CPA

CS

CCP

PART II

SECTION 3

  

COMPANY LAW

 

 REVISION KIT 

 

 Updated with November 2019 Examination Past paper

 

COMPANY LAW REVISION KIT SAMPLE WORK

 

INTRODUCTION

 

Following our continued effort to provide quality study and revision materials at an affordable price for the private students who study on their own, full time and part time students, we partnered with other team of professionals to make this possible.

This Revision kit book (Question and answers) contains kasneb past examination past papers and our suggested answers as provided a team of lecturers who are experts in their area of training. The book is intended to help the learner do enough practice on how to handle exam questions and this makes it easy to pass kasneb exams.

 

 

 

PAPER NO.7 COMPANY LAW

 

GENERAL OBJECTIVES

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.

 

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 and restructuring
• Comply with the legal principles relating to companies incorporated outside Kenya
• Ensure books of account are prepared in compliance with the law.

 

SYLLABUS

 

7.1 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.

 

7.2 Formation of companies

• Promoters and pre-incorporation contracts
• Process of forming a company
• Memorandum and articles of association
• Certificate of incorporation
• Effects of incorporation

 

7.3 Membership of a company

• Acquisition of membership
• Register of members
• Rights and liabilities of members
• Cessation of membership

 

7.4 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

 

7.5 Share capital

• Meaning and types of share capital
• Raising of share capital
• Prospectus/information memorandum
• Maintenance of capital
• Alteration of capital
• Dividends

 

7.6 Debt capital

• Borrowing powers of a company
• Debentures
• Charges
• Registration of charges
• Remedies for debenture holders

 

7.7 Company meetings

• Nature and classification of company meetings
• Essentials of a valid meeting
• Voting
• Resolutions

 

7.8 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

 

7.9 The company secretary

• Qualification, appointment and removal
• Powers and duties of the company secretary
• Liability of the company secretary
• Register of secretaries

 

7.10 Auditors

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

 

7.11 Company accounts, audit and investigation

• Books of accounts
• Form and content of accounts
• Group accounts
• Director’s report
• Auditor’s report
• Annual returns
• Investigation of company affairs
• Appointment and powers of inspectors
• Inspector’s report

 

7.12 Corporate restructuring

• Need for restructuring
• Mergers,
• Post merger reorganisation
• Takeovers and acquisitions
• Schemes of arrangement and compromises
• Reconstruction

 

7.13 Receivership and liquidation of companies

• Meaning of receivership
• Appointment and vacation of office
• Powers and duties of a receiver
• Termination of receivership
• Meaning of liquidation
• Types of liquidation
• Appointment, powers and duties of liquidators
• Discharge of liquidators
• Distribution of assets and dissolution of companies

 

7.14 Companies incorporated outside the country

• 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

 

7.15 Emerging issues and trends

 

 

CONTENT                             PAGE

 

Past papers

1. November 2019…..……8
2. May 2019…………………11
3. November 2018………15
4. May 2018…………….…19
5. November 2017……….23
6. May 2017………………..26
7. November 2016……….29
8. May 2016…………………32
9. November 2015………..35
10. September 2015…..…..38

 

Suggested answers and solutions:

1. November 2019…………41
2. May 2019…………………54
3. November 2018…………65
4. May 2018……………….…73
5. November 2017…………83
6. May 2017…………………93
7. November 2016………..102
8. May 2016………………….111
9. November 2015…………120
10. September 2015…………129

 

COMPANY LAW REVISION KIT SAMPLE WORK

 

CPA PART II SECTION 3

CS PART II SECTION 3

CCP PART II SECTION 3

COMPANY LAW

 

TUESDAY: 26 November 2019.                                                 Time Allowed: 3 hours.

Answer any FIVE questions.                                    ALL questions carry equal marks.

 

QUESTION ONE

1. In relation to the membership of a company:

• Highlight six ways through which a person might cease to become a member of a company.
• Outline four rights of a member in relation to meetings of a company. .

1. With specific reference to Directors, summarise five provisions of the Companies Act in your country which govern the removal of a director from office before the expiry of his term.

 

COMPANY LAW REVISION KIT SAMPLE WORK

CPA PART II SECTION 3

CS PART II SECTION 3

CCP PART II SECTION 3

COMPANY LAW

 

WEDNESDAY: 22 May 2019.                                                   Time Allowed: 3 hours.

Answer any FIVE questions.                                  ALL questions carry equal marks.

 

QUESTION ONE

(a) The shares of United Limited, a private company are held Jane, John and Alex. Jane and John hold 90% of the company’s shares. However, they feel that the company is in need of further capital but due to squabbles, they are not willing to inject additional funds as long as Alex still holds some shares in the company. Further, Jane and John believe that Alex has another business which is competing with that of United Limited. To resolve the problems, Jane and John propose to alter the company’s articles of association 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 article will require any shareholder who carries on competing business with the company’s business to transfer his shares to the nominee of the directors.

Alex is aggrieved the proposed alterations and comes to you for advice.

Required:

Advise Alex on the validity of the proposed alterations to the articles. (10 marks)

 

COMPANY LAW REVISION KIT SAMPLE WORK

CPA PART II SECTION 3

C’S PART II SECTION 3

CCP PART II SECTION 3

COMPANY LAW

 

WEDNESDAY: 28 November 2018.                                         Time Allowed: 3 hours.

Answer any FIVE questions.                                   ALL questions carry equal marks.

 

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.

 

COMPANY LAW REVISION KIT SAMPLE WORK

CPA PART II SECTION 3

CS PART II SECTION 3

CCP PART II SECTION 3

COMPANY LAW

 

WEDNESDAY: 23 May 2018.                                                     Time Allowed: 3 hours.

Answer any FIVE questions.                                     ALL questions carry equal marks.

 

QUESTION ONE

(a) With reference to formation of companies:

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

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

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

 

COMPANY LAW REVISION KIT SAMPLE WORK

CPA PART II SECTION 3

CS PART II SECTION 3

CCP PART II SECTION 3

COMPANY LAW

 

WEDNESDAY: 29 November 2017.                                        Time Allowed: 3 hours.

Answer any FIVE questions.                                  ALL questions carry equal marks.

 

QUESTION ONE

(a) Jones Tiida is a director of Tenti Ltd., a manufacturing company which was established recently. He has approached you for advice on whether or not the company should appoint auditors in view of the need to save on costs.

In relation to the above statement, advise Jones Tiida on six purposes of auditing company accounts.

(b) Outline four circumstances when group accounts of a holding company need not include the accounts of its subsidiary.

(c) (i) Summarise four rules governing the appointment of the first auditors of a company.

(ii) Outline two ways in which a company auditor might receive his remuneration.

            COMPANY LAW REVISION KIT SAMPLE WORK

 

CPA PART II SECTION 3

CS PART II SECTION 3

CCP PART II SECTION 3

COMPANY LAW

 

WEDNESDAY: 24 May 2017.                                        Time Allowed: 3 hours.

Answer any LIVE questions.                        ALL questions carry equal marks.

 

QUESTION ONE

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

 

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

(c) (i) Identify two instances when the High Court might rectify the register of members of a company.

(ii) Discuss four ways through which a person’s membership of a company might cease.

           COMPANY LAW REVISION KIT SAMPLE WORK

 

CPA PART II SECTION 3

CS PART II SECTION 3

CCP PART II SECTION 3

COMPANY LAW

 

WEDNESDAY: 23 November 2016.                                 Time Allowed: 3 hours.

Answer any FIVE questions.                               ALL questions carry equal marks.

 

QUESTION ONE

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

(b) A company cannot on its own execute contracts.

Describe three mechanisms provided the Companies Act which a company can sign documents.

(c) Greenpark Limited issued a prospectus inviting members of the public to subscribe for its shares. It was stated in the prospectus that the money was required for the purchase of modern equipment to be used for expansion of the company’s business. On the strength of this statement, Rose Sagina purchased shares of the company but she has since learnt that all the money received was used to repay the debts of the company which were long overdue. Rose Sagina feels shortchanged and seeks your legal advice.

Analyse the legal principles applicable in the above case and advise Rose Sagina appropriately.

COMPANY LAW REVISION KIT SAMPLE WORK

 CPA PART II SECTION 3

CS PART II SECTION 3

CCP PART II SECTION 3

COMPANY LAW

WEDNESDAY: 25 May 2016.                                      Answer any FIVE questions.

Answer any FIVE questions.                                ALL questions carry equal marks.

 

QUESTION ONE

(a) Describe five grounds upon which a person might be disqualified from acting as a company’s director.

(b) Sea Bubble Limited was amalgamated with Telta Limited to form Seashore Limited. Some employees of Sea Bubble Limited refused to be transferred to Seashore Limited alleging that Seashore Limited was an unstable company. Sea Bubble Limited insisted that the employees must join the serv ice of Seashore Limited or be retrenched.

Analyse the legal principles applicable in the above case and advise the employees of Sea Bubble Limited.

                                                                                                                                                                                                            COMPANY LAW REVISION KIT SAMPLE WORK

CPA PART II SECTION 3

CS PART II SECTION 3

CCP PART II SECTION 3

COMPANY LAW

 

WEDNESDAY: 25 November 2015.                                           Time Allowed: 3 hours.

Answer any FIVE questions.                                    ALL questions carry equal marks.

 

QUESTION ONE

(a) With respect to corporate insolvency:

(i) Highlight three ways in which a liquidator’s powers might be terminated.

 

(ii) Explain four contents of the official receiver’s report.

(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.

COMPANY LAW REVISION KIT SAMPLE WORK

CPA PART II SECTION 3

CS PART II SECTION 3

CCP PART II SECTION 3

COMPANY LAW

PILOT PAPER

 

September 2015.                                                                   Time Allowed: 3 hours.

Answer any FIVE questions.                              ALL questions carry equal marks.

 

QUESTION ONE

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

 

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

(b) Outline the contents of a prospectus issued in Kenya a foreign company.

 

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

 

COMPANY LAW REVISION KIT SAMPLE WORK

SUGGESTED SOLUTIONS AND ANSWERS

 

COMPANY LAW

 

NOVEMBER 2019

 

QUESTION ONE

1. Membership of a company:

• Ways through which a person might cease to become a member of a company.

Key definitions

1. Member: a person who subscribes to the memorandum or whose name is entered in the register of members
2. Right: This is simply refers to entitlement.
3. Liability: This is a duty owed to the company a member, and a member to other members
4. Acquisition: Process which a person becomes a member of a company
5. Termination: Process which a person loses membership in a company.

A person can cease to become a member through:

1. Transfer of shares
2. Death
3. Bankruptcy

                                                                                              COMPANY LAW REVISION KIT SAMPLE WORK

SUGGESTED SOLUTIONS AND ANSWERS

 

COMPANY LAW

 

MAY 2019

QUESTION 1

 

1. Advice to Alex on proposed validity of the proposed alteration.

• Every company has a statutory power to alter its article provided that a company has passed a special resolution.
• The validity of the proposed alteration is that:-

1. Alternation of Article must be authorized a special resolution of members in a general meeting.
2. The alteration must not be inconsistent with the provision of the Act.

COMPANY LAW REVISION KIT SAMPLE WORK

SUGGESTED SOLUTIONS AND ANSWERS

 

COMPANY LAW

 

NOVEMBER 2018

 

QUESTION 1

1. Legal principles applicable in the case

The legal principle is the pre-incorporation contract validity

Advice

1. Before incorporation a company has no legal existence and it can neither contract no have legal agents
2. At common law, a person who purports to contract as an agent where the legal principle is not existing at that particular time is personally liable on the contract.

COMPANY LAW REVISION KIT SAMPLE WORK

SUGGESTED SOLUTIONS AND ANSWERS

 

COMPANY LAW

 

 

MAY 2018

QUESTION 1

Formation of companies

1. Meaning of article of association

Constitute document in the company formation which contain rules of internal management. It regulates the relationship between the company and its members

Effects of registration of articles of a company

1. It binds the members and the company only
2. It confers rights and imposes obligation on the company and its members

COMPANY LAW REVISION KIT SAMPLE WORK

SUGGESTED SOLUTIONS AND ANSWERS

 

COMPANY LAW

 

NOVEMBER 2017

QUESTION 1

Purpose of auditing company accounts

1. To safeguard the interest of creditors, investors and shareholders
2. To present the true and fair view of the profit and loss of the company for the financial year
3. To explain the company’s transaction i.e all the money received, spent and what matters all sales and purchases related.

COMPANY LAW REVISION KIT SAMPLE WORK

SUGGESTED SOLUTIONS AND ANSWERS

 

COMPANY LAW

 

 

MAY 2017

QUESTION 1

Distinction between co-operative societies and limited companies

1. Cooperative societies is managed executive committee while limited company is managed board of directors
2. Co-operative society has a limit of 10 members and a maximum of no limit while limited company has a limit of 7 and no maximum limit.

 

COMPANY LAW REVISION KIT SAMPLE WORK

SUGGESTED SOLUTIONS AND ANSWERS

 

COMPANY LAW

  

NOVEMBER 2016

QUESTION 1

Meaning of a “holding company” in relation to another company

A company is deemed to be holding if:

1. Another company is a member of it and control the board of directors of the subsidiary
2. It holds more than half of nominal value of the subsidiary equity share capital.

COMPANY LAW REVISION KIT SAMPLE WORK

SUGGESTED SOLUTIONS AND ANSWERS

 

COMPANY LAW

 

MAY 2016

QUESTION 1

Grounds upon which a person might be disqualified from acting as a company’s director

1. Failure to acquire his qualification share within the prescribed duration
2. If the director is disqualified from holding office a court of law
3. If he absent himself from directors’ meeting held in over 6 months
4. If he becomes of unsound mind

COMPANY LAW REVISION KIT SAMPLE WORK

SUGGESTED SOLUTIONS AND ANSWERS

 

COMPANY LAW

 

NOVEMBER 2015

QUESTION 1

Corporate insolvency

Ways in which a liquidator’s powers might be terminated

1. If it is proved that he has acted fraudulently
2. If its proved that he made a misinterpretation and concealment of material facts

COMPANY LAW REVISION KIT SAMPLE WORK

SUGGESTED SOLUTIONS AND ANSWERS

 

COMPANY LAW

 

SEPTEMBER 2015 (PILOT PAPER)

QUESTION 1

Promoters

1. Meaning

• Is a person who undertakes the activities to form the company or bring the company to existence
• Is one who undertakes to form a company with reference to a particular project and set it going and one who undertakes the necessary steps to accomplish that purpose

COMPANY LAW REVISION KIT SAMPLE WORK