KASNEB – COMPANY LAW REVISION KIT ( PAST PAPERS WITH SOLUTION)

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SAMPLE WORK

Complete copy of CPA COMPANY LAW REVISION KIT is available in SOFT copy (Reading using our MASOMO MSINGI PUBLISHER’S APP) and in HARD copy 

Phone: 0728 776 317

Email: info@masomomsingi.co.ke

 

 

 PAPER NO. 7 COMPANY LAW

 

UNIT DESCRIPTION

This paper is intended to equip the candidate with knowledge, skills and attitudes that will enable him/her to apply and comply with the provisions of Company Law in relevant circumstances and environments and further to demonstrate knowledge of the law and regulations governing corporate entities and ensure compliance in practice.

 

LEARNING OUTCOMES

A candidate who passes this paper should be able to:

  • Apply legal principles relating to formation of companies
  • Evaluate the rights and obligations of members and shareholders
  • Comply with the legal principles governing liquidation of corporates
  • Comply with the legal principles governing restructuring of companies
  • Comply with the legal principles relating to companies incorporated outside the country
  • Comply with the legal requirements relating to the financing of companies.

 

CONTENT

 

  1. Nature and classification of companies
  • Nature and characteristics of a company
  • Types of companies
  • Principle of legal personality and veil of incorporation
  • Distinction between companies and other forms of business associations sole proprietorships, partnerships and cooperative societies.

 

  1. Formation of companies
  • Promoters and pre-incorporation contracts and deeds.
  • Process and drafting documents required to form a company.
  • Rules relating to company names
  • Memorandum and articles of association
  • Certificate of incorporation
  • Effects of incorporation
  • Execution of a company’s documents
  • Alteration of status of companies
  1. Membership of a company
  • Acquisition of membership
  • Register of members
  • Rights and liabilities of members
  • Cessation of membership
  • Register of a company’s beneficial owners
  • Derivative actions.

 

  1. Shares
  • Classes of shares
  • Variation of class rights
  • Share certificates
  • Issue and allotment
  • Transfer and transmission
  • Transfer of shares under central depository system
  • Mortgaging and charging of shares

 

  1. Share capital
  • Meaning and types of share capital
  • Raising of share capital
  • Prospectus/information memorandum
  • Maintenance of capital
  • Alteration and Consolidation of share capital
  • Dividends

 

  1. Debt capital
  • Borrowing powers of a company
  • Company assets that can secure a company’s borrowings
  • Company debentures
  • Company charges
  • Meetings and resolutions in respect of debt capital
  • Registration of charges
  • Remedies for debenture holders

 

  1. Company meetings
  • Nature and classification of company meetings
  • Types of company meetings held to execute various functions of company meetings
  • Methods of holding company meetings
  • Essentials of a valid physical, virtual and hybrid meeting Voting
  • Resolutions
  • Drafting resolutions
  • Protection of minority shareholders

 

  1. Company Directors
  • Qualifications, appointment and disqualification
  • Powers and duties of directors
  • Removal and vacation of office
  • Register of directors
  • Remuneration of directors
  • Loans to directors
  • Compensation for loss of office
  • Disclosure of director’s interest in contracts
  • The rule in Turquand’s case/Indoor Management rule
  • Insider dealing

 

  1. The Company Secretary
  • Qualification, appointment and removal
  • Powers and duties of the Company Secretary
  • Liability of the Company Secretary
  • Register of Secretaries

 

  1. Auditors
  • Qualification, appointment and removal
  • Remuneration of auditors
  • Powers and duties
  • Rights and liabilities

 

  1. Company accounts
  • Books of accounts
  • Form and content of accounts
  • Group accounts
  • Director’s report

 

  1. Audit of Company Accounts
  • Auditor’s report
  • Annual returns

 

  1. Company Investigation
  • Investigation of company affairs
  • Appointment and powers of inspectors
  • Inspector’s report

 

  1. Corporate restructuring
  • Need for restructuring
  • Mergers
  • Post – merger reorganisation of a company’s share capital
  • Takeovers and acquisitions
  • Mergers and divisions of public companies
  • Compromises, arrangements, reconstructions and amalgamations

 

  1. Receivership, Administration, Liquidation and Dissolution of companies
  • Meaning of receivership, administration and dissolution
  • Appointment and vacation of office by the Official Receiver
  • Powers and duties of a receiver
  • Termination of receivership
  • Appointment of an administrator
  • Functions and powers of an administrator
  • Process of administration
  • Termination of appointment and replacement of administrators
  • Company voluntary arrangements
  • Meaning of liquidation
  • Types of liquidation
  • Appointment, powers and duties of liquidators
  • Discharge of liquidators
  • Distribution of assets and dissolution of companies

 

  1. Foreign Companies
  • Process of registering a company
  • Certificate of registration
  • Power to hold land
  • Registration of charges
  • Accounts of foreign companies
  • Service of process and notices on foreign companies
  • Returns
  • Penalties
  • Cessation of business

SAMPLE WORK

Complete copy of CPA COMPANY LAW REVISION KIT is available in SOFT copy (Reading using our MASOMO MSINGI PUBLISHER’S APP) and in HARD copy 

Phone: 0728 776 317

Email: info@masomomsingi.co.ke

 

 

SAMPLE QUESTIONS

TOPIC 1

NATURE AND CLASSIFICATION OF COMPANIES

 

QUESTION 1

December 2022 Question One

(a) Highlight FIVE rules relating to the naming of companies.      (5 marks)

(b) Describe the effect of the principle elucidated by Lord MacNaghten in the case of Salomon-V-Salomon.   (7 marks)

(c) Explain the difference between a “company limited by shares” and a “company limited by guarantee.”      (4 marks)

(d) Identify FOUR features of an unlimited company.      (4 marks)

 

QUESTION 2

August 2022 Question One A

(i) Explain three advantages of a public company over a private company.     (6 marks)

(ii) Distinguish between “corporation sole” and “corporation aggregate”.    (4 marks)

 

QUESTION 3

April 2022 Question Six D

Distinguish between a “private” and a “public” company.     (4 marks)

 

QUESTION 4

April 2022 Question Seven C

Describe six grounds under which the veil of incorporation might be lifted.        (6 marks)

 

QUESTION 5

September 2021 Question One A

Tom Jerry and Marsha Bear are purposing to form a joint business venture. They are debating whether to form a limited liability company (LLC) or a limited liability partnership (LLP). Their knowledge on these forms of business associations is limited and they have thus approached you for guidance.

 

Required:

Advise Tom Jerry and Marsha Bear on five differences between a limited liability company (LLC) and limited liability  partnership (LLP).        (10 marks)

 

QUESTION 6

May 2021 Question Two A

Explain three characteristics of a company.    (6 marks)

 

QUESTION 7

May 2021 Question Two B

Highlight four differences between a “private company” and a “public company”. (4 marks)

 

QUESTION 8

May 2021 Question Four C

Highlight three conditions for a company to be deemed a “small company”.       (6 marks)

 

QUESTION 9

November 2020 Question seven B

Explain the distinguishing features of the following types of companies:

(i) Companies limited by guarantee.      (3 marks)

(ii) Private companies.          (3 marks)

(iii) Public companies.         (3 marks)

 

QUESTION 10

November 2019 Question three A

A company is a legal person and is distinct from its members. This principle is regarded as a curtain, a veil or shield between the company and its members. This veil can be lifted by the Courts and statutes.

Describe the circumstances for lifting of the veil by:

  • The Courts. (6 marks)
  • The Statutes. (6 marks)

 

QUESTION 11

May 2019 Question Two A

(i) Joanne wishes to register a business enterprise but she knows very little about business associations. Shemulls over various choices including partnerships, sole proprietorships and limited companies. Joanne is unable to make up her mind on the type of business to establish and seeks your advice.

Required:

Advise Joanne on eight advantages of sole proprietorships over the other forms of business structures.        (8 marks)

(ii) Distinguish between a “corporation sole” and “corporation aggregate.” (2 marks)

QUESTION 12

November 2018 Question three A and B

Explain the distinction between “statutory companies” and “non-statutory companies”. (4 marks)

Describe four reasons why a court in exercising its inherent jurisdiction for the sake of justice might disregard the principle of legal personality.         (8 marks)

 

QUESTION 13

November 2018 Question five A

With reference to the types of companies, summarise three provisions relating to the liabilities of the members of a company.

 

QUESTION 14

May 2018 Question seven B

Cliff, Mohammed and Mwikali have been running the business of supplying stationary to various customers including some government ministries as a partnership trading under the name “Relax Enterprise”. They are desirous of converting their business into a limited liability company.

Explain to them two differences between companies and partnerships.              (4 marks)

 

 QUESTION 15

November 2017 Question five B (i)

Explain three categories of public companies.                   (3 marks)

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QUESTION 16

May 2017 Question one A and B

Explain four distinctions between “co-operative societies” and “limited companies”. (4 marks)

 

QUESTION 17

May 2017 Question one B

Describe three circumstances under which the veil of incorporation of a company might be lifted under case law.      (6 marks)

 

QUESTION 18

November 2016 Question one A

With reference to classification of companies, explain the meaning of a “holding company” in relation to another company.       (4 marks)

 

QUESTION 19

November 2016 Question one B

A company cannot on its own execute contracts.

Describe three mechanisms provided by the Companies Act by which a company can sign documents.        (6 marks)

 

 QUESTION 20

May 2016 Question two B

Describe five classifications of companies under the Companies Act.    (10 marks)

 

QUESTION 21

November 2015 Question one B

Sometimes a corporate entity works like a boomerang and hits the man who was trying to use it.

With reference to the above statement, describe five exceptional circumstances under which when a shareholder could institute proceedings as the plaintiff instead of those proceedings being instituted in the name of the company.                           (10 marks)

 

QUESTION 22

November 2015 Question two B

Describe five persons who are responsible for meeting the expenses of an investigation by an inspector appointed by the court.       (10 marks)

 

QUESTION 23

November 2015 Question seven A

Discuss five advantages of a private company over a public company.        (10 marks)

 

QUESTION 24

September 2015 Question seven C

Distinguish between companies and partnerships as forms of business associations. (6 marks)

 

 

 

SAMPLE ANSWERS

TOPIC 1

 NATURE AND CLASSIFICATION OF COMPANIES

QUESTION 1

December 2022 Question One

(a) Rules relating to the naming of companies

  1. The name must not be too similar to that of an existing company.
  2. The name must not in the opinion of the registrar be undesirable.
  3. The name must not mislead the public in any manner.
  4. The name must not suggest any patronage of the government, president, department or ministry.
  5. The name must not support a criminal or immoral intent or purpose.
  6. The name must contain the word Limited or Ltd as the last word thereof.
  7. The name must not contain the term co-operative or its equivalent or any abbreviation thereof.
  8. The name must not generally contain the terms “national” or “international.”
  9. The name must not contain the terms “bank,” “insurance” or “hotel” unless the company proposes to carry on such business.
  10. The name must not contain the surname of a person who is not named or proposed directory of the company.
  11. The name must not contain the registered trademark of any person without his written consent.

 

(b) Effect of the principle elucidated by Lord MacNaghten in the case of Salomon-V-Salomon

The principle elucidated by Lord MacNaghten in the case of Salomon v Salomon is often referred to as the “corporate veil” or the “separate legal personality” of a corporation. This principle holds that a corporation is a separate legal entity from its owners, shareholders, and directors, and that it has the same legal rights and responsibilities as a natural person.

The effect of this principle is that:

  1. Limited Liability: Members liability is limited by shares or guarantee. It means that the liability of a company’s shareholders is generally limited to the amount of capital they have invested in the company. This means that if a company incurs debts or is sued, the shareholders are not personally liable for those debts or claims, unless they have given personal guarantees.
  2. Perpetual Succession: Since a registered company is a legal person not susceptible to natural shocks, it has capacity to exist in perpetuity as its life lies in the intendment of law i.e. Company can continue to exist indefinitely, even if its shareholders change or the company is sold to new owners. This allows companies to be used as a vehicle for long-term business ventures, as the company can outlast the involvement of any individual shareholders.
  3. Owning of property: a registered company has capacity to own property in its own e.g. land. Such property is vested in the company (Macauras case). It has an insurable interest in it.
  4. Sue or be sued: It has capacity to enforce its rights and may be sued on its obligations (Foss v Harbottle). It is Primafacie the proper plaintiff for redress. This allows third parties to have legal recourse against a company if they feel they have been wronged by the company’s actions, without having to pursue individual shareholders or directors.
  5. Capacity to contract: a company has legal ability to enter into contractual relationships

(c) Difference between a “company limited by shares” and a “company limited by guarantee.”

A company limited by shares is a type of company that is owned by shareholders, who are the people who have bought shares in the company. The shareholders are liable for the company’s debts only to the extent of the amount of money they have invested in the company’s shares. This means that if the company becomes insolvent and is unable to pay its debts, the shareholders will not be personally responsible for paying them.

A company limited by guarantee, on the other hand, is a type of company that is owned by its members, who are the people who have agreed to be members of the company. The members of a company limited by guarantee are not required to buy shares in the company. Instead, they are required to provide a “guarantee” in the form of a fixed amount of money that they agree to pay if the company becomes insolvent and is unable to pay its debts. The members of a company limited by guarantee are not personally responsible for the company’s debts beyond the amount of their guarantee.

The main differences between the two limited companies are:

Basis of Distinction Limited by Guarantee Limited by Shares
Object They are formed to provide specific services to the public and are non-profit making business. Therefore, it has specific objects & detailed rules pertaining to which areas they want to work upon. They are formed for profit-making business and have very general objectives and the clauses which allow them to pursue any legal activity or trade.
Share Capital May or may not have share capital Must have share capital
Shareholders There are no shares – hence there are no shareholders. Instead, the company will have members. Owners of shares are called shareholders of the company.
Company Companies limited by guarantee are non-profitable organization. They are specially designed for charitable purposes. Companies limited by shares are profit making organization

 

(d) Features of an unlimited company

An unlimited company is a type of business entity that is not required to have a stated capital, and does not have a limit on the liability of its members. Here are four features of an unlimited company:

  1. No stated capital: An unlimited company does not have a stated capital, which means that there is no minimum amount of capital that the company is required to have. This means that the company’s members are not required to contribute a specific amount of money to the company when it is formed.
  2. No limit on liability: The liability of its members is not limited. This means that the members of the company are personally responsible for the company’s debts and obligations.
  3. More flexible: Unlimited companies are generally considered to be more flexible than limited companies, as they do not have the same legal requirements and restrictions. This means that they can be more easily adapted to suit the needs of the business.
  4. Fewer regulatory requirements: Unlimited companies are subject to fewer regulatory requirements than limited companies, as they do not have to meet the same reporting and disclosure requirements. This can make them a more attractive option for businesses that want to avoid the burden of compliance.

 

QUESTION 2

August 2022 Question One A

(i) Advantages of a public company over a private company

  1. Raising capital through public issue of shares: The most obvious advantage of being a public company is the ability to raise share capital, particularly where the company is listed on a recognised exchange. Since it can sell its shares to the public and anyone is able to invest their money, the capital that can be raised is typically much larger than a private company. It’s also possible that having stock listed on an exchange could attract investment from hedge funds, mutual funds and other institutional traders.
  2. Growth and expansion opportunities: The value of being able to raise finance is in how it can be employed to serve the business. By having more finance potentially more readily available and on better terms than a private company, the public limited company can be in an advantaged position to: Pursue new projects, new products or new markets, Make capital expenditure to support and enhance the business, Make acquisitions (whether in cash or by offering shares to the shareholders of the target business) and Pay off existing debt (or replace existing debt with new debt on better terms)
  3. Transferability of shares: The shares of a public limited company are more easily transferable than those in the private equivalent, meaning shareholders benefit from liquidity. If shares are quoted on a stock exchange, shareholders and potential shareholders will generally find it easier to transfer shares in the company – although the market still relies on willing purchasers and sellers being available. The fact the shareholders are less bound to remain with the company can give them comfort – and may help the company by making people more willing to invest. Without restrictions on transferability of shares that often apply in private companies, it’s also easier to deal with situations like a shareholder’s death, allowing shares to be transmitted in line with the terms of any will.
  4. Increased Prestige – Investors, financial institutions, customers, and employees may see the company as a larger player in the industry as a public company as opposed to if it is a small, privately owned business. Increased recognition can also provide free advertising and public relations for a business, providing opportunities for growth as more people learn of the company and their brand.
  5. Tax Concerns – Utilizing business stock for acquisitions lowers the need for cash, instead allowing businesses to complete a transaction without using IPO proceeds for continued growth. Acquisitions made with stocks as consideration may be seen as “tax-free” reorganizing, allowing the business to defer the tax on any gains from the business sale.
  6. Grant of Options – A public company can also use its stocks to compensate existing and future employees and officers via directly issuing stocks or grant options. This allows potential employees and management the opportunity to benefit from a business’s success.
  7. Liquidity – An IPO can provide liquidity to a business’ employees, pre-IPO investors that hold company stock and founders. While pre-IPO investors may not be able to liquidate their stocks immediately, due to underwriters imposed “lockup” requirements and additional rules of the SEC, there is future monetary value to their stock.

(ii) Distinction between a corporation sole and a corporation aggregate

  • Corporation sole: This is legally constituted office distinct from the holder and can only be held by one person at a time after which he is succeeded by another. The office is a body corporate with perpetual succession^ capacity to contract, sue or be sued and own property e.g. Office of the Permanent Secretary to the Treasury, Office of the Public Trustee.
  • Corporation aggregate: This is a legal entity formed by two or more persons for a lawful purpose and whose membership consists of at least two persons. It has independent legal existence, capacity to contract, sue orbe sued and perpetual succession e.g. private and public companies.

 

QUESTION 3

April 2022 Question Six D

Distinctions between “Private Company” and “Public Company” as Per Companies Act, 2015

PRIVATE COMPANY PUBLIC COMPANY
Any one or more persons may form a private company up to a maximum of 50 members. Any one or more persons may form a public company
Must have at least one director Must have at least 2 directors( at least one Director must be a natural person)
No minimum capital requirement. Authorised minimum capital required
No restrictions on allotment of shares Cannot allot shares unless at least one-quarter of their nominal value and the whole of any premium has been paid up.
Once the Certificate of Incorporation is issued, the company may commence business. Trading license must be obtained before conducting business or exercising borrowing powers
The company is restricted in the transfer of its shares and the shares are not freely transferable. The company may transfer or sell its shares to the members of the public
Required to file financial statements (unless exempted) and director reports. They are strictly regulated hence the financial accounts and director reports are published and filed with the Registrar
Does not have to appoint a secretary unless with paid up capital of at least Kshs. 5 million and above Must have a company secretary

 

QUESTION 4

April 2022 Question Seven C

Grounds under which the veil of incorporation might be lifted

Veil of incorporation refers to the situation where the real identity of the owners of the company is hidden by the concept of legal personality

However there are certain circumstances when the veil of incorporation can be lifted or The concept of legal personality is disregarded in order to know the real identity of the persons behind that company. This circumstances can be classified into two categories as follows

  1. Lifting the veil by the statute/Act of parliament.
  2. Lifting the veil by court.

 

Lifting the Veil by Act of Parliament/Legislation/ Company Act

These are circumstances when provisions of Company Act are not adhered to. They include:

  • Reduction in number of members has fallen below statutory minimum: Where the membership of a company falls below the statutory requirement and members do business for more than 6 months
  • Non-publication/mis-description of companies name: Every company is required by the Company Act to publish its name in legible roman letters on all official publications e.g. cheques, invoices, bills exchange. Failure to comply with those provision may lead to lifting of the corporate veil.
  • Group accounts: The holding company is obligated to incorporate into its balance sheet the assets and liabilities of the subsidiary as it was as their own asset and liabilities. This is also regarded as lifting the veil of incorporation.
  • Investigation of the companies affair by an inspector appointed by court: Company Act requires an inspector appointed by the court to investigate company’s affairs. This investigation may go beyond and investigate the company’s members.
  • Investigation of companies membership by inspector appointed by registrar of company: The law empowers the registrar to appoint an inspector to investigate the membership of any company for the purpose of determining the true person who are financially interested in the success of the company.
  • Take-over bid: The court may be in appropriate situation lift the veil of incorporation and investigate members in protecting interest of minority. A scheme of take-over bid requires that 90% of the shareholders of the transferor to approve. The dissenting and minority shareholders may apply to the court within one month to restrain compulsory acquisition of their shares.
  • Fraudulent trading: The law requires that if it appears that any business of the company has been carried on with the intention to defraud creditors during winding up, the court may lift the veil of incorporation and hold those involved personally liable.

 

Lifting the veil By Court

  1. Determination of character: This is in order to determine whether a company is an enemy in times of war i.e. a company whose members behind it are foreigners who come from a country which at war with Kenya is also declared an enemy to Kenya.
  2. The company is a sham: This is where the company is used to carry out illegal or improper activities or to perpetuate fraud, corruption, crime, sexual immorality etc.
  3. Where the company is acting as the agent of the shareholder: The company is not in law an agent of the subscribers. If the court holds that a company acted in as particular instance as an agent of its shareholders, the veil of incorporation would be lifted.
  4. Protection of revenue: The court would disregard the corporate entity where its used for tax evasion or to circumvent tax obligation
  5. Prevent deliberate evasion of contractual obligation: The veil is lifted where members are using the company to evade contractual obligation.

 

QUESTION 5

September 2021 Question One A

Differences between a limited liability company (LLC) and limited liability partnership (LLP).

A limited liability company (LLC) is a business entity that prevents individuals from being liable for the company’s financial losses and debt liabilities. In the event of legal action or business failure, liability is assumed by the company rather than its constituent partners or shareholders.

A limited liability partnership (LLP) is essentially a general partnership with the addition of limited liability for one or more partners. A general partnership is formed whenever two or more people do business together and does not require any legal filings. To create an LLP, you must file additional paperwork with the state. Like an LLC, an LLP is a separate business entity.

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Key Differences between LLC and LLP

Limited Liability Company (LLC) Limited Liability Partnership (LLP)
1. LLC is a privately-owned corporate entity that combines the characteristics of a company and a partnership. 1. LLP refers to a type of partnership in which partners’ liability is limited to the amount of capital they contribute.
2. The owners of LLC are known as members 2. LLP is owned by the partners.
3. In LLC, the individuals are all protected from personal liability for any debts or lawsuits filed against the business. Creditors and individuals who have been directly harmed by the business can’t sue any of the business members for debts. 3. LLP, partners are personally liable, but only in so far as it applies to their own negligence. One partner will not be held responsible for the other’s actions. This means each individual has liability protection from wrongs committed by the other partner.
4. Memorandum and Articles of Association are the two documents that consist of all the details regarding LLC. 4. The limited liability partnership agreement is the document, that contains the basic details of LLP.
5. A limited liability company must add “LLC” at the end of its name. 5. Likewise, the limited liability partnership is required to add “LLP” at the end of its name.
6. A single person can form an LLC, and that individual can be a business person or anyone else. 6. With an LLP, the organization is limited to people who are licensed professionals in their distinctive fields.
7. A limited liability company maintains its books of accounts on an accrual basis. 7. LLP can choose to maintain their accounts either on a cash or accrual basis.
8. The life of an LLC is limited, in the sense that, if any of the members dies or leaves the organization, the business goes to dissolution. 8. On the contrary, an LLP has a perpetual succession

 

QUESTION 6

May 2021 Question Two A

Characteristics of A Company

  1. Legal personality: A registered company is considered to be a legal person that is separate from the person who formed it. The concept of legal personality was explained in the case of reference salomon vs salomon co lts 1897. In this case salomon had converted his sole trade business into a company where he was a majority shareholder together with his family members. He had also given the company a loan that was not secured by the company’s assets making him a secured creditor. When the company went into liquidation the other creditors argued that Salomon should not be paid as a secured creditor before them because according to them he and the company were the same. The court held that Salomon and the company were separate and according to the court once a company is registered it becomes a separate legal person different from its owners.
  2. Limited liability: The liability of members of the company is limited up to the extent of any amount that remains unpaid on the shares that are taken by the members. Therefore where the member has fully paid for his shares he cannot be called upon to contribute to the debts of the company if the company is unable to pay its debts.
  3. Ownership of the property: A registered company can acquire and own property under its registered name .Such property does not belong to the members or shareholders. This was explained in the case of Macaura vs Northern Assurance Co Ltd In this case Macaura had converted his timber business into a company. He took an insurance cover to protect the timber against fire. However the policy was registered in his own name. When the timber was destroyed by fire Macaura made claim for compensation but the insurance company refused arguing that Macaura had no insurable interest on the timber .When he sued the company the court held that Macaura could not be compensated because the property he insured belonged to the company. The court explained that companies properties do not belong to the members
  4. Capacity to Contract: A registered company can enter into legally binding contracts with other parties in order to pursue its objectives.
  5. Capacity to sue or be sued: a registered company can sue another party to protect its interest and can also be sued if it fails to fulfill its obligations.
  6. Perpetual succession: The Company’s life is not affected by the death of its members .if a member dies the company continues to exist.
  7. Common Seal: A registered company can acquire a common seal that can be used as an official signature of the company.
  8. Borrowing Power: A registered company can borrow finances from lenders to finance its operations.
  9. Management: Registered companies are usually managed by trained personnel that are able to provide professional services to the company.
  10. Transfer of Shares: Shares of a registered company can be transferred from one member to another.

 

QUESTION 7

May 2021 Question Two B

Difference between Public Company and private company

  Public company Private company
Membership Minimum  of 7 and no maximum Minimum of 1 and  maximum of 50
Prospectus

 

 Can issue a prospectus

 

 Cannot issue a prospectus
Director At least 2 directors At least 1 director
Transfer of shares

 

 

 Shares are freely transferable

 

 Restricts transfer of shares to members only
Commencement of business

 

 

 Can only commence business after certificate of trading is issued Can commence business

after certificate of Incorporation is issued
Publication of accounts Must publish its account  No requirement to publish accounts

 

 

QUESTION 8

May 2021 Question Four C

Highlight three conditions for a company to be deemed a “small company”. (6 marks)

  1. It has a turnover of not more than 50 Million shillings;
  2. The value of its net assets as shown in its balance sheet as at the end of the year is not more than Ksh.20 Millions
  3. It does not have more than 25 employees.

 

 QUESTION 9

November 2020 Question seven B

Distinguishing features of the following types of companies

(i) Companies Limited by Guarantee

  1. It does not have a share capital;
  2. The liability of its members is limited by the company’s articles to the amount that the members undertake, by those articles, to contribute to the assets of the company in the event of its liquidation; and
  3. Its certificate of incorporate states that it is a company limited by guarantee.

 

(ii) Private Company

  1. Restrict a member’s right to transfer shares;
  2. Limit the number of members to fifty; and
  3. Prohibit invitations to the public to subscribe for shares or debentures of the company

 

(iii) Public company

  1. Its articles allow its members the right to transfer their shares in the company;
  2. Its articles do not prohibit invitations to the public to subscribe for shares or debentures of the company ; and
  3. Its certificate of incorporation states that it is a public company

 

  QUESTION 10

November 2019 Question three A

Circumstances for lifting of the veil by:

  • The Courts
    1. Tax Evasion: Sometimes, the corporate veil is used for the purpose of tax evasion or in order to avoid any kind of tax obligation. It is not possible for the legislature to fill all the gaps in the law and thus it is important for the judiciary to interfere. In such cases, the courts lift the veil of the company to find out the real state of affairs of the company.
    2. Prevention of fraud or improper conduct: Where the medium of a company has been used for committing fraud or improper conduct, courts have lifted the veil and looked at the reality of the situation.
    3. Determination of the enemy character of a company: In times of war the court is prepared to lift the corporate veil and determine the nature of Group enterprises: Sometimes in the case of group of enterprises the Solomon principal may not be adhered to and the court may lift the veil in order to look at the economic realities of the group itself
    4. Where a company acts as an agent for its shareholders: Where a company is acting as agent for its shareholder, the shareholders will be liable for the acts of the company. It is a question of fact in each case whether the company is acting as an agent for its shareholders. There may be an Express agreement to this effect or an agreement may be implied from the circumstances of each particular case. In case of economic offences: a court is entitled to lift the veil and pay regard to the economic realities behind the legal façade.
    5. Where Company is a sham or cloak: When the court finds that company is a mere cloak or sham and is used for some illegal or improper purpose, it may lift veil.

 

  • The Statutes.
  1. Reduction in number of members: section 33 of the Companies Act.
  2. Non-publication or mis-description of the Companies name
  3. Group accounts
  4. Investigation of companies affairs
  5. Investigation of company membership
  6. Fraudulent trading

 

QUESTION 11

May 2019 Question two A

Business formation 

  1. Advantages of sole proprietorship over other forms of business ventures
    1. Easy to form because of few legal requirement that are needed.
    2. Capital required is small in relation to other forms of business like limited company.
    3. Flexibility of the business is high i.e the proprietor can choose to change the business at his own will.
    4. There is quick decision making due to lack of consultation.
    5. One enjoys the profit alone if the business achieves.
    6. The business has a higher level of confidentiality due to sole ownership.

 

QUESTION 12

November 2018 Question three A

Explain distinction between statutory companies and non-statutory companies

Statutory companies are companies which are formed and operated as per the regulation of the statute. They are managed by the government and it’s the government to appoint its management structure. They include parastatals and public corporation.

Non –statutory companies are companies other than statutory companies. They include registered companies, unlimited companies, limited companies, chartered companies, corporate sole and corporate aggregate

SAMPLE WORK

Complete copy of CPA COMPANY LAW REVISION KIT is available in SOFT copy (Reading using our MASOMO MSINGI PUBLISHER’S APP) and in HARD copy 

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