Practice Questions to test grasp of the company law section of business law concepts.

1. COMPILED BY WARUIJ.
Company Law Revision Questions
1 (a) Describe briefly the various types of company meeting. (10Marks)
(b) Explain the rights and duties of auditors. (10Marks)
2 (a) List and analyse the circumstance under which the shares may be forfeited and what is the
effect of forfeiture? (10 Marks)
(b) Explain the ways the company may be wound up by the court. (10Marks)
3 . It has been contended that the Article of Association of a company constitute a contract not
merely between the shareholders and the company, but also between the individual shareholder
and every other. Discuss the validity of the contention, noting to support your answer with
relevant statutory and judicial authorities (20 marks)
4. Transformers Corp. plc. was the holding company in a group of trading companies: one
subsidiary (Shop Ltd) operated small, city-centre supermarkets; another subsidiary (Snack Ltd)
manufactured pre-packaged sandwiches sold at petrol garages; and the other subsidiary (Zip Ltd)
manufactured zips used in clothing.
Due to his own negligence, one of the buyers for Zip Ltd, Billy, acquired a consignment of metal
for use in the manufacture of zips which caused nasty skin rashes when worn next to the skin.
Billy reported directly to a director of Zip Ltd, but that director did not sit on the board of
directors of Zip Ltd. Transformers Corp. Ltd has been sued for damages in negligence by a
woman who suffered such a skin rash.
The board of directors of Transformers Corp. had decided to sell Snack Ltd to a
competitor, Chubby Ltd. None of Snack Ltd.’s directors would remain on the board of
directors after the business and all of its plant and premises were sold to Chubby Ltd.
Transformers Corp. plc. did not disclose that a multi-million pound writ for damages for
negligence had been served on Snack Ltd as the result of a consignment of prawn sandwiches
which caused mild dioxin poisoning.
The leases over Shop Ltd s supermarkets all expire on 30th May 2003. Shop Ltd is to be
wound up on 25th May 2003. Transformers Corp plc. wishes to renew all the leases in its
own name.
Transformers Corp, by the service contracts of the directors, has agreed to indemnify
the directors personally against any liability occasioned during the course of their
directorships.
Advise Transformers on its various rights and liabilities. (30 marks)

2. 5 (a) Information is central to company law in the modern era.” Discuss. (8 marks)
(b) Explain the difference between the following types of companies
(i) Company limited by shares
(ii) Company limited by guarantee (2marks)
(c) Highlight any five advantages of incorporation as was established in the case of Salomon Vs.
Salomon &Co. ltd (1897)AC 22 (10 marks)
(d) Highlight the categories of persons who may convene meetings in a company noting to
explain the circumstances under which they may convene such meetings. (10 marks)
6 (a) What are the legal consequences of registration of a company under the companies Act (cap
486) law of Kenya? (8 marks)
b) Under what circumstances may a company be deemed to be a subsidiary of
another company? (6 marks)
c) What are the directors’ rights with regard to receiving remuneration and
compensation for loss of office.
(6 Marks)
7. a) Explain the restrictions imposed on the choice of name of a company (10 Marks)
b) Using decided cases, discuss various statutory and common law provisions under which a
corporate veil of incorporation may be lifted (10 Marks)
c) Explain the various ways in which persons intending to form a company
may avoid personal liability on contracts they make on behalf of the proposed company (6
Marks)
d) Discuss advantages of unlimited companies (4 Marks)
8. a) Identify the different types of meetings that may be held by a Public limited company and
explain the purposes each one serves (6 Marks)
b) State the rule in Sharp versus Dawes and explain the exceptions to this rule. (8 Marks)
c) What is a special notice? Give the circumstances under which a special notice would be
required in respect to Company meetings. (6 Marks)
9. a) “The rule in the case of Ashbury Railway Carriage Vs. Riche (1875) stated that an act has
not been authorized by the objects clause of a company’s Memorandum of Association in ultra
vires to the company and the members cannot ratify it.” Discuss. (8 marks)
b) Njoroge, Odhiambo and Makau are the directors of United Technology Ltd. The Company
was formed with the object of computer training. However due to power rationing, the

3. company’s business has fallen below the expected productivity and is threatened with closure. In
order to keep afloat, the three directors approached Rahisi Bank Ltd for an overdraft facility of
Ksh 2,000,000/= to establish an off-license bar and restaurant within the city centre. The credit
manager granted the loan. However, the company has run into financial difficulties and is unable
to repay the loan. Discuss the legal position of the overdraft facility and the bank’s ability to
recover the same from United Technology Ltd. (8 Marks)
c) Discuss the exceptions to the doctrine of ultra vires (6 Marks)
10. (a) The principle of corporate legal personality is an important and fundamental aspect of
company law. Discuss this statement citing relevant decided cases. (6 marks)
(b) Ropoff Company Ltd., a private limited company, has been under inquiry on alleged
fraudulent financial transactions. The officers of the company under suspicion have denied any
association with the company. At the inquiry it was suggested that the corporate veil be lifted
and the realities of the company in question be looked into. Explain the instances when the veil
of incorporation may be lifted. (14 marks)
11. (a) Outline the qualified minority rights of a member which can only be enforced by the joint
efforts of a membership group as defined under the Companies Act. (10 marks)
(b) The Articles of X Company Ltd provide that every member is entitled to one vote for each of
the first ten shares and thereafter to one vote for each additional ten shares. Jane owns one
hundred shares. She transfers ten of her shares to her nine nominees to increase her voting
powering general meetings. Joseph, who is the chairman at the general meeting, refuses to accept
the votes of Jane’s nominees.
Advise Jane on the validity of the Chairman’s action and her right as a member.
12. (a) Explain the category of persons to whom an auditor owes a duty of care in the preparation
of his audit report.(6mks)
(b) Enumerate the rights accorded to an auditor to enable him perform his duties as the auditor of
a company.(6mks)
(c) In Hedley Byrne V. Heller (1964) the court held that provided that it could be established that
a special relationship existed between parties it was possible for a person to sue for having
suffered a financial loss even though no contractual relationship existed between the parties.
Highlight the factors that should be established in order for a third party to successfully sue an
auditor for professional negligence. (8 marks)
13 a) Distinguish between a company and a cooperative society. (8 marks)

4. b) Though the certificate of incorporation is conclusive for purposes of incorporation, using
decided cases, outline circumstances under which it could be withdrawn. (12marks)
14. A public company in the mining business made an issue of its shares to the public at sh.10
per share.In the prospectus, the company stated that “the company has discovered a booming
market in the European Union member countries for its minerals" The company had never
marketed its minerals in the European Union member countries. Timothy, without reading the
prospectus applied for shares and was allotted 1000 shares at sh.10 each. Mary read the
prospectus, applied for the shares but was not allotted any shares. Later on, Mary bought 2000
shares at the stock exchange at sh.25 each. Peter, an old shareholder in the company owned 500
shares even before the company made the issue. He is disappointed with the price at which the
new offer for sale was made claiming that this had destabilized the price of the company's shares.
Required:
a) Explain the legal principles applicable in the above case and advise Timothy, Peter and Mary.
(12 marks)
b)Timothy prepared a transfer form to transfer 100 shares only to his wife Rose presented the
form to the company. The company erroneously transferred the entire 1000 shares to Timothy's
wife. Timothy is aggrieved and seeks your legal advice. Discuss the legal principles in the case
and advise Timothy. (8 marks)
15. City Acre Limited was incorporated in 2008. The directors of the company who were also the
shareholders are Ochieng and Kamau who own the company’s shares equally. In 2009 the
company borrowed 1 million from Bidii Bank which the directors used to purchase a car for their
own use. Between 2008 and 2010 Chali supplied the company with its raw materials and Kshs.
500,000 is still unpaid. Although Ochieng and Kamau are listed directors, the real running of the
company and decision making is not done by them. Last year it was discovered that the company
was unable to pay its debts. Discuss
a) The liabilities of the directors if any. (14 marks)
b) The type of winding up that would be most appropriate and why? (6marks)
Source: Company law revision papers of other universities and Cpa company law revision
papers.