COMPANY LAW: NOTES

INTRODUCTION

General principles of company law in Zimbabwe is largely modelled by English Law rather than

Roman and Dutch Law which is the law applicable in Zimbabwe.

One major feature therefore is the existence of a number of English cases in this area although

Roman and Dutch South African cases are also used here and there.

In Zimbabwe on should note that company law is largely codified in the form of the Companies

Act Chapter 24:03.

There are numerous similarities between the Zimbabwe and the English companies Act. When

dealing with company law at this stage. Students are not really expected to know the whole

substance of the law but the basic general principles which any business law students cannot do

without. It is also important to note the basic distinctions between a company and other forms of

businesses like partnerships, co-operatives.

FORMATION OF A COMPANY

When one intends to form a company the Companies Act Chapter 24:04 lays down what needs to

be done. There are also companies’ regulations of 1984.

The general procedure is as follows:

a) All documents have a standard size and should be printed.

b) The documents needed should be lodged at the companies’ registration offices in Harare and

Bulawayo.

c) For public and private companies the following documents should be lodged.

i) Memorandum of Association

ii) Articles of Association

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iii) Pre-Incorporation contracts

iv) Notice of situation and postal address for the registered office

v) With public companies, the consent of the directors, their names and their contract to take

qualification shared. For these documents to be lodged they have to be accompany by prescribed

fees.

A company promoter

 A company is merely an association of persons for the purposes of the same business

which is carried in the name of the association. A company however cannot form itself.

The person who forms a company is called a promoter.

 A yet to be formed company will clearly need human intervention, in the form of

promotion, before the company can come into legal existence. Those taking some, or all

of the steps, that are required to form a company, will be classed as promoters. Twycross

v Grant (No.1) (1877) 2 CPD 469 (CA). The Companies Act section 2 defines a promoter

in relation to a prospectus as any person who is a party to the preparation of a prospects.

 So a promoter is the parent and creator of a company. However, if a professional e.g. an

accountant or a lawyer helps someone to draw up a prospectus it does not mean he is a

promoter because he is only rendering professional services to someone who wants to

form company.

 A promoter is only there to ensure that a company comes into existence but he may not

even be a shareholder in that company. So some people only promote companies and

once the company is formed they then sell it to some people who become the

shareholders.

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  Those acting in their professional capacity (e.g. solicitors or accountants) will be not be

classed as such as long as their actions do not go beyond their professional duties – see

Re Great Wheal Polgooth Co Ltd (1883) 53 LJ Ch 42 (ChD).

Duties of Promoters

Promoters have a fiduciary duty (a duty of trust with respect to another to act solely for

the others benefit)

They have a duty not to make a secret profit, a duty to disclose and a common law duty

of care and skill

The law has to protect shareholders from a situation where a promoter forms a company, sell

shares in the company for cash or sells his own property to the company in return for cash thus

making personal profit.

A promoter has a duty of utmost good faith to the company he is forming which means

he should not make a secret profit out of promoting the company.

In the case of Erlanger V New Sombrero Phosphate Company App Case. Mr E bought a derelict

mine. He then promoted a company with the aim that the company buys this derelict mine at a

higher price. It was held that Mr E had made a secret profit in promoting the company.

That a promoter should not make a secret profit does not mean that he should not make

profit at all. It means that any profit made in promoting a company should be disclosed.

The promoter should appoint persons to an independent Board of Directors and he can

disclose to them. In the above case the Board which was appointed by Mr E was just his

clown and had no independent mind. The court would not accept disclosure to such a

board.

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 If a promoter breaches a duty of good faith the company can rescind the contract entered

by the promoter or claim the profits.

A promoter cannot be paid because he cannot be employee of a company which is not yet

formed. However the directors may exercise all powers of the company. The directors

may therefore pay the promoters.

Erlanger v New Sombrero Phosphate Co (1877-78) LR 3 App Cas 1218 (HL)

Facts: Frédéric Émile d'Erlanger was a Parisian banker. He bought the lease of the Anguilla

island of Sombrero for phosphate mining for £55,000. He then set up the New Sombrero

Phosphate Co. Eight days after incorporation, he sold the island to the company for £110,000

through a nominee. One of the directors was the Lord Mayor of London, who himself was

independent of the syndicate that formed the company. Two other directors were abroad, and the

others were mere puppet directors of Erlanger. The board, which was effectively Erlanger,

ratified the sale of the lease. Erlanger, through promotion and advertising, got many members of

the public to invest in the company.

After eight months, the public investors found out the fact that Erlanger (and his syndicate) had

bought the island at half the price the company (now with their money) had paid for it. The New

Sombrero Phosphate Co sued for rescission based on non-disclosure, if they gave back the mine

and an account of profits, or for the difference

Decision: The House of Lords unanimously held that promoters of a company stand in a

fiduciary relationship to investors, meaning they have a duty of disclosure. Further, they held, by

majority (Lord Cairns LC dissenting), that the contract could be rescinded, and that rescission

was not barred by laches.

Gluckstein v Barnes [1900] AC 240 (HL)

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Facts: Mr. G and 3 others formed a syndicate and bought a property for £120,000, but claimed

they were paying £140,000. § They also promote a company of which they become the directors

and buy the property (for the company) for £180,000. § In order to fund the purchase, the

company invited members of the public to buy shares, for which a prospectus was issued.

However, a £40,000 profit was disclosed, whereas the promoters had actually made an additional

£20,000 secret profit. This was not disclosed to the prospective shareholders, but was instead

written in with a vague reference to ‘interim investments’. § 4 years later the company went into

liquidation and the extra £20,000 was discovered. § The liquidator brought an action to recover

part of this amount from Mr. G.

Decision: The rescission was no longer possible, however, the promoters had to account to the

company for the £20,000 secret profit.

Re Leeds and Hanley Theatres of Varieties [1902] 2 Ch. 809 (CA)

The Court ordered the Promoter to pay damages to the Company. The Court held that the

Promoters had fraudulently omitted to disclose the profit made by t hem on the sale of the

property to the Company. The amount of damages was equivalent to the amount of profit made

by the promoters

The prospectus

To protect the public against the promoter the ACT

 Prohibits share pushing by door to door salesmanship section 64(1)

 Frustrate any dishonest attempts to invite offers instead of making offers by requiring any

application forms issued to be accompanied by a prospectus section 53(3).

 Prohibits the allotment of any shares to the public section 66(2)

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 And Prohibits the commencement of business or exercise of borrowing powers until a

prospectus or statement in lieu of prospectus has been filed with the registrar.

 Section 54(1) and the fourth schedule lays down the information to be contained in the

prospectus. ‘Every prospectus issued by or on behalf of a company or on behalf of any

person who is or has been e n- gaged or interested in the formation of the company shall

be in the English language and must state the matters specified in Parts I and II of the

Fourth Schedule’

Liability for false prospectus

Criminal liability for misstatements in prospectus

Where a prospectus issued after the 1st April, 1952, includes any untrue statement, section 59(1)

any person who authorized the issue of the prospectus including section 54(5) Any person who

becomes a director of a company after the issue of any prospectus by or on behalf of that

company and prior to the first general meeting of the company at which directors are elected or

appointed shall be guilty of an offence and criminally liable unless he proves either that the

statement was immaterial or that he had reasonable grounds to believe and did, up to the time of

the issue of the prospectus, believe that the statement was true

Civil liability for misstatements in prospectus

The following persons shall be liable to pay compensation to all persons who subscribe for any

shares or debentures on the faith of the prospectus for the loss or damage they may have

sustained by reason of any untrue statement included therein.

- every person who is a director of the company at the time of the issue of the prospectus;

and

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 - every person who has in writing authorized himself to be named and is named in the

prospectus as a director or as having agreed to become a director, either immediately or

after an interval of time; and

- every person being a promoter of the company; and

- every person who has authorized the issue of the prospectus:

Pre incorporation contracts

 Contracts for the benefit of third parties

 Stipulato alteri

 There are certain contracts that may need to be entered into before a company is formed.

 The promoters would want to do such acts on behalf of the company.

 They don’t want personal liability.

 Under English Law of agency one cannot be an agent of a non-existing principal thus a

promoter cannot enter into a valid contract on behalf of a non-existing company (Kelner

v Baxter)

However in Roman and Dutch stipulatio alteri means that a party can contract for the benefit of

a third party which third party should ratify the contract. In Zimbabwe therefore by Section 47 of

the Act a company can adopt a pre-incorporation contract provided

Requirements to be fulfilled

- the memorandum on its registration contains as one of the objects of such company the

adoption or ratification of or the acquisition of rights and obligations in respect of such

contract; and

- The contract or a certified copy thereof is delivered to the Registrar simultaneously with

the delivery of the memorandum in terms of section twenty-one.

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 - The company after incorporation must adopt the contract.

- The contract must be made in writing by a person professing to act as an agent or trustee

for the unformed company.

REGISTRATION OF COMPANIES

The Companies Act stipulates that for the registration of a company the promoters must deliver

to the registrar of companies.

i) Memorandum of Association

ii) Articles of Association

iii) Names, addresses, nationally, business occupation, age of the directors and the secretary of

the company.

iv) Address of the registered office

v) Registration fee

THE FUNCTIONS OF THE REGISTRAR OF COMPANIES

a) To issue a certificate of incorporation i.e. a certificate that stipulate that a company has been

properly forced.

b) To register and keep safe documents filed by the company

c) To provide facilities to members of the public who want to inspect and have copies of the

company documents.

d) To strike the company off the register once it has been wound up.

CONSEQUENCES OF INCOPORATION

 Separate Legal Personality Once a company has been properly incorporated it becomes a

different person from those who formed it.

 Perpetual existence of the company

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  The company thus is a separate legal personal.

 It means that a company can sue or be sued in its own name as if it were a natural person,

 It can transact business on its own without really considering who is behind it.

CASES

The leading case in company law to show that a company exists separately from those who

incorporate it is

a) Salomon V Salomon and Company 1897.

Salomon’s trade was making shoes. He sold his sole trading business to a company

which he had formed. In the company he had 96%, shareholding his three children had

share each so did his wife. By selling his business to the company it means Salomon was

now a creditor to the company since company is not himself. He strengthened his

position by making himself a preferred creditor who had to be paid first by the company

(debenture holder). The company ran into problems and was being wound up. The

liquidator of the company objected to paying Mr Salomon first because he was in other

words the owner of the company in problems. The House of Lords held that Mr Salomon

had to be paid first because he was not the same with the company he had formed these

two exist separately.

b) Dadoo Ltd V Krugersdorp Municipality Council 1920.

A South African Act prohibited Asiatics owning immovable property in Transvaal.

Certain Asians formed a company which was based in Transvaal which means there was

immovable property of Asiatic Shareholders. The Court said that the Asians were

different from the company they formed. The company thus had to be allowed to carry

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 on business because it can neither be Asian, white or black. The effect of these cases is

that the shareholders in a company are covered by the veil of incorporation.

However there are certain circumstances in which our courts have removed this protection and

described the company and the shareholders as one person.

PIERCING OR LIFTING THE VEIL

Lifting of the Veil by the Courts in Salomon’s case Lord Halsbury said the corporate veil would

be lifted where:

i) Fraud situation

ii) Abuse of corporate principle

iii) The company was used as an agent of the incorporator

iv) State interest (alien enemy)

v) The company is not a real one but a myth so whilst a company is different from the

people who form it,

In the above circumstances the company and the shareholders are not separated.

1) Gilford Motors V Home (1933).

Home was employed by G.M. Company. The contract had a covenant in restraint of trade which

said that Home cannot solicit the customers of GM Company after leaving his employment and

cannot carry out such business in the stated area. Home left employment, formed a company in

which he was the major shareholder. Through this company he solicited GM’s customers. GM

sued and Horne argued that himself and the company were separate and it was him who was

restrained not the company. The court held that the concept of separate legal personally was

abused. So the corporate veil was lifted to identify who actually was behind the company and

there was Horne who had been restrained to carry out such business.

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 2) Daimler V Continental Tyre Company 1916

The British state had declared CT Company as an enemy alien because its major shareholders

were Germans (German was at war with Britain). The CT Company was claiming money owed

to it by a British company and it was asserting that the CT Company should be treated separately

from the Germans who formed it. In other words the company could neither be English nor

German. The court held that here the veil had to be lifting to treat the company and the Germans,

as one for public policy reasons since there was war. This case thus goes contrary to Dadoo V

Krugersdorp Municipalicy.

3) Cattle Breeders Farm (Pvt) Ltd V Veldman 1974

The company was wholly owned and controlled by Veldman. He and his wife were living in a

company house. To avoid his duty of providing alternative accommodation to his wife use

company to evict the wife form the house since the house was owned by it. It was held that in

this case the company and Veldman cannot be separated. Although the company was the

registered owner of the property it was said that the company was only the husband’s alterego. In

essence it was a husband it was a husband who was evicting his wife in the name of the company

without providing alternative accommodation. This could not be allowed and the company could

not be separated from Veldman. Lifting of the Veil by the Companies Act

In certain situations the companies Act has removed the corporate veil and identified those

people would be operating behind it. In other words if treats the people behind the company to be

the same as the company.

4) Statutory Provisions

i) Section 32 – Where a company carries on business for 6 months without members any person

who knowingly causes the company to do so will be liable for the debts of the company. If we

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were to say that a company is separate from those behind it here the company, not the people

behind it, was to be liable. But the Act here lifts the veil to punish those behind the company.

ii) Section 59 – Where there is a misstatement in the prospectus any person who authorized the

issue of such prospectus will be guilt of an offence. Thus it is not only the company which is

liable but those behind it.

iii) Section 318 – where it appears that any business was being carried on recklessly or with

gross negligence or with intent to defraud any person, the directors of the company shall be

liable.

iv) Section 113 (2) – An officer of the company who allows a company not to display its name in

legible characters shall be liable if a third party is injured by such actions.

In short, the position is that a company is separate from those who formed or own it but in

certain circumstances the courts and the parliament have lifted this corporate personality in order

to do justice. In a number of circumstances we see that the company and the shareholders have

been treated as one.

MEMORANDUM OF ASSOCIATION

This is the most important document which has to be lodged for a company to be registered. It is

the document that governs the relationship between the company and the outsiders. It contains

the following provisions:

a. The Name clause

b. The Objects clause

c. The Limited liability clause

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 d. The Share capital clause

e. The association or subscription clause

f. The registered office or location clause

The name clause

 The last word of the name must be ‘limited’ preceded by ‘private’ in the case of private

companies

 Co-operative or co-op in case of co-operative companies

 Limited warns those doing business with the company that the liability of members is

limited and section 113 requires the full name to be used outside every office or place in

which its business is carried on, on its seal, and on all business letters and other

documents.

 Sec 24 prohibits the use of a name so close to an already registered name

 One that in the opinion of the registrar is likely to mislead or cause offence or is

suggestive of blasphemy or indecency or any other reason is undesirable

 The registrar can order a company to change its name

 There is a common law action for passing off. Pockets (holdings ltd v Oak holdings ltd

1953)

 Polaris Zimbabwe (Pvt) Ltd. v Zapchem Detergent Manufacturers CC t/a Starchem

(49/03) ((Pvt)) [2004] ZWSC 68 (15 December 2004);

 A company can change its name by publishing a notice, obtaining registrar’s approval

and passing a special resolution

 Promoter is at liberty to choose his company’s name.

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  However one cannot use another’s name or where the name has been reserved to be used

by someone later.

 Certain names are undesirable e.g. those which are suggestive of blasphemy or indecency

or are of state or government patronage.

 The name of the company should always end with the words limited to show that the

company has limited liability.

 The word limited is important because the public and creditors who deal with the

company need to know that the liability of members is limited.

The objects clause

 A company was required to state its objects in the memorandum and was to stick to them.

I.e. companies were not allowed to do things that were beyond the company’s objects.

This came to be known as the ultra vires doctrine.

 In 1993 Zimbabwe abolished this doctrine after England and South Africa had done so

first.

 The company’s objects are no longer its powers as stated by section 10 provides that no

statement of the company’s objects shall invalidate any transaction which exceeds the

objects.

 Section 11 demolishes the doctrine of constructive notice – ‘No person shall be deemed

to have notice or knowledge of the contents of a company’s memorandum, articles or

other document by reason only of the fact that the memorandum, articles or document has

been registered by the Registrar or is available for inspection at the company’s registered

office’.

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  Section 12 in a series of detailed provisions , applies the maxim OMNIA

PRAESUMNTUR RITE ESSE ACTA – A third party is entitled to presume that

whatever the company has done or purported to do has been regularly done, unless the

third part knows or ought reasonably to know to the contrary.

Royal British Bank v Turquand

Mr. Turquand was the official manager (liquidator) of the insolvent Cameron's Coalbrook

Steam, Coal and Swansea and Loughor Railway Company. It was incorporated under

the Joint Stock Companies Act 1844. The company had given a bond for £2,000 to

the Royal British Bank, which secured the company's drawings on its current account.

The bond was under the company's seal, signed by two directors and the secretary. When

the company was sued, it alleged that under its registered deed of settlement (the articles

of association), directors only had power to borrow up to an amount authorized by a

company resolution. A resolution had been passed but not specifying how much the

directors could borrow.

 If, for any reason, the existing objects clause is not satisfactory section 16(1) (b) permits

a company to alter its object clause by a special resolution.

 That a company should have an objects clause was very important in the history of

companies. Objects clause is that clause which stipulate what the company intends to do.

The reasons why the company had to state the objects clause was:

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  a) To protect the investors who would know that their moneys were being used for the

agreed purpose.

 b) Also to protect creditors who should know the company business before giving out

their money. It would not work well if they borrowed money for a food outlet in the city

only money. It would not well if they borrowed money for a food outlet in the city only

to find their used in blasting rocks. By inserting the objects of the company it meant that

any contract with the company besides the objects stated was void ab initio (from the

beginning) so one would not sue the company nor be sued by the company on such a

transaction. This became known as the Ultra – vires rule which means a company could

not exceed its objects clause if it did the transaction was invalid.

 The leading case on this is that of Asbury Railway Carriage and Company V Riche. The

business of the company was to sell railway machinery. The company contracted to a

railway line. The court held that this was not an object within the company’s

memorandum thus it was beyond the objects of the company hence it could not do so.

However the strict application of ultra vires rule was not even accepted by business

people because it meant the business lacked diversity and flexibility.

 The companies Act section 9 now, says that a company has capacity and powers of a

natural person of full capacity. This means that a company can now do anything, whether

it is included in its objects or not. It means there is no ultra – vires transaction nowadays.

 However we still find the objects clause in memorandum of Association because the

members of a company are allowed to sue if the company exceeds its objects although

the transaction is treated as valid to outsiders. So vis – a - vis the public no more ultra

vires but there can be an ultra vires transaction (inside) where members due their own,

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 directors for exceeding the objects. Gumbo, a University of Zimbabwe company law

lecturer describes this as the ghost of ultra vires entering through the back door.

Limitation of liability clause

 The liability of each shareholder is limited to the amount, if any, unpaid on the shares

held by him: section 7(a).

 Limited liability means that at winding up, if the assets of the company are insufficient to

pay the debts the creditors cannot proceed against the private property of the members.

The capital clause

 Section 8(1) (a) (iv) requires a statement of the amount of share capital with which the

company proposes to be registered and the division thereof into shares of a fixed amount.

 The capital clause of aa company limited by guarantee is required to set out the amount

each member undertakes to contribute in the event of winding up: section 8(1) (b) (iv)

 Company Limited by Shares In a company the capital may be for e.g. be divided in to

shares, say the capital in $5 000, divided into 5 000 shares one dollar each. The members

of the company are liable to pay their shares either in money or money’s worth. Once

they have paid for their shares they are under no further liabilities to the company.

 Company Limited by Guarantee The liability of each capital may be for e.g. be divided in

to shares, say the capital is $5 000, divided into 5 000 shares one dollar each. The

members of the company are liable to pay their shares either in money or money’s worth.

Once they have paid for their shares they are under no further liabilities to the company.

The name of the company should also carry the words private or public. A public

company issue prospectus to members of public to subscribe and a private company is an

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 internal thing. Members agree to contribute without advertising to the public. Members of

private company are limited to 50 – see section 33.

The association/subscription clause

 The memorandum is completed by the signature and filling in of the specified details

under the association clause of one or more persons, who thus become the company’s

first members

 (see First Schedule Table B)

Alteration of the Memorandum

 Only the name clause, objects clause and the capital clause can be altered.

ARTICLES OF ASSOCIATION

It is the legal document that along with the memorandum of association serves as the constitution

of the company. It is comprised of rules and regulations that govern the company’s internal

affairs.

 Section 17 and 18(1) and (2) permit the registration of articles.

 It can be specially drafted for a company or adopt articles set out in table A of the first

schedule, with or without modification. If no articles you are deemed to have adopted

table A

Alteration of Articles

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  It may be altered by a special resolution subject to any conditions that may be

contained in the memorandum: section 20.

Activity 1

Mat is in the process of setting up an IT business as a private limited company. He has been told

that in order to register the company he should submit appropriate articles of association and a

memorandum of association. He also thinks that because there is an existing similar, local

business called Netscape Ltd it would be a good idea to call his new company Netscope Ltd

based on the chance that he could transfer some of its business to his new company.

Required:

(a) State the purpose of a company's articles of association and memorandum of association.

(b) What is meant by 'passing-off' in relation to company names?

(c) Whether the owners of Netscape Ltd could take a passing-off action against Mat if he

decides to name his business Netscope Ltd

Activity 2

Discuss the 5 clauses of the memorandum of association 20 marks

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ARTICLES OF ASSOCIATION

This deals with matters of internal administration of a company. They are more detailed than the

memorandum of association. Section 17 says that the articles may be registered together with the

memorandum of association. Generally the articles deal with the issues like transferring of

shares, directors’ powers, procedures of meetings the payment of dividends etc. Table A in the

Companies Act is a typical example of the articles of association which may be adopted by a

company if it does not want to have its own. If an agent of the company does not follow the

procedures laid down by the articles it means what he does is procedurally improper therefore

ultra vires. The Articles may be altered by a special resolution. In terms of section 133 a special

resolution of a company means a decision passed by not less than a three fourths of members

entitled to vote and twenty one day’s notice having been given.

Registered office

A company should have a registered office in Zimbabwe to which all communications and

notices may be addressed and at which process may be served – Section 112.

SHARE CAPITAL

Private companies will usually raise their funds their own membership. Public companies source

their funds by issue of shares and debentures to the public. In essence money can be raises (share

capital) or by debentures (loan capital). The amount with which one intends to commence

business is called Nominal capital or the authorized capital. Ordinarily shares issued to members

have a nominal value i.e. the value at which they a being sold. The authorized capital may not be

raised at once so the company may issue part of this authorized capital. The part issued is called

issued capital or subscribed capital. Thus issued capital is a portion of the authorized capital. Of

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the issued capital the company may call upon a shareholder to pay up on such shares as has been

issued to him and he may be allowed to have part of the issued capital remain unpaid for. This is

paid up capital and uncalled capital respectively.

Types of Shares

Shares have different classes and each of shares has its own special rights.

a) Ordinary Shares

These usually form the largest proportion of the company’s capital. Holders of these shares bear

the major risk of the company. As a result the ordinary shareholders determine most of the

company’s issues. The ordinary shareholders enjoy rights to vote at company meetings. However

they can only be paid dividends after preference shareholders have been paid thus if there is not

enough profit they may not get anything.

b) Preference Shares

Preference shares usually carry a fixed rate of dividend. Thus whether a company makes a large

profit or small one the preference shareholder would get his fixed rate of dividends. IF the

preference shares are cumulative it means that the holders are entitled to their fixed dividends in

every year. Any deficiency in amount paid in any one year must be paid up by the profits of the

subsequent year. The preference shares may be participatory which means that the holders may

participate together with ordinary shareholders in the extra profits of the company after having

paid the fixed amount Redeemable preference shares are those shares which the company has

capacity to buy them back the company cannot issue these redeemable preference shares unless

the company has other types of shares which are not redeemable and redeemable shares may not

be redeemed unless they have been fully paid for by the shareholder. A company can only back

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shares out of its profit and not only from capital and after passing a special resolution. Share may

be issued at a price above their nominal value i.e., at premium, for example if there are shares

being sold and the nominal value is $1, these shares may be sold at $2. It means instead of

raising $15 000 an amount of $30 000 is raised. The outstanding $15 000 transferred to a

separate share premium account by virtue of section 74 of the Act. This amount is not profit but

part of the capital. Debentures

A shareholder is a member of a company and is entitled to attend and vote at meeting. A

debenture holder on the other hand is not a member of the company but a creditor to the

company. He has rights against the company not in the company. A debenture holder does not

attend meetings and is entitled to a fixed percentage of interest of his capital advanced. Thus

whether a company makes profit or not a debenture holder has to be paid.

Underwriting Contracts

 A company can raise capital by underwriting contracts.

 If it is a public issue of shares, the issue may be inadequate to provide the minimum

amount of capital wanted.

 To insure that there is insurance that the minimum capital will always be available a

company contracts with another person who undertakes to pay if the company does not

raise the required capital.

 This is an underwriter and usually he takes any shares or debentures which had been

issued. An underwriting agreement it should be lodged with the Registrar of companies

together with an affidavit signed by the underwriter.

The Nature of Shares As noted above a share confers rights upon its holder i.e.

 Right to attend meetings and vote.

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  A shareholder is entitled to a share certificate.

 A share itself is incorporeal property owned by the shareholder. As to how the

shareholder may transfer his shares, this usually governed by the Articles of Association

of each and every company.

 Shares may also be pledged as security for a debt. Here the shareholder who is the debtor

has to deposit his share certificate with the creditor.

Payment of Dividends

Dividends are payments made to the members of a company. These can only be made out

of profits.

Shareholders do not have an automatic right to receive dividends even though profits

have been made.

Directors may decide to plough back the profits into the company.

A dividend is therefore not a debt of the company until the directors have declared.

Maintenance of Capital

 If a company has limited liability it means creditors can get so much as is left in the

business at liquidation and cannot proceed against private property of the members. This

means that the creditors are at risk. To give credit they therefore usually look into the

capital of the company for the repayment of their debts. The capital is thus a guarantee

fund for creditors. It is because of this that the capital of a company should be

maintained.

 Where a company needs to reduce its capital certain protection should thus be given to

creditors. The company has to be authorized to do so by its articles of association, it has

23 | P a g e
 to pass a special resolution and the resolution has to be confirmed by a court order

(Section 92).

 Creditors of the company by virtue of (Section 93) are allowed to object to such

reduction and a list of the company creditors should be presented before the court before

reduction is authorized. It is criminal offence if a name of a creditor is concealed.

Membership of a Company and Minorities

o A person becomes a member of a company when he has agreed to become a member and

when his name is entered in the register of members.

o One can agree to be a member of a company by subscribing to the memorandum of

Association, by taking shares allotted to him or

o When shares have been transferred to him by another member. Membership

o All the subscribers of the Memorandum of Association shall be deemed to have agreed to

become members of the company and on registration of a company shall be entered as

members in the Register of members.

Shareholder

Shareholder means a person who hold the shares by having his name on the register of members.

Member

A member is one of the company’s owners whose name has been entered on the register of

members. Members delegate certain powers to the company’s directors to run the company on

their behalf.

RIGHTS OF MEMBERS

Only a person whose name is on register can exercise privileges of a member. Some of the rights

of a shareholder are:

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 1) to elect directors and thus to participate in the management through them;

2) to vote on resolution at meetings of the company;

3) to enjoy the profits of the company in the shape of dividends;

4) to apply to the Court/Tribunal for relief in the case of oppression;

5) to apply to the Court/Tribunal for relief in the case of mismanagement;

6) to apply to the Court/Tribunal for winding up of the company;

7) to share in the surplus on winding up;

8) the right to vote at all meetings;

Register of Members

Every company shall keep, in one or more books, a register of its members. The Register of

members shall be kept at the registered office of the company or some other place within the

local area limit of the Registered Office as may be decided by the company.

Contents of the Register of members

a) The name, address and the occupation, if any, of each member;

b) In the case of a company having a share capital, the shares held by each member

distinguishing each share by its number except, where such shares are held with a

depository and the amount paid or agreed to be considered as paid on those shares;

c) The date at which each person was entered in the register as a member; and

d) The date at which any person ceased to be a member.

Where the company has converted any of its shares into stock and given notice of the

conversion to the Registrar, the register shall show the amount of stock held by each of

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 the members concerned instead of the shares so converted which were previously held by

him. Penalty for

Every company must keep a register of members which must bear the following information

(Section 115):

a) Name and address of each member

b) Statement of the shares held by him and the class of shares

c) The amount paid up on each share

d) Date of entry in the register

e) The register is prima facie (on the face of it) evidence of this information.

The concept of majority rule and minority protection

The general rule in company law is that the wishes of the majority will prevail. In a company the

one with the majority shares i.e. who has invested more capital is the controlling shareholder.

Courts will usually not question why he acted the way he did in exercising his vote.

The Rule in Foss v Harbottle

In Foss v Harbottle (1842), two shareholders commenced legal action against the promoters and

directors of the company alleging that they had misapplied the company assets and had

improperly mortgaged the company property. The Court rejected the two shareholders' claim

and held that a breach of duty by the directors of the company was a wrong done to the company

for which it alone could sue. In other words, the proper plaintiff in that case was the company

and not the two individual shareholders

When a wrong is done to a company, it is for the company to decide what action to take.

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The courts will not usually hear an action brought by a member or members of the company.

Reasons for the Rule

The Proper Plaintiff Principle

The company is the proper plaintiff (pursuer) in any action to right a wrong against it.

The Internal Management Principle

The courts will not interfere with the internal management of a company. It is for the

company to decide whether it is being properly managed.

Irregularity Principle

A member cannot sue to rectify a mere informality where the act would be within the

company’s powers if done properly and the wishes of the majority are clear.

It is the company as a separate entity that has suffered the harm

The majority in the company rules

To avoid multiple actions, each shareholder may for e.g. bring a separate action on his

own for wrong done to the company.

Problems with the Rule

The majority of shares often belong to directors. The majority are in the best position to

prejudice the company - then decide that the company will not bring an action against them

There is thus a need for minority protection - enforcement of minority rights falls into three main

categories.

However, there are exceptions to the rule in Foss v Harbottle, namely

Fraud against the minority

The Court has interpreted the term "fraud" loosely to include fraud in a strict sense as well as a

breach of duty which results in conferring some benefit on the directors or third parties.

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It has been held that gross negligence may also amount to fraud against the minority. The Court

will allow a derivative claim where the wrongdoers have benefited personally from their self-

serving negligence. Typical examples include, diverting business from the company to

themselves in breach of fiduciary duty, causing the company to sell assets to themselves at an

undervalue, or selling worthless assets to the company.

a) An issue of shares designed to harm the minority In Re Westborne Gallaries. The business

started as a partnership which was later converted into a company. The partners now had equal

shares in the company. One party included his son into the company and both parties donated

shares to him. The father and son property used their powers to chunk out the other shareholder.

The other party petitioned the court and the court did not apply the principle in Foss V Harbottle.

The court looked at what had happened before the company was formed i.e. there was a

partnership and it applied some of the partnership rules i.e. that the two would participate

equally.

b) Where directors appoint themselves to paid posts with the company at excessive rates of pay

thus depriving the complaining members of any dividends.

Section 96(1): A member of a company may apply to the court for an order in terms of section

one hundred and ninety- eight on the ground that the company’s affairs are being or have been

con ducted in a manner which is oppressive or unfairly prejudicial to the interests of some part of

the members, including himself, or that any actual or proposed act or omission of the company,

including an act or omission on its behalf, is or would be so oppressive or prejudicial.

Section 91 Variation of rights attaching to shares: Where there are different classes of shares

and it is intended that a class of such rights be varied by a majority decision in a general meeting,

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the holders of not less than 15% of the issued shares of that class who did not agree to the

variation may apply to court for such variation to be cancelled. (Section 91)

Section 197 The Minister’s Application: The Minister is empowered in terms of section 197 to

make an application to court if it- “…appears to him that the company’s affairs are being or have

been conducted in a manner which is oppressive or unfairly prejudicial t the interests of some

part of the members…”

Section 194: The shares owned by the minority may be compulsorily acquired in take-over bids

and mergers if 90% of the majority agrees. However the minority are entitled to lodge an

application objecting to this. (Section 194)

Section 206 (g): A company may be wound-up if it appears just and equitable that it should be

so wound-up. The just and equitable ground which is very wide indeed has been interpreted to

include oppression of the minority. (Section 206(g).

THE ACTIONS WHICH MAY BE USED BY THE MINORITY (PROCEDURAL ASPECTS

OF MINORITY PROTECTION)

Personal Action or Personal Claim

In this case, the shareholder makes a claim in his own name against the company to enforce his

rights. He may bring the action to restrain the company from engaging in acts that are ultra vires

its stated objects. He can also bring this action to enforce his rights to vote.

In addition, the shareholder is at liberty to utilise this action to enforce a right to a dividend or

any other right that accrues to him in terms of the articles.

This claim is therefore enforced in an individual capacity for a wrong done to him personally or

for a breach of duty which is owed him personally.

The Representative Action

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Representative action is legal action in which one or more members of a class of people bring (or

defend) a claim on behalf of themselves and other members of that class who share a common

interest in that claim. The rights of all persons in that class will be determined solely on the claim

brought by the representative claimant. All the claimants in a representative action will succeed,

or fail, based on the case mounted by the representative claimant on their behalf, and any

judgment or order given is binding on all persons represented.

THE DERIVATIVE ACTION

A derivative action is an action brought by a shareholder or director of a company in the name

and on behalf of that company. Such an action is ‘derivative’ in the sense that the right to sue

belongs not to the party actually bringing the action, but is ‘derived’ from that of the company.

Its purpose is to achieve relief in situations where a wrong has been done to the company, rather

than to its shareholders personally. Normally, the decision to take action on the company’s

behalf lies with the directors, as they generally have the responsibility of managing the company.

However, in some cases it is necessary that the shareholders be given the right to commence

action on the company’s behalf, usually because some or all of the board are themselves

responsible for the wrong that has been committed. i) The wrong has been done to the company

e.g. directors not acting for the benefit of the company. ii) The defendants or the persons being

sued should be in control of the company i.e. majority, therefore the company itself should have

refused to bring the action.

iii) The company should be joined as a nominal defendant for it to benefit. A derivative action is

brought by the minority of behalf of the company since it is the company that has suffered harm.

It follows therefore that if the court awards damages the damages are not for the minority but for

the company. But then one would always ask who is the company? Obviously it is the same

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majority shareholders who were the defendants so the majority can benefit in a case where they

have lost because the damages are for the company.

Limitations to the Derivative Action

1) It is limited in ambit and scope. It is limited only to cases of illegality, and fraud.

2) It is extremely expensive especially to a minority shareholder who lacks resources to

peruse it.

3) If anything is recovered from the action, the money goes into the company coffers and

the minority may get nothing.

Minority Protection at Common Law The rule is Foss V Harbottle places the majority in a

strong position that the minority shareholders would be at a serious disadvantage. The

minority could thus not be able to bring an action in the company’s name because the majority

(as the controllers of the company) can lawfully bar (stop) an action started by the minority since

the minority cannot represent the company.

However to avoid serious injustice on the minority the rule in Harbottle case is not applied:

i. Where the act complained of is an ultra vires act (i.e. an act beyond what the company

can do. So here the minority would be allowed to sue the majority if the majority does an

ultra vires transaction.)

ii. Where a special procedure to do something has to be followed to carry out certain act e.g.

where a special resolution is needed and the majority have done the thing without the

special resolution. If the minority were not allowed to sue the majority here it means a

company which had broken its own rules by the minority saying it alone is the proper

plaintiff.

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 iii. Where a shareholder’s class and personal rights are being infringed the shareholder can

sue the majority shareholders.

iv. Where there is fraud on the minority.

Personal Derivative or Representative Actions

a) Personal Actions: Such an action can be brought when a person has been deprived of the

individual right as a shareholder e.g. he has not been notified of meeting and an adverse decision

was taken in the meeting or that he has not been given a share certificate. This action is brought

by him to enforce his individual rights.

b) Derivative Actions: Where there is dispute between the company and someone else (whether

they may be directors or its controlling shareholders) the minority will appear as the plaintiff on

behalf of the company.

DIRECTORS AND THE SECRETARY

Directors and their Duties

 The company is an artificial person and can only act through a human being who would

act as an agent of the company.

 Directors are persons to whom management and control of the company is entrusted.

 Together with secretaries and managers they are called (Officers of the company).

 A director is an agent of the company which is (principal) and his acts can bind the

company. Directors may be divided into two groups.

i) Executive Directors or Managing Director His duties are largely governed by the Articles of

Association but generally an executive director has continuous attention to the affairs of the

company and usually attend all board meetings.

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ii) Non-Executive Director Does not give continuous attention to the affairs of the company and

on some occasions he can even absent himself. The companies Act prescribe that a company

should have at least (2) directors (Section 169).

Qualifications of directors

The Act talks of disqualified persons rather than prescribing qualifications. It disqualifies

a) A minor

b) Another body corporate

c) Unreliability insolvent

d) A person convicted at any time of theft, fraud, forgery or uttering a forged document.

Remuneration of directors

 Directors are not servants of the company.

 They are not entitled as of right to remuneration. However the Articles in Table A of the

Companies Act empowers a general meeting to fix director remuneration.

Powers of Directors

As to what powers does a director have we turn to look into the Articles of Association but

generally manage the business. So if the shareholders entrust that that their business be managed

by the director they should not interfere with his management. If they disapprove of his acts they

must remove him or alter the articles of Association to restrict his powers. They cannot take over

the functions of a director.

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Scott V Scott (1943) The company in a general meeting resolved first to pay dividends to

preference shareholders and second that the financial affairs of the company be investigated by a

firm of accountants. It was held that such resolutions were not valid because here the general

meeting had interfered with the duties of the directors under the Articles of Association. If

however the directors’ acts are in excess of their powers the general meeting can ratify those acts

done without authority by an ordinary resolution.

Board of Directors

The directors usually act as a Board rather than individual directors.

The directors thus can properly exercise their powers at a properly constituted board

meeting.

The Board Meeting may be summoned by a director anytime by giving appropriate

notice.

The issues of the quorum of the board meetings and voting rights are governed by the

Powers of Directors to Bind the Company

Section 170 states that even though there is a defect in the way a director is appointed i.e. the

procedures not followed, the acts of that directors shall be treated as valid. A director may

however not bind the company on ordinary rules of agency if:

i) The person who purports to be a director was never appointed. NB There is a difference

between an appointment that is defective and where there is no appointment at all.

ii) If the Board of Directors exceeds its authority the company will not be bound because the

company as the principal can only be bound by authorized acts.

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However on the rules of agency the company may be bound by agency of estoppel. Here the

third party who contracted with the unauthorized director would be trying to show that the

company itself is the one which misled him to believe that the director had authority therefore by

such misrepresentation on the company should be held bound to the unauthorized acts. The party

relying on estoppel to bind the company should establish that:

a) He was induced to enter into contract by the agent being represented as occupying a certain

position in the company.

b) That the representation was made by person with actual authority to manage the company and

c) That the contract was one which a person in the position of the agent was held out as

occupying would usually have authority to occupy.

In Freeman and Lockyer V Buckburst Park Properties (1964) A director who had never been

appointed managing director assumed powers of management with the company’s approval. He

entered into a contract with the plaintiff. The company was held bound to the contract because

the nature of the contract was within the scope of authority of a managing director of the

company and the plaintiffs were not obliged to enquire whether the person was properly

appointed. It was sufficient that the Board had allowed the Director to act as an MD thus

misleading the plaintiffs to think that he had authority.

Duties of Directors

i) Directors have a duty of care to the company.

As stated above, they are not employees of the company. It should be emphasized that they do

not owe a duty to shareholders individually but to the company. This duty of the directors is

largely determined by whether the director is executive or non-executive. If a director is non-

executive his duty of care towards the company cannot be compared with that of an executive

35 | P a g e
director because a non-executive director is not expected to give continuous attention to the

affairs of the company.

ii) Fiduciary Relationship

The directors occupy a position of trust vis – a – vis the company thus they have a fiduciary duty

towards the company. They must show utmost good faith in their affairs with the company deals.

The director owes a duty of utmost good faith to the company and the company alone and not to

individual shareholders. The duty of utmost good faith includes that a director should not profit

out of a company opportunity.

Industrial Development Consultants Ltd V Cooley (1972)

The defendant was a highly qualified architect and a Managing Director of the plaintiff

company. He was appointed to get contracts from the government. He tried to obtain contracts

from one Board of the government. The Board made it clear that they did not want to deal with

that company but the company was still pursuing this issue. Later the Board approached the

defendant privately in respect of the contracts. The defendant did not disclose this to the

company and he resigned from the company on the pretext of ill health. He took this contract in

his individual capacity. The company sued him for breach of duty of utmost good faith. The

court held that this was a breach of duty because he should have disclosed this.

To this conflicting of interests Section 177 prohibits issuing of loans by the company to its

directors except where he is given the loan to meet expenses he incurred in transacting the

business of the company, or if the company’s business is one of lending money and the loan is

given as part of the business. Also a director may have a loan with consent of nineteenth of the

shareholders of issued capital or where the loan is to enable him to purchase fully paid up shares

in the company to be held by him.

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iii) Duty to act bonafide and in the interest of the company

A director may represent the interests of the person who appointed him, he may even be a

servant of that person, but when dealing with his duties as a director, he is at law obliged to serve

the interests of the company only to the exclusion of the interests of such nominator or employer.

Removal of Directors

 Because shareholders elect the director they can remove them any time.

 To remove a director there must be a general on which a special notice is given.

 A special notice in 28 days. Sections 175 say that even if the articles of a company

stipulate that a director cannot be removed he is removable. The Act prohibits directors

for life except if she was a director for life on 1 st January 1952.

 If a director is removed before that a company shall have one secretary ordinarily resident

in Zimbabwe.

 It is usual that the secretary of the company is appointed by the directors and as such they

can remove him.

Powers and Duties

The Secretary is generally the administrative officer of the company. Thus he may be

empowered by the articles to employ office staff, can contract to purchase office equipment etc.

MEETING AND RESOLUTIONS

Statutory meeting

Save in the case a private company, every company shall, within a period of not less than

one month or more than three months from the date at which it is entitled to commence

business, hold a general meeting of its members which shall be called ‘the statutory

meeting”

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 Affords members of a new company an opportunity of discussing its affairs

To discuss matters relating to the company’s formation issues arising out of the statutory

report

14 day notice before the meeting by the directors

The statutory report must be certified by at least 2 directors and by the auditors

Failure to hold a statutory meeting or file the statutory report is a ground for compulsory

winding.

Members are free to discuss any matters relating to the company.

Annual General Meeting

Except a private company every company must hold an annual general meeting in every calendar

year with not more than 15 months between each AGM. However provided that the first AGM is

held within 18 months of incorporation it need not be held in the calendar year in incorporation

following year.

Ordinarily the business transacted at an AGM would include issues like declaring dividends

appointment of directors in place of those retiring, appointment and remuneration of auditors and

any other business that can be transacted there.

Extra Ordinary General Meeting

Any meeting that is not an AGM is an extra ordinary meeting. The directors are empowered to

call for such meeting of the members. The members can also request that the directors call the

meeting failure of which the directors can hold it themselves and recover their expenses from the

company which company may in turn recover from the directors.

The extra – ordinary meeting is usually to deal with emergence issues that arise between two

annual general meetings which cannot be delayed until the next AGM.

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RESOLUTIONS

Ordinary Resolutions

 An ordinary resolution is a simple majority voting in favour of a decision. An ordinary

resolution is used whenever the law or the company’s articles do not require a special or

extra ordinary resolution.

 Requires a simple majority of those voting in person, or where allowed, by proxy at a

meeting of which notice had been given.

 Require a three quarters majority of members present in person or by (proxy) represented

Special resolutions

A period of 21 day notice is required for such resolution in order to:

i) Alter the objects clause in the memorandum

ii) To alter the articles

iii) To reduce the capital

iv) To commence voluntary winding up

v) To change the company name

Written resolutions

A resolution in writing signed by all members (private company) for a time entitled

attend and vote on such resolution at a general meeting shall be as valid and effective for

all purposes as if the same had been passed at an AGM of the company duly convened

and held.

Applies only to private companies.

JUDICIAL MANAGEMENT

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  Judicial Management (JM) is a process aimed at assisting companies to manage their

liabilities with all stakeholders in an equitable and orderly manner with the help of a

court appointed administrator.

 Masinire R (2015) clarified JM as the substitution of the company directors with a

judicial manager duly appointed by the court.

 In terms of S.300 of the Zimbabwean Companies Act [Chapter 24:03] herein after called

the Act, the court may grant a judicial management order

 When by reason of mismanagement or for any other cause a company is unable to meet

its obligations but it has not become or is prevented from becoming a successful concern

and there is reasonable probability that if it is placed under judicial management it will

recover. Or when it is just and equitable to do so.

 In Silverman v Doornhoek Mines ltd 1935 TPD 353 judicial management was referred

to as: “an extra ordinary procedure the purpose of which is to obviate a company being

placed in liquidation where by proper management or by proper conservation of its

resources it will be able to meet its obligations, remove any occasion for winding up and

become a successful concern.”

Companies must manage their affairs since they are legal persons and they act through

properly appointed agents. However there may are situations when the company may be

in difficulties due to mismanagement is not lightly entertainment.

The reason why a company should be judicially managed is to return the company to

profitability. The existing management team is divested of its powers and these are vested

in the hands of the manager under the supervision of the master of the High Court (Zim).

40 | P a g e
 The rationale is to provide the company with efficient management to necessitate sound

economic recovery. Judicial management is a legal process of handling or conducting

company affairs which is failing to meet its obligations.

Thus judicial management has been described as a hospital for the company because if

the company is a successful concern then it is returned to the shareholders.

What the applicants intend to avoid is the drastic step of the company being would up.

Types of judicial management

i. Provisional judicial management and

ii. The final management.

With a provisional judicial management order the court prescribes the day on which the manager

should report as to the prospects of success of the company and by Section 301 this return day

shall not be less than 60 days from the day it was granted.

A final judicial order can be made on this day if it is established that a company can be a

successful concern again. A member of the company or the creditors are amongst the people who

can apply for judicial management but if one has majority shares in a company there is no reason

why he should apply that a manager be appointed by the court because he has a really available

remedy. He can remove those directors who are mismanaging the company.

Stringent requirements have been put in place for the judicial management order to be granted:

1) There should be a reasonable probability that if the company is placed in hospital it will be

able to pay its debts and become a successful concern again.

2) That the problems of the company are of such a nature that an internal remedy cannot be

found. 3) That it would be just and equitable to do so. It is not any easy decision for the court to

make. The company itself can not apply for judicial management order.

41 | P a g e
The judicial manager will assume the management of the company and would consult separately

the creditors, members, debenture holders etc.

He would then report to the court. If at any time the judicial manager is of opinion that the

continuation of judicial management will not help the company to become a successfully

concern he ought to promptly apply to the court for cancellation of the order and for the granting

of a winding up order.

The question which needs to be attended to be whether company under judicial management can

be a successful venture again since knowledge by people that a company is under judicial

management is knowledge that the company is in problems thus there is less interest to have

dealings with such a company which aggravates the company’s problems.

Winding Up

This is the process by which a company is brought to an end Section 296 sets out grounds upon

which a company may be would up i.e.

i) By special resolution

ii) If the company defaults in lodging a statutory report or defaults in holding a statutory

meeting. iii) If a company does not commence business within the year of its incorporation or

suspends business for a year.

iv) If the company ceases to have any members

v) If 75% of the paid up share capital, of the company has been lost or has become useless for

the business of the company

vi) If the company is unable to pay its debts

vii)If it is just and equitable that the company be would up

Types of winding up

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 a. Voluntary winding up and

b. Compulsory winding up.

Voluntary Winding Up is where the company itself by the court on the application of certain

persons who include the creditors of the company. On winding up a company a contributory i.e.

a person who has undertaken to contribute to the assets of the company at winding up, is liable to

do so.

Compulsory winding – winding up by the court

The effect of winding up order is that it freezes the company’s affairs in a number respects,

attachments of property and carrying out of judgments are stayed, disposition of property share

transferring and changing the status of the members may not be allowed.

A liquidator is appointed by the court. His duties include recovery of debts still owed to the

company, taking into his possession the company property.

In carrying out his duties the liquidator must take into account any directors he may be given by

meeting of creditor or contributories.

The liquidator would ascertain the total amount of the company’s debts and then sell the

company’s property in his possession.

If there are contributories he will call on them to pay their contribution, especially if the

available proceeds are insufficient to meet the company obligations (pay off the debts).

The final act is distribution of the process amongst the creditors.

Dissolution of the Company

After the liquidator has completed his functions he should lodge the relevant documents with the

Registrar of the companies and an application for dissolution of the company is made.

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Dissolution has the effect of having the company deducted form the register of companies and

extinguish its separate legal personality.

Test/Exercise :
Instructions
Answer any two questions
Requirements
An unmarked copy of the companies Act Chapter 24:03
Question 1 [25 marks]
Examine any 5 provisions of the Memorandum of Association of a company of your choice.
Question 2 [25 marks]
According to Company Law in Zimbabwe, a contract entered into by a promoter on behalf of the
company before incorporation can be ratified by the company after incorporation. State the
requirements needed.
Question 3 [25 marks]
“The concept of separate personality is a veil but at times there is need to identify those players
behind the company”. Discuss this statement citing relevant authorities (cases) and provisions of
the Companies Act [24:03].
Question 4 [25 marks]
a. Outline the features of a private company as stated in the Companies Act Chapter 24:03
[10 marks]
b. Distinguish shares from debentures [15 marks]

Practical Assignment 1 [25 marks]

Two workmates, Tsvangirai and Mwanza decide to start up a transport business. Tsvangirai has

agreed to provide financial support but he does not want to get involved in the day to day

operations of the business. Mwanza will provide a truck and he will manage the business. As

neither of the brothers has much education, they want to keep the administration of the business

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as simple as possible. Advise Tsvangirai and Mwanza on whether they should form a company

or a partnership, or simply trade as individuals analyzing each option.

Theory Assignment 1[25 Marks]

Grower (1923) in his book South African Company Law said, “The courts have not followed any

set principles in piercing the corporate veil”. Examine the circumstances under which the courts

have refused to give full recognition to the separate legal personality of a company.

Practical Assignment 2 [25 marks]

Absalom has decided to form a manufacturing company but his company has not yet been

registered. Absalom wants his company to buy particular stand in the industrial sites on which he

can start building his factory. If he does not buy the stand immediately, he will lose out on a

good deal. What advice would Absalom’s lawyers give him with regard to the sale agreement?

Theory Assignment 2 [25 marks]

There are many grounds upon which the court can compulsorily wind up a company as given in

the Companies Act [Chapter 24:03]. Analyse the situations a company can be wound up by the

court.

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References

1. R H Christe Business Law In Zimbabwe Jutae Co 1992.

2. Nkala And Nyapadi Company Law In Zimbabwe

3. K R Abbott, N Pendlebury Business Elbs 1995 (6 Th Eddition)

4. A Gumbo Lectutures On Company Law (1997) (Uz)

5. The Companies Act Chapters 24:03

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