KIRIRI WOMENS UNIVERSITY OF SCIENCE AND TECHNOLOGY

COMPANY LAW: KBA424

LEC NAME: DR. NICHOLAS OTADO
GROUP ASSIGNMENT.

GROUP 1.
1. HILDA MUTUKU KBA/133/21
2. ZAINA NASHIPAI KBA/184/21
3. NANCY WANJIRU KBA/G/121/20
4. MERCY KYALO KBA /137/21
5. CAROLINE NGUGI KBA/119/21
6. DIANAH LEWINSKY KBA/142/21
QUESTIONS
1.Sharecapital
a. Meaning of share capital
b. Types of share capital
c. raising of share capital
2.Prospectus information memorandum
3. Maintenance of share capital
1. SHARECAPITAL
a. Meaning
Refers to the total amount of money that a company has raised from shareholders through the
issue of ordinary shares.
In simple terms, its money raised by the issue of shares that a company can use to finance its
operations.
b. TYPES OF SHARE CAPITAL
1. Authorized or nominal share capital
Every company limited by shares or limited by guarantee and having share capital is required to
have a nominal or authorized capital with which a company is authorized to issue by its
memorandum of association.
It is the maximum capital which the company will have during its lifetime unless it is increased
or reduced depending on financial requirement of the company. Also known as registered capital
1. Subscribed share capital
Refers to that part of company’s issued capital which has been taken up on or subscribed by the
public. In the case of reputed companies with allot of goodwill, the entire issued capital may be
subscribed by the public, but in unsound companies the shared capital may be less than the
issued capital

2. Issued share capital

Is the nominal value of the shares which are offered to the public for subscription. A company
does not normally issue capital at once so that issued capital in such a case is less than authorized
capital, the issued can never exceed the authorized capital which is the case when all the shares
have been issued to the public.

3. Called – up share capital

This is that part of the issued capital which has been called up on the shares. it is the total amount
called upon the shares issued and which the shareholders continue to be liable to pay as and
when called

4. Paid – up share capital

This is part of issued capital which has been paid up by the shareholders or which is credited as
paid up on the shares. Often, some shareholders fail to pay the calls made on them and the
amount thus owing is known as ‘call in arrears’ or ‘call unpaid’
5. Reserved share capital
Is any part of the company’s share capital which a company may resolve by special resolution
not to be called except in the event of a windowing up.

c. METHODS OF RAISING SHARE CAPITAL

Companies can raise capital through either debt or equity finance

i. Debt financing
It requires borrowing money from a bank or other lending or issuing corporate bonds. The full
amount of the loan has to be paid back plus interest which is the cost of borrowing.

ii. Equity finance

Is the process of raising capital through the sales of shares.
Companies raise money because they might have a short term need to pay bills or need funds for
a long-term project that promotes growth. By selling shares, a business effectively sells
ownership in its company in return of cash. ‘equity financing comes from a variety of sources.
For example, an entrepreneur’s friends and family professional investors on an initial public
offering, [IPO] may provide needed capital.

2. INFORMATION PROSPECTUS MEMORANDUM

Prospectus is a document inviting deposits from public or inviting offers from the public for
subscription of shares or debentures of a company. It provides potential investors with all the
relevant information. They need to invest in a company.
It contains information about the company, its financials, management team, service or products,
industry, legal information etc.
A prospectus must be in writing.

Prospectus information memorandum

This is a bond issue, a legal and regulatory disclosure document aimed at preventing investor
claims that they were not given all material information or that they were missed by the issuer.
An information memorandum
This is a document prepared by a company to provide a comprehensive overview of the business
to prospective investors. It captures the past, current and future performance outlook of business
The basic objective of issuing a prospectus is to arouse public interest in the proposed company
and induce the general public to buy its shares and debentures. However, it is not essential for
the public company to issue a prospectus. If the promoters are confident of raising the required
capital privately from their relatives and friends, they need not to issue a prospectus. In such a
case, a statement is lieu of prospectus must be filled with the Registrar of companies.

3. MAINTENNANCE OF SHARE CAPITAL

Maintenance is to prevent fraudulence and to the creditors in companies by reducing share capita
and to ensure liabilities of shareholders.
The doctrine of maintenance of share capital restricts the ability of a shareholder to demand a
return on the value of the money they transferred to your company in exchange of shares. This
doctrine exists to protect a company’s creditor
Companies must maintain accurate records of their share capital. This include;
 Keeping a register of shareholders
 Updating the register when shares are bought or sold
 Issuing certificates when shares are purchased

4. ALTERATION AND CONSOLIDATION OF SHARE CAPITAL

Alteration of share capital
This involves changing the number or type of shares in a company’s capital structure such as an
increase or decrease in the number of issued shares on a change in the par value of the shares
If authorized by its constitution, a company may alter its share capital in the following ways;
 Increase its nominal share capital by issuing new share capital of any amount.
 Consolidate and divide all
on any part of its share capital into share of larder amount
 Convert all or any of its paid-up shares into stock and reconvert such stock into paid up
shares of any denomination
 Sub divide its shares of small amount but the proportion between the amount paid and
amount unpaid [if any] on each reduced share must remain the same.
 Cancel shares which have not been taken, such cancelation will not be deemed to be
reduction of share capital
Consolidation of share capital
This is the process by which a company limited by shares may change the structure of its share
capital by reducing the number of shares it has issue and increasing the nominal value of each
share.
On consolidation, the total nominal value of the company’s issued share capital remains
unchanged. Consolidation are most commonly used by public corporations particularly when;
  A corporation share price has fallen and it wants to prevent a delisting of its shares or
attract more investors
Basically, consolidation of share capital involves merging several classes of shares into one class
of shares. This reduce the complexity of the company’s share structure and simplifies the
company’s accounting and administrative procedures.
.
5. DIVIDENDS
The company’s act does not define the term dividend, in the case of commissioner of income tax
Vs. Girdhadas V Co.LTD [1967]; it was observed that the term dividend has two meanings.
 As applied to a company which is a going concern, it ordinarily means that the portion of
the profits of the company which is allocated to the shareholders in the company.
 In the case of winding up, it means that a division of the realized asset among the
creditors and contributories according to their respective rights
In other words, these are the payments made by a company to its shareholders out of its profits or
reserves.
NB; dividends can only be paid out of profits, and cannot be paid out of capital i.e., money raised
by the issue of shares or by debentures. An expectation to this is constituted by section 67 which
stipulates as follows;
Where share is issued to raise money to defray the cost of works or buildings or of a plant which
cannot be made profitable for a long period, the company may pay interest on the amount of
capital paid up in respect of such shares and may charge the same to capital as part of the cost of
work, buildings or plant provided that;
1. no such payment shall be made unless it is authorized by the article, or by special
resolution and previous sanction of the registrar
2. before sanctioning of any such payment, the registrar may appoint a person to inquire
and report to him as to the circumstance of the case and may, before making the
appointment, require the company to furnish security for the payment of the cost of the
inquiry.
3. The payment of the interest shall be made only for such period as may be determined by
the registrar and in no case, beyond six months following the half year of the actual
completion of the plant.
4. The rate of interest must not exceed five per cent per annum by notice prescribed in the
Gazette.
5. The payment of the interest shall not operate as a reduction of the share capital.

Types of dividends
1. Cash dividends
They are paid in terms of a cheque deposited into the shareholders brokerage account.
2. Stock dividends
They are paid in terms of additional shares of the company’s stock
N/B dividends are only paid in cash, but the capitalization of profits or resources of the company
for the purpose of issuing fully paid bonus shares or paying up any amount for the time being
unpaid on any share held by the members of the company is not prohibited.
GROUP 2
OGOLLA MITCHELLE ADHIAMBO KBA/G/022/21
MARY WAMBUI NJOROGE KBA/073/21
BERYL AKINYI KBA /017/21
EUNICE OTIBINE KBA/054/21
REBECCA CHEROBON KBA/057/21
MERCY KICHE KBA/044/21
SONIAH AWUOR KBA /177/21

COMPANY SECRETARY
A senior position in s private company or public organization, normally in the form of a
managerial position or above.
They are the named representative on legal document and it is their responsibility to ensure that
the company and its directors operate within the law.
QUALIFICATIONS OF A COMPANY SECRETARY
1. A company secretary requires particular information on secretarial practice to deal with
notice. Agenda declarations minutes of a company.
2. A company secretary must have adequate knowledge of the company law to keep a good
relationship with all stakeholders
3. They require proper knowledge to work with computer for documentation conservation
and potential use of data or information.
4. Be advocate of the high court of Kenya
5. Be a certified public secretary (CPK K)
6. Must be a registered member of the institute of certified public secretaries of Kenya
(ICPSK)
POWERS AND DUTIES OF THE COMPANY SECRETARIES
Power to supervise and control the secretarial development of the company
Power to issue share certificate of the company
Being the principal officer, he /she has to sign official document of the company
He/she is empowered to perform various activities under various acts
He /she has the right to be indemnified for any loss suffered by him in discharging his duties.
RESPONSIBILITIES OF A COMPANY SECRETARY
Responsibilities for ensuring board decisions are properly communicated
It is his duty to exercise due care diligence
It is his duty disclose all information for inclusion in the register for directors and secretaries
He is responsible to comply with the internal regulations a legislation
He is responsible for safe custody of common seal
Taking minutes in general and board meetings
Issuing notices to members
Accepting or receiving notices on behalf of the company
Certifying transfers
Issuing shares and debentures certificates
Registering charges declared by the company
Registering special resolution
Filling the annual returns
Maintaining custody of certain books of the company
APPOINMENT OF COMPANY SECRETARY
The company secretary I s appointed by the board of directors for such other conditions as the
board may deem fit. The board is empowered to remove the secretary subject on terms of the
appointment.
PROCEDURE FOR APPOINTMENT OF A COMPNY SECRETARY
Convening a board of meeting after giving notice to all the directors of the company as per
section 173 of company act, 2013.
At then board meeting place the proposal of appointment of company secretary with the details
of the person finalized. Pass a resolution of then appointment of company thereby approving
then terms the conditions of his appointment
Once the company secretary is appointment, the company must file a return of “appointment of
company secretary” with the register of company (ROS) in FORM DIR -12 within 30 days from
the date on which company secretary is appointed by the company.
FORM MGT-14 is also required to be filled along with such fees as is specified under companies
(Registration of offices and fees) rules, 2014
Once a particular whole-time company secretary is appointed by the company such company
secretary shall be barred from holding then holding the office of “whole time Cs” in any other
company
Make entries in the register of directors and key managerial personnel under section one 170 of
companies act, 2013
Inform the stock exchange where the company is listed
PROCEDURE FOR REMOVAL OF A COMPANY SECRETARY, RESIGNATION OF A
COMPANY SECRETARY
Convene a board meeting after giving notice to all the directors of the company as per section
173 of the companies act, 2013.place the matter of removal /resignation of the company
secretary and pass a resolution to the effect.
File form DIR-12 in electronic mode within 30 days with the registrar of companies together
with the requisite filling fees
Inform the stock exchange where the company is listed
Make entries in the register maintained for recording the particulars of company secretaries
under section 170
Issue a general public notice, if it is so warranted according to size and nature of the company
The resulting vacancy shall be filled up by the company within a period of 6 months from the
date of such vacancy
LIABILITIES O FTHE COMPANY SECRETARIES
As a fiduciary, he is liable in damages for breach of any fiduciary duties. He must act in a good
faith and must not make a secret profit. He may be held liable to account for any secret profit
made in breach of this duties:
Failing to publish the company’s name a required
Failing to register changes
Failing to make annual returns
Failing to make returns on allotment
Destroying or falsifying the company’s books with intent to fraud
REGISTER OF SECRETARIES
The register of secretaries is record of everyone’s (both individuals and corporates) who is and
who has served as a secretary of the company
Ideally, it should cover the period from incorporation until the present day
The details include;
Name (surname, forename or company details)
Date appointment. Date terminated (this will be blank if the director is still serving.
GROUP 3
DORCAS MUSABI KBA/021/21
MIRRIAM MATHEKA KBA/041/21
MERCY CHERONO SANG KBA/010/21
BREDAH WANJIRA KBA/035/21
DORCAS MWANGANGI KBA/065/21
JOYCE CHEROP KBA/005/21
DEBT CAPITAL
Meaning of Debt Capital
Debt capital refers to borrowed funds that must be repaid at later date. It is a form of growth
capital that a company raises by takin out loans. these loans may be long term or short terms
such as overdraft protection.
Debt capital does not dilute the company owners’ interest in the firm.
BORROWING POWERS OF COMPANY
Meaning of borrowing power of a company
This is a company has the right to take or borrow money from various sources to fulfil expected
capital requirement for running a business.
A company can get money not only in form of shares but also can take public loans.
To entitle a company to borrow, it must have power to borrow given to it its constitution which
are:
Whether a company has no power to borrow depends on its object and powers specified in the
object clause of the memorandum. Usually the object clause contains on express power to
borrow. However, an implied power is sufficient. An implied power arises whenever the object
is such that a power to borrow may fairly be regarded as incidental to the company’s object. This
is the case with a non-trading company.
There must be something in the memorandum or articles to show expressly or inferentially that
the company is to have a power to borrow. If a company has no power by its memorandum to
borrow, if a company has no power by its memorandum to borrow, it can remedy the defect by
altering its objects pursuant to section 8 (1) of the company act.
A newly registered public company must not exercise any borrowing powers unless the registrar
of companies has issued it with a certificate of trading pursuant to section 111(3) of the Act.
Sometimes, borrowing powers of a company are restricted by the memorandum or articles.
Examples to a specific sum or to a sum not exceeding the paid-up capital. However, in the vast
majority of cases no limit is imposed. It therefore, follows that if a company has an express or
implied power to know, it may from time to time borrow as much as it wants subject to any
restrictions in its articles
The power to borrow is generally exercised by directors. Articles 79 of table A is emphatic that
the directors may exercise all powers of the company to borrow money and to mortgage or
charge its undertaking, property and uncalled capital, or any part thereof and to issue debentures
stock and other securities whether outright or as security for any debt, liability or obligation of
the company or any third party.
If a company has power to borrow, it has an incidental power there to secure the repayment of
borrowed by mortgage or change of all or any of its property real or personal present or future.
Directors power to borrow may be general as above or special. That is a clause empowering the
directors to borrow or raise money.
A company with power to borrow may borrow in such manner as it thinks fit. It can therefore
raise money as legal mortgage of any specific portions of its property or by equitable charge of
bonds, promissory notes or by debentures or debentures stocks.
Where a company has no power or where the memorandum of association fixes a limit to the
borrowing powers of the company any borrowing in the case and any borrowing in excess of
such limit in the other case is potentially untraversed the company.
If the company having has unlimited powers of borrowing but the directors having only limited
powers, exceed them the borrowing is irregular for want of authority. It is intravires the company
and may be ratified by shareholders. additionally, the lender is protected by the rule in turquands
case.
COMPANY DEBENTURES
When it comes to corporate finance, company debentures are loam instruments form medium t a
long term of period. These are offered by both large companies and then governments.
Features of a debenture include:
As the return is determined with fixed rate of income and the investment is secured with the
charge of the charge of the company’s assets, this is preferred investment option. Fixed returns at
lower risk is the preferred investment avenue for all.
Holding company debentures don’t imply any ownership of the company. Therefore, debentures
holders don’t possess the right to vote or control the management of the issuing authority of the
issuing authority. Yet, in case of default return, they can avail legal steps against the
organization.
With a higher face value, debentures come with a better return than share investment.
In the event of liquefying (reduce to a liquid state) the company, debentures holders get
preferences in terms of repaying the borrowing amount.
Irrespective of having profit or loss, the concerned company is bound to return the obligation at a
predetermined rate of interest to then debenture holders.
TYPES OF DEBENTURES
a. Secured debentures
When a company debenture is secured against assets of the concerned company, these are called
secured or mortgage debentures. If the security is on assets of the issuing company then it is
called fixed charged debentures. contrary if the company security is not specific but generic
assets of the organization it is called floating charged debentures.
These are further divided into 2 categories;
 First mortgage or preferred debentures
Its obligation is justified first with preferences in time of realization of the assets.
 Second mortgage or ordinary debentures
After fulfilling the first mortgage debentures debt, second mortgage or ordinary company
debentures will be serviced in the event of realization.
b. Unsecured debentures
Unsecured debentures are created only but of the credibility of the company, and they don’t carry
securities against any assets of the concerned company. Therefore, the relevant information
doesn’t offer any protection on the rate of paying interest or on paying off the loan amount to the
holders.
c. Convertible debentures
Convertible debentures are mixed financial tool carrying the benefits of both debt and equity
shares. Individuals who hold company debentures like convertible debentures are allowed to
convert their assets into stocks. This conversion will be done with a specific ratio and after a
certain period depending on the terms and condition of a contract.
However convertible debentures have 2 types:
 Partly convertible
It is only a limited part that can be converted into stocks as per the norms of the contract.
Fully convertible
These fully convertible debentures are allowed to be converted into equities.
 Non-convertible debentures
Debentures that don’t allow the holders to opt for the conversion of debt to stock are called non-
convertible debentures. this type of debentures endures as debt only.
d. Redeemable debentures
If the company debentures issuing authorities are legally mandated to redeem the debenture
certificate on a particular date and pay returns to the investors, then those are called redeemed
debentures.
e. Irredeemable debentures
Contrary to the previous one, irredeemable debentures don’t carry along a redemption date with
it. Therefore, these debentures can be redeemed either when the company will liquefy its assets
or as per the terms and condition of the debenture contract. Another name of this debt instrument
is a perpetual debenture.
f. Registered debentures
Registered debentures are those debt tools where the credentials of the holders such as their
name, books, details, residential address etc. are legally enrolled with the issuing authority.
Hence, the investors must notify the organization if the company debentures have already been
transferred to another individual or else, the accumulated return will be credited to the previous
holder.
g. Bearer debenture
Differently, bearer debentures don’t carry any registration with any specific investors’ details.
With a mere delivery process the debentures are transferred to any new holders. moreover, the
accumulated interest is paid at the exchange of coupon attached to the debenture certificate.
Company assets that can secure a company’s borrowing.
1. Real estate collateral
Many business owners use real estate to secure a loan. Lenders view real estate favorably
because it retains value well over time. real estate is also typically worth several hundred
thousand dollars, which gives you the borrower an opportunity to secure more funding.
2. Business equipment collateral
Business equipment can be a viable and relatively low risk type of collateral, especially if
you run a construction or manufacturing business. Using business equipment is also
generally safer financially than putting up your family home or another type of property.
 The downside is that business equipment tends to lose its value over time. if you only
own machinery that’s undergone wear and tear, its unlikely you will be able to use it to
secure a large amount of funds.
3. Inventory collateral
Product based businesses such as retail stores or e-commerce shops may be able to use
their inventory to secure financing. However, there are some lenders whom may be
unwilling to accept inventory as collateral because it can be difficult to sell. Using
inventory as collateral also have negative consequences on your revenue. In case you
default on payment, you could lose access to inventory and as a result risk the ability to
generate profit.
4. Invoices collateral
Many businesses, especially construction companies have to contend with outstanding
invoices and late payments. This creates cashflows issues that can leave you need in need
of additional funding. Some lenders will approve you for financing in exchange for claim
to your business outstanding invoices. This can be a great way to get much need cash
quickly without having to wait for your customers to pay you.
5. Blanket-lien collateral
Unlike other type of collateral blanket-in liens give lenders the legal right to seize any
and all of your business assets in the event you are able to repay the loan.
Blanket -liens offer significant protection for lenders while posing serious risks for
borrowers. Its possible to lose everything you own if you can’t meet your debt
obligations in most cases this arrangement would only be used be books.
6. Cash collateral
If you have extra cash in your business bank account or even personal bank account, you
should be able tom use it to book a secured loan. Cash is relatively straight forward form
of collateral and also a favorite among traditional lenders collateral and also a favorite
among traditional lenders like banks. If a borrower fails to repay their debt lenders can
get their money back immediately without having to sell a physical asset.
7. Investment collateral.
Investment like stocks and bonds can be used as collateral for both business loans or lines
of credit. Like cash investment are liquid assets which are liquid assets which can be sold
off quickly to repay lenders. This is common type of collateral at books, but is not
popular with fintech lenders. However, investment valuation can fluctuate depending on
market conditions.
REFERENCES
1. General principal and commercial law of Kenya
Ashiq Hussein, 1978
2. commercial law (simplified version)
Nisar ahmad saleemi 2009
3. cases and material in company law 8th edition
Lensaealy and asarah Worthington
4. Companies act
Chapter 486 of the laws of Kenya
5. Past examination papers and answers
 Kasneb (Kenya secretaries and accountant board)
GROUP 4
LILIAN TORE KBA/052/21
SHARON CHEPKEMOI KBA/075/21
MAUREEN MANGOLE KBA /019/21
EMILY AWUOR KBA/18/21
FAITH CHERONO KBA/302/21
KIMOI CYELATE KBA/031/21
ROSE NGOSOSEI KBA/109/21
QUESTIONS
1. DEBT CAPITAL
2. COMPANY CHARGES
3. MEETINGS AND RESOLUTION REAPECT IN DEBT CAPITALM
4. REGISTRATION OF CHARGES
5. REMEDIES OF DEBENTURE HOLDER
1. DEBT CAPITAL
This is the capital that a business raises by taking out a loan. It is a loan made to the company
typically as growth capital and its normally repaid as some of future date
Types of debt capital
 Bank loans
 Personal loans
 Overdraft agreements
 Credit care debit
2. COMPANY CHARGES
A charge is a form of security over an asset which gives the charge holder the right to have asset
and its proceeds of sale appropriated to discharge the debt.
Company charges refers to different types of fees or expenses that a company incur or charges to
its customers or client.
Common examples of company charges
Service charges – are fees that a company charges for providing specific services on performing
certain task.
Usage charges – companies that offer products or service based on usage may charge fees based
on the amount or extent of usage.
Transaction fees – some companies charge fees for processing transactions. This can apply to
various industries such as financial institutions charging transaction fees for processing credit
card payments or online market place charging transaction fees for facilitating sales.
Subscription fees – many companies offer subscription-based service and charge recurring fees
for access to their products or services.
Penalty/ late fees - in certain cases, companies may charge fees as penalties for late payments
missed deadlines or violation of terms and conditions.
Types of charges
i. Floating charge
This is an equitable charge securing a debenture on the asset of a going concern.
Characteristics of floating charge.
 It is a charge on a class of asset of the company both present and future.
 The class of asset must be one that keeps on changing from time to time.
 The charge remains dormant until crystallization
Circumstances under which floating charge can be crystallize
a. When the company ceases to carry on business or ceases to be a going concern.
b. Default in payment of the principal or interest when due and payable provided the charge,
take some steps to enforce the security.
c. Commencement of recovery proceedings against the company.
d. Appointment of a receiver by a charge or the court
e. Commencement of winding up.
Advantages of floating charge
a. It covers the assets of a going concern both present and future.
b. It enables companies with no fixed asset to borrow.
c. It enhances the borrowing capacity of companies with fixed asset.
d. It does not prevent the company from disposing off and acquiring new stock.
Disadvantage of floating charge.
 a. The value of the security remains uncertain
b. It leaves the company free to deal with the property in the course of its business.

ii. Fixed charge

A charge is fixed charge if it is a mortgage of ascertained or specific property such as plant and
machinery; a freehold or leasehold land.
Advantages of fixed charge
It works well for bigger business which have bigger assets.

Disadvantage of fixed charge.

Fixed charge seems to be intimidating because of the restrictions placed on the borrowing.
Financial institutions tend to look down on fixed charge loans.
Difference between fixed and floating charge
 Floating charge is an equitable charge on all the assets of the company whereas fixed
charge is a specific charge on a specific piece of property
 In floating charge, the company has freedom to deal with the property charge while in
infixed charge, the company losses right to deal with the property fill redemption
 Floating charge create equitable rights on the assets of the company while fixed charge
passes legal tittle to the assets of a company

3. MEETINGS AND RESOLUTION ASPECT IN DEBT CAPITAL

Meeting and resolution in debt capital plays an important role in managing and addressing
various aspects of debt obligations.
A resolution is a formal way in which a company can note decisions that are made at a meeting
of company members
Relevance of meeting and resolution in debt capital
Creditor meeting – creditors who have provided loans or invested in debt securities may hold
meetings to discuss matters related to the debt.
Bondholder meetings - Bondholder meetings may enable them to gather and discuss matters
concerning the bond issuance. They may vote for various resolutions related to the bond
Resolution process – resolutions are formal discussion made by relevant parties involved in debt
capital to address specific issues.
Resolution process
a. Restructuring resolutions – when a borrower faces financial distress, a restricting
resolution may be proposed to modify the teams of the debt such as extending the
maturity, reducing interest rates or adjusting repayment schedules.
b. Consent resolution – it involves obtaining the agreement or consent of creditor or
bondholders for specific actions such as waiving a breach of covenant amending terms or
granting certain rights to the borrower.
c. Enforcement resolution – incase where a borrower default on its debt obligation
enforcement resolution may be pursued. These resolutions involve taking action to
recover the outstanding debt such as initiating legal proceedings appointing receivers.

4. REGISTRATION OF CHARGES
Registration charges means the charges to be borne by the lessee / licensee towards the cost of
preparing stamping and registering the lease / license agreement and also the cost of a
counterpart or a copy if required.
Procedure for registration of a charge,
i. Conduct an official search over the particulars of the title to the property to be
charged so as to ascertain ownership.
ii. Drawing up of the instruments of change
iii. Execution of the charge
iv. Obtaining all the necessary consents and clearance to enable the registration of the
charge.
v. Assessment of the instruments to stamp duty and payment of the assessed stamp duty.
vi. Lodging of the charge at the land’s registry for stamping.
vii. Registration of the charge at the lands registry upon payment of a standard
registration fees

5. REMEDIES OF DEBENTURE HOLDER

a. Sale
 If the debenture holder is the holder of a single debenture giving a charge on the asset of the
company, he will have an express or ample power of sale
b. Debenture – holder action
When a company commits default in payment of debts, a debenture holder may bring an action
against the company to obtain payments and to enforce the security.
c. Appointment or receiver
The debenture holder or the trustee may appoint a receiver or a manager to take charge of the
assets subject to the charge provided they are so empowered.
d. Foreclosure.
A debenture – holder may apply to the court of foreclosure which may extend even to the
uncalled capital of the company
e. Valuation of security and proof of balance
If the company is being would up and his security is insufficient, the debenture holder may value
his security and prove for the balance of his debt or give up his security and prove for the whole
debt

GROUP 5

NAMES
MIRIAM WANJIKU KBA/125/21
BRIDGIT MIKEIRA KBA/189/21
DIANAH ONG’AYO KBA/088/21
TABITHA WERU KBA /127/21
JISPHINE OTIO KBA/124/21
BRENDA KASAINE KBA/182/21
WINNIE MBURU KBA/163/21
QUESTIONS
1. AUDITOR
2. AUDITORS QUALIFICATIONS
3. APPOINTMENT OF AUDITORS
4. RIGHTS AND LIABILITIES OF AN AUDITOR
5. HOW AUDITORS ARE BEING COMPENSATED.

1. AUDITOR
Is a professional responsible for conducting an independent and objective examination of the
financial statement and records of an organization with an aim of providing an option on the
accuracy and reliability of financial information presented.
AUDITORS ROLE
Is to assess whether the financial statement is free from material misstatement or due to fraud,
errors, and provide assurance of stakeholders that information presented in the financial
statement is accurate, fair and reliable.
Auditors can either be internal or external.
Internal auditors
Are employed by organization. They audit and are responsible for assessing the effectiveness of
the organizational internal controls, risk management process and government structures.
External auditors
Are independent professionals who are engaged by the organization to conduct an audit for the
financial statement and provide opinion on their accuracy. They are also hired by public
accounting firms and may be required to comply with specific regulatory requirement.
Auditors play critical role in providing assurance to stakeholders including shareholders, lenders
and investors that the financial information provided in the organization are accurate. Their work
helps to maintain integrity of financial reporting and ensuring that the company is complying
with the laws and accounting standards.
2. AUDITORS QUALIFICATIONS
a. The auditor must have a complete and thorough knowledge of the principle of
accountancy
 b. Should have a thorough knowledge of techniques of auditing and be aware of new
changes in the development in principles.
c. Should have a thorough knowledge various legislation regulating business e.g.
Company’s Act, Banking and insurance Act
d. Should be familiar with the principle of economics and economic law because a business
has to work within some specific economics law.
e. He/ she should have a good knowledge in business organization, financial administration
and industrial management
Individual qualifications
Honesty – an auditor must be honest in his work if he has to carry his work successfully.
Ability to work hard - an auditor must have a painstaking attitude and the willingness to work.
Courage - the auditor should be bold enough to discharge his duties
Ability to maintain secrets – he should have the ability to maintain secrets of his clients
Ability to communicate – he has to prepare audit reports correctly and forcefully precisely,
concisely and clearly.
3. APPOINTMENT OF AUDITORS
The directors appoint the first auditor of the company. They then hold office until the end of the
first meeting of the shareholders at which the accounts are laid before the members.
At the meeting, the members can re – appoint the auditor or appoint a different one to hold the
office from the date given up to the end of the next meeting.
Private companies pass an elective resolution not to lay accounts before the members in a
general meeting and if it is done, the auditor will be re – appointed, new ones appointed at the
other meeting of the company’s that is held within 28 days of the account being set to the
member.
Removal of auditors
Members of the company can remove an auditor any time during their term of office. They must
give a company 28 days’ notice of their intention to put a resolution to remove an auditor.
If an auditor ceases for any reason to hold an office, they must deposit a statement at a
company’s registered office. the statement should set out any circumstances connected with their
ceasing to hold the office that they consider should be brought to attention of members. If the
auditor does not receive notification of an application to the court within 21 days of depositing
the statement with the company, they should send a copy of the statement to the company house
for the public record within 7 days.
Procedure of removal.
Approval of removal from the audit committee.
Convene a meeting of board of directors
File an application to regional director
Hearing and order by regional director
Intimation to the stock exchange about the order
File certified copy of order with ROC
Convene general meeting

4. RIGHTS AND LIABILITIES OF AN AUDITOR

i. Access to information – they have the right to access relevant information of financial
reports, documents and information necessary to perform an audit.
ii. Independence – they have the authority to exercise professional judgement without
interference from the company and external parties.
iii. Professional skepticism – they are expected to critically access and verify the accuracy
and completeness of financial statement and the relevant information.

iv. Professional negligence – they can be held liable for professional negligence in
performing their duties. If their negligence results in financial losses to the company, they
may be subjected to legal claim.
v. Breach of professional standards – they are expected to follow or stick to specific
standards while conducting audit. If they fail to follow the standards, they may face
liability of professional misconduct.
vi. Noncompliance with legal and regulatory requirements – they should ensure that audit is
conducted in accordance with applicable laws and regulations. If they fail to comply, they
may face legal consequences and liabilities.
The rights and liabilities of an auditors can be affected by some factors like;
a. The nature of the audit engagement.
b. The legal and regulatory framework a particular jurisdiction.
 c. The term of engagement agreement between the auditor and the company being audited.

5. HOW AUDITORS ARE BEING COMPENSATED.

1. Fee structure
It is based on factors like size of the organization, cope of the audit, number of the house
needed to complete the audit. This is typically compensated base on the fee agreed upon
the auditor and client
2. Hourly rates
Auditors may charge clients based on the hours spent. The hourly rate can vary
depending on the level of expertise and experience.
3. Fixed fee
Auditors may charge fixed fee for the entire audit engagement, regardless of the number
of hours spent. This provide certainty to the client regarding the cost of the audit
4. Retainer fee
For ongoing audit, e.g. Internal audits, auditors may charge a retainer fee. This fee is
fixed amount paid periodically to retain the auditors service for a specific period
5. Additional services
They may offer additional service beyond the core audit engagement e.g. consulting.
These services are typically billed separately and may have their own fee structure

GROUP 6
NAMES
RUTH MUBEA KBA/013/21
JOAN HINGA KBA/085/21
MILKAH WANJIRU KBA/036/21
 NANCY MAINA KBA /003/21
EBENEZAR WANGARI KBA/024/21
ROSEMARY LOOTE KBA/143/21
1. BOOKS OF ACCOUNTS.
2. FORMS AND CONTENT OF ACCOUNTS
3. DIRECTORS REPORT
COMPANY ACCOUNTS
Company accounts are summery of an organization’s financial activities over a a 12 months
period. They are prepared for company’s house and home revenue and custom every year and it
consist of a balance sheet, the profit and loss statement, and the cash flow statement.
Company accounts can also be defined as a set of financial records that a company must provide
at the end of a business year.
BOOKS OF ACCOUNTS
They are specific records or register used to maintain financial transactions. they contain detailed
records of a company’s financial records, these books include;
Cash book
It records all cash transactions, cash receipts and cash payment which helps a in tracking cash
inflow and outflow
Sales journal.
It is used to record all credit sales made by the company. its details include; the date of sales,
customers name, invoice number and amount of the sales.
Purchase journal
Is used to record all credit purchase made by the company.it include details such as; the date of
purchase, suppliers name, invoice number and amount of the purchases.
General ledger
It is a comprehensive record for all the transactions organized by accountants. It includes
accounts such as; cash, accounts receivable, accounts payable expenses and revenue.
The ledger provides a summary of each accounts balance and helps in preparing financial
statement.
Accounts receivable ledger
They track the accounts owned to the company by its customer for credit sales. It includes details
of each customers, payment history and any associated transactions.
Accounts payable they track the amount used by the company to its supplier for credit purchase.
It includes details of each supplier outsourcing balance, payment history and any related
transaction.
Inventory ledger
It records the company’s inventories. They include item description, quantities on hand, purchase
cost, and sale price.
Petty cash book
It is used to record small cash expenses incurred by the company.it include details of each
expense, the amount spent and purpose of expenditure.

1. FORMS AND CONTENT OF ACCOUNTS

i. Forms of accounts
Personal accounts
These accounts represent individuals or entitle with whom the company has financial
transaction such as customers, suppliers and lenders.
Real accounts
They pertain to assets, liabilities or capital. they represent tangible and intangible items owned
by the company.
Nominal accounts
They include revenue, expenses, gains and losses. They relate to income expenditure and their
financial activities that affect the net income of a company.
ii. Content of accounts
Accounts name
Each account is assigned a unique name that reflect its nature and purpose such as cash, accounts
receivable or rent expense.
Accounts number
Accounts are often assigned numerical codes for easy identification. Account number facilitate
organization sorting and efficient retrieval of financial information.
Debt and credit entries.
Every transaction recorded in an account include debt entry and credit entry.
Debt represent increase in assets and expense or decrease in liabilities and revenue.
Credit represent decrease in asset and expense or increase in liability and revenues.
Opening balance
The opening balance of the accounts represents its balance at the beginning of a specific
accounting period.
Trial balance
It is the summery of all accounts balances in the general ledger.it ensures that total debt equals
the total credit and serves as a preliminary step before financial statement
Closing balance
This is the balance at the end of a specific accounting period. It is calculated by considering the
opening balance adding the debt and subtracting the credit and carrying forward the balance to
the next period

2. DIRECTORS REPORT
This is a key component of a company’s annual report.
It is a document prepared by the board of directors that provides an overview of the company’s
performance, financial position and future prospects.
Contents of directors’ report
a. Business overview
The report begins with introduction to the company. Its activities and the industry in which it
operates. It may include information about the new project’s expansions or significant
development.
b. Financial performance
The directors report presents a summary of the company’s financial performance during the
reporting period.
It includes;
i. Details on revenue
ii. Profitability
iii. Any significant changes in financial results to the previous year.
c. Key achievements
The report highlights the company’s notable achievements milestone and success during the
year.
This may include;
i. New contracts
ii. Product lunches
iii. Awards and any other achievements and accomplishments.
d. Risk factor
The directors report discusses major risk and uncertainties faced by the company.
It may address factors such as;
i. Market conditions
ii. Regulatory changes
iii. External influences that could impact the company’s operations.
e. Corporate governance
The report provides an overview of the company’s corporate governance practices, emphasizing
adherence to relevant laws, regulations and other standards.
It may include;
i. Information on board composition
ii. Committees
iii. Internal controls.
f. Environmental, social and governance factor
The directors report covers the company’s approach to environmental sustainability, social
responsibilities and governance.
This may include;
i. Initiatives related to environmental conservation
ii. Employees welfare
iii. Community engagement
iv. Diversity and inclusion.
g. Future outlook
The report offers insights into the company’s prospects, strategic objectives and anticipated
challenges.
It may include;
 i. Information of market trend
ii. Expansion plan
iii. Research and development activities
iv. Any other factor that may impact the company’s performance.
h. Dividends and reserves
The director’s reports disclose about dividends paid or recommended shareholders.
i. Directors responsibility statement
The report includes;
A statement from the directors acknowledging their responsibilities for the financial statement
Ensuring compliance with applicable law
Maintaining an accounting record.

Conclusion
Directors report provide shareholders investors and other stakeholders with a comprehensive
overview of the company’s performance and future prospects

GROUP 7
NANCY OOKO KBA/004/21
FAITH MISIKO KBA/079/21
FELICIA SITAWA KBA /093/21
CINDY WERE KBA/080/21
HAFREN WANJIRU KBA/092/21
KEZIAH WERE KBA/210/20
TASK: AUDITORS REPORT AND ANNUAL RETURNS
AUDITORS REPORT
This is a report containing the auditor’s opinion on whether a company’s financial statements
comply with generally accepted accounting principles (GAAP) and are free from material.
(understanding and overstating of company’s liabilities and assets)
The report provides an overview of the evaluation of the and validity and reliability of company
or organization financial statement when it is finalized by a licensed accountant and auditors.
The report tells the shareholders if the company is maintaining its record correctly. Section
142(2) and (4) of the companies act 2013 mandates that an audit report dully signed by the
auditor must be furnished and laid down before the members at the annual general meeting.
ELEMENTS OF AUDIT REPORTS
The basic elements of an auditor’s reports include;
a. Appropriate report tittle
The requirement that the tittle include the word independent is intended to convey to
users that the audit was unbiased in all the aspect.
b. An address: the reports the usually addressed to the company its stakeholders or the
board of directors
c. Introductory paragraph: the first paragraph has 3 purposes:
Makes a statement that the practice did an audit
It lists all the financial statement that were audited
It states that the statement is the responsibility of management
d. Scope paragraph
It states how audit was planned and performed in accordance with ISA S and states that
the audit is designed to obtain reasonable assurance whether the financial statement are
free of material misstatement
e. Opinion paragraph
This final paragraph states the auditor’s conclusion based on the results of the audit. it is
simply called the auditors opinion.
f. Audit report date
This date indicates the last day of auditor’s responsibility for review of significant events
that have occurred after the date of financial statement.
g. Name of audit firms
 The firms name is used because the entire firm has the legal responsibility to ensure the
quality of audit meets professional standards.

CHARACTERISTICS OF AUDIT REPORTS

1. Factual information; the audit opinions should be A good audit reports should have the
following characteristics based on an objective examination of the fact
2. Effective presentation: It should be presented in an effective manner so that it enhances
readability
3. Independent and unbiased approach: It should demonstrate an impartial attitude
It should be guide by an objective independent and unbiased judgment
4. Precise, brief and relevant
The report should be drawn in a brief manner but no fact should be left out
5. Easy language
It should be a simple language so that it can understood easily.
6. Dated
An auditor’s report has to specify the date on which it is drawn-up
7. Clear expression of opinion
It must include eclair written report on the financial information

TYPES OF AUDITORS REPORT

There are 4 type of audit report issued by auditors on financial statements they include:
UNQUALIFIED OPINION
It is also referred to as a clear opinion
An auditor gives this opinion if the financial statement is true and fair and there is no material
misstatement in them.
QUALIFIED OPINION
An auditor gives this information if in the financial statement there is no material
misrepresentation.
ADVERSE OPINION
This is the worst type of opinion
Is reflect that the financial statement of an entity is materially misstated, misrepresented and do
not reflect it correct financial performance.
DISCLAIMER OF OPINION
Under this type, if the auditors fail to frame am opinion about the company statement the he
gives a disclaimer of opinion.
Examples: lack of audit response /evidence
Auditors might not issue this opinion if the restriction are made only to the items or accounts that
material misstated but not persuasive.

ADVENTAGES OF AUDIT REPORTS

1. It helps the stakeholders to understand about entity financial and operational situation.
This helps to identify if the entity has any going concerns or problems or not. E.g.
financial and non-financial problems that could lead the entity to face bankruptcy in
the foreseeable period
2. It proves the integrity of the company’s management to shareholders and relevant
government agency’s
3. It boosts confidence level in the creditors who gain a sense of assurance that good and
services provided will be paid for comfortably by the company
4. It assures of financial statements
The reports issued from professionals and independent auditors could help the financial
statement user to assure that the financial information is correct.
5. It helps to ensure that the company operates free from fraudulent activities

DISADVANTAGES OF AUDITOR REPORTS

1. Time is too constrained for auditors: auditors normally face time constraints that
do not provide them with enough time to perform their testing as they should.
2. Complexity of business and their system could sometime limit auditors from
having complete review on the company’s key internal controls and also do not
being able to perform the correct risk assessment result.
3. Since it is a non-abiding opinion its therefore subject to change in case of new
material disclosure that may have a persuasive effect on the entire audit process.
 4. The scope of the audit may not be comprehensive due in access to comprehensive
information which the management may not be willing to avail to the auditors due
to ethical issues that are concern by the management
5. Risk that might not detect by auditors
Risk such as inherent risks and fraud risks apparent to the company might not be easily detected
during the audit review process.

CONCLUSION
An auditor’s report should include an honest expression of opinion, the concern of the auditors
while framing a report should not only be confined to the management or to those people who
have a direct interest in the business of the company. Rather the interests of potential
shareholders and creditors should also be covered. It is mandatory for companies to get their
financial statement well audited as discussed above. The auditor may choose the type /opinion of
audit depending on the nature of materials misrepresentation or misstatement detected by
him/her and if no misstatement is detected, then the auditors issues a clean report to the
management.

ANNUAL RETURN
Annual returns are a yearly statement required to be filed by every company irrespective of their
nature or status which is highlights the information about company’s various aspects pertaining
to its composition activities and financial position.
Annual returns are not a return but it is simply a corporate law requirement and every company
is legally obligate to file this return with registrar of companies (ROC)

PARTICULARS OF ANNUAL RETURNS

a. Its registered office principles business activities particulars of its holding, subsidiary and
associate companies.
b. Its shares, debentures and other securities and shareholding patterns
c. Its debentures
d. Its members and debentures holders along with changes there in a close of the previous
financial year.
 e. Its promoters, directors, key managerial personnel
f. Meetings of members or a class thereof, board of and its various committees along with
attendance details
g. Remuneration of directors and key managerial personnel
h. Penalty or punishment imposed on the company
i. Matters relating to certification of compliances, disclosures as maybe prescribed
COMPONENTS OF ANNUAL RETURNS
1.Letter -from the leadership team (CEO)
The CEO’s comments include the thank you message to those who had an impact in the
performance of the company during the previous year. The CEO will include success and
mention challenges of the preceding year along with solutions put in place to address the issue.
2.Performance highlights.
it points out the major accomplishment of a company. It helps current and potential stakeholders
feel good about investing in a company
3.Financial statement.
It is the company’s shares vital information and key metrics clearly. I.e., the balance sheet,
income statement and cash flow statement from the prior fiscal year.
4.OKRs and milestone
It outlines the company’s main objectives for the previous year along with information about
milestone and whether they are met.
5.Future goals.
The annual report showcases the company’s future plans and objectives. In addition, planning
and projections demonstrate the organizations long term strategy
PURPOSE OF ANNUAL RETURN
To keep the information about the company on the official register up to date.
It makes searching the information at company’s’ house much easier.
The shareholder’s details are only registered on an annual basis
BENEFITS OF FILLING ANNUAL RETRNS.
1.Helps portray your company as a reputable organization in times of due diligence checks. For
banks to lend loans and investors to invest in your business, they usually conduct some kind of
due diligence checks with CAC to investigate the status of your company.
2.Up-to-date annual returns – filling is usually one of the requirements for some contract’s bids
in public or private government establishment.
3.Facilitate the processing of post- incorporation - services from CAC such as change of
directors, increase of share capital, change of business objectives or application of certificate
True Copy [CTC] of incorporation document.
SIGNATORY AUTHORITY OF ANNUAL RETURNS
The signature of the director of company secretary of the organization shall be affixed on the
annual return.
If there is no company secretary employed in the company, the annual return can be signed by
any company secretary in practice [CSP] As stipulated in the companies act 2013, the annual
return should be certified by CSP
The companies listed below are mandated to get their annual returns certified by a company
secretary; listed companies, companies possessing a paid-up share capital of 10 crores or more
As stipulated in the Act, the companies have to file the annual returns and related documents for
8 years preceding the respective financial year.

CONSEQUENCES OF NON – COMPLIANCE

a. Your company may be delisted if you fail to file returns for several years.
b. Fine payment when you want to reactivate your company’s name which will be more
than actual fees
c. Difficulty in applying for a government credit facility
d. When annual returns are outstanding, the CAC will not process any application by a
registered entity unless the annual; return have been filed up to date
e. No activities will be permitted on the record of any entity that fails to comply with annual
returns
GROUP 8
TEPHY ATIENO KBA /115/21
ZIPPORAH NJERI KBA /117/21
JACKLINE NAASISHO KBA/132/21
TRUFENA JUMA KBA/113/21
RACHAEL MUSEE KBA/122/21
MERCY KWAMBOKA KBA/126/21

1. COMPANY INVESTIGATION
According to section 786 the court may appoint one or more competent inspectors to investigate
the affairs of s company on application.
A corporate investigation is the thorough investigation of a corporation of business in order to
uncover wrong doing committed by management, employees or third parties.
Investigation means a process conducted for the purpose of accident and incidents.
Investigation into the affairs of a company means an investigation of all its business affairs,
profits and losses, assets including goodwill contracts and transactions investments and other
property interest, its management and also affairs of its subsidiaries (Regina v s board of trade
(1965) IQB.603)
2. INVESTIGATION OF COMPANY AFFAIRS
An investigation by the registrar of companies into a company’s affairs may arise may
arise in the following ways under section 164 of the act.
Where the registrar has reasonable cause to believe that the provisions of the act are not
being complied with the company.
Where a perusal of any document which the company is required to submit too him under
the provision of the act, he is of the opinion that the document does not disclose a full and
fairs statement of the matters to which it purports to relate.
The registrar of company initiates his investigation by calling on the company by a
written order to produce all or any of the books of the company.
The book must be produced and information or explanation furnished within the time
specified in the order.
Subsection provides that if after examination of the book produced and the explanation
furnished by the company the registrar is of the opinion that an unsatisfactory state of
affairs is disclosed he shall report the circumstances the case in writing to the high court.
APPOINTMENT AND POWERS OF INSPETORS.
APPOINTMENT OF INSPECTORS
Section 166 empowers the high court to appoint one or more competent inspectors to
investigate the affairs of the company, if it appears to the court upon the report from the
registrar that there are the circumstance suggesting:
a) That the company’s business is being conducted with intent to defraud its
creditors to any other person or otherwise for a fraudulent or unlawful purpose or
in a manner oppressive of any part of its members of its members or that it was
formed for nay fraudulent or unlawful purpose.
b) That person concerned with its formation or the management of its affairs have an
connection there with been guilty of fraud, or other misconduct towards its
members.
c) That the members have not been given all the information with respect to its
affairs which they might reasonably expect.
d) That it is desirable so to do.
POWERS OF INSPECTORS
Section 168 gives to the inspectors the following factors:
a. To require any officer or agent of the company to produce all books and
documents of or relating to the company or any other body corporate whose
affairs are also being investigated by the inspectors which are in his custody or
power.
b. To require any officer or agent of the company level being investigated to give
all assistance in connection with investigation which he is reasonably able to
give.
 c. To examine an oath any officer or agent of the company and to administer the
oath accordingly.
d. To ask the high court to examine on oath any person whom he cannot so
examine.
3. THE INSPECTORS REPORT
Section 169(1) provides that an inspector may and if so directed by the high court shall
make interim reports to the court and on the conclusion of the investigation shall a final
report to the court.
The report shall be written and is the court so directs.
The court supply a copy of the reports
To the company and the registrar of companies
If the court permits, a copy maybe sent on payment to any members of a company whose
affairs we investigated or to any creditors of any company if his interest appear to be
affected.
If the investigation has been under section 165, a copy is sent to the applicant if they
request.
THE COURT SHALL:
a. Forward a copy of any reports made by an inspector to the company and to the
registrar
b. If the courts think fit, forwards a copy of payment of the described fee to any other
body corporate dealt with in the report.
c. Where the inspector is appointed under section 165 furnish at the request of the
applicants for the investigation a copy of them.
Under section 172 a copy of the inspectors reports which is authenticated by the seal of the
company whose affairs proceedings as evidence of the opinion of the inspector in relation to any
matter contained in the report.

REFRENCE
Company law simplified by Nasir Ahmed Saleemi
GROUP 9.
DAMARIS WANGUI KBA/033/21
SHARON MWENDE KBA/029/21
CHOME JOYCE KBA/059/21
KITALI VESTAL KBA/058/21
CAROLINE MAWIA KBA/074/21
SHARON AUMA KBA/166/21
MEMORANDUM OF ASSOCIATION
A company memorandum of association is of a supreme importance. the first step to a formation
of of a company is to prepare a memorandum of association because no company can be formed
without it. It is the charter of the company” it contains fundamental condition which alone the
company is allowed to be incorporated.” They are conditions introduced for the benefit of the
creditors and outside public as well the shareholders. It defines the company’s power, tells the
whole world its name, domicile and the names and descriptions of its promoters. It also indicates
whether the liabilities of members are limited by shares, or guarantee or is unlimited.
IMPORTANCE OF MEMORANDUM
I t provides the basis of incorporation
It determines the areas of operation of the company
It defines the relationship of company with the outsiders
It is an alterable charter of the company. although it can be altered under some special
circumstances.
PUROPOSE OF MEMORANDUM
The purpose of memorandum of a association are two-fold.
1.the prospective shareholders shall know the field in or the purpose for which their monies is
going to be used by the company and what risk they are undertaking in making investment.
2.the outsiders dealing with the company shall know the certainty as well as to what the object of
the company are as to whether the contractual relation into which they contemplate to enter with
the company is with the objects of the company.
CONTENT OF MEMORANDUM
Section 5 of the company act lays down that the memorandum of association of every company
shall contain the following clauses:
i. The name of the company with “limited “as the last word of the name of a company by
shares or by guarantee. An unlimited company need not to use the word ‘limited’ as the
last word of its name.
ii. That the registered office of the company is situated in Kenya
iii. The object of the company
iv. That the liability of the members is limited, if the company is limited to shares or
guarantee.
v. The proposed amount of share capital and its division into shares of fixed amount.
vi. The declaration of association.
CLAUSE 1: THE NAME
The memorandum of association must together with the other document be filed prior to
the registration of the company. But before the filed or even prepared the promoters must
make inquiries from the registrar as to whether the proposed name of the company is
available for registration and is not considered undesirable.
According to section 19, the promoters may request the registrar to reserve a name
pending registration of a company and such reservation remains in force for a period of
30-60days during this period no other company will be entitled to be registered under that
name. A company may under section 20 change its name and with the approval of the
registrar signified in writing. A change of name, however does not affect any right or
obligation of the company or any legal proceeding or as per section20(4).
CLAUSE II: REGISTERED OFFICE.
every office have a registered office from the day on which it begins to carry on business
or within 14 days after incorporation. Whichever is the earliest to which notices an all
other communications can be made section (107).
Section 108 states that notices of the address of the registered office, and of any change
therein must be given to the registrar within 14 days after incorporation or of the change.
The registered office gives the company physical residence and nationality as an entity in
law.
DOCUMENTS TO BE KEPT IN A REGITERD OFFICE.
The registered of member, and index of members unless made up elsewhere or kept by an
agent section 112&113.
A copy of every instrument creating any charge requiring registration
The company register of charges affecting property of the company
The minute books of general meeting, section 146
The registrar of directors and secretaries’ section 201
The register of directors’ interest in shares and debentures.
CLAUSE III: THE OBJECT OF THE COMPANY
This is the most important clause in the memorandum. It defined the sphere of the
company activities, the aims that its formation seeks to achieve and the kind of activities
the aim that its formation seeks to achieve and the kind of activities or business that it
proposes to conduct.
The object clause of the memorandum gives protection to shareholders who learn from it
the purpose for which their money can be applied. It ensures them that their money not be
risked in any business other that which they have been asked to invest.
CLAUSE IV: LIABILITY CLAUSE.
In this clause the promoters must indicates:
Whether the liability of the company is limited or unlimited.
If limited, is it by shares or by guarantee. In practice, it is enough to merely say that the
lability is limited.
If the company is a public company, promoters must also indicate in this clause the
liabilities of directors whether limited or unlimited.
CLAUSE V: THE CAPITAL CLAUSE
The capital clause of a company states that the amount of capital with which it is
registered divided into shares of a fixed amount. There is no legal limit to the amount of
capital or of each share.
The capital is called the registered, nominal or authorized capital, the amount of such is
determined by the cost of starting the business and there is no statutory limitation
regarding minimum or maximum, this clause is to be omitted in the case of companies
with unlimited liability and the companies by guarantee having no share capital.
CLAUSE VI: ASSOCIATION OR SUBSCRIPITON CLAUSE
In this clause subscriber declare that the desire to be formed into a company and agree to
take shares stated against their names. No subscriber will take less than one share. The
memorandum has to be subscribed to buy at least seven persons in the case of a public
company and at least two persons in the case of a private company. The signature of each
subscriber must be attested by at least one witness who cannot be any of the subscriber.
Each subscriber and his witness shall address, description and occupation. after
registration no subscriber to the memorandum can withdraw his subscription on any
ground. Further, the subscriber of the memorandum appoint the first director of the
company, if they do not appoint any, the subscribers themselves become the directors by
the very fact of incorporation. they shall hold office until the director are elected in the
first annual general meeting of the company.
ALTERATION OF THE MEMORANDUM
Section 7 provides that a company cannot alter the conditions contained in the
memorandum except in the case in the mode and the extend for which express provision
has been made in the companies act. Briefly section 8 provides any alteration of objects
must be of the following 7 kinds:
a. To enable it to carry on its business more economically or more efficiently.
b. To attain its main purpose by new or more improved means
c. To enlarge or change the local area of its operation
d. To carry on some business which maybe conveniently combined who its own
e. To restrict or abandon any of is object
f. To sell or dispose of the whole or any part of its undertaking
g. To amalgamate with another company.
GROUP 10.
HADASSAH DONAH KBA/012/21
LAUREEN ACHIENG KBA/139/21
ASHLEY FARAJA KBA/106/21
STACY JAMES KBA/008/21
LOICE OKOMBO KBA/051/21
DIANAH MBULA KBA/002/21
FAITH MODESTER KBA /025/21
QUESTIONS
1.CERTIFICATE OF INCORPORATION
2. ITS CONTENTS
3. IT IS DRAWN
4. PURPOSE CLAUSE IN COI
1.CERTIFICATE OF INCORPORATION
is a document issued by a state or federal government that establishes the legal status of your
business. A certificate of incorporation document is required in order to operate in most states
and countries.
a certificate issued by a state's secretary of state that shows acceptance of a corporation's articles
of incorporation
The CoI (Certificate of Incorporation) is proof that the business is valid, that they are legally
licensed to do business and that they are registered with the state. It confirms the name of the
business, the business' address, the registered agent for the business, the business' fiscal year, and
information about the owners of the business. A certificate of incorporation also protects the
company owners' personal liability for the corporation's debts.
Purpose
It serves the purpose of proving that the company or corporation has been formed. It is issued by
the state government, or in some states, by a non-governmental entity/corporation.

certificate of Incorporation Examples

Examples of when startups need a certificate of incorporation include:
 Example 1. Legally operate in the state of business
 Example 2. Open and use a business bank account
 Example 3. Apply for professional permits and licenses
 Example 4. Hire and pay part-time and full-time employees
 Example 5. File and pay business and employer-related taxes

1. CONTENTS OF CERTIFICATE OF INCORPORATION

While every state has its own certificate of incorporation, the document is very similar in many
countries and contains the following terms:
i. Corporation's legal name
ii. Corporation's registered office
iii. Business code
iv. The Purpose of the Company
v. Type of corporation
vi. Incorporator's name and address
vii. Registered agent's name and address
viii. Board of directors' names and addresses
ix. Share capital
x. Filing date

Corporation's legal name

Prior to selecting a company name, you should perform some prior research to ensure that the
name you intend to use is available. Ideally, the name should be clearly distinct from those of
existing businesses in the state. Companies should also add a suffix such as "Inc.", “Corp.” or
"Ltd." as an identifier to show that the entity is a company.
 The Purpose of the Company
The purpose section describes the type of business you intend to run. There are some states that
accept very broad purposes, such as consulting, while others require more specificity. A general
statement of purpose gives you greater flexibility if you decide to pivot or diversify your
business in the future.
Share Capital
The certificate of incorporation specifies the types and amounts of shares that constitute a
company's capital. Typically, a company's share capital consists of both common and preferred
shares. Even though the company may or may not issue shares, they can be found in the
certificate of incorporation. Shares can be issued whenever necessary.
Organization of the Company
A company's article of incorporation specifies the name and address of the registered agent who
will receive legal correspondence on its behalf. The section also includes the addresses of the
directors, as well as the office address. It may also include auditors and legal advisors depending
on the state and type of business.
Filer (Incorporator's name and address)
The person filing the Certificate of Incorporation should provide their name and address. An
official filing receipt will then be issued to the filer. It includes the date of filing, the name of the
corporation, details of the Certificate of Incorporation, and an accounting of fees paid.
How Do You Get a Copy of Your Certificate of Incorporation?
After filing your certificate of incorporation, it's important to keep a copy on file. You may need
to provide copies to investors, members of your board of directors, or other parties.
In every state, certificates of incorporation are considered public information. That means
anyone can request and receive a copy of your articles of incorporation. To request a copy of
your charter, follow these steps:
a. Visit the website of the department that oversees business filings in your state. This
department may be the Secretary of State, the Department of State, or the Division of
Corporations.
b. Navigate to the business entity or corporate filings part of the website and search for
the name of your corporation. Click on the right search result, and review the options.
c. Follow the instructions for requesting a copy of the certificate. For example, in many
states, you can complete a form online. Other states require you to submit a request by
mail.
d. Pay the required fee. Most states charge a nominal fee for copies of the certificate of
incorporation, as these documents may be dozens of pages long.

2. HOW COI IS DRAWN / HOW TO FILE CERTIFICATE OF INCIRPORATION

A corporation may exist perpetually, and changes in ownership generally don't affect its
existence. Before you can form a corporation, you must compose a document known as
the articles of incorporation, sometimes called a certificate of incorporation. The law
requires this document to contain certain information.

i. Provide the name of your corporation. The name must indicate that the business isn't a
person; including a word such as "incorporated," "corporation," "company" or "limited"
will do this. Include the name and address of the registered agent and the address of the
registered office. The agent receives process if someone files a lawsuit against your
company.
ii. Provide the name and address of each incorporator. An incorporator signs the certificate
of incorporation, and your company must have at least one.
iii. Include the address of the corporation's principal office, if it differs from the registered
office.
iv. List the number of shares of stock the corporation is authorized to issue. Authorized stock
is the maximum number of shares the corporation can sell.
v. Include any optional provisions. These could include provisions for the management of
the corporation, provisions governing the distribution or division of profits, or provisions
regarding shareholders' personal liability for corporate debts. You may also want to
include provisions creating, defining, limiting or regulating the purpose and powers of the
corporation or the rights, powers or duties of the directors, officers or stockholders.
vi. File the certificate of incorporation and a certificate of request to publish the corporation's
formation with your secretary of state or other designated state agency. Then pay the
required fee. Filing the certificate of incorporation serves as proof of a valid corporation.
 3. CERTIFICATE OF INCORPORATON PURPOSE CLAUSE
certain corporate purposes, however, such as the establishment or maintenance of a hospital or
facility providing health related services, and the establishment or operation of a substance
abuse, substance dependence, alcohol abuse, alcoholism, chemical abuse or dependence program
require the consent or approval of another state agency. In addition, a corporate purpose that
promotes education in any way requires prior consent. A document indicating the consent or
approval of the relevant state agency must be attached to the Certificate of Incorporation when
the certificate is submitted to the Department of State for filing. Before issuing its consent or
approval, the regulatory agency may require that specific purposes be stated in the Certificate of
Incorporation.
The following is a partial list of agencies that must consent to, or approve, the filing of certain
Certificates of Incorporation prior to filing with the Department of State. If you have any
questions concerning any consent or approval that may be required, please contact the agency at
the address or telephone number listed:

Agency Consent or
Purpose Requiring Consent or Approval
Approval Required
Applicable Section of Law
From

The establishment or operation of institutions for Office of Children and

the care of destitute, delinquent, abandoned, Family Services
neglected or dependent children. See Business 52 Washington Street
Corporation Law Section 405-a. Rensselaer, NY 12144
(518) 473-7793

The promotion of science, literature, art, history Department of

or other department of knowledge, or of Education
education in any way, associations of teachers, Office of Counsel
students, graduates of educational institutions, State Education
and other associations whose approved purposes Building, Room 148
 are, in whole or in part, of educational or cultural Albany, NY 12234Note:
value deemed worthy of recognition and The Department of
encouragement by the university. See Education Education requires a
Law Section 216. $20 fee to obtain
consent.

Establishment or maintenance of a hospital or Public Health and

facility providing health related services. See Health Planning Council
Business Corporation Law Section 201(e). Department of Health
Division of Legal
Affairs
Corning Tower, Room
2482
Empire State Plaza
Albany, NY 12237
(518) 473-3233

Establishment or operation of a substance abuse, Office of Alcoholism

substance dependence, alcohol abuse, alcoholism, and Substance Abuse
chemical abuse or dependence program. See Services
Business Corporation Law Section 406. Bureau of Certification
1450 Western Avenue
Albany, NY 12203-
3526
(518) 485-2251

Advantages and Disadvantages of Incorporation

Pros of Incorporation
Incorporation effectively creates a protective bubble of limited liability, often called a corporate
veil, around a company's shareholders and directors. As such, incorporated businesses can take
the risks that make growth possible without exposing the shareholders, owners, and directors to
personal financial liability outside of their original investments in the company.
Because an incorporated business can issue and trade shares, this allows for easy transfer of
ownership to another party. Whereas a sole proprietorship must sell the entire company to
financially profit from disposing of company equity, owners of a company can still retain
primary ownership but sell part of their shares for personal profit. In addition, shares traded on
public exchanges are much more liquid markets compared to other means of selling a business.
An incorporated business may achieve a lower tax rate than on personal income. Incorporated
businesses often receive more lenient tax restrictions on loss carryforwards and may receive
more favorable tax treatment for allowable deductions.
Cons of Incorporation
The primary drawback of an incorporated business is the operating constraints to maintain its
incorporated status. Companies must adhere to their bylaws and must ensure it meets filing,
reporting, and other ongoing requirements. An argument can be made that since an incorporated
entity's tax filing is separate from any individual's, there is also an administrative burden angle
when preparing multiple tax returns.
An incorporated business is usually at risk of double taxation. Consider an example of a
corporation being assessed net income tax. Then, with after-tax proceeds, it makes a taxable
distribution to a shareholder. This shareholder now has taxable income on funds that have
already been assessed a tax liability.
Operating an incorporated may be more expensive based on the filing, reporting, and
administrative fees. Companies must often meet public reporting requirements (such as getting
their financial statements audited). There are also ongoing fees and regulatory charges to
maintain their status on an exchange.
Last, an incorporated business may be considered less flexible in some ways compared to other
forms of business. Once incorporated, a business must operate in accordance to its bylaws and
articles of incorporation. In addition, it usually now has an entire board of individuals overseeing
operations. It may be more difficult for the executives at an incorporated business to dramatically
change business strategy or operational considerations.
Incorporation Pros and Cons
Pros
  Protects owners from personal liability as the corporation is responsible for its own debts
 May be much easier to raise capital as shares can more easily be sold
 May be easier for owners to personally profit by selling partial stake in company as
opposed to needing to sell full ownership
 May receive some favorable tax treatment compared to other business structures
Cons
 Often requires greater investment of time to meet reporting, filing, and regulatory
requirements
 May expose some funds to double taxation where both the corporation and shareholders
are taxes on the same funds
 May be a more expensive type of business structure due to fees and legal costs
 Is usually less flexible compared to other structures as the company is bound by its
bylaws and board

Companies Act 2006

Is up to date with all changes known to be in force on or before 19 th june 2023.
There are changes that may be brought into force at a future date. Changes that have
been made appears in the content and are referenced with annotation

Changes and effects yet to be applied to the whole Act associated Parts and Chapters:
Closeeffects to be announced
 Act amendment to earlier affecting provision S.I. 2008/373 reg. 11(1) by S.I.
2013/1971 reg. 9(a) (This amendment not applied to legislation.gov.uk. Amending
Regulations revoked (1.10.2013) without ever being in force by S.I. 2013/2224, reg. 2)
 Act amendment to earlier affecting provision S.I. 2008/373 reg. 3(4) by S.I.
2013/1971 reg. 4 (This amendment not applied to legislation.gov.uk. Amending
Regulations revoked (1.10.2013) without ever being in force by S.I. 2013/2224, reg. 2)
Whole provisions yet to be inserted into this Act (including any effects on those provisions):
 s. 156A-156C inserted by 2015 c. 26 s. 87(4)
  s. 479A(2)(c)(zi) inserted by S.I. 2019/177 reg. 4(b)(i) (This amendment not applied to
legislation.gov.uk. Reg. 4 substituted by regs. 4, 4A immediately before IP completion
day by S.I. 2019/1392, regs. 1(2), 4)
 Sch. 10 para. 6(2D) inserted by S.I. 2019/177 reg. 28(e) (This amendment not applied to
legislation.gov.uk. Reg. 28(e) omitted immediately before IP completion day by virtue of
S.I. 2020/523, regs. 1(2), 14(e)(iv))
 Sch. 10 para. 7(2A) inserted by S.I. 2019/177 reg. 29(b) (This amendment not applied to
legislation.gov.uk. Reg. 29 substituted immediately before IP completion day by S.I.
2020/523, regs. 1(2), 14(f))

Public notice of issue of certificate of incorporation

(1)The registrar must cause to be published—
(a)in the Gazette, or
(b)in accordance with section 1116 (alternative means of giving public notice),
notice of the issue by the registrar of any certificate of incorporation of a company.
(2) The notice must state the name and registered number of the company and the date of issue of
the certificate.
(3) This section applies to a certificate of incorporation issued under—
(a)section 80 (change of name),
(b)section 88 (Welsh companies), or
(c)any provision of Part 7 (re-registration),
as well as to the certificate issued on a company's formation.

GROUP 11
Flovian Lovish. KBA/107/21
Sharon chepkoech. KBA/082/21
Joan Indasi. KBA /026/21
Ednah Morebu. KBA/009/21
Juliet Achieng. KBA/064/21
Maculate Atieno. KBA/037/21

ARTICLE OF ASSOCIATION
It is a document that specifies the regulations of a company's operation and defines the
company's purpose.
The document lay's out how the tasks are to be accomplished within the organization.
HOW ARTICLE OF ASSOCIATION IS DRAWN
The association in company law as drawn in the article of association establishes the legal
framework with which the company operates and its members interact. These articles are the key
documents that reflects the agreement between the company and its members ensuring
transparency, accountability and orderly functioning of company in compliance with relevant
company law.
The association in the company law is drawn through the following key elements in the article of
association.
1. Formation of association
The article of association typically starts with clause that State the name of the company, its
registered office address and the intention of the subscribers to form a company and become a
member.
2. Share capital and shareholders.
The article outlines the authorized share capital of the company and the rights and obligation of
shareholders. It specifies the number and types of shares, their nominal value and the rights
attached to each class of shares.
3. Membership
It defines the criteria for membership in the company and the process of admitting new members.
It may specify the qualifications, Rights, and obligation of members including voting rights, and
other membership related matters.
4. Directors and management
It outlines the appointment, powers and duties of directors who are responsible for managing the
company's affairs
5. Decision making
It provides guidelines on how decision are made with the company.it includes providing and
conducting meetings, voting rights and procedure for passing resolutions.
6. Alterations of articles
It addresses how they can be amended. This typically requires a special resolution passed by the
members of the company in accordance with the procedure specified in the article.
CONTENTS THAT ACOMPANYS ARTICLE OF ASSOCIATION SHOULD POSSESS
1.Directors
AOA Defines the guidelines of the director’s appointment, their qualifications for appointment,
their remuneration once appointed on the power of board of directors in the company's meeting.
2.General meeting
It provides the basic framework of all the general meetings to be conducted as well as all the
power that are related to the functioning of the general meetings of any manner.
3.Accounting and auditing
The provision in AOA will define the general guidelines subjected to the auditing of rhe
accounting of the company.
4.Shareholders
AOA streamlines the subdivision of the share capital of the company including the rights of the
shareholders and the relationship of the rights with other elements in the company.
5.Transfer and transmission of shares
It defines the procedure during the process of transfer of shares between the transferee and
shareholders. Transmission comes into effect with death, insolvency, marriage and succession.
6.Conversation of shares in stock
The company can pass an ordinary resolution in a general meeting to convert their shares into
stock.
7.Voting rights
It notes down the specify matters which calls for voting by member as well as the procedure of
voting whether by poll or through proxies.
8.Winding up
This is the liquidation of all the assets of the company to pay its debts. The remaining monies left
after the payment of all debts and expenses are distributed among the shareholders of the
company.
Advantages
Promotion of shareholders Rights
External relationship
Governance and management
Disadvantages
I. Cost and time management
II. Inadequate adoption of specific needs
III. Limited confidentiality
IV. Complexity and length
V. Lack of flexibility.
Importance of article of association
 Legal requirements
They are essential part of the company's constitutional documents aling with the
memorandum of association. Failing to have AOA in place can result in legal and
compliance issues.
 Governance and management
It defines the internal structure roles and responsibilities of the company's management of
its various organs such as board of directors, shareholders and committee.
 Shareholders Rights and protection.
It establishes the rights and obligations of the shareholders. They define the types and
classes of shares, voting rights, dividends distributions, transfer of shares and control of
the company.
 Alteration of capital structure
If a company intend to raise capital, merge with another company or make significant
changes to its capital structure, the article of association provides the necessary provision
and procedure.
 Resolving disputes and disagreement.
 AOA also includes provision for dispute resolutions and mechanism for resolving
disagreement among shareholders and company
Limitations or article of association
1.Rigidity
Are typically created in the initial stages. Once they are in place, making changes to the article
can be complex and time consuming.
2.Limited enforceability
Although the article is legally binding enforcing them can be challenging. If there is conflict or
dispute among the company's stakeholders, legal actions may be necessary to resolve conflict
which can be time consuming and costly.
3.Legal compliance requirements
While article of association provides a framework for the company operation, they may also
comply with applicable laws and regulations.
4.Lack of details
AoA are typically written in broad terms and may not provide detailed guidelines on specific
operations and contingencies.
5.Limited scope
AOA focus on internal matters of the company such as appointment of directors, distribution of
dividends and decision making.
They may not address external factors such as industry special regulations or technological
advancement.

GROUP 12
MENTESAVALENTINE KBA/222/20
PRISCILLA NKIROTE KBA/061/19
ANNROSE KARANJA KBA/060/21
LILIAN MUTINDI PETER KBA/007/21
FAITH WANGGUI WANJIRU KBA/074/21
MOSE JUDY KBA/191/19
NYAMASYO FLORIA KANINI KBA/265/19(DISTANCE LEARNING)
RAISING AND MAINTANANCE OF CAPITAL
Capital: it denotes a particular amount of money with which a business is started. incase of a
company, capital means share capital which is the money raised by the issue of shares.
TYPES OF CAPITAL
1.Authorized or nominal capital: every company limited by shares or guarantee and having share
capital is required to have a nominal or authorized capital with which it proposes to be
registered. It is the nominal value of the shares which a company is authorized to issue by its
memorandum of association. This is the maximum capital which the company will have during
its lifetime unless it is increased or reduced depending on the financial requirement of the
company.
2.Issued capital: it is the nominal rate of the shares which are offered to the public for
subscription. issued capital is either less or equal to the authorized capital.
3.Subscribed capital: it is part of the company issued capital which ahs been taken up or
subscribed by the public. In the case of reputed companies with a lot of goodwill, the entire
issued capital amy be subscribed by the public, but in unsound companies the subscribed capital
may be less than the issued capital.
4.Called -up capital: it’s that part of the issued which has been called upon on the shares. It is the
total amount called upon the shares issued and which the shares holders continue to be liable to
pay as and when called.
5.Paid-up capital: is the part of the issued capital which has been paid up by the shareholders or
which is credited as paid up on the shares. Some shares fail to pay the calls made in them and the
amount thus owing is known as call in arrears.
6.Reserved capital: is any part of the company share capital which company may resolve by a
special resolution not to be called except in the event of winding up. Reserve capital cannot be
turned into uncalled capital without the leave of the court. It is available only for the creditors on
the winding up of the company.
Increase in share capital
The nominal share capital of a capital may be increase, even though it has. Not yet issued all its
authorized capital, by ordinary resolution of the company in a general meeting. the company’s
articles usually contain the authority to allow the company to increase its capital but incase the
articles do not allow they must be altered by special resolution to this effect.
Section 65 of the articles of the company act provides that where a company has increased its
shares capital beyond the registered capital, notice must be given to the registrar of companies
within 30 days from the date of passing of the resolution by which the increased its effected.
Such a notice must be accompanied with particulars of the conditions on which the news shares
are issued. In case of a default the company AND EVERY DIRECTOR OR OTHER OFFICERS
OF THE COMPANY KNOWINGLY PERMITTING THE DEFAULT WILL BE LIABLE TO
A FINE OF KS 100.
Further issue of capital right issue of company may take place:
1.by allotment of new shares
2. By conversion of debentures or loan into shares
A public limited company limited by shares may at any time increase its subscribed share capital
which does not exceed authorized capital by issuing new shares. the right of shareholders to be
offered new shares to them before they are offered to the public is called shareholders right of
pre-emption.
Reducing share capital
The general principle of law founded on principle of public policy and rightly enforced by courts
is that no action resulting in a reduction of capital of a company should be permitted unless the
reduction is effected.
a. Under statutory authority or by forfeiture
b. in a strict accordance with the procedure if any laid down in that behalf in the articles of
association. any reduction of capital contrary to this principle is illegal. A reduction of capital
may be effected in different ways
-section 63(e) provides that if the articles permit un-issued shares may be cancelled which will
reduce the amount the amount of the nominal capital of the capital.
A reduction of capital in any other form must be carried out in conformity with the provisions of
sectinn68. According to this section a company limited by shares or guaranteed can reduce its
capital if:
i.Authorized by the articles
ii.A special resolution has been passed to this effect
iii.it has been confirmed by the courts
Section 68 give company power to reduce its shares capital in any way but specifically mention
the following ways in which the reduction of capital may be effected.
a. Reduce the liability on shares not fully paid
b. Cancel paid up capital which is lost or unrepresented by the available assets either with or
without extinguishing or reducing the liability on any shareholders
c.Pay off any paid-up capital in excess of the wants of the company either with or without
reducing the liability an nay shares and may so far as necessary alter its memorandum by
reducing the amount of shares capital and shares accordingly.
-Under section 69, where a company has passed a resolution for reduction of capital it may apply
to the courts for a order confirming its reduction. where the reduction involved returns to any
shareholders of any paid-up share capital the courts may allow all creditors to object to
reduction. the courts will confirm such reduction if:
a.The creditors consent to the reduction has been obtained
b.their debt have been discharged
c.their debt have been secured by the company
LEGAL RULES REGARDING DIVIDENDS
Dividends: it is a portion of company’s profit legally available for distribution among its
members.
A dividend may be interim or final
Interim dividend: it is divided that is paid between annual general meeting. It is paid by
director’s . usually the payment is made in respect of the first half of the first year based on
midyear accounts. The amount will be less than the final dividend as a matter of prudence should
be half of the year not come up to the expectation final dividend: it sis declared at a general
meeting usually at the close of the financial year.
RULES REFGARDING DIVIDEND
The company act provides various rules regarding the declaration and payment of dividends.
They include:
Right to recommend the dividend’: the right lies with the board of directors. it is only when the
board recommend a dividend, then shareholders can declare a dividend in the annual general
meeting. Shareholders cannot insist the directors to recommend. even if there is insufficient
profits but the directors feel that the distribution of dividend is undesirable in the interest of the
financial stability of a company they can refuse to recommend a dividend.
METHODS OF ISSUEING CAPITAL TO THE PUBLIC
1.initial public offering
This is the first time a private company can sell equity to the public markets .it involve the
issuance of shares in exchange for investment capital and this is the most commonly used form
of raising public capital.
2.Secondary offering
After the initial public offering, a company can issue additional shares through a secondary
offering. This type of offering is used to raise additional capital or to allow existing shareholders
to sell their shares on the public markets.
3.private placement
A company can also issue equity to the public through private placement. It is typically done
through the sale of securities to accredited investors that are identified or selected by the
company itself.
4.Convertible bonds
A company can issue bonds with am option to convert them into stock at a later date. This option
can be used to raise capital and allows investors to benefit from stock appreciation if the
company does well.
5.Rights offering
It’s another way of companies to raise capital from existing shareholders through ths
mechanisms, companies can offer current shareholders the right to purchase additional shares at
a discount to the current market price.
ROLES OF ISSUEING CAPITAL TO THE PUBLIC
a. Raise investment capital: issuing capital to the public allows a company to raise investment
capital from public markets. This capital can be used to invest in new projects, expand operations
or acquire other businesses.
b. Rights to declare dividend: only the shareholders in the annual general meeting can declare
the dividend. The board of directors determines the rate of dividends to be declared and
recommend it to shareholders.
c.Payable out of profits only
The company can declare and ay a dividend only where there is a profit. The companies act
provides that a dividend can be paid only: out of the profit of the current financial year
Out of profits of the previous year
Out of the monies provided by the central or state government for the purpose of paying
dividends
d.Provision for depreciation
Section 205 of companies act states that dividends should be paid out of profits but this profit
should be arrived only after providing for depreciation for the current and also for all the arrears
of depreciation or loss in any previous year.
e.Setting off the previous losses
If any loss incurred n any previous year such loss should be set off against the profits of the
current year before declaring dividend
f. Payable only in cash
A dividend is payable only in cash, however a company is not prohibited from capitalizing its
profit or reserves by the issue of bonus shares or by making partly paid up shares into fully paid
up shares
Transfer to reserves
Company act provides that’s every company before declaring any dividend should transfer a
certain percentage not exceeding 10% of the profit to the reserves of the company.
g. Time limit for payment: when a dividend is declared, it should be paid within 42 days from
the date of declaration. The dividend when declared shall become a debt from the company. if
the company does not pay.
h. increase liquidity:
By listing shares on public market, companies can increase the liquidity of their stock by
allowing investors to easily buy and sell shares. This increased liquidity shuld lead to increased
share prices.
I. Boost reputation: companies that list their shares on public markets can benefit from
increased visibility and a boost in their reputation hence attract top talented and create additional
business opportunities.
j. Create shareholders value: issuing capital to the public can help create additional
shareholders value by allowing existing shareholders to benefit from stock appreciation as the
company grow. This added value is beneficial to both the company and its shareholders.