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Cpa Section Iv. Company Law Question Paper
Cpa Section Iv. Company Law
Course:
Institution: Star College Of Management Studies question papers
Exam Year:2011
LAW II - REVISION QUESTIONS
DECEMBER 2005: QUESTION 4
a. Define the term "promoter"
b. Discuss the legal position of the bank and the validity of the proposed alteration.
a. Suggested answer:-
Despite the absence of a definition of the word promoter, it has been used and described by English judges in varying terminology as follows:-
1. Bowen L. J - "The term promoter is a term not of law but of business, usually summing up in a single word a number of business operations familiar with the commercial world by which a company is generally brought into existence."
2. Justice C. Cockburn - Describes a promoter as "One who undertakes to form a company with reference to a given project and to set it going, and who takes the necessary steps to accomplish that purpose."
Blackburn L. J - "The word promoter is a short and convenient way of describing those who set in motion the machinery by which the act enables them to create an incorporated company."
Section 45(5) (a) States that "a promoter means a promoter who was party to the preparation of the prospectus or of the portion containing the untrue statement"
DECEMBER 2005: QUESTION 8
a. Explain the similarities and differences between shares and debentures.
Suggested Answer (a):
1. Status - A shareholder is a part owner of the company, but a debenture holder is only a creditor.
2. Nature of security - A share is an ownership security none-repayable during the lifetime of the company but a debenture is a creditor-ship security repayable during the lifetime of the company or at its winding up if it occurs before maturity.
3. Income - Income on debenture is fixed and certain, whether or not the company makes profits but income on shares is uncertain depending upon the profits and the discretion of the directors to declare a dividend.
4. Rights - A shareholder has normal rights of a member while a debenture holder does not have any rights of a member e.g to vote in the company meetings
5. Repurchase - A company may repurchase its own debentures i.e redeem them, whereas it is not open to a company to purchase its own shares.
6. Position at winding up - In case of winding up, debenture holders have a prior claim for the repayment of their debts, whereas shareholders obtain only what is left after all outsiders have been paid i.e they have a residual claim, hence debentures are more secure.
Debentures and shares have the following similarities:
1. A debenture is usually one of a series or class which is similar to a class of shares.
2. Debentures and shares are long term investment in the company and are transferable in the same manner.
3. Debentures and shares may be issued in the same way through a prospectus.
DECEMBER 2004: QUESTION 1
a. "The advantages of limited liability combined with the ease with which a member of a family or provider of capital or an adviser can be given a stake in the business without the financial risk involved in being a partner, usually turns the scale in favour of incorporation as opposed to a partnership."
Discuss.
b. Mr. John Miriti recently attended a court session during which he heard a counsel asking a key witness about articles of association of a company. Mr. John Miriti does not understand the meaning of articles of association.
Explain to him:
i. The meaning and characteristics of the articles of association
ii. The legal significance of the articles of association.
Suggested Answer (a)
Advantages of incorporation.
1. Limited liability
2. Sue and being sued
3. Transferability of shares
4. Qualified or professional management
5. Contractual capacity
6. Ownership of property
7. Wider capital base
8. Borrowing by a floating charge
9. Perpetual succession.
Advantages of partnership
1. Sharing of losses
2. Shared management
3. Easy to form - No legal formalities to be complied with, and expenses if any, are minimal.
4. Flexibility - Partners are free to change the nature of the business at any time.
Suggested Answer (b)
The articles of association of a company are the rules and by-laws of the company, governing the internal regulations e.g the voting rights of members or borrowing powers of the directors.
1. It is one of the constituent documents in the formation of the company
2. All companies must have a set of regulations as their articles
3. It is the internal constitution of the company
4. It regulates the relationship between the company and its members
5. It is alterable by a special resolution of members in a general meeting
6. It must be signed by every subscriber to the memorandum.
b (ii)
1. The articles form a contract between each member and the company.
2. The articles bind the company and its members and each party must observe its provisions.
3. It is a contract between the company and the members only
4. It confers rights and imposes duties on the parties
5. The right it confers can only be enjoyed by members in their capacity as members
6. The articles cannot bind a third party.
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