The partnership agreement, Memorandum of Association or Articles of Association must be drawn up and or signed by a notary or witness – see Appendix 1.. From the foregoing it is evident that the contract establishing the commercial company must be in writing. The nullity must be pronounced by a court. Where nullity of the company has been pronounced it produces effects as from the date the nullity was pronounced. Accordingly it puts an end to the execution of the contract but does not have retroactive effect. Note that as soon as the nullity has been pronounced by the courts the commercial company shall be dissolved immediately and liquidation shall follow.
The decision pronouncing the annulment of the company is required to be published in the Official Gazette (OG) as well as in one or several newspapers designated by judge. The essence of the publication is to notify all those who may be personally affected by the information (publication). The categories of persons who may be interested in the publication are: the shareholders (partners), creditors of the company and the personal creditors of the shareholders. Note that the cost of publication of the court’s decision is the responsibility of the company and in case of need by the promoters.
However neither the company nor its members may rely on a nullity as against third parties until the 30th day subsequent to the publication of the decision of the court in the OG, except where the company can establish that the 3rd party knew that the company had been annulled by a decision of the court.
PUBLIC LIMITED COMPANY
A public limited company shall be a company formed by natural persons or corporate bodies in which the liability is limited to the amount of their contribution in the capital of the company and the company shares are represented by negotiable instruments called shares. The number of shareholders in the public limited company must not be inferior to seven.
A public limited company shall be known by a company name, which shall immediately be preceded or followed by the words “public limited company” abbreviated Limited or Ltd. It is forbidden for the name of the shareholders to appear in the company name. This may be explained by the fact that the identity of the shareholders will be changing just as often as the company shares change hands.
FORMATION OF THE PUBLIC LIMITED COMPANY
In order for the public limited company to be validly formed it must satisfy both substantive and procedural requirements.
The substantive requirements correspond to the general conditions of validity of a contract: Consent, capacity, object and purpose; requirements common to all companies: shares must be in cash or in kind; participation of each shareholder in the profits and losses of the company; and to the conditions of validity peculiar to the public limited company: number of shareholders, nominal (face) value of shares and the paying up of shares.
The Memorandum of Association and the Articles of Association, if any, should contain the following information – See Appendix I
- a description of the promoters
- The name of the company
- The company does/does not have articles of association
- The address of the registered office and the exploitation office
- The person to be managing director
- The object (s)
- The amount of subscribed capital
- The amount of paid up capital
- A table showing the name and details of each subscriber/promoter, the number of shares subscribed and a signature
The articles of association may also include
- For each category of shares, the number, nominal or face value, their nature (cash, kind) and the rights attached thereto:
- A description of each contribution in kind, the value attributed to such share and the mode of evaluation; if the contribution is in the form of a building the conveyance for valuable consideration it has been subjected to for
- The modalities for the distribution of profits
- The manner of appointment and number of organs charged with the administration and control of the company:
- The rules relating to the holding of general meetings;
- The duration of the company
- The beginning and end of the financial or accounting year
- The estimated cost of the formation of the company;
- The cause and special benefits given to the promoters.
- The authority limits of the Directors (Managers)
As regards procedural requirements the formation of the public limited company results from the completion of a series of formalities. The rules applicable to the formalities of formation depend on whether the limited company is offering its shares to the public or not.
A company is said to be offering its shares to the public if its shares are listed on the stock exchange or the shares are deposited with a bank or financial institution for publicity purposes.
The procedural requirements concern:
- Drawing up and publication of the draft memorandum of association in the Official Gazette
- Publication of the prospectus Subscription of share capital
- Payment for shares.
OFFICE OF THE REGISTRAR GENERAL (ORG)
Drawing up and submitting the Memorandum of Association and, if any, the Articles of
Association to the Office of the Registrar General (ORG)
As per Article 14, an application for registration of a company shall be sent or delivered to the Registrar General, and shall be : 1. in the prescribed form; 2. accompanied by :
- a memorandum of association See Appendix I of this manual
- the articles of association, if any;
The promoters have the obligation to ensure that the draft memorandum and articles of association are in writing and witnessed or authenticated (notarised) which should be published in the Official Gazette.
The rationale for the publication of the draft articles of association is to provide prospective subscribers with information concerning the characteristics of the proposed corporation. Note that the publication of the draft articles of association does not exonerate the company from subsequently publishing the articles of association in the OG as soon as the formalities for the formation of the company have been completed i.e. when the company is born.
Publication of the draft articles of association serves an important purpose. It renders it difficult for the promoter or founding member to alter the original draft articles of association during the period of formation.
MEMORANDUM & ARTICLES OF ASSOCIATION
The constitution of a commercial company consists of one or two documents, namely:
- The memorandum of association which contains the most important provisions setting out the sort of activities which the company can carry on. It is of interest to the outsiders who wish to deal with the company.
- Also articles of association in some instance are necessary to outsiders since they contain the powers of the directors.
A memorandum of association for a company limited by guarantee shall indicate that liability is limited. A memorandum of association for a company limited by guarantee shall also state that every member shall undertake to contribute to the assets of the company in the event of its being wound up.
For the case of a company with share capital, the memorandum of association shall state the following:
- the amount of share capital;
- the number of shares making the share capital unless where the company is an unlimited company;
- the full name and the number of shares of every shareholder.
See Appendix I for the forms of Memorandum of Association
Any company may have or may not have articles of association. Article 54
Where a company has articles of association, the rights, powers, duties, and obligations of the company, the Board of directors, each director, and of each shareholder of the company shall be those set out in this Law except to the extent that they are restricted, limited or modified by the constitution of the company in accordance with the Law.
Where a company does not have articles of association, the rights, powers, duties, and obligations of the company, the Board of directors, each director, and of each shareholder of the company shall be those set out in the Law No. 7/2009 of 27/04/2009 Relating to Companies.
Articles of association of a company shall :
- be a document signed by the applicant for registration of the company;
- be a document that is adopted by company shareholders as its articles of association.
Articles of association contain rules governing the internal management of the company such as the appointment of directors and the powers of the board, the rights of different classes of shareholders and the holding of meetings of the company.
The limited company carries on business under a company name, which may be either one descriptive of its business or if a private company composed of the names of one or more of its members. In either case the name must always be followed by the words “ limited company” abbreviated Ltd .
Requirement for publicity
There is also the requirement for publicity, which is common to other commercial company: registration in the ORG and publication of the articles of association in the Official Gazette.
In addition to the procedural requirements the law also prescribes certain substantive requirements, which are specific to the limited company.
Objects of the Company
In the first place the limited company should not be constituted to undertake an illegal business. In as much as the objects of the limited company must be lawful. There are certain businesses, which cannot be undertaken through the instrumentality of a limited company because of the inadequate guarantees which this type of business entity offers. The businesses are: insurance, banking, savings bank or issuance of debentures.
Conditions relating to Shareholders
For private limited companies there must be a minimum of two and a maximum of 100 shareholders who may be natural persons or corporate bodies in order that a private limited company is validly constituted. This number excludes employees or former employees In a public company there must be a minimum of
In addition the shareholder must give his consent to become a shareholder either in person or through his agent. The shareholder must also posse’s legal capacity. As such in principle, minors and persons who suffer from incapacity are excluded from the membership of a private limited company.
Conditions relating to the Capital and shareholding
The law prescribes that the share capital of a private limited company shall
be at least 500,000 RWF and that the share capital must be entirely subscribed and paid up. The capital shall be divided into equal share whose face value shall not be less than 1000 RWF.
Each share confers an equal right to the distribution of profit as well as the bonus subsequent to liquidation. A certificate is issued to represent the shares, which constitute evidence of ownership. It follows that there is only one type of share in the limited company viz., registered shares (that exclude bearer shares and warrants).
Conditions relating to duration
The articles of association can define the duration of the company. In practice the duration is usually not too short because an extension of the life of the company implies the payment of a new registration tax. It has become fashionable for the duration of the company to be fixed at 99 years.
On the other hand if the duration of the company is indefinite, then, any shareholder may at his pleasure call for the dissolution of the company after notifying the other shareholders.
A promoter is a person who takes the preliminary steps to the founding or organization of a company. He finds people who are willing to finance it – buy shares, lend money. Contracts must be made for building or leasing space, buying or renting equipment, advertising and whatever else is required for the early operation of the business.
Any company wishing to offer shares shall issue a prospectus. It will be issued by a promoter.
A prospectus is a notice, circular, advertisement or request inviting applications or offers from the public to subscribe for or purchase, a share in or debenture of a company or proposed company;
No person shall have the right to issue, circulate or distribute any form of application for shares or debentures unless :
- the form is accompanied by a prospectus whose date of publication is a date within the period of six months immediately preceding the date on which the form was issued, circulated or distributed;
- a copy of the prospectus and particulars of the issue, circulation or distribution shall have been lodged with the Registrar General ;
- the company or proposed company undertakes, in its prospectus that it will, within two (2) months after receiving the money, issue to that person a document to acknowledge receipt of the money. Articlwe 65
Every company shall keep a copy of every share application form at its registered office within seven (7) days after the prospectus is lodged and shall keep every such copy, for a period of at least six (6) months after the lodging of the prospectus, for the inspection by company’s members and creditors.
Where a company has accepted any money as a deposit or loan, it shall within 2 months after the acceptance of the money, issue to that person a document which acknowledges or evidences or constitutes an acknowledgement of the indebtedness of the company in respect of that deposit or loan.
Every advertisement which is issued, circulated or distributed and which offers or calls attention to an offer or intended offer of shares in, or debentures of a company or proposed company to the public for subscription or purchase, shall be treated as a prospectus if it contains the following:
- the number and description of the shares or debentures concerned;
- the name and date of registration of the company and its paid-up share capital;
- a concise statement of the main objective and main business of the company;
- the names, addresses and description of –
- the directors or proposed directors;
- the brokers or underwriters to the issue;
- the debenture holders’ representatives;
- the name of the stock exchange, if any, of which the brokers or underwriters to the issue are members;
- particulars of the opening and closing dates of the offer and the time and place where copies of the prospectus and forms of application for the shares or debentures may be obtained;
- statements with respect to the sale price of shares, the yield there from or other benefits received or likely to be received by holders of shares, in relation to an authorised mutual fund.
Every prospectus shall comply with the form and content prescribed by instructions of the Registrar General
The prospectus shall :
- be printed in type of a font size approved by the Registrar General;
- be dated and that date shall, unless the contrary is proved, be taken as the date of issue of the prospectus;
- be signed by every director or person named in the prospectus as a proposed director, or by his or her agent authorised in writing;
- state that a copy has been lodged with the Registrar General
- and also state immediately after that statement that the Registrar General assumes no responsibility as to its contents.
COMMITMENTS MADE ON BEHALF OF A COMPANY UNDER FORMATION
Acts done and commitments entered into by the founder (promoters) on behalf of the company, under formation are required to be taken over by the company prior to its registration
In the register of commercial companies similarly acts done or commitments entered into on behalf of the company during its formation may also be taken over by the company after its registration in the RC. However, if the acts and commitments are not taken over by the company within two (2) months from the date of its registration, the persons who made them (promoters) shall have unlimited liability for the obligations they entail. Similarly, if company is not constituted within two years from the date the obligation was contracted, the promoters shall be personally liable. Once ratified contracts concluded by promoters are considered as having been signed originally by the commercial company.
LEGAL CONSEQUENCES OF INCORPORATION
Every company shall always have a registered office in Rwanda to which all communications and notices may be addressed and which shall constitute the address for service of legal proceedings on the company.
The Board of Directors of a company may, at any time, change the registered office of the company. The change of the registered office shall be notified to the Registrar General.
A company shall keep at its registered office the following records:
- the memorandum and articles of association;
- minutes of all meetings and resolutions of shareholders within the last ten (10) years;
- an interests register for directors;
- minutes of all meetings and resolutions of directors and directors‟ committees within the last ten (10) years;
- certificates given by directors under this Law within the last ten (10) years;
- the full names and addresses of the current directors;
- copies of all written communications to all shareholders or all holders of the same class of shares during the last ten (10) years, including annual reports;
- copies of all financial statements ,for the last ten (10) years completed accounting periods;
- the accounting records for the last ten (10) years;
- the shares register;
- the copies of instruments creating or evidencing charges required to be registered under this Law.
The documents for the company’s current and previous financial years shall be kept at the company’s registered office. Other documents for the previous years may be kept in any other place and notice of which shall be given to the Registrar General.
CONSTITUENT ORDINARY MEETING
The final stage in the formation process is the holding of a constituent ordinary meeting.
Where there are articles of association all the promoters/founding members shall participate in signing the articles of association either in person or through their authorized agents. A constituent ordinary meeting grouping all the promoters or their nominees must be held. This meeting shall appoint not less than 3 and not more than 12 persons to be directors or ratify their appointment by the articles of association; it must also appoint one or more auditors whose function is to watch over the accounts in the interest of shareholders. The acceptance of their office by the directors and auditors marks the birth of the company. But it is still important for the legal validity of that birth that the company shall be entered in the ORG.. Finally the principal documents must be published in the official gazette.
Note that as far as the private limited company that does not offer its shares to the public is concerned only some of the procedural requirements examined above are applicable: drawing up of an authenticated articles of association (not draft articles) payment for shares and the holding of a constituent ordinary meeting.
As regards a public limited company that offers its shares to the public, the business of the constituent ordinary meeting comprises:
- Verification of the substantive requirements for the formation of the company;
- Adoption of the final text of the articles of association, which it shall amend by special resolution of all the members being the subscribers and promoters;
- Approval of the evaluation of shares in kind and the benefits given to the promoters which it shall be amended by a majority of the votes attached to the shares subscribed by the subscribers present excluding promoters;
- Appointment of the organs of administration (directors) and control (auditors) and fix their remuneration;
- A vote on the final formation of the company requiring a majority of the votes attached to the shares subscribed by the subscribers present excluding promoters.
The acceptance of their office by the directors and auditors marks the birth of the company. As it is the case with other commercial companies there must be registered in the ORG;
The memorandum and articles of association and minutes of the constituent ordinary meeting and a list of shareholders must be filed with the registrar of the CIF within whose jurisdiction the company proposes to establish its registered office. Finally the principal documents must be published in the Official Gazette.
The promoters are, notwithstanding any clause to the contrary jointly and severally liable towards third parties:
For the eventual difference between the share capital and the minimum capital as well as that part of the share capital which shall not be validly subscribed, they shall be deem to be the subscribers for that part;
The effective payment for shares in accordance with the law;
Liable to pay damages which is the consequence of either the nullity of the company or inaccuracy in the wording of the articles of association or overvaluation of any shares in kind or insufficiency of capital;
THE MAIN DIFFERENCES BETWEEN A PRIVATE AND
A PUBLIC COMPANY
Purpose: public company and private companies fulfill different economic purposes. The purpose of a public company is to raise capital from the public to run the enterprise. This ability to offer shares to the public is now the only advantage of a public company. The purpose of a private company is to confer separate legal personality on the business of a sole trader or partnership.
Issue of capital: A private company may not raise capital by issuing its securities to the public. There is no restriction on the offer of securities by a public company. A public company must, however, issue a prospectus ( a document which gives minimum essential information to potential members).
Transferability of shares: the shares of a public company are freely transferable. A private company will, in contrast, wish to remain under the control of the family or partners concerned. Its articles will therefore contain a clause restricting the right to transfer shares.