NAME: FUNGAYI JOHANE MAJURIRA

STUDENT ID: 21981559

COURSE: COMPANY LAW

COURSE CODE: BBAC 221

PROGRAM: BACHELOR OF BUSINESS IN ACCOUNTING

LECTURER DR.W MUSALE

DATE: 31 MAY 2021

End of Semester Final Exam June 2021:

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QUESTION ONE
A company is a business entity which acts as an artificial legal person, formed by a
legal person or a group of legal persons to engage in or carry on a business or industrial
enterprise. The Company Act of Zambia is an Act to promote the development of the
economy by encouraging entrepreneurship, enterprise efficiency, flexibility and
simplicity in the formation and maintenance of companies; provide for the incorporation,
categorization, management and administration of different types of companies; provide
the procedure for the approval of company names, change of name and conversion of
companies; provide for shareholders‘ rights and obligations, the conduct of meetings
and the passing of resolutions by shareholders; to encourage transparency and high
standards of corporate governance by providing for the functions and obligations of
company secretaries and directors; provide for issue of shares, share capital
requirements, procedures for alteration and reduction of share capital and disclosure
requirements of companies; provide for the public issue of shares, the issue and
registration of charges and debentures; incorporate financial reporting provisions,
maintenance of accounting records, and access to financial information of companies;
provide for amalgamations; provide for the registration of foreign companies doing
business in Zambia; provide for the deregistration of companies.

The Patents and Companies Registration Agency (PACRA) is a Statutory Body under
the Ministry of Commerce, Trade and Industry. PACRA established under the Patents
and Companies Registration Agency Act No. 15 of 2010 with the principal mandate of
providing, business registration and intellectual property protection services. The
Agency confers intellectual property rights and serves as a legal repository for business
registration and intellectual property information. The agency is also responsible for
registration of industrial designs; registration of trademarks; granting of patents;
registration of copyright and related rights incorporation of companies; registration of
business names; registration of security interests in movable property; establishment of
business regulatory services centers; protection of integrated circuits; accreditation of
corporate insolvency practitioners; and protection of traditional knowledge, genetic
resources and expressions of folklore.

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The various types of companies incorporated under Company Act of Zambia are public
company or private company, being (i) a private company limited by shares; (ii) a
private company limited by guarantee; or (iii) an unlimited private company. There is
also a foreign company.

A foreign company is a company that is already registered in another country and it is

therefore considered as a branch of the original company. A foreign company is
governed by the companies act No. 24 of 2011 of the laws of Zambia. It is a must that at
least one and no more than nine individuals termed as local directors are authorized to
conduct and manage the affairs of the company in Zambia. If they are two such
directors, at least one should be resident in Zambia. Applicants should fill in a form that
is provided by PACRA.

PACRA registration procedure through the registrar of companies for any company
starts with name clearance in order to avoid use of an existing or similar name. This
should be done in writing on a name clearance form. Applicants pay a fee which differs
depending on whether you a local or a foreigner.  In the event that the name applied for
is deemed unsuitable, this will be communicated to the applicant and the applicant will
be advised to submit another choice of names. Some names may be deemed to be
unsuitable according to the guidelines, such names as well known international
companies.

The subscribers to an application for incorporation can be anyone except any person
under eighteen years of age, an undischarged bankrupt under zambian laws being
someone who is legally bankrupt but who still has to pay back particular debts and
cannot borrow again without telling financial organizations considering a loan that they
are bankrupt, such an undischarged bankrupt being subject to various restrictions;
subject to an order by the court, anyone who is an undischarged bankrupt under laws
of another country and anyone who is of unsound mind and has been declared so by
the court or a court of competent jurisdiction of another country.

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After a name search and the name so chosen are deemed to be suitable an application
for incorporation to be a company is made on suitable forms also supplied by PACRA.
These forms are: declaration of compliance, declaration of consent to act as director
and or secretary, standard or own articles and indication whether company is limited
in its activities to undertake section 7(2) of Act and a declaration of guarantee by each
subscriber if the company is to be limited by  guarantee .

The minimum requirements needed by PACRA for a company incorporation are that it
should have at least two shareholders of 18 years and above and of sound mind, a
minimum of two directors and a company secretary of which half of the directors must
be resident in Zambia. The minimum share capital shall be K15, 000. Other related
costs are stipulated according to the act which costs change from time to time. Upon
payment of the relevant fees the registrar will issue Certificates of Incorporation and
Share Capital which are conclusive evidence that the company has been incorporated
or registered. 

PACRA requires that the details of each director be specified o the forms including the
addresses of the company. This information is important as it identifies the people
responsible for the company corporate governments as well as where their offices so
that statutory bodies will know where to go to collect their revenue and in cases of
commercial or criminal investigations, auditing or verification of assets, the physical
place can be known and identified.

All companies are required to submit annual returns with the Registrar of Companies
within three months after the end of the financial year or one month after the annual
general meeting if it is held within three months after the financial year. The Company’s
Act allows foreign companies to register with the registrar of companies within 28 days
of setting up or acquiring an established place of business. The documentation
requirement can be obtained from the office of the registrar of companies or online.

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QUESTION TWO
Discuss the role of the director and the auditor in the operations of the company
according to the Companies Act 388.

Directors
Directors are the persons to whom management of a company is entrusted. Together
with the managers and the secretary they are the “officers” of the company. Directors
act as agents for his principal who is the company. They act as trustees of the company
and not as servants of the company. It is expected that the director in his function will
protect the interests and objectives of the company above his personal interests.
It is expected that the directors in their functions will protect the interests and objectives
of the company above their personal interests. It is from this that theories like agency
theory are developed.
There are persons who may not be allowed to be directors such as
 Undischarged bankrupts
 Person disqualified by court order
 Minors
 Person of unsound mind
Directors may be disqualified by the provision of the Act if during the operations of the
company they are subject to
 Found to become bankrupt
 Becomes of unsound mind
 Resigns by notice in writing
 Absent from the board meeting for more than 6 months without permission
The powers of directors are usually set out in the Articles, authorizing them to carry on
the business of the company, and there is generally an additional clause giving them
powers of management and all the powers of the company which are not otherwise
specifically mentioned in the Articles.

If the Articles are silent are silent on this point, the law implies that all the ordinary
powers connected with a business of the same kind as that carried on by the company
are being conferred upon the directors.

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The powers of directors may be enlarged, or in certain circumstances restricted by the
shareholders, and if the directors act beyond their powers the shareholders may ratify
their act, provided it is not ultra vires the company.

Directors are in a fiduciary position to the company in their capacity as agents, and
hence cannot, therefore, place themselves in a position where their own interests
conflict with their duties.

Directors must on no account make any secret profits. Any such benefit is regarded as
a bribe, and the directors are accountable to the company for such.

A director is bound to exercise faithfully the trust he has accepted, and is bound to
exercise fair and reasonable diligence in discharging his duties, and to act honestly
though not bound to do more.

The following are the duties of a Director

1. Duty in relation to the employee to protect them and fight for their rights and
welfare as the laws might not be very protective of them

2. The duty to act bona fide and for the benefit of the company as a whole

3. The duty to use their powers for the purpose for which they were conferred

4. The duty to retain freedom of action

5. The duty to avoid a conflict of duty and interest

6. Relief from liability if they can convince the court that they acted honestly and
reasonably in all circumstances.

7. Duty of care and skill

There are however limitations on the powers of a director that are outlined in the Act.
This gives rise to the liabilities of the directors as outlined.

The directors are liable for negligence or breach of trust in relation to the company’s
affairs. The Act makes ample provision for the liability of directors guilty of fraud or
gross negligence in respect of the company or third persons. During the course of a

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winding-up, the Act provides that a director who has misapplied or retained or become
liable or accountable for any money or property of the company, or has been guilty of
any misfeasance or breach of trust in relation to the company, may be compelled to
repay or restore the money or property or to pay such sum to the company as the courts
thinks fit.

Directors are personally responsible for fraud, although, where the company has taken
advantage of fraudulent misrepresentations, the company may be held bound as well as
the directors.

A director owes a duty to the company to devote to his duties such care, prudence, and
diligence as could reasonably be expected of a reasonably responsible person in those
kind of circumstances.

He must exercise such skill as may reasonably be expected of a person of his

knowledge and experience. For care ad diligence, the director’s conduct is measured
objectively against the standard of the reasonably prudent and responsible person. For
skill, or professionalism, the executive director with a service contract will be required to
display higher standards. Like any other responsible employee, he will be required to
show both care and skill of a kind to be expected of an employee.

The Auditor
The auditor must report to the company on the accounts examined by him, and on
every balance sheet, every profit and loss account and all group accounts, laid before
the company in general meeting during the tenure of office. The report must state
whether or not the accounts are properly prepared in accordance with the Companies
Act and whether or not the accounts give a true and fair view of the operations of the
company. The auditor must carry out investigations such as will enable him to form an
opinion whether
 Proper accounting records have been kept, and proper returns adequate for his
audit have been received from branches that may not be visible
 The accounts are in agreement with accounting records and returns

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If the auditor is of the opinion that either requirement has not been satisfied or if they fail
to obtain the information and explanations which they consider necessary for the
purpose of his audit, he must state any such conclusion in his report on the accounts.

The auditor must give particulars of director’s emoluments or loans to directors, or

transactions with directors, if these are not adequately or correctly disclosed in the
accounts, so far as they are reasonably able to do so.

It is the duty of the auditor of the company in preparing his report on the company’s
accounts to consider whether the information given in the director’s report relating to the
financial year in question is consistent with those accounts. If the auditor is of the
opinion that the information given in the director’s report is not consistent with
company’s accounts for the financial year, he shall state that fact I his report. It is a
criminal offence for any officer of a company knowingly or recklessly to supply false or
misleading information to auditors.

The auditor’s report, which must contain the auditor’s names and signatures, must be
sent with the accounts to members, be laid before the general meeting and filed with
Registrar.

Auditors have special rights to require a meeting to be held following their resignation in
certain circumstances. Thus, where an auditor’s notice of resignation contains
statement as to the circumstances of their resignation which they consider should be
brought to the notice of the members or creditors, he/she may requisition the director’s
to call an extraordinary general meeting for considering his explanation.

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QUESTION THREE
Annette owned a shop where she sold antique goods. As the purchasing and marketing
person for her shop she had to frequently visit auctions to negotiate and possibly buy
goods for her shop. She frequently makes those visits and each time she does that she
leaves her friend to take care of the shop. Taking care of the shop meant that she could
sell any of the items displayed for sale in her shop and that she should sell the item at
the displayed price and that Annette should get seventy five percent of the displayed
prices.

Becky is Annette’s best friend and she agreed to stand in for her friend while she was
away in her shop selling antique goods in the shop at the displayed price. It was part of
the agreement between her and her friend Annette that she should only sell goods at
the displayed price as long as she got at least seventy five percent of the displayed
price. Becky was also told that under no circumstance was she to purchase any stock
for the shop. Annette was the buyer of the shop.

Annette and Becky entered into a verbal contract that Becky could sell goods in
Annette’s shop at the displayed price and only if she could get at least three quarters of
the sold price for herself. It was a condition in their contract that goods were to be sold
at the displayed given price.

Chris entered the shop and Becky sold him an antique clock for seventy percent of the
price displayed. Chris bought the clock believing Becky to be the owner of the shop.
Chris must have sweet talked Becky into selling him the clock at a lesser amount of
which Becky finally agreed to sell it to him for seventy percent of the price.

Diana, a regular customer and a good friend of Annette also bought a bedside cabinet
from Becky for six five percent of the price even though she knew Annette would not sell
it for lower than seventy five percent. Diana bought the cabinet because it was cheap.

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Becky also went on to buy a number of pieces of jewellery that had been shown her by
Eddie. Becky despite having been told not to buy any stock went ahead and bought the
jewellery. The cost of the jewellery pieces was K3, 500. Becky so believed that Annette
would be happy with the deal as it appeared she knew she had made a good bargain.

When Annette came back she found Becky had bought jewelley and went on to
discover that the jewellery she had bought was worth a fortune much more than what
Becky had spend to buy it at K30,000. On the other hand Eddie came back demanding
that Annette and Becky should return the jewellery since he was not aware that Becky
was not the owner of the shop. Unfortunately for him Annette refused to return the
jewellery pieces arguing that the contract was valid.

A contract creates certain obligations that are to be fulfilled by the parties who entered
into the agreement. At law, one party's failure to fulfill any of its contractual obligations is
known as a "breach" of the contract. Depending on the specifics, a breach can occur
when a party fails to perform on time, does not perform in accordance with the terms of
the agreement, or does not perform at all and the aggrieved party can then sue for
remedies. Accordingly, a breach of contract will usually be categorized as either a
"material breach" or an "immaterial breach" for purposes of determining the appropriate
legal solution or remedy for the breach.

The contract that the Annette and Becky entered into was valid because valid as Becky
agreed to the terms and conditions given by Annette. The offer given by Annette was
legal and hence had most of the characteristics of a valid contract. It was capable of
being performed, the offer was accepted considering that Becky agreed to remain
behind and take care of the shop. However Becky breached the terms of the contract.

Becky did what she was not supposed to do. Through negligence and disregarding the
fiduciary duty of care and trust. She went on to sell goods at a price lower than what she
was allowed to do and later on went on to buy stock she was not allowed to buy. The
goods she bought however turned out to be more valuable than what she had paid for

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and Annette held on the jewellery pieces despite the fact that she had told Becky not to
buy any stock.

Annette lost stock and money, and she can sue Becky for damages in the sum of the
difference in the minimum she required and what Becky sold for. Becky cannot deny
that she breached the contact she actually sold the goods and the people she sold to
can testify to that effect. She can also sue Diana for having persuaded Becky to sell her
a bedside cabinet or it was Becky herself who conspired to steal from her friend by
undercharging, yet she knew very well that Annette would not have sold her that
cabinet. She can also go and recover her cabinet as the sale can be deemed illegal as
both parties to the sale knew that what they were doing was acceptable to the owner of
the property.

The purchase of the pieces of jewelley was valid as it was done by parties who had
agreed to the terms of the sale. Nowhere was it mentioned that the sale of the pieces of
jewellery were to be done only to Annette the owner of the antique shop. Eddie was not
the owner of the pieces of jewellery he was the person who showed Becky the
whereabouts of the collector of the pieces of jewellery. Annette can even report Eddie
for the intention to steal what did not belong to him. Eddie had no locus standi to
demand a return of the goods that Becky did with someone whom Eddie knew. Eddie
was neither an agent of the jewellery collector nor an employee and hence Annette was
correct in refusing to return the jewellery as it was a valid sale.

Becky did something wrong by breaching the terms of their contract. She owed Annette
an explanation of why she did what she did and how she intends to remedy that. She
owes Annette money or goods that she sold and any other damages Annette may
claim. On the other hand Annette owes her for the windfall that Annette was likely to get
if the pieces of jewellery are resold. Annette will realize a profit of K26, 500 and if she so
wishes will have to share it with her. They can reach a mutual agreement where from
the proceeds of the sale of jewellery the share due to Becky can be used to
compensate what she owes Annette.

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QUESTION FOUR
Fully explain ten types of cheques in business operation.

Cheque is a very common form of negotiable instrument. If you have a savings bank,
you can issue a cheque in your own name or in favor of others, thereby directing the
bank to pay the specified amount to the person named on the cheque. A cheque is a
document which guarantees the payment of a specific amount of money on demand to
a certain person or to the bearer of instrument. You can use this printed form to make
payment from your bank account. When you write a cheque you enter the amount of
money and who is to be paid to, sign and hand over to the person you want to make
payment to. Your bank then pays the money to that person also called the payee from
your account provided all the requirements have been fully met. Some of the conditions
of payment include that it is signed by the authorized signatory and that the account
from which the money is to be drawn from is fully funded.

The following are some of the different types of cheques

1. Bearer-A bearer cheque can be payable as cash or bearer with a specific name.
The bearer cheque does not have the word ‘bearer’ on the cheque. The cheque
is payable over the counter to the bearer or the presenter of the cheque by the
drawee bank. A bearer cheque can be transferred to another person. The
transferor of cheque while passing the cherub does not need to endorse the
cheque. The bank does not need any identification proof while presenting a
bearer cheque for encashment. However, if the cheque amount is substantial the
bank may ask for the identification to confirm the same. It is necessary for the
encasher to sign at the back of the bearer cheque to confirm the receipt of the
money from the bank.

2. Crossed cheque-a crossed check is any cheque that is crossed with two parallel
lines, either across the whole cheque or through the top left-hand corner of the
cheque. This double-line notation signifies that the cheque may only be
deposited directly into a bank account. Such cheques cannot be immediately
cashed by a bank or by any other credit institution.

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3. Open cheque-is an uncrossed cheque that can be cashed at the drawee bank
upon presentation

4. Oreder cheque-when the word “or bearer” printed on the cheque is cancelled and
the word ‘order’ may be written on the cheque, the cheque is called an order
cheque. An order cheque is one which is payable to a particular person. The
payee can transfer an order cheque to someone else by signing his or her name
on the back of it.

5. Ante-dated cheque-is a cheque in which the drawer mentions the date earlier
than the date on which it is presented to the bank, it is called “anti-dated cheque”.
Such a cheque is valid up to six months from the date of the cheque. For
example, a cheque issued on 4th June 2021 may bear a date 31st May 2021.

6. Post-dated cheque-is a cheque on which drawer mentions a date which is yet to

come or a future date to the date on which it is presented. For example, if a
cheque presented on 5th June 2021 bears a date of 12 th June 2021. The bank will
make payment only on or after 12th June 2021.

7. Stale cheque- if a cheque is presented for payment after six months from the
date of the cheque it is called a stale cheque. After expiry of the period, no
payment will be made by banks against that cheque.

8. Mutilated cheque-when a cheque is torn into two or more pieces and presented
for payment, such a cheque is called a mutilated cheque. The bank will not make
payment against such a cheque without getting confirmation of the drawer.

9. Banker’s cheque-is a cheque which is payable by a bank itself, as opposed to an

ordinary cheque payable only out of the funds of a particular customer’s account.
A bank cheque is normally obtained by a bank customer and pays its face value.
The person that is receiving the cheque has the security of knowing it’s payable
by the bank and thus cannot bounce as funds are drawn directly from the bank ‘s
funds and not from an individual’s bank account.

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10. Traveller’s cheque-is a cheque that you could buy at a bank and take with you
when you travel, for example so that you could exchange it for the currency of
the country that you will be in.

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QUESTION FIVE

The basis of employment contract between an employer and employee is an agreement

whereby an employee agrees to provide work or service in return for remuneration by
the employer. The contract of employment is a contract of service and not for service.
The contract of employment out the terms and conditions of employment and once
signed will be an acknowledgement that that both parties to the contract have agreed to
abide and honor its contents.

Peter entered into a contract of employment with The Beach House in November 2007
and worked as a waiter where he was rapidly promoted after being found to be good at
his job. The Beach house was very professional entity that looked after its employees
very well. The company faced a challenge of competent staff in the spring of 2014
forcing Peter to be overworked. The working environment got even worse as the
restaurant manager Mr. Rico seemed not to like. All this led to Peter developing stress-
induced eczema and had to take a six weeks unpaid sick leave where he visited his
parents in Germany. This he did with a view that the stress will subside.

Upon his return the difficulties continued. He was burnt on his hand while serving a
customer and had to go again on sick leave for a further three weeks but did not get
sick pay though he got injured at work. Peter approached Mr. Rico for him to authorize
his sick pay but Mr. Rico refused.

It was also company policy that each employee should get an appraisal after every six
months but Peter had not had one in the last two years. He repeatedly asked Mr. Rico
but he always gave excuses. In December 2014 he was involved in a fracas with an
assistant manager at the restaurant after he removed an unopened bottle of wine to
take it to the kitchen having been left by a party of diners. The assistant manager
argued that he should have asked for management permission. That incident earned
him a written warning.

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A month later Peter was confronted by Mr. Rico after he was seen eating from a metal
cooking tray he was taking to the kitchen for washing. Mr. Rico said the new company
rule does not allow employees to each in the kitchen during working hours. Peter could
not stomach it anymore and in the spur of the moment shouted back at Mr. Rico
pointing out that he had not been told about the new rules and in any case some
employees had even eaten food during working hours and had not been reprimanded.
Peter was sent home immediately followed by a phone call from Mr. Rico the next day
that he had been dismissed for gross misconduct.

Gross misconduct relates to the actions or behavior of the employee. If misconduct of

an employee is so serious that it undermines the mutual trust and confidence between
the employee and their employer and merits instant dismissal it can be classified as
misconduct. In such a case the employee can be summarily dismissed without notice or
payment in lieu of leave. Because there no comprehensive list of types of misconduct
what is considered gross misconduct should be outlined in employment of contract or
staff handbook. An employee can successfully argue that they had no reason to believe
a certain action would lead to one being dismissed instantly.

Common types of gross misconduct include, theft and dishonesty, vandalism or

employer property, fighting or physical violence, gross negligence, serious
insubordination, accepting or offering bribes, alcoholic intoxication, indecent behavior,
sabotage, fraud, serious breaches of health and safety rules, racist or sexist abuse,
illegal and criminal acts, bullying or intimidation of colleagues or manager.

The duties of an employee are among others, to be ready and willing to work, to
exercise reasonable skill and care, to obey lawful orders, to act in good faith, to take
care of employer’s property and to maintain confidentiality during and after employment.
The duties of an employer are among others, to provide work, to pay remuneration, to
provide for the safety of the employees, to indemnify employees, to give true references
and to maintain trust and confidence.

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The employment Act has provisions for cases where an employee’s contract of
employment has been terminated. The most common are summary dismissal and
redundancy. Once this happens the two parties have recourse to the Act to get relieve
for the actions of the other. Peter is the aggrieved party as he has been summarily
dismissed not by Mr. Rico but by The Beach House.

The Act provides that wherever an employer dismisses an employee summarily he

should within a stipulated time write to the labor officer a report detailing the
circumstances and reasons leading to such dismissal. Peter would eagerly wait for
such a report as he would argue that was wrongfully dismissed.

Peter should bring claims against The Beach House. The reasons for claims are:

He was dismissed without notice and without pay – Peter was sent home after a heated
argument with his manager. The manager interpreted that as intimidation or bullying
and told him to go home. He was told over the phone that he had been dismissed and
no other word was given as to the reasons or remuneration

He did nothing that can be described as warranting dismissal – the events leading to the
altercation with manager are normal to any reasonable person and justified when the
particular case is further dissected. The animosity that was being exhibited by Mr. Rico
towards Peter had been brewing for a long time and needed only a trigger for it to burst
and that incident provided the fuel it needed. Despite the fact that Mr. Rico admitted that
the rules that precipitated this confrontation had been recently given such that some if
not all the employees were not aware of it. Hence Peter was right in demanding to be
treated fairly.

He did not knowingly break any of the company rules-Peter did not break any company
policies or standards and was only protecting himself in a way any reasonable person
would do.

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He did not grossly misconduct himself- the action that the manager claimed to have
been done cannot be classified as gross misconduct that warrants instant dismissal. In
any case it is the manager Mr. Rico who is guilty of abuse of authority and hatred.

Peter can claim for unfair dismissal. An employee who has completed two year’s
service may be able to bring a claim of unfair dismissal if they are summarily dismissed
due to an action or omission which does not actually amount to gross misconduct. Even
if an employee does not qualify for standard unfair dismissal rights they may still be able
to claim unfair dismissal if they can prove that the dismissal was connected to illegal
discrimination or health and safety. The remedies for unfair dismissal include
reinstatement, damages in lieu of reinstatement and back pay.

Where an employment tribunal upholds an employee’s unfair dismissal claim any of the
following remedies are possible. An order for reinstatement, ordering the employer to
give the employee their old job back and to make good any loss of earnings from the
date of dismissal to the date of reinstatement. An order for re-engagement, ordering the
employer to give the employee a job comparable to their old job and to make good any
loss of earnings from the date of dismissal to the date of re-engagement. An order for
compensation comprising the basic award which is calculated in much the same way as
a statutory redundancy payment and depends on the gross weekly pay, length of
continuous employment before dismissal and age and compensatory award and an
additional compensation

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