CHAPTER FOUR: The Management of a Registered

Company

4.1Company membership

 Every registered company must have at least two members.

 Private company membership must not exceed 50 members.
 A public company has no limit on membership.
 A partnership’s membership is restricted to 20 partners.

Notes on membership
(i) A minor-(below 21) - the contract is voidable at the option of the
minor. In Steinberg v Scale a minor applied for and was allotted
500 £1 shares for which she paid 50p per share. She repudiated
(=disown) the shares when she was still under 21 and tried to
recover the £250 she had paid. Held she could repudiate the
shares and cease to be a member but could not recover the
money back as she had enjoyed some benefits out of it (i.e. there
was no total failure of consideration)
(ii) A personal representative [executor/ executrix/ administrator
general]- can be a member representing the estate of a deceased
member. A personal representative will only be registered as a
member upon production of letters of probate or letters of
administration. (Official court letters proving a person as a
representative of the deceased)
(iii) A trustee in bankruptcy- is treated as a legal owner of the shares
of a bankrupt member. A trustee in bankruptcy has the same
rights and obligations as a personal representative. He has three
options open to him;
1) He may apply for registration as a member in his own name
2) He may sell the shares
3) He may disclaim them without registering as a member.
(iv) A company- may be a member of another company if it is
permitted by its memo.

How does one become a member of a company? [4 ways]

(a) Subscribing to its Memo (original members)
(b) Agreeing to become a member of the company and having his
name registered in its register of members.
COMPANY LAW for PAEC students BYALLAN HANS MUHOME LLB (HONS) MW 33
Lecturer in Law Courses
 (c) Where shares are voluntarily transferred to another person as a gift
or for value.
(d) Transfer of shares by operation of law.
Instances
a. Death- shares devolve to an executor (executrix) or survivor if
joint holder
b. Trustee in bankruptcy
c. Forfeiture Act (repealed)

How does one cease to be a member of a company? [4ways]

1. by transferring his shares to another person
2. by his shares being forfeited
3. by his shares being sold by the company under some
provision in its articles (e.g. enforcement of a lien)
4. by death.

Register of members- Contents

1. full name, address and occupation of member
2. date of entry in the register
3. date on which he ceases to be a member
4. a statement of shares held by each member
5. amount paid on each share

NB: according to S. 37- the register is prima facie evidence of its

contents.

Rights of members
1. Attend and vote at the company’s general meeting (this is the
most important way through which members influence policy
and management).
2. Members are entitled to dividends.
3. Entitled to receive back capital if upon winding up some assets
of the company remain.

The Main duty of a member

To pay in full for the shares allotted to them.

4.2Company meetings

COMPANY LAW for PAEC students BYALLAN HANS MUHOME LLB (HONS) MW 34
Lecturer in Law Courses
 A company is administered and managed by its directors and full
time employees.
 Members are usually not involved in the day to day business of the
company
 However, they influence policy by making important decisions
through general meetings e.g. alteration of the memo and articles or
reduction of share capital can only be altered by them in a general
meeting.

Types of meetings

1. AGM- meeting for all members conducted every year. This is the
forum in which members contribute to the company’s decision-
making. According to S. 104(1) of the Companies Act, every
registered company must hold at least one general meeting for
the year so that 15 months should not pass between one
meeting and the next.

2. Extra-ordinary General Meeting- this is any other meeting of

the company other than an AGM. This meeting is generally
convened by directors when they deem it fit. However members
can call for the meeting as long as they hold at least 5% (one
twentieth) of the total voting rights of all the members who
have the right to vote at the company’s general meeting. This is
called calling for an extra ordinary general meeting by
requisition.

Conditions for the requisition

(i) Must state the nature of the business to be transacted
at the meeting.
(ii) Must be signed by the requisitionist.
(iii) Must be deposited at the registered office of the
company.
If the directors do not call for the meeting within 21 days, the
requisitionists may convene it themselves. They must convene
the meeting within three months from the date of deposition.

3. Class meetings

COMPANY LAW for PAEC students BYALLAN HANS MUHOME LLB (HONS) MW 35
Lecturer in Law Courses
  S. 47 allows a registered company to create different
classes of shares by attaching certain rights or restrictions
to some of its shares.
 Members of a class may hold meetings called class
meetings. According to the case of Carruth vs Imperial
Chemical Industries if holders of other types of shares are
also present, that may affect the validity of the meeting.
However, if these members come in after deliberations are
over and voting is about to start, and the legitimate
participants do not object to their presence, the meeting
will still be valid.

4.3Notice of general meeting

The meetings are very important forums in which the shareholders can
influence policies of the company therefore members must receive
adequate notice.

Length of notice
 21 days AGM
 14 days other meetings

Contents of a valid notice

(a) Must specify the place
(b) Must specify the day
(c) Must specify the hour
(d) Must specify the general nature of the business to be
transacted at the meeting (agenda). The specifics are not
necessary. The usual business is;
 consideration of financial statements
 auditors and directors report
 appointment of auditors
 election of directors
 declaration of dividends
(e) any special business

If there is no sufficient disclosure of the business, the resolutions

passed at the meeting will be invalid;
Tiessen vs Henderson [1899] The purpose of the general meeting was
to pass special resolutions for the company’s financial reconstruction.
COMPANY LAW for PAEC students BYALLAN HANS MUHOME LLB (HONS) MW 36
Lecturer in Law Courses
 Directors of the company would receive commissions if the resolution
was passed but this was not disclosed. Members sued. Held: that the
failure in the notice to disclose the directors’ financial interest in the
success of the proposed reconstruction rendered the special resolutions
approving it not binding.

Who is entitled to notice?

(1) Every member who has the right to vote at such meetings
(2) Every member to whom ownership of shares devolves by
operation of law
(3) Every director of the company
(4) Every auditor of the company

NB; the secretary is not entitled to notice, why?

If any person entitled to notice does not receive one, any resolution
passed at the meeting will be of no effect.

4.4Persons entitled to attend the general meeting

S. 111 (1) gives all persons (above) who are entitled to notice of the
general meeting and the company secretary the right to attend general
meetings.
Persons prohibited from attending and voting at the general meeting
 The company may through its articles prohibit attendance by a
member if sums payable by him in respect of shares held by him
in the company have not been paid for in full.
 A director may be prohibited from voting if he is materially
interested in the matter under discussion. (see point 8 below)
 NB: where one is prohibited from attending or voting, the same
must be raised at the meeting through an objection coz if the
prohibited person attends or votes, the decision may still be
valid if there is no fraud or ill-intention.

4.5Proceedings at the general meeting

1. Quorum
 S. 112 provides that 2 or more persons who are members or
hold proxies are enough to form a quorum. (The AOA may
provide for a different kind of quorum e.g. 60% of members)
COMPANY LAW for PAEC students BYALLAN HANS MUHOME LLB (HONS) MW 37
Lecturer in Law Courses
  One person cannot constitute a meeting even if he attends in
more than one capacity. (This rule does not apply to class
meetings if there is only one member for that class).
 a meeting if called by members and there is no quorum
within 30 minutes- the meeting stands dissolved.
 Where a meeting is called by directors and there is no
quorum within 30 minutes- the meeting stands adjourned to
the same day, place and time in the following week.

2. Voting
 This comprises one of the most basic principles of
corporate democracy i.e. that members have the right to
influence the company’s policy by making independent
choices at the general meetings.
 Issues at a meeting are decided by a vote- either by show
of hands or by a poll.
 Where a poll is not demanded, show of hands is enough.
 A member is entitled to one vote where voting is by show
of hands.
 On a poll, every member is entitled to one vote for each
share held by him.

Re Horbury Bridge Coal, Iron and Wagon Co. [1897]

At a meeting where 5 members of the company were present
a resolution was passed to wind up the company. The
company then proceeded to elect its liquidator by show of
hands. There were two candidates, A and B. A, got 3 votes
while B got 2 votes which were cast by the majority. No poll
was demanded by the majority. The chairman decided that B,
who got 2 votes, was duly elected. The minority challenged
this decision. Held: that the chairman erred coz no poll was
demanded and in a vote by show of hands the candidate
who gets more votes wins regardless of the fact that he has
been voted in by the minority. Therefore, A, who got 3 votes
should have been declared the liquidator.

 Members can demand a poll on any issue therefore

articles may not limit such right. Note, however that
according to section 114(1) (b), the articles can exclude
the right to demand a poll if the demand is made by
COMPANY LAW for PAEC students BYALLAN HANS MUHOME LLB (HONS) MW 38
Lecturer in Law Courses
 (1) less than three members
(2) less than 5% (one twentieth) of the total voting rights.
 There are two situations where members may not demand
a poll;
a. election of the chair
b. Adjournment of the meeting.
 These are probably quick decisions that should better be
decided by show of hands.
3. Proxies
 S. 113 (1) allows every member of a registered company
who is entitled to attend and vote at its meeting to
appoint another person to attend the meeting and vote in
his stead.
 He can appoint more than one person, each representing
such number of his shares as he may specify in the
instrument of appointment called a power of attorney.
 The appointee is known as a ‘proxy’.
 A proxy need not be a member of the company.
 The notice of the general meeting must specify that a
member can attend a meeting through a proxy.
 The proxy is not himself entitled to a notice of the
meeting- why?

4. The Chairperson
 It is usual for the chairperson of the board of directors to
preside over the general meeting. However, if he can’t,
members will choose a chairperson from amongst themselves.
 4 duties of the chairperson
(a) Preserve order in the meeting.
(b) Ensure that the meeting is conducted in accordance with
legal procedures.
(c) Decide any incidental questions for instance disallowing votes
which are objected to.
(d) He holds the casting vote in a tie.

5. Resolutions
COMPANY LAW for PAEC students BYALLAN HANS MUHOME LLB (HONS) MW 39
Lecturer in Law Courses
 There are two types of resolutions- ordinary and special
(a) Ordinary Resolution
 Passed by a simple majority e.g. in the ratio 3:2 3 wins.
 There is no need for notice to members that an ordinary
resolution will be passed.
 Instances- increasing capital, removing a director/
auditor.
(b) Special Resolution-according to S. 120 (2) there are 3
conditions that a special resolution must satisfy namely;
 21 day’s notice must have been given.
 The notice must show the intention to propose the
resolution as a special resolution at the general meeting.
 It must be passed by at least three-quarters (75%) of the
votes cast.
Some special resolutions require court confirmation e.g.
1. Special resolution altering the memo in terms
of its business.
2. Special resolution for variation of class rights.
3. Special resolution for reduction of a
company’s share capital.

SPECIAL RESOLUTION ORDINARY RESOLUTION

1. Alteration of its objects 1. Removal of directors
2. Alteration of its articles 2. Removal of auditors
3. Alteration of its name 3. Increasing capital
4. Reduction of Capital
5. Conversion of a company from
one type to another
6. Variation of class rights

6. The principle of assent (Applies to a members)

 A general meeting is necessary where a discussion is
required and dissenting/opposing views are likely.
 However, the law knows that sometimes there will be no
dissent and thus all members assent to a particular policy
therefore they can simply sign a resolution without actually
meeting.
 This assent cannot be a substitute to a general meeting in
matters involving the removal of the company’s auditor or
director.
COMPANY LAW for PAEC students BYALLAN HANS MUHOME LLB (HONS) MW 40
Lecturer in Law Courses
 7. Resolution in lieu of a meeting (Applies to directors)
Where directors are unable to meet, for whatever reasons, the
company secretary may prepare a resolution in lieu of a meeting.
 It must be in writing.
 Signed by all directors entitled to vote thereon.
 Such a resolution is only possible in situations where the
Companies Act or Articles do not expressly require a
meeting to be held.

8. Ratification of director’s acts done in breach of their duty

The general meeting may ratify acts of directors done in breach
of their duty. What is required is that the members must have
all material facts before them. Further than that, a director who is
also a member but is in breach of his duty as a director may also
be allowed to vote. In North West Transportation v Beatly, a
director sold a ship to the company at a fair price. A general
meeting was called to approve the sale. He was permitted to
cast his votes (in his capacity as member) for the resolution to
approve the sale. However ratification is, by law, not allowed in
the following circumstances;
(a) If the director’s act is illegal or ultra vires (Ashbury Rly
Carriage v Riche)
(b) If the directors defraud the company, the majority cannot
sanction the fraud (Cook v Deeks)
(c) The company cannot, in a general meeting, waive or relax
the principle that a director must exercise his powers
bona fide in the interest of the company (Re Roitto)
(d) If the directors allot shares to alter the balance of votes in
a general meeting, the votes attached to those shares
may not be cast to support a resolution approving the
issue (Bamford v Bamford)

COMPANY LAW for PAEC students BYALLAN HANS MUHOME LLB (HONS) MW 41
Lecturer in Law Courses
 CHAPTER FOUR: The management of a registered company
(A selection of non-factual past questions)
-----------------------------------------------------------------------------------

Membership
1. Mention four ways in which one can become a member of a company
limited by shares (5 marks- Dec 2000, June 2001, June 2003, June 2007,
June 2008)
2. Mention four ways in which one can cease to be a member of a
company limited by shares (5 marks- June 2001, June 2003, June 2007,
June 2008)
3. What principle rights does a shareholder have in a company (6 marks-
Dec 2001, June 2005 & June 2007)
4. What is the principle duty of a shareholder in a company (2 marks- Dec
2001, June 2005 & June 2007)
5. What main preferential rights accrue to holders of preferential shares in
a company (4 marks- Dec 2001, June 2005 & June 2007)
6. What are the contents of a register of members of a company limited
by shares (5 marks- Dec 2000, Dec 2004 & June 2007)
7. A register of members of a company may reflect the name of a
particular person as a member when in fact he is not. Do you agree
with this statement? Give reasons for your answer. (3 marks- Dec 2005)
8. State the legal position with respect to the following named types of
members regarding their eligibility to become members of a company;
(a) a minor (4 marks- Dec 2000)
(b) a personal representative (2 marks- Dec 2000)
(c) a trustee in bankruptcy (3 marks- Dec 2000)
(d) a company (1 marks- Dec 2000)

COMPANY LAW for PAEC students BYALLAN HANS MUHOME LLB (HONS) MW 42
Lecturer in Law Courses
Meetings
1. Who may convene an Extraordinary General Meeting by requisition? (2
marks- June 2001, Dec 2001, Dec 2003, June 2005, June 2007 & June
2008)
2. How is an Extraordinary General Meeting convened? (3 marks- June
2003)
3. Which persons are entitled to receive notices of General Meetings of a
company? (4 marks- June 2001, Dec 2003, June 2007 & June 2008)
4. What do you understand by the following
(a) An Annual General Meeting (3 marks- June 2000, June 2003,
June 2004 & Dec 2006 & Dec 2008)
(b) An Extraordinary General Meeting and how it is convened (5
marks- June 2000, June 2003, June 2004 & Dec 2006)
(c) A Class Meeting and its major difference from a General
Meeting (6 marks- June 2000, Dec 2006)
5. What is the length of notice required to convene
(a) An Annual General Meeting (1 mark- June 2001, Dec 2001,
Dec 2003, June 2005, June 2007 & June 2008)
(b) An Extraordinary General Meeting (1 mark- June 2001, June
2007 & June 2008)
6. Which persons are entitled to attend and speak at any General
Meetings of a company? (5 marks- June 2001, Dec 2003, June 2007 &
June 2008 & Dec 2008)
7. What are the rights of a member’s proxy at a General Meeting? (3
marks- June 2001, Dec 2003, June 2007 & June 2008)
8. What is the legal requirement for a valid special resolution of a General
Meeting? (3 marks- June 2001, Dec 2003, June 2007 & June 2008)
9. Mention four acts which a company can only do by special resolution
(4 marks- June 2001, June 2003, June 2007 & June 2008)
10. What is the difference between an ordinary and a special resolution of
a meeting? (3 marks- Dec 2001, June 2005)
11. Can a general meeting ratify a director’s act which is in breach of his
duty and if so would such a director, being also a member, be allowed
to vote at such a general meeting? (5 marks- Dec 2000)
12. State four circumstances under which ratification is, by law, not
feasible. (4 marks- Dec 2000)
13. At a company’s meeting a resolution may be decided by voting either
by show of hands or by ballot:
Required;
COMPANY LAW for PAEC students BYALLAN HANS MUHOME LLB (HONS) MW 43
Lecturer in Law Courses
 (1) State two situations where the Companies Act prohibits the
demand for a poll (4 marks June 2004 & Dec 2008)
(2) Can a right to demand a poll be excluded by the Articles? (2
marks -June 2004 & Dec 2008)
(3) In what circumstances would a provision in the companies
Articles be void where it has the effect of denying the right of
demand for a poll (4 marks -June 2004 & Dec 2008)

COMPANY LAW for PAEC students BYALLAN HANS MUHOME LLB (HONS) MW 44
Lecturer in Law Courses