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Law 6011 Corporate Law And Governance Weekend Question Paper
Law 6011 Corporate Law And Governance Weekend
Course:Master Of Business Administration In Corporate Management
Institution: Kca University question papers
Exam Year:2014
UNIVERSITY EXAMINATIONS: 2013/2014
EXAMINATION FOR THE MASTERS OF BUSINESS ADMINISTRATION
(MBA) IN CORPORATE MANAGEMENT
LAW 6011 CORPORATE LAW AND GOVERNANCE WEEKEND
DATE: AUGUST, 2014
TIME: 3 HOURS
INSTRUCTIONS: Answer Question One and Any Other Three Questions
QUESTION ONE (31 MARKS)
Chania Energy Ltd has issued a prospectus inviting subscribers to acquire shares in the company. The
prospectus stated that the company has made a breakthrough by discovering coal for industrial
purposes in the Katongu Hills area of Kitui District, and the mine is capable of producing one million
tons of coal per year. The prospectus intends to raise Kshs 100,000,000/= divided into shares of 20/=
each.
In addition, the Managing Director has issued an advertisement in the daily press to the effect that the
company was the only one with the capacity, experience and technical knowledge to mine and market
coal and by products. As a result there is an over subscription of shares.
Allan Kamau, who read the prospectus was allotted 20,000 shares at Kshs 20/= per share.
It has now become apparent, after several tests, that the coal being produced by Chania Energy Ltd is
sub-standard in quality as it consists of pebbles of coal mixed with dry sand. Consequently the price of
shares dropped to Kshs 6/= per share.
Enock Makali on the other hand, had a total of 25,000 shares before the issue of the prospectus. He
feels aggrieved that the information contained in the prospectus had led to the eventual decline in the
price of the shares of the company.
With reference to the facts given above, explain the following to Allan Kamau and Enock Makali:-
a)
The persons who would be held liable for the particulars contained in the prospectus.
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(8 Marks)
b)
Circumstances under which persons would be exempted from liability of a false prospectus.
(6 Marks)
c) The remedies available to Allan Kamau and Enock Makali (12 Marks)
d) The circumstances under which remedies in (c) above might be lost. (5 Marks)
QUESTION TWO (23 MARKS)
Rebecca Ochieng is the Managing Director of Art World Ltd, and owns 60% of the shares in the
company which distributes and sells works of art. Edward Mbalu and Joseck Njunu are the other
directors holding between them 30% shares.
Rebecca Ochieng is also major shareholder of Fountain Arts Ltd, a company which produces oil
paintings. In her capacity as Managing Director of Art World Ltd, Rebecca Ochieng has ordered Oil
Paintings worth Kshs. 2,000,000/= from Fountain Arts Ltd, for Art World Ltd and she has received a
commission of Kshs 200,000/= from Fountain Arts Ltd.
Required:
a)
In pursuance of good practices of corporate governance, discuss Rebecca Ochieng’s conduct
and her duties towards Art World Ltd and its directors.
b)
(13 Marks)
Discuss the director’s duties of care and skill in respect of the companies that they serve.
(10 Marks)
QUESTION THREE (23 MARKS)
Alfred Kazungu and Boaz Wasilwa have been carrying on business in partnership for the last four
years. They have both been employed on full time basis in the business, and have shared profits and
losses equally. Alfred Kazungu wishes to bring his son, Joel, into the business and Boaz Wasilwa has
accepted the proposal. They wish to convert their partnership into a private limited company, Albo
Limited, in which Alfred Kazungu and Boaz Wasilwa will each hold 40% of the shares and Joel will
hold 20%. All three will be directors of the new private company.
a)
Advise the three shareholders of Albo Limited on the documents which they are required to
submit to the Registrar of Companies for approval in connection with the formation of the new
private company.
b)
(8 Marks)
What are the advantages of conversion of a partnership into a private limited company?
(8 Marks)
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c)
After Albo Ltd was formed, there arose a disagreement between Boaz Wasilwa and Joel
regarding the day to day management of the business. Alfred Kazungu and Joel have decided to
remove Boaz Wasilwa from the Board of Directors. Explain the procedure that Alfred Kazungu
and Joel should follow to effect the removal of Boaz Wasilwa as a director of the company.
(7 Marks)
QUESTION FOUR (23 MARKS)
Every company must secure the services of a qualified and competent Company Secretary. Discuss the
appointment, statutory functions and liabilities of a Company Secretary.
(23 Marks)
QUESTION FIVE (23 MARKS )
Unicom Trading Co. Ltd has three directors, namely Kingston Katana, Edmund Mvito and Elkana
Nyandusi. Explain the legal implication of each of the following situations:-
a)
The company is considering the purchase of a substantial quality of goods from Edicot Ltd in
which Edmund Mvito has a large shareholding, though he is not a director, Kingston Katama
and Elkana Nyandusi are unaware of Edmund Mvito’s interests in Edicot Ltd.
b)
Kingston Katana has recently come of age and Katana wishes to appoint him a director of
Unicom Trading Co. Ltd.
c)
(6 Marks)
(5 Marks)
The office rumours are that Elkana Nyandusi is a homosexual and he is very harsh and
undignified towards ladies at the office. Kingston Katama and Edmund Mvito wish to remove
him as a director as he refuses to resign.
d)
(5 Marks)
The three directors are advised by Jicho Kali & Co. auditors of the company that there is no
possibility of the company trading at a profit in the foreseable future, and there is no reasonable
prospect of the company paying its debts.
(7 Marks)
QUESTION SIX (23 MARKS)
a)
Explain the duties owed by promoters towards the company that they form and the remedies
which are available for breach of those duties.
b)
(10 Marks)
Kilonzo wished to transfer his existing business to a company so that he could obtain the
benefit of limited liability. He decided to call his new company Kilonico Ltd. and instructed his
advocate to prepare the necessary documents. Later he heard that Craft & Co. were selling
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office computers very cheaply and thinking that a computer would be very useful for his
company, he signed a contract to purchase one computer in the following way, “Kilonzo, agent
for Kilonico Ltd”.
A few days after this, the company received its certificate of incorporation. Kilonzo and his
wife Nyiva were the directors of the company and Mutiso, a long standing friend of Kilonzo,
was made company secretary. Kilonzo and Nyiva then held a board meeting at which they
formally ratified the contract with Craft & Co.
Two weeks later, a representative of Craft & Co. called at the company’s office and told Mutiso
that the printer element of the computer that Kilonzo had ordered was out of stock but that they
could supply another type for a small increase in the purchase price. Mutiso agreed to this
immediately and signed a letter approving the alterations.
Kilonzo now realises that his company does not need a computer and seek your advice on his
position and that of the company. Advise Kilonzo.
(13 Marks)
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