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

 

CPA

CS

 

INTERMEDIATE LEVEL

 

COMPANY LAW

 

TOPICALLY ARRANGED

REVISION KIT

 

 

Updated with November 2020 Past paper with Answers

 

 

 

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 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

 

TOPIC                                                                                                            PAGE

PART B:                                                             PAST PAPER EXAMS QUESTION 

Topic 1: Nature and classification of companies………………………….……..……..9

Topic 2: Formation of companies…………………………………………….…..……13

Topic 3: Membership of a company………………………………………….…..……19

Topic 4: Shares……………………………………………………….…………..…….22

Topic 5: Share capital………………………………………………………….….…..27

Topic 6: Debt capital…………………………………………………………….……32

Topic 7: Company meetings…………………………………………………….…….36

Topic 8: Company Directors…………………………………………………………..40

Topic 9: The company secretary………………………………………………………44

Topic 10: Auditors………………………………………………………….…………47

Topic 11: Company accounts………………………..……………………………………50

Topic 12: Audit of Company accounts………………………..……………………….51

Topic 13: Company Investigation………………………………………………………53

Topic 14: Corporate restructuring………………………………………………………55

Topic 15: Receivership, Administration, Liquidation and Dissolution of companies…58

Topic 16: Foreign Companies………………………….………………….……….…..62

 

PART B:                                                                                 SUGGESTED ANSWERS

 

Topic 1: Nature and classification of companies………………………….…………..66

Topic 2: Formation of companies…………………………………………….…..……76

Topic 3: Membership of a company………………………………………….…..……92

Topic 4: Shares……………………………………………………….…………..…….99

Topic 5: Share capital………………………………………………………….….…..109

Topic 6: Debt capital…………………………………………………………….……119

Topic 7: Company meetings…………………………………………………….…….128

Topic 8: Company Directors…………………………………………………………..138

Topic 9: The company secretary………………………………………………………147

Topic 10: Auditors………………………………………………………….…………153

Topic 11: Company accounts………………………..……………………………………160

Topic 12: Audit of Company accounts………………………..……………………….162

Topic 13: Company Investigation………………………………………………………165

Topic 14: Corporate restructuring………………………………………………………169

Topic 15: Receivership, Administration, Liquidation and Dissolution of companies..178

Topic 16: Foreign Companies………………………….………………….……….…..187

 

 

SAMPLE QUESTIONS

TOPIC 1

NATURE AND CLASSIFICATION OF COMPANIES

 

QUESTION 1

November 2020 Question seven B

Explain the distinguishing features of the following types of companies:

(i) Companies limited guarantee.                                                           (3 marks)

(ii) Private companies.                                                                                 (3 marks)

(iii) Public companies.                                                                                  (3 marks)

 

QUESTION 2

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 the Courts and statutes.

Describe the circumstances for lifting of the veil by:

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

 

QUESTION 3

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 4

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 5

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 6

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 7

November 2017 Question five B (i)

Explain three categories of public companies.                                                       (3 marks)

 

QUESTION 8

May 2017 Question one A and B

Explain four distinctions between “co-operative societies” and “limited companies”.

(4 marks)

QUESTION 9

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 10

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 11

November 2016 Question one B

A company cannot on its own execute contracts.

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

 

 

QUESTION 12

May 2016 Question two B

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

 

QUESTION 13

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 14

November 2015 Question two B

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

 

QUESTION 15

November 2015 Question seven A

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

 

QUESTION 16

September 2015 Question seven C

Distinguish between companies and partnerships as forms of business associations.

(6 marks)

 

TOPIC 2

FORMATION OF COMPANIES

QUESTION 1

November 2020 Question one A

In relation to formation of companies:

(i) Explain four common law duties of a promoter.                                       (4 marks)

(ii) Discuss three rules that govern pre-incorporation contracts.                    (6 marks)

 

QUESTION 2

November 2019 Question two A

With reference to formation of companies:

  • Explain the meaning of the term “promoter”.           (2 marks)
  • Highlight three fiduciary duties of a promoter of a company.         (6 marks)
  • Outline two remedies to the company for breach of fiduciary duty promoters.

(2 marks)

QUESTION 3

May 2019 Question three B

In the context of formation of companies in your country:

(i) Outline five particulars that might be stated in an application for registration of a company.                                                                                                       (5 marks)

(ii) Describe the prescribed format of the articles of association.                  (5 marks)

 

 QUESTION 4

November 2018 Question one A

On 1 September 2018, Peter Kioko decided to form a company under the name PK Ltd. Before the company was duly formed, Peter Kioko made a contract for the company in which PK Ltd. received a down payment of Sh.500,000 for the supply of household items to Fanika Ltd. PK Ltd. has since been incorporated but remains in breach of the said contract. Fanika Ltd. feels aggrieved and has approached you for legal advice.

Required:

Analyse the legal principles applicable in the above case and advise Fanika Ltd.

(10 marks)

QUESTION 5

November 2018 Question one B

Discuss the doctrine of ultra vires in relation to the memorandum of association of a limited company.                                                                                           (4 marks)

 

QUESTION 6

November 2018 Question three C

(i) Outline four undertakings that would amount to promotional acts of a company during its formation.                                                                                                     (4 marks)

(ii) Explain four consequential attributes that flow from incorporation of unincorporated associations.                                                                                                     (4 marks)

 

QUESTION 7

May 2018 Question one A

With reference to formation of companies:

(i) Explain the meaning of the term “articles of association”.                             (2 marks)

(ii) Describe four effects of registration of the articles of association of a company.

(4 marks)

(iii) Outline the provisions of the Companies Act which govern the alteration of the articles of association of a company.                                                                    (4 marks)

 

QUESTION 8

November 2017 Question five B (ii)

Jairo Chai would like to start a company. He has approached you as a student of company law to guide him through the process.

With reference to the above statement, describe the procedure of registering a limited liability company.                                                                                            (7 marks)

 

QUESTION 9

November 2016 Question two A

Explain the general effect of pre-incorporation contracts.                                    (2 marks)

 

QUESTION 10

November 2016 Question two B

Discuss how a promoter might overcome the liability of pre-incorporation contracts.

(8 marks)

QUESTION 11

November 2016 Question six B

With reference to the procedure for registration of companies:

(i) Describe the requirements that an application for registration must meet before the registrar can approve it.                                                                                    (6 marks)

(ii) Highlight the requirements that a certificate of registration must comply with.

(4 marks)

QUESTION 12

May 2016 Question three B

(i) Define the term ‘promoter”.                                                                              (2 marks)

(ii) Describe four legal rights of an incorporated company against promoters who sold their property to the company at a profit while it was in the process of formation.

(8 marks)

QUESTION 13

May 2016 Question six A

Discuss five legal consequences of incorporation.                                              (10 marks)

 

QUESTION 14

May 2016 Question six B

Describe the charges that could be created a company registered under the Companies Act.                                                                                                                          (10 marks)

 

QUESTION 15

November 2015 Question three A

Describe six matters which might be included in the code of best practices of a company to ensure equitable treatment of shareholders of the company.                                 (6 marks)

 

QUESTION 16

November 2015 Question four C

Discuss three effects of the ultra vires doctrine.                                                   (6 marks)

 

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

QUESTION 17

November 2015 Question seven B

Wanyoro Ltd. is a public company. Its directors have decided to venture into transport business acquiring a fleet of public service vehicles. They did not notice that this activity is outside its objects clause. The company’s chairman. Ann Omesa who owns 10% of the voting shares negotiated a loan which was in excess of the company’s issued capital front Joan Mekonge, a financier.

Joan Mekonge did not refer to any of the company’s registered documents nor did she inquire into the purpose to which the money would be put. The money is used the directors to pay part of the purchase price of the vehicles. The rest of the purchase price remains unpaid. Some members who hold a substantial amount of shares in Wanyoro Ltd. intend to move a resolution to insert into the memorandum, an object permitting the acquisition and use of the vehicles. One of the directors of Wanyoro Ltd. Announces that if this is done, he will apply to court to have the new object clause quashed.

Advise the directors of the company.                                                                (10 marks)

 

QUESTION 18

September 2015 Question one A

(i) Explain the meaning of the term “promoter” in the context of company law. 

(2 marks)

(ii) Discuss three duties of a promoter of a company.                                      (6 marks)

 

QUESTION 19

September 2015 Question one C

Explain the restrictions imposed on promoters of a company in relation to choice of name.                                                                                                                 (6 marks)

 

 QUESTION 20

September 2015 Question two A

Discuss five ways in which the veil of incorporation might be lifted under statutory provisions.                                                                                                   (10 marks)

 

QUESTION 21

September 2015 Question two B

Tom and Harry were in the process of incorporating a company called Foot Shoes ltd. The objects of the company were to make and sell shoes. Before the process of incorporation was complete. Tom entered into a contract with Clean Leather Ltd. under which Clean Leather Ltd. agreed to supply Foot Shoes Ltd. with leather worth one million shillings.

The price was to be paid in four installments of two hundred and fifty thousand shillings each, over a period of one sear.

Tom signed the contract as follows: “Signed Tom, on behalf of Foot Shoes Ltd.”. By the time the leather was delivered, Foot Shoes Ltd. had been incorporated.

However, after the second installment had been paid, Foot Shoes Ltd. was unable to pay the balance.

Advise Clean Leather Ltd. on how to recover the outstanding amount of five hundred thousand shillings.                                                                                          (10 marks)

 

QUESTION 22

September 2015 Question six B

List five registers that must be maintained a company.                                   (5 marks)

 

 

SAMPLE ANSWERS

TOPIC 1

 NATURE AND CLASSIFICATION OF COMPANIES

 

QUESTION 1

November 2020 Question seven B

Distinguishing features of the following types of companies

(i) Companies Limited Guarantee

  1. It does not have a share capital;
  2. The liability of its members is limited the company’s articles to the amount that the members undertake, 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 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 2

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 3

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 4

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 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 

Phone: 0728 776 317

Email: info@masomomsingi.co.ke

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