- It is in principal regarded as a permanent fund or a fund of last resort available to all creditors in the event of default by the company.
- The capital of a registered company must remain certain. It acts as a guarantee that creditors will be paid. Creditors are entitled to insist that no part of the company?s capital is wasted or returned to members.
- Creditors and other persons who deal with companies are aware that the companies have an amount of capital and are entitled that to insist no part thereof is returned to members without due compliance with law.
-It is therefore a fundamental principle that of company law that capital be maintained.
- Company Law has evolved both statutory provisions and prepositions of common law to facilitate the raising and maintenance of capital. One of these provisions is that the company should only reduce capital in accordance with the provisions of the Companies Act. These provisions of the companies act prescribe the circumstances and conditions under which a company may reduce capital.
i) Authority of the Articles Under Section 68 (1) of the Companies Act a company limited by shares or guarantee and having a share capital may reduce its capital of authorized by its articles.
ii) Special Resolutions Under Section 68(1) of the Act reduction of capital of capital by a company must be authorized by a special, resolution of members in general meeting. This resolution is referred to as “resolution for reducing share capital”. The reduction of capital may take the form of: Reducing or extinguishing liability on any unpaid up capital.
Cancellation of any paid up capital, which is lost or unrepresented by available assets. Paying off any paid up capital, which is in excess of the wants of the company.
iii) Application to court for confirmation Under Section 69(1) of the Act after the special resolution is passed an application must be made to the High Court for confirmation of the reduction. The essence of the application is for the court to satisfy itself that the reduction does not unfairly prejudice the position of any class of members or creditors. In particular the court must settle a list of all creditors and must satisfy itself that any creditor entitled to object to the reduction has either objected or consented to the same. In the case of an objection the court must be satisfied that the creditors claim or debt has been discharged, determined or secured. If the court is so satisfied it may confirm the reduction.
iv) Confirmation of the reduction Under Section 71 (1) of the Act, if the court is satisfied that creditors entitled to object to have consented or in the case of an objection, the creditors claim or debt has been discharged, determined or secured it may make an order confirming the reduction on such terms and conditions as it deems fit. The court may for any special reason if it deems fit order the company to add the words “and reduced” to it?s name for a specified duration. Such words form part of the company?s name for the duration of the order.
v) Registration of the reduction Under Section 71 (1) of the Act upon production of a certified court order approving the reduction and the minute of the same the registrar registers the reduction and issues a certificate of registration, which is conclusive evidence that the requirements of the act relating to reduction of capital have been complied with. A reduction of capital by a company take effect when registered and notice of registration must be published in accordance with the courts direction
Underwriting Commission This is the amount or sum paid by the company to a person who agrees to underwrite the company?s shares i.e. take up all the shares or a specified number of t he shares not taken up by the public. It?s payable whether the person (Underwriter) takes up the shares or not. It must be disclosed in the company?s prospectus.
Brokerage This is an amount paid by the company to a person or persons who agrees to place the company?s shares i.e. exhibits the company?s prospectus in their premises or send copies to their clients, but without incurring any liability on the shares. It is an amount only payable to brokers. It must be disclosed in the company?s prospectus.
marto answered the question on February 6, 2019 at 08:48
- a) James and Shem proposed to form a company by the name 'Micromine Limited'. On behalf of the proposed company, Shem entered into contracts to...(Solved)
a) James and Shem proposed to form a company by the name 'Micromine Limited'. On behalf of the proposed company, Shem entered into contracts to purchase office furniture and stationery.
Required:
i) What are the company's rights and liabilities under such contracts after incorporation?
ii) What provisions for the protection of Shem are found in such contracts?
Date posted: February 6, 2019. Answers (1)
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The shares of Promotion Limited, a private company are held by members of three families, that is, the family of Mr. Karanja, Mr. Mutisya...(Solved)
The shares of Promotion Limited, a private company are held by members of three families, that is, the family of Mr. Karanja, Mr. Mutisya and Mr. Otieno.
Mr. Karanja and Mr. Mutisya hold 90% of the company's shares. However, they feel that, the company is in need of further capital but due to the squabbles among the families, Mr. Otieno is not willing to inject additional funds so long as Mr. Karanja still holds any shares in the company. Further, Mr. Karanja and Mr. Mutisya have reasonable cause to believe and do in fact believe that the family of Mr. Otiengo is running their own business which is competing with that of Promotion Limited. It is known as a fact that Mr. Otieno is obtaining information as a member of Promotion Limited, which he is using to the benefit of his competing business.
To resolve the problems, Mr. Karanja and Mr. Mutisya propose to alter the company‟s articles of association by adding two new articles. The first article will enable the shareholders of 90% of the company's shares to compulsorily acquire the shares of the minority shareholder. The second one will require any shareholder who carries on competing business with company's business to transfer his shares to the nominee of the directors.
Required:
i) State the restrictions imposed both by common law and statute law upon a company's
power to alter its articles of association.
ii) Discuss the validity of the proposed alteration
Date posted: February 6, 2019. Answers (1)
- Outline the documents that are normally kept at the registered office of a company.(Solved)
Outline the documents that are normally kept at the registered office of a company.
Date posted: February 6, 2019. Answers (1)
- Tim and Tom wish to establish a business jointly. However, they are not sure whether to establish a limited liability company or an unlimited...(Solved)
Tim and Tom wish to establish a business jointly. However, they are not sure whether to establish a limited liability company or an unlimited liability company; as they know little about these types of companies.
i) Explain to them the differences between a limited company and an unlimited company.
ii) State the provisions of the Companies Act regarding the re-registration of unlimited company as limited.
Date posted: February 6, 2019. Answers (1)
- Distinguish between a corporation sole and a corporation aggregate.(Solved)
Distinguish between a corporation sole and a corporation aggregate.
Date posted: February 6, 2019. Answers (1)
- Happy co. Ltd was incorporated in January 2000 with an authorized share capital of 50,000,000 of one shilling per share which is fully issued and...(Solved)
Happy co. Ltd was incorporated in January 2000 with an authorized share capital of 50,000,000 of one shilling per share which is fully issued and fully paid. The original articles of association gave the directors authority to issue the initial authorized share capital.
The directors are proposing to purchase a plot from Mr Karan for KShs.3,000,000 and to finance the purchase by a fresh issue of 2,000,000 shares at one shilling per share to Mr. Karan. In order to develop the plot they propose to raise further capital by issuing a further 2,000,000 shares of one shilling each. The directors propose that 1,000,000 of the shares should be offered to existing shareholders and 1,000,000 to the general public. The shares to Mr Karan, the existing shareholders and to the general public are to be offered at one shilling and fifty cents each.
Explain the preliminary checks which the directors must make before proceeding with these proposals. State the steps the directors must take to give them effect.
Date posted: February 6, 2019. Answers (1)
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Dividend is payable only in cash to shareholders out of profits available for distribution.
State the rules which determine the extent to which profits...(Solved)
Dividend is payable only in cash to shareholders out of profits available for distribution.
State the rules which determine the extent to which profits arising out of the disposal of fixed assets may be used to pay such dividends.
Date posted: February 6, 2019. Answers (1)
- In order to frustrate a threatened take-over bid, the directors of Kesho Ltd. issue to themselves and their nominees sufficient ordinary shares for cash so...(Solved)
In order to frustrate a threatened take-over bid, the directors of Kesho Ltd. issue to themselves and their nominees sufficient ordinary shares for cash so as to give themselves control of a majority of the shares which give the right to vote at a general meeting.
Mwananchi, a minority shareholder who had hoped to benefit by selling to the bidder, is very annoyed by the action of the directors.
Advise him as to his legal rights.
Date posted: February 6, 2019. Answers (1)
- Describe the various kinds of resolutions that may be passed at general meetings.
State the difference between them and list matters that require such resolutions...(Solved)
Describe the various kinds of resolutions that may be passed at general meetings.
State the difference between them and list matters that require such resolutions to be passed before they can have effect.
Date posted: February 6, 2019. Answers (1)
- In relation to corporate insolvency,
a)
i) Explain what is meant by a contributory.
ii) Distinguish between fraudulent and wrongful trading. Against whom...(Solved)
In relation to corporate insolvency
a)
i) Explain what is meant by a contributory.
ii) Distinguish between fraudulent and wrongful trading. Against whom may proceedings by brought for breaches of provisions against fraudulent trading and wrongful trading?
b) Highlight the powers of the court on hearing a petition.
Date posted: February 6, 2019. Answers (1)
- Highlight the circumstances under which a person may cease to be a member of a
company.(Solved)
Highlight the circumstances under which a person may cease to be a member of a
company.
Date posted: February 6, 2019. Answers (1)
- Birds Limited has three directors: Peacock, Sparrow and Vulture. Explain the legal implication of each of the following situations: a) Vultures son has recently...(Solved)
Birds Limited has three directors: Peacock, Sparrow and Vulture. Explain the legal implication of each of the following situations:
a) Vulture's son has recently come of age and vulture wishes to appoint him a director of
the company.
b) The company is considering the purchase of a substantial quantity of goods from fly ltd., in which sparrow has a large shareholding through he is not a director peacock and vulture are unaware of sparrow's interest in fly ltd.
c) Because of adverse publicity about peacock's private life, vulture and sparrow wish to
remove him as a director, since he refuses to resign.
d) In view of the adverse publicity, vulture and sparrow decide to exclude peacock from participation in the company's affairs.
e) The directors are advised by wise & co., the company's auditors, that there is no possibility of the company trading at a profit in the foreseeable future and no reasonable prospect of its paying its debts
Date posted: February 6, 2019. Answers (1)
- State the requirements of the Companies Act which relate to the company giving
financial assistance for purchase of its own shares....(Solved)
State the requirements of the Companies Act which relate to the company giving
financial assistance for purchase of its own shares. What are the consequences of non - compliance with these requirements?
Date posted: February 6, 2019. Answers (1)
- State and briefly discuss the conditions which must be fulfilled before a company can
either issue or redeem shares which are stated to be...(Solved)
State and briefly discuss the conditions which must be fulfilled before a company can
either issue or redeem shares which are stated to be redeemable.
Date posted: February 6, 2019. Answers (1)
- Y Ltd whose articles are similar to Table A, publish a weekly magazine. In one issue an article is critical of the policies of the...(Solved)
Y Ltd whose articles are similar to Table A, publish a weekly magazine. In one issue an article is critical of the policies of the city commission. A number of Commissioners who are also members of the company requisition a general meeting and secure the passing of an ordinary resolution ordering the company to publish in the next issue a withdrawal of the criticism. The directors of the company are adamant.
The angry commissioners approach you for the purpose of filing an action to compel the directors to publish a withdrawal.
Advise them.
Date posted: February 6, 2019. Answers (1)
- To what extent does the doctrine of constructive notice operate negatively? (Solved)
To what extent does the doctrine of constructive notice operate negatively?
Date posted: February 6, 2019. Answers (1)
- State the powers of the inspection appointed to investigate the affairs of the company(Solved)
State the powers of the inspection appointed to investigate the affairs of the company
Date posted: February 6, 2019. Answers (1)
- Detail the statutory provisions governing the investigation into the affairs of a company
by the registrar. (Solved)
Detail the statutory provisions governing the investigation into the affairs of a company
by the registrar.
Date posted: February 6, 2019. Answers (1)
- State the legal consequences of a winding up order made against a company.(Solved)
State the legal consequences of a winding up order made against a company.
Date posted: February 6, 2019. Answers (1)
- Describe the circumstance under which a company may be wound up on the ground that it is "just and equitable" to do so.(Solved)
Describe the circumstance under which a company may be wound up on the ground that it is "just and equitable" to do so.
Date posted: February 6, 2019. Answers (1)