MOHAMED AHMED ABDIRIZAK

BBM/2019/56200

BLW 3103 : COMPANY LAW

i) Describe the practical consequences of registration

Legal entity: Registration of a company creates a separate legal entity that is distinct from its
shareholders. The company can own property, enter into contracts, and sue or be sued in its
own name.

Limited liability: One of the main benefits of registration is limited liability. The liability of
the shareholders is limited to the amount of their investment in the company. This means that
the personal assets of the shareholders are protected from the company's debts and
obligations.

Perpetual existence: A registered company has perpetual existence, which means that it can
continue to exist even if the shareholders change or pass away.

Ability to raise capital: A registered company can issue shares to raise capital. This provides
a way for the company to finance its operations and growth.

Credibility: Registration gives a company credibility and legitimacy in the eyes of

customers, suppliers, and investors. It signals that the company is serious about its business
and committed to complying with legal and regulatory requirements.

Tax benefits: A registered company is eligible for tax benefits and incentives offered by the
government. These can include lower tax rates, tax holidays, and other incentives.

Regulatory compliance: Registration requires a company to comply with various legal and
regulatory requirements, such as filing annual returns, maintaining proper accounting records,
and holding annual general meetings. Non-compliance can result in penalties and other
sanctions.
ii) Describe the constructive notice of memorandum and articles

Under company laws in Kenya, the Memorandum of Association and Articles of Association
of a company serve as the foundation of its constitution and provide important information
about the company's purpose, structure, and internal management. Constructive notice of
these documents is an important legal concept that affects the rights and obligations of both
the company and its stakeholders.

Constructive notice means that anyone dealing with the company is deemed to have
knowledge of its Memorandum and Articles of Association, even if they have not actually
seen or read them. This is because these documents are considered public records that are
available for inspection by anyone, including potential investors, creditors, and other
stakeholders.

The effect of constructive notice is that anyone who enters into a contract with the company
or deals with the company in any other way is assumed to have knowledge of the company's
objectives, powers, and restrictions, as set out in its Memorandum and Articles of
Association. This means that they are bound by the provisions of these documents, even if
they are not aware of them or do not fully understand them.

For example, if a shareholder of a company wishes to transfer their shares to another party,
they must comply with the procedures and restrictions set out in the Articles of Association,
even if they are not aware of them. Similarly, if a creditor provides a loan to the company,
they are assumed to have knowledge of any limitations on the company's borrowing powers
set out in its Memorandum and Articles of Association.
iii) Describe the doctrine of indoor management

The doctrine of indoor management, also known as the "Turquand rule" or the "rule in Royal
British Bank v Turquand," is a principle of company law in Kenya that provides a measure of
protection to third parties dealing with a company. The doctrine applies in situations where a
person dealing with a company has no knowledge of any irregularities in the company's
internal management.

Under the doctrine of indoor management, a person dealing with a company is entitled to
assume that any internal management procedures that are required to be followed by the
company have been properly observed. This means that a person dealing with the company
can assume that the company's officers have followed the company's internal management
rules and procedures, even if they have not actually done so.

The doctrine of indoor management provides protection to third parties who deal with a
company in good faith and without knowledge of any irregularities in the company's internal
management. For example, if a person lends money to a company and the company's officers
have not followed the proper procedures for borrowing money, the person lending the money
may still be entitled to recover the money if they were not aware of the irregularities.

However, the doctrine of indoor management does not protect a person who has knowledge
of any irregularities in the company's internal management. If a person has knowledge of any
irregularities, they cannot rely on the doctrine of indoor management to protect them.

In conclusion, the doctrine of indoor management in company law in Kenya provides

protection to third parties who deal with a company in good faith and without knowledge of
any irregularities in the company's internal management. This principle allows third parties to
assume that the company's internal management procedures have been properly observed,
and provides a measure of certainty and protection to those who deal with companies.
iv) Explain the exceptions to the doctrine of indoor management

Knowledge of irregularities: The doctrine of indoor management does not protect a person
who has knowledge of any irregularities in the company's internal management. If a person
has knowledge of any irregularities, they cannot rely on the doctrine of indoor management
to protect them.

Knowledge of lack of authority: The doctrine of indoor management does not protect a
person who has knowledge that the company's officers do not have the authority to enter into
a particular transaction. For example, if a person is aware that a director has been removed
from their position, they cannot rely on the doctrine of indoor management to protect them if
that director subsequently enters into a transaction on behalf of the company.

Fraud or collusion: The doctrine of indoor management does not protect a person who has
colluded with the company's officers to commit fraud or other illegal acts. If a person is a
party to fraud or collusion with the company's officers, they cannot rely on the doctrine of
indoor management to protect them.

Public documents: The doctrine of indoor management does not apply to matters that are
required to be entered into a public register, such as the Companies Registry. In such cases,
third parties dealing with the company are expected to inspect the public register to ensure
that the company has complied with the relevant legal requirements.
v) Describe pre – incorporation or preliminary contracts

A pre-incorporation or preliminary contract is a contract entered into by individuals or

entities who are in the process of forming a company, but have not yet completed the
formalities of incorporation. In other words, a preliminary contract is a contract entered into
by persons who are acting on behalf of a company that does not yet exist.

Under Kenyan company law, a preliminary contract is generally valid and enforceable
against the parties who have entered into it, even though the company is not yet in existence.
However, the company must later ratify the contract or otherwise assume its obligations for it
to become binding on the company.

The validity and enforceability of a preliminary contract in Kenya depends on the following
conditions being met:

The contract must be for the benefit of the company: The contract must be entered into for
the benefit of the company that is being formed, and not for the personal benefit of the parties
entering into the contract.

The contract must be within the company's capacity: The contract must be within the scope of
the company's intended business and capacity. If the contract is outside the scope of the
company's intended business or capacity, it may not be enforceable against the company.

The company must ratify the contract: The company must ratify the contract or otherwise
assume its obligations for it to become binding on the company. Ratification can be done by
the company after it has been incorporated, and can be done either explicitly or implicitly
through conduct.
vi) Explain ratification of a pre-incorporation contract

Ratification of a pre-incorporation contract refers to the process by which a company that was
not yet in existence at the time a contract was entered into, subsequently adopts and assumes
the rights and obligations under that contract. In other words, ratification is the act of the
company indicating its intention to be bound by the terms of a pre-incorporation contract.

Under Kenyan company law, a pre-incorporation contract is generally valid and enforceable
against the parties who have entered into it, even though the company is not yet in existence.
However, for the contract to become binding on the company, it must be ratified by the
company after it has been incorporated.

Ratification of a pre-incorporation contract can be done explicitly or implicitly. Explicit

ratification occurs when the company formally adopts the contract and assumes its
obligations through a resolution passed by the board of directors or the shareholders. This can
happen at a meeting of the board or shareholders or through written consent.

Implicit ratification occurs when the company's subsequent conduct indicates its intention to
be bound by the contract. This can include accepting benefits under the contract, performing
obligations under the contract, or acknowledging the existence of the contract in
correspondence or other communications.

It is important to note that if a pre-incorporation contract is not ratified by the company, the
parties who entered into the contract may remain liable for its performance. Furthermore, if
the contract was entered into for the personal benefit of one or more of the parties, rather than
for the benefit of the company, the company may not be bound by the contract even if it is
ratified.