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Law Ii Question Paper

Law Ii

Course:

Exam Year:

KENYA ACCOUNTANTS AND SECRETARIES NATIONAL EXAMINATIONS BOARD

CPA PART II

LAW

Time: 3hrs.

Answer any FIVE questions.

ALL questions carry equal marks.

1. Explain the statement that "a company is a legal entity quite separate from the persons who constitute it".(4 marks)

Discuss the circumstances under which a corporate veil of incorporation may be lifted.(8 marks)

Angela is employed as a managing of Eclipse Ltd.The main object of Eclipse Ltd.is to retail hair products.Angela's contract of employment contains a clause which states that in the event of her leaving the employment of Eclipse Ltd.she would not solicit Eclipse Ltd.'s customers for a period of three years.

Angela has resigned from her employment and together with Ellina formed another company Angelina Company Ltd.whose main objective is to sell hair products.

Angela has given Marie, a salesperson in Angellina Company Ltd. A list of customers of Eclipse Ltd.to immediately start soliciting the customers for Angellina Company Ltd.

Eclipse Ltd.has learned of these facts and intends to sue Angela,Ellina and Company Ltd.

Advise Eclipse Ltd.(8 marks)

2.(i) Explain the Rule in Royal British Bank v Turquand.(2 marks)

(ii) Enumerate the various exceptions to the rule in (i) above.(6 marks)

The articles of Shirika Company Ltd.provided that the directors had power to determine who should be entitled to sign contracts and documents on behalf of the company.

One director Chapu Chapu, describing himself as the Chairman and without having been so authorized,executed and gave guarantee to Chafua in the name of the company.Shirika Company have found out about the guaranteeexacuted and have refused to honor it as demanded by Chafua.

Explain whether Shirika Company Ltd.is liable with regard to the demands by Chafua.(12 marks)

3.(a) Explain the concept "capital of limited company" as used in company law.(4 marks)

(b) Distinguish between share and stock.(4 marks)
br> (c) The Companies Act restricts a company from issuing shares at a discount.Identify and explain the restrictions.(12 marks)

4.(a) Explain the proprietary rights of a member in a company.(10 marks)

(b) Rita applied for 2,000 shares in Bidii Yako Company Ltd.Following her application,no allotment at the time was made.Later on without her application,2,000 shares were transferred to her name placed in the register of members.

Rita knowing that her name was in the register of members took no steps to have it rectified.Later on, the company collapsed.Rita was called upon to pay up on her shares and she has declined to do so arguing that she was not a member of Bidii Yako Company Ltd.She seeks your advice on the matter.

Advise Rita.(10 marks)

5.(a) A part from the appointment of a receiver,four other events will cause a floating charge to crystallize.

Describe these four events.(8 marks)

(b) What happens to a floating charge when it crystallizes.(4 marks)

A person who lends on the security of a specific mortgage of a company's property is always entitled to repayment on his loan out of the proceeds of the sale of the mortgaged property.This is done before any other creditor receives any payment.A person who takes a floating charge is not in such a secure position.

Why is the holder of a floating charge in a less favorable position?(8 marks)

6.(a) Identity the different types of meetings that may be held by public limited companies.( 4 marks)

(b) State the Rule in Sharp-vs-Dawes and explain the exceptions to this rule.(10 marks)

(c) (i) What is a special notice?(2 marks)

(ii) Give the circumstances under which a special notice would be required with respect to company meetings.(4 marks)

7.(a) Explain the circumstances under which directors of a company will be held personally liable for acts committed on behalf of the company.(12 marks)

(b) Rush,Fast and Speed are directors of Modern Technology Company Ltd.The company was formed with the main object of computer training.However,due to the power rationing,the company business has fallen below the expected productivity and is threatened with closure.In order to keep afloat,the three directors approached Money Bank Ltd.for an overdraft of Sh.2 million to establish an off-license bar and restaurant within the city centre.The credit manager asked the company to provide its copy of the memorandum of association and the company complied. Modern Technology was then given the overdraft.However,it has run into financial difficulties and is unable to repay the loan.

Can the bank successfully sue for recovering of the loan?

Discuss.(8 marks)

8.(a) Enumerate the circumstances under which the court may order the winding up of a company on a just and equitable ground.(8 marks)

(b) Section 213 of the Companies Act qualifies the liability of past and present members as contributories.

Explain these qualifications as provided for in the Companies Act.(12 marks)

Law Ii Question Paper

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