Business law

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LAW OF PERSONS
LEGAL PERSONALITY
A legal person is one whom the law recognizes as having certain legal rights and duties
which the courts will enforce. There are two categories of persons in law (i) natural
persons and (ii) artificial persons.
Natural Persons
Natural persons are human beings who are capable of rights and are subject to
obligations. Although in most cases human beings are now accorded legal personality,
a slave in the early Roman law had no rights, and was regarded as a mere chattel; that
is, a thing which could be bought and sold or even killed by its master. It is interesting
to note that while some human beings had no legal standing, some non-human entities
such as animals or special groups of persons have been made subject to legal rights and
duties. In Indian law, legal personality was accorded to cows and idols so that one
could besuedor prosecuted for killings a cow and for damaging or destroying an idol.
Artificial Persons/Corporations
Apart from human beings, the law also accords legal personality to certain offices and
group of persons knownas corporations.
A corporation is an artificial legal person created by law, and once it comes into being
it is treated by law as a person in its own right, quite independent from the individual
members who compose it. Its rights and liabilities are distinct from their rights and
liabilities; and its life is not also affected by the death of its members.
SALOMON V SALOMON& CO LTD., 1987
Sold his business of £30,000 to a company whose members were S and six members of
his family with one share each of £1. In payment, S took 20,000 fully paid of £1 each
and debenture for £10,000 charged on the company’s assets. The company became
insolvent, and its assets proved insufficient to pay in full either the debentures or the
trade creditors. The creditors claimed to be entitled to the assets before S the
debenture holder on the ground that S and company were one and the same person as
he practically owned and managed the whole company. It was held by the House of
Lords that a company once formed becomes a legal entity of its own, and that as a
secured creditor S had apreferential right to be paid first.
There are two types of corporations (i) a corporation sole and (ii)a corporation
aggregate.
Corporation Sole
A corporation sole is the holder of a certain office and his successor. The result of this
creation is to lend perpetual existence to a certain office or institution quite
independent of the person who occupies it. “The living official comes and goes out but
the offspring of the law remains forever” (Salmond). These corporations are not common
in the business world, so do not diserve detailed study. Example include (i) a bishop (ii)
the office of the Public Trusteeand (iii) the Office of the President.
Corporation Aggregate
A corporation aggregate as the name suggests is composed of at least two persons,
assorted for some lawful common purpose, and is created by a special Act of
Parliament, or by registration as a company under theCompanies Act (Cap 486) 1962.
In both cases, whether a corporation sole or aggregate, a legal entity is created which is
separate from the holder of the office or the members of the corporation. The most
striking feature of a corporation aggregate is that it has perpetual succession and does
not cease to exist upon the death of the holder of the office or its members.
Creation of Corporations
A corporation can be created in the following ways:
By registration under the companies Act. Any seven or more persons (or, in the case of
a “private” company any two or more persons) may form a company by subscribing
their names to a memorandum of association, and a few other documents, including
articles of associations, where these are required. These documents must be delivered
to the Registrar of Companies who, after satisfying himself that they are in order, will
issued a certificate to the effect that the company has been incorporated.
By Act of Parliament. All nationalized industries, as corporations, in Kenya were
created by Act of Parliament. The familiar examples of these are the Kenya Meat
Commission, and the Maize and Produce Board, etc. Their powers are strictly defined
by the incorporating Act, and they must not take up any activity which is not expressly
or by implication authorized by its constitution. Corporations created this way are
known as “statutory corporations”.
Doctrine of Ultra Vires
A natural person or a partnership has perfect legal right to engage in any lawful
business activity but a corporation, statutory or registered, can only engage in those
activities for which it has been created. Any act done by a corporation in excess of
powers expressly or impliedly authorized by the parent Act (in case of statutory
corporation) and in the object clause of memorandum of association (in case of
registered company) is ultra vires and void.
As a rule, a statutory corporation can only take up those activities which are expressly
stated in the parent Act or those incidental to the fulfillment of the main purposes for
which it has been created. Similarly, a company registered under the companies Act
1962 has no power to do anything other than the objects for which it is incorporated,
and any activity done which is not stated in the memorandum is ultra vires.
ASHBURY CARRIAGE CO LTD vRICHE, 1875
In this case, the company’s objects stated that the purpose for which it was formed was
the manufacture of and the dealing in railway machinery. The company’s directors
entered into a contract to make a railway line in Belgium. The company agreed with a
firm called Riche that they should undertake the work of construction on its behalf.

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The contract was later repudiated and Riche brought an action gains the company for
damages. The House of Lords held that the contract was ultra vires and void because
the construction of the railway line was outside the scope of the objects stated in the
memorandum.
NATIONALITY
Nationality is a matter of status and affects a person’s relation with the outside world.
By a person’s nationality, we mean his allegiance to some state, in return of which he
expects protection against other states. However, the protection which the state owes
in return for his allegiance is not legally enforceable against the state.
The law relating to Kenya nationality (or citizenship) is now governed by the Kenyan
Constitution.
Retention & Acquisition of citizenship
Article 13 to 16 of the Kenyan constitution provides for the following as relates to
citizenship
 Every person who was a citizen immediately before the effective date retains the
same citizenship status as of that date.
 Citizenship may beacquired by birth or registration.
 Citizenship is not lost throughmarriage or the dissolution of marriage.
 A person is a citizen by birth if on the day of the person’s birth, whether or not the
person is born in Kenya, either the mother or father of theperson is a citizen.
 A child found in Kenya who is, or appears tobe, less than eight years of age, and
whose nationality and parents are not known, is presumed tobe a citizen by birth.
 A person who is aKenyan citizen by birth and who, on the effective date, has
ceased to be a Kenyan citizenbecause the person acquired citizenship of another
country, is entitled on application to regain Kenyan citizenship.
 A person who has been married to a citizen for a period of at least seven years is
entitled on application to be registered as a citizen.
 A person who has been lawfully resident in Kenya for a continuous period of at
least seven years, and whosatisfies the conditions prescribedby an Act of
Parliament, may apply to be registered as a citizen.
 A child who is not a citizen, but is adopted by a citizen, is entitled on application to
be registered as a citizen.
 A citizen by birth does not lose citizenship by acquiring the citizenship of another
country- Dual citizenship
Loss of Nationality
Article 17 of the constitution of Kenya provides that, if a person acquired citizenship by
registration, the citizenship may be revoked if theperson
a) acquired the citizenship by fraud, falserepresentation or concealment of any
material fact;
b) has, during any war in whichKenya was engaged, unlawfully traded or
communicated with an enemyor been engaged in or associated with any business
that was knowingly carried on in such amanner as to assistan enemy in that war;
c) has, within five years after registration, been convicted of an offence and
sentenced to imprisonment for a term of three years or longer; or
d) has, at any time after registration, been convicted of treason, or of an offence for
which
 a penalty of at least seven years imprisonment maybe imposed; or
 a more severepenalty maybe imposed.
The citizenship of a person who was presumed to be a citizenby birth, may be revoked
if
a) the citizenship was acquired by fraud, false representation or concealment of any
material fact by any person;
b) the nationality or parentage of the personbecomes known, and reveals that the
person was acitizen of another country;
c) the age of the person becomes known, and reveals that the person was olderthan
eight years when found in Kenya.
Domicile
Domicile is quite distinct from nationality. It is a legal concept which connects each
person with a particular state having its own legal system. For example, a Zambian
may decide to live permanently in Kenya, or a Kenyan may choose to live in Zambia.
In such cases, the Zambian and Kenyan are held to have acquired domiciles in the
countries where they intend to live permanently. Their nationality, however, remains
unaffected. Thus, a person’s domicile is the country in which he has an intention of
making his permanent home. Everyone must have a domicile and no person can have
more than one. On the other hand, it is possible to have more than one nationality, or
none at all; i.e. be stateless.
There are three categories of domicile: Origin, dependence and chouce.
Domicile of origin. As soon as a person is born, he acquires domicile of origin. If he is
legitimate, he acquired his father’s domicile, and an illegitimate child’s domicile is that
of his mother. A foundling acquires the domicile of the placewhere he is found.

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Domicile of dependence. A married woman takes the domicile of her husband
immediately after her marriage, and while the marriage lasts, she cannot acquire an
independent domicile of her choice different form her husband’s. An infant assumes
the domicile of the parent.
Domicile of choice. When a person of full age changes his domicile of origin and
establishes his home in another country with the intention of remaining there
permanently, he is said to have acquired the domicile of his choice. For example,
Kamau (a Kenyan) may decide to live permanently in Zambia. In such a case, he
acquires Zambian domicile, though he remains a Kenya citizen.
Importance of Domicile
The importance of domicile is that it decides which country’s law should govern a
person’s status or his family relations. The law of a person’s country of domicile
determines the rules for him to observe in making wills, marriage, divorce, adoption
and the legitimation of children, etc.
MARRIAGE
Marriage is the creation of a contract between a man and woman. It differs from other
ordinary contracts as it affects the status of the parties (specially the woman’s) and
gives rise to certain rights and obligations. Since marriage is the result of a contract, the
law requires certain formalities to be strictly complied with, such as:
Neither party must be under the age of 16;
The parties must not be related within the “prohibited degrees”.
Kenya follows the law of England contained in the first schedule to the marriage act
1949, and the marriage enabling act 1960. The entire law of solemnization is to be
found in the marriage act (Cap 150) and matrimonial causes act (cap 152)
Under the Kenyan law, the people of different denominations are allowed to solemnize
a marriage in accordance with their religious belief or customary practices. The Kenya
law as suchrecognizes the following system of marriage:
 Customarymarriages which are by and large mostpopular in rural areas.
 Statutory marriages
 Hindu marriages
 Muslim marriages.
MENTALLY DISORDERED PERSONS
In law, all human beings are considered as legal persons, subject to certain legal rights
and duties, but their rights and obligations may be considerably affected by their
mental disorder. Insanity affects a person’s legal capacity in many ways and the law
has always had to take account of it. A person suffering from a mental disorder is
subject to the following disabilities:
Under the Matrimonial Causes Act a marriage contracted by any person of unsound
mind is always null i.e. it is not recognized as a valid marriage.
An insane person can escape legal consequences for any of his criminal act if the court
is satisfied that such a person was suffering from mental disorder at the time of alleged
crime.
An insane person is not liable on his contracts if at the time of entering into such
contract he was suffering from mental disorder and the other contracting party was
aware of this fact. However, an insane person must pay a reasonable price for the
“necessaries” he buys. Necessaries are defined by section 4 (2) of the Kenya Sale of
Goods Act as goods suitable to the person’s condition in life and to his actual
requirements at the time of sale and delivery.
The Kenya Mental Treatment Act 9Cap 248) contains important provisions with
respect to treatment and care of mentally disordered persons and with respect to their
property and other affairs. The act is concerned with regulating the voluntary and
compulsory admission of suchpersons into a mental hospital.
The act provides that any person over the age of 16 may be admitted to the hospital if
he wishes. Any person under the age of 16 years may be admitted to mental hospital at
the request of his parent or guardian. Apart from this, a magistrate can make a
compulsory reception order after having been satisfied that such a person before him is
suffering from mental disorder. The magistrate usually passes such an order on the
evidence of a medical practitioner.
COMPANIES
A registered company is an artificial legal person created by complying with the
requirements laid down by the companies act (cap 486) 1992. When company is
registered, it becomes a legal person. It is a person entirely distinct from the persons
who own the shares so that the property of the company belongs to the company itself
and not to the individual shareholders.
Company and Partnership
 The principle of separate corporate entity distinguishes a company from a
partnership which, having no separate legal existence, is merely the association of
persons carrying on business together.
 The firm has no rights and obligations separate from the partners. A company as
soon as it is incorporated becomes a legal entity and can sue and be sued in its own
name.

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 In the case of partnership, there are rights and obligations as against individual
partners, but in the case of a company the rights and obligations are against the
company and not the members composing it.
 The liability of the partners (except in limited partnership) is unlimited for the
firm’s debts and obligations, but the shareholders’ liability is limited to the extent
of their shares for the company’s debts.
 A partner of a firm cannot sell or transfer his share without the consent of all other
partners, but a shareholder in a public limited company can sell his shares without
any restrictions.
 In partnership each member of the firm is the agent of the other partner and is
therefore liable for any wrongs committed by any of the other partners, provided
they are committed in the ordinary course of the firm’s business. But a shareholder
of a limited company has no such right and is not liable for any wrong committed
by the directors of the company.
 A partnership is formed by simple agreement, but a company requires the
registration of various documents.
 A partnership is not affected b the rule of ultra vire; i.e. it can engage in any
business activities, but a limited company is prohibited from pursuing any other
object which is not stated in the “objects clause” of memorandum.
 A trading partnership cannot have more than e0 (twenty) members, but a public
company has no limitation on the number of members. A private company can
have up to 50members exclusive of present and past employees
 Kinds of Company
 Registered companies may beclassified into the following groups:
 A company limited by shares. This is a company having the liability of its
members limited to the amount if any, unpaid on the shares respectively held by
them. Thus, in case such a company has not sufficient funds to meet its liabilities,
the creditors of the company cannot look to the members forthe payment of debts.
 A company limited by guarantee,. This is a company having the liability of its
members limited to such amount as its members may respectively undertake to
contribute to the assets of the company in the event of its being wound up.
 An unlimited company: It is a company not having any limit on the liability of its
members for the dents and obligation =s of the company. Such a company is more
like a partnership business, except that it becomes a distinct legal entity and
enjoys perpetual succession.
Creation of Companies
Section 4(1) of the Kenya Companies act 1962 provides that any seven or more persons,
or where the company to be formed is a private company, any two or more persons,
associated for any lawful purpose, may, by subscribing their names to a memorandum
of association, form an incorporated company with or without limited liability.
The promoters of a company mustproduce to the Registrar of Companies the following
documents:
The memorandum of association.
The articles of association. These contain the regulations governing the relations of the
members among themselves and of the company to the members . many companies
adopt the specimen articles contained in Table A of the act. Thus, where a company
has not submitted a set of its own articles, it is presumed that it has adopted the draft
articles contained in Table A of the Companies Act.
A statement of the nominal capital of the company. This is the maximum authorized
capital which a company mayraise by issuing shares.
A list of directors with their written and signed consent to act as directors, and to pay
for qualification shares, if any.
A statutory declaration by the proposed secretary or a director that all the
requirements of theCompanies Act 1962have been complied with.
Note: Incase of the proposed registration of a private company, the above documents
mentioned as 4 and 5are not required to be filed with the registrar.