one company may choose to eliminate the other company's underperforming assets. As a result, employees may lose their jobs.

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Powers of the Office of the Attorney-General (OAG) in the appointment of an investigator of company affairs and ownership.

➧ Require attendance of any director, any person for purposes of aiding in investigation.

➧ Require production of any docoments from any persons deemed fit for process of investigation.

➧ Require assistance in the manner required of any officer/director

➧ Can take statements on oath from any person.

➧ Can investigate any related company or any related person for purposes of investigation.

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Pieces of information to be provided to a company by a person who intends to inspect the company's register of members.

Any person who wants to inspect a company's register of members must provide the following Pieces information.

➫ If it is a natural person, name and address.

➫ For organizations, the name and address of the person responsible for submitting the application on behalf of the organization.

➫ The purposes for which the information is used, and

➫ whether the information is shared with others and, if so:

♦ Where that person is an individual, his name and address,

♦ Where that person is an organisation, the name and address of an individual responsible for receiving the information on its behalf.

♦ The purpose for which the information is to be used by that person.

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Procedure for registration of foreign companies

A foreign company that wishes to be registered as a foreign company shall lodge with the registrar an application that is in accordance with the Act.

The registrar shall approve the application for registration and register the company by entering its name and other particulars in the foreign companies register if the application;

➤ If the list includes directors resident in Kenya who are members of the local board of directors, a memorandum of understanding duly made by or on behalf of the overseas company specifying the powers of those directors.

➤ Documents required by law to be submitted to the Registrar for registration in respect of pre-existing obstacles to ownership of a registrable foreign company, if the foreign company is a legally incorporated and registered company..

➤ Notification of the address of the registered office or its principal place of business in the domicile..

Documents required to accompany the applications are;

➤ A certified copy of the current certificate of the foreign company's incorporation or details.

➢It is accompanied by the prescribed fee,if any,and the required documents.

➢ Contains the information prescribed by the regulations for the purposes of the Act.

➤A certified copy of its constitution.

➤ Notification of the address of the registered office in the home country or document of similar effect.

➤A list containing the names of its directors and shareholders and their personal details

➢Meets legal requirements for company name and local agency appointments.

➢ Demonstrates that at least 30% of the company's shareholding is held in Kenyan citizen by birth.


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Manner in which a foreign company might own land in your country.

➫For a foreign company to own land in Kenya it needs to submit the following documents.

➢The charter or the memorandum of association of the company.

➢ A certified copy of the certificate of incorporation.

➢ A list of directors and secretaries and their particulars.

➢Information concerning of the principal office in Kenya.

➢A list of shareholders including their personal details.

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Powers and duties of the Official Receiver in his capacity as a corporation sole.

➢ Has perpetual succession.
➢ Is required to have an official seal.
➢ You can initiate proceedings and take action against the trustee's company name.
➢ Subject to this law, they may acquire, retain, dispose of, and otherwise deal with real and private property.
➢ May do and comply with all other things that the legal entity may do and may be subject to by law, necessary or related to the performance of the trustee's functions.

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The office of Official Receiver or Deputy Official Receiver becomes vacant if.

♦ The person writes a letter to the Chief Cabinet Secretary and resigns, and the Chief Cabinet Secretary accepts the resignation.

♦ The person has paid employment outside of office duties.

♦ The person is removed from office by the cabinet secretary

♦ In respect of the person, bankruptcy has been ordered, the person has entered into any arrangement under Section 1 of Part IV, or the person has been subject to a lump sum payment order or assetless proceedings under this part; or those exempt from exercise subject to the order shall be disqualified as directors of the company or partners of the limited liability company.

♦ The person dies,

♦ When the term of office expires without reappointment.

♦ The person is convicted of offence punishable by imprisonment for a term of two years or more;

♦ The person will stand for election as a Member of Parliament.

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Rights of a financial auditor who is resigning from a company.

1. To request an extraordinary general meeting to explain the circumstances of the resignation.

2. To require company to circulate notice of circumstances relating to resignation Other rights during the audit/continued appointment includes.

➢ Access to the company's books and records.

➢ To receive information and explanations necessary for the audit.

➢ To attend general meetings of shareholders and receive notifications.

➢To be heard at such meetings on matters of concern to the auditor

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Ways through which a private company without a company secretary operates.

If a private company does not have a secretary;
➫ Anything that is permitted or required to be given, sent or given to the company by giving, mailing or giving to the secretary.

➢ It can be handed over, mailed, or delivered to the company itself.
➢ If addressed to the secretary, is taken to be treated as addressed to the company; and.

➫ Anything else required or authorised to be done by the secretary of the company may be done by.

➢ A director, or.

➢Persons generally or specifically authorized by the directors for that purpose

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Types of persons who are disqualified from acting as a Company Secretary.

➢ If he is unsound mind.

➢ He has been convicted by a of competent jurisdiction of an offence fraud or dishonesty.

➢ Under any such terms as the registration, board may determine.

➢ He is undischarged bankrupt.

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➧ The appointment of an alternate director shall automatically terminate if the director who appointed him or her ceases to be a director.

➧ The other Directors may immediately terminate the appointment of an Alternate Director, or suspend their appointment, by a Simple Majority Vote of Directors, after giving the appointor reasonable written notice.

➧ An Alternate Director may resign by giving the Company written notice at its registered office. The resignation takes effect immediately the notice is given or,

➧ On the death of the alternate's appointor.

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Circumstances when a court might make a disqualification order against a director.

➧ Disqualification on conviction for offence - A court may disqualify a person if he or she is found guilty of a crime related to the promotion, formation, management, liquidation, or administration of a company.

➧ Disqualification for fraud or breach of duty while the company is in liquidation or administration. A court may issue a disqualification order against any person who believes that a person who was or was previously in office while the company was in administration or liquidation was guilty.

➧ Disqualification if convicted of failing to file return or other document with the registrar - This applies to crimes convicted for failure to comply with the provisions of this Act or the Bankruptcy Code.

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The disadvantages of debentures over shares as a method of raising capital.

➧ The burden of corporate assets and other protection provided to investors through the issuance of bonds generally limits a company's ability to access this source of funds. Companies cannot borrow more against the security of assets already pledged to bondholders.

➧ Companies that do not have stable expected future earnings, or trade commodities with highly elastic demand, or do not have sufficient fixed assets to pledge to bondholders as collateral. This funding source cannot be used to your advantage.

➧ Fixed interest rates and repayment of principal at maturity are statutory obligations of the company. These must be paid even without winnings. As a result, it is a constant burden on the company. Failure to make these payments will affect the company's creditworthiness and may even lead to the company's liquidation.

➧ The use of leverage typically increases investors' perception of the company's risks.This increased financial risk increases the cost of equity.

➧ Due to the high stamp duty, the cost of financing through bonds is also high.

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Companies Limited by Guarantee
➧ It does not have a share capital.

➧The liability of its members is limited by the articles of incorporation of the company to the amounts bound by those articles of association for the members to contribute to the assets of the company in the event of dissolution.

➧ The Articles of Incorporation state that it is a limited by guarantee.

Private Company

➧ Restrict a member's right to transfer shares.

➧ Limit the number of members to fifty.

➧ Prohibit invitations to the public to subscribe for shares or debentures of the company.

Public company
➧ Its articles allow its members the right to transfer their shares in the company.

➧ Its articles do not prohibit invitations to the public to subscribe for shares debentures of the company.

➧ Its certificate of incorporation states that it is a public company

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