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Law Ii Question Paper

Law Ii

Course:Cpa Part Ii

Exam Year:2002

KENYA ACCOUNTANTS AND SECRETARIES NATIONAL EXAMINATIONS BOARD
CPA PART II
LAW II
TUESDAY: 4 June 2002 Time Allowed: 3 hours
_____________________________________________________________________________________
Answer any FIVE question ALL questions carry equal marks

QUESTION ONE
a)Distinguish between a corporation sole and a corporation aggregate (4 marks)

b)Tim and Tom wish to establish a business jointly. However, they are not sure whether to establish a limited liability company or an unlimited liability company; as they know little about these types of companies.
i)Explain to them the differences between a limited company and an unlimited company. (4 marks)
ii)State the provisions of the Companies Act regarding the re-registration of unlimited company as limited. (6 marks)

c)Outline the documents that are normally kept at the registered office of a company
(6 marks)
(Total: 20 marks)
QUESTION TWO
The shares of Promotion Limited, a private company are held by members of three families, that is, the family of Mr. Karanja, Mr. Mutisya and Mr. Otieno.
Mr. Karanja and Mr. Mutisya hold 90% of the company’s shares. However, they feel that, the company is in need of further capital but due to the squabbles among the families, Mr. Otieno is not willing to inject additional funds so long as Mr. Karanja still holds any shares in the company. Further, Mr. Karanja and Mr. Mutisya have reasonable cause to believe and do in fact believe that the family of Mr. Otiengo is running their own business which is competing with that of Promotion Limited. It is known as a fact that Mr. Otieno is obtaining information as a member of Promotion Limited, which he is using to the benefit of his competing business.
To resolve the problems, Mr. Karanja and Mr. Mutisya propose to alter the company’s articles of association by 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 one will require any shareholder who carries on competing business with company’s business to transfer his shares to the nominee of the directors.
Required:
i)State the restrictions imposed both by common law and statute law upon a company’s power to alter its articles of association. (14 marks)
ii)Discuss the validity of the proposed alteration (6 marks)
(Total: 20 marks)
QUESTION THREE
a)James and Shem proposed to form a company by the name “Micromine Limited”. On behalf of the proposed company, Shem entered into contracts to purchase office furniture and stationery.
Required:
i)What are the company’s rights and liabilities under such contracts after incorporation? (6 marks)
ii)What provisions for the protection of Shem are found in such contracts? (4 marks)

b)Discuss the doctrine of ultra vires and state the exceptions to the doctrine,
(10 marks)
(Total: 20 marks)
QUESTION FOUR
a)”The capital of may no doubt be diminished by the expenditure upon and reasonably incidental to all the objects specified. A part of it may be lost in carrying on the business operations authorized. Of this, all persons trusting the company are aware and take the risk. But creditors have the right to rely and were intended by the legislature to have the right to rely on the capital remaining undistributed by any expenditure outside these limits or by the return of nay of it to the shareholders”.Per Lord Herchell L.J. in Trevor v Whitworth (1837) 12 App. Cap 409 at 415.Discuss this statement outlining the circumstances and conditions under which companies may reduce their capital. (14 marks)

b)State what is meant by underwriting commission and distinguish it from brokerage.
(6 marks)
(Total: 20 marks)
QUESTION FIVE
a)State the circumstances under which a company would be required to maintain an index of the register of members (4 marks)

b)Kazi Bure borrowed Shs.50,000 from Tumaini Bank and deposited his XYZ Supermarket Ltd’s share certificate with a blank transfer as a security. Subsequently he bought goods from the supermarket on credit. The goods were worth Shs.15,000. The articles of association of XYZ Supermarket Ltd claimed a first and paramount lien on its members shares on debts due to the supermarket. However, before the supermarket lien arose the bank gave the supermarket notice of Kazi Bure’s share certificate having been lodged with the bank as a security for the loan. Kazi Bure is unable to pay for the goods he obtained from the supermarket and has also defaulted on the loan. XYZ Supermarket Ltd wants to exercise its lien and the bank wants to exercise its equitable right to have the shares transferred to into its name.
In this situation discuss the rights of:
i)The Bank
ii)XYZ Supermarket Ltd

c)Bob and Babs jointly own shares in Powerfoam Ltd. They are seeking your advice regarding their legal position as joint holders of the shares.Advice them.(4 marks)

QUESTION SIX
a)Outline the various matters that require to be sanctioned by members through a special resolution. (10 marks)

b)In a company with a share capital:
i)What is the members right to appoint a proxy (2 marks)
ii)What are the rights of the proxy so appointed? (2 marks)

c)Explain the classes of persons who may petition the court for the compulsory winding up of a company. (6 marks)
(Total: 20 marks)
QUESTION SEVEN
a)Discuss the rules relating to appointment and vacation of office of directors
(10 marks)

b)Triple H, Undertaker Austin and Flair are directors of Mieleka Ltd a company regulated by Table A. Fair is the managing director and undertaker is the chairperson of the company. Sometime ago the directors meeting as a board decided to:
i)Lend Triple H Shs.500,000 to purchase a car for his wife Stephane for her personal use;

ii)Advance Shs.500,000 to Austin to cover his expenses on a worldwide (promotional tour on behalf of the company). Booker T,the company secretary informs you that Stone Cold a shareholder claims that this transaction should have been approved by the members and that he intends to raise the matter during the next general meeting.
Required
i)Advise Booker T which of the transactions need approval by the members in general meeting (4 marks)

ii)What are the consequences of the necessary approval not being obtained? (6 marks)
(Total: 20 marks)
QUESTION EIGHT
a)Outline the information that is required when registering a charge. (8 marks)

b)In July 2001, Muungano Ltd obtained an overdraft from a bank upon deposit of title deeds and the execution of a memorandum of charge the memorandum was executed in due form by the company but left undated. The overdraft continued and subsequently the manager of the bank filled in the date as 10th January 2002. The memorandum was then registered with the registrar of company’s on 31st January 2002 and the registrars certificate to that effect was duly issued.Discuss the validity of the charge.
(12 marks)
(Total: 20 marks)

Law Ii Question Paper

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