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company
| Question | Answer |
|---|---|
| Companies Act No. 10 of 2017 - its two main functions | The enabling function and the regulatory function |
| Enabling function of the Companies Act | Provisions stating the requirements for incorporation, assisting promoters to form a company. Main provision is s.12; s.13 is also relevant |
| Regulatory function of the Companies Act | Provisions ensuring the company conducts its business and affairs within its constitutional and statutory regime. Mainly s.17; ss.22 and 23 also relevant |
| Is the enabling function pre- or post-incorporation? | Pre-incorporation function: relevant at the point of incorporation |
| Is the regulatory function pre- or post-incorporation? | Post-incorporation function: it comes into play once a company has been successfully incorporated |
| Which section of the Companies Act 2017 sets out the requirements for incorporation? | Section 12 (s.13 is also relevant) |
| Instructions to obtain from client before incorporating (s.12(4), s.12(5)) | Type of company (s.12(4)+s.6); name (s.12(4)+s.36); registered office (s.12(4)+s.28); postal and physical address; nature of business; share capital (s.12(5)) |
| Registered office - what is it? (ss.28 and 30) | The place where all company records are kept and to which all communications and notices may be addressed |
| Old Cap 388, ss.190 and 191 - offices | Required two separate offices (registered office and registered records office). Repealed; the two offices are now combined into one |
| Step after taking instructions when incorporating | Name clearance: search proposed name, file prescribed form with the Registrar and pay prescribed fee. Registrar clears name only if satisfied it is available (s.39) |
| Which section deals with name clearance? | Section 39 of the Companies Act |
| Why is name clearance important? (s.40) | Registrar may refuse a name likely to cause confusion with a registered company's name/trademark or a well-known name/trademark, or sought to stop a legitimate user |
| Section 40 - further grounds for refusing a name (1) | Registration sought to prevent a person legitimately entitled from using the name; otherwise undesirable or inimical to public interest; name denotes State patronage |
| Section 40 - further grounds for refusing a name (2) | Name calculated to deceive or mislead the public; causes annoyance or offence; suggests blasphemy or indecency; implies a connection with a political party or its leader |
| Name reservation (s.41) | Registrar may reserve an acceptable name for 90 days. Optional and rarely done in practice |
| Consequence of reserving a name under s.41 | Promoters must incorporate within the 90 days or re-apply for name clearance |
| Why is name reservation rarely done in practice? | Promoters usually prepare all incorporation documents while awaiting name clearance and lodge them immediately the name is cleared |
| Section 36(1) and (2) - company name endings | Private limited company must end with the word "limited"; public company must end with "plc" |
| Gap in s.36 regarding unlimited companies | Section 36 does not direct that an unlimited company should end with the word "unlimited" |
| Section 37 - private company limited by guarantee and its name | May apply to the Registrar to dispense with the use of the word "Limited" in its name |
| Why can a guarantee company drop "Limited" (s.37)? | "Limited" has a business connotation, yet companies limited by guarantee do not pursue business for profit for members |
| Section 42 | A company may apply to change its name post-incorporation |
| Section 43 | Registrar may compel a company to change its name post-incorporation if any s.40 ground resurfaces |
| Mode of incorporation before 1994 vs now | Before 1994: subscription to Memorandum and Articles of Association. Now: persons subscribe their names to a prescribed application for incorporation, with several forms to complete |
| Section 12(1) Companies Act 2017 | Any two or more persons associating for a lawful purpose may form an incorporated company by subscribing their names to an application for incorporation |
| What replaced the Memorandum of Association? | The application for incorporation. Dispensed with by the 1994 Companies Act and maintained under the Companies Act No. 10 of 2017 |
| Section 12(3) | Application for incorporation must be accompanied by other documents such as the articles of association |
| Section 351 - language of documents lodged with Registrar | Must be in English. If in another language, an English translation must be annexed to the application or document |
| Section 349(4) | Registrar has discretion to accept or reject documents lodged with him |
| Section 19(1) - rejection of application for incorporation | Registrar may reject if it contains matter contrary to law, does not comply with the Act, or contains false information |
| Section 19(2) - how rejection is communicated | Decision must be communicated to the applicant within 14 days and must give reasons for the rejection |
| Section 14 - time to register a company | If satisfied the application is duly completed and lodged, Registrar must register the company within five days of lodgment |
| What does registration of a company mean? | Entering the name of the company in the register of companies by the Registrar of Companies |
| Section 14(1)(a) | On incorporation all particulars of the company are entered in the Register of Companies |
| Section 14(1)(b) | Certificate of incorporation is issued once the company's name is entered in the register |
| Section 14(1)(c) | Certificate of share capital is issued at the same time for a company with share capital |
| Section 15(1)(b) | A company comes into existence on and from the date specified on the certificate of incorporation |
| Unit 1 summary - time to issue certificate | The notes' unit summary says the Registrar issues the certificate of incorporation within 7 days if satisfied the application is duly completed (body of notes cites s.14: five days) |
| Certificate of share capital - who gets one? | Issued under s.14(1)(c). Not issued to a company limited by guarantee |
| What does a certificate of share capital state? | The amount of the company's share capital and its division into shares of a fixed amount |
| Significance of the certificate of share capital | A company cannot issue shares beyond what the certificate authorises (the authorised share capital) |
| Authorised share capital - definition | Total share capital a company is authorised to issue at any given time by the capital clause of its application for incorporation |
| Effect of a certificate of incorporation - birth of company | Gives birth to the company from the date specified on it (s.15(1)(b)) |
| Section 14(2) | Incorporation is not invalid only because the subscribers subscribed in contravention of s.12(8) |
| Section 12(8) - persons barred from subscribing | An individual under 18 years; an undischarged bankrupt; a person of unsound mind declared so by a court of competent jurisdiction |
| Practical effect of s.14(2) | Disqualified persons may subscribe and the Registrar may unknowingly register the company. Once the certificate is issued, subscribers' capacity cannot be raised |
| When can a certificate be quashed despite s.14(2)? | Where fraud, forgery, bribery or other illegality is shown. Something more than a breach of s.12(8) is required |
| Section 15 - certificate as evidence | Certificate of incorporation is conclusive evidence of incorporation; cannot be challenged by reason of anything in the incorporation formalities |
| Bowman v Secular Society Ltd | Certificate is conclusive that registration requirements were complied with, but not conclusive of the legality of the objects. AG may seek certiorari in judicial review to quash it |
| R v Registrar of Companies ex parte Attorney-General | Incorporation of a company formed to provide prostitution services was quashed |
| R v Registrar of Companies ex parte Moore | Company's objects were unlawful, so the Registrar was right to refuse to register it |
| Section 17 - effect of incorporation | Has the same effect as a contract under seal between the company and its members and among the members themselves, defined and regulated by the articles |
| Section 16 - separate legal status | A registered company has a status separate and distinct from its incorporators, members, directors and officers; it exists until removed from the register of companies |
| Salomon v Salomon | Cited (with s.16) for the separate legal personality of a registered company |
| Three contracts envisaged by s.17 | Members with each other; each member with the company; the company with members collectively |
| Are members joining after incorporation bound by the articles? | Yes. Members who join after incorporation are still bound by the Articles of Association |
| Nature of the s.17 contract | A statutory contract; need not conform to the elements essential for a valid common law contract. Defined and regulated by articles, which can be amended |
| In what capacity do the articles bind members? | Articles bind the company and its members in their capacity as members, and not in any other capacity |
| Section 17 - mandatory duty | Company, its members and officers must conduct the company's business and affairs in accordance with the Articles of Association and the Companies Act |
| Articles of association - definition and role | Internal regulations that traditionally govern the relationship between the company and its members and among members; they form the company's constitution |
| How are articles altered? (s.27) | By special resolution under s.27; the s.17 contract is not fixed or static |
| Is the Companies Act part of the company's constitution? | No, it is not a product of the company or its members. In Zambia only the Articles of Association are the company's constitution |
| Section 23(1)(a) | No act of a company is invalid by reason only that it is contrary to the articles or that internal procedures were not followed. Enacted to protect third parties who acquired rights |
| Section 6 - types of companies under the Companies Act | Public company; and private company (which can be limited by shares, limited by guarantee, or unlimited) |
| Forms a private company can take | Limited by shares, limited by guarantee, or unlimited company |
| Forms a public company can take (not stated in the Act) | Nominal public limited company or listed public limited company |
| Nominal PLC - definition and example | A public company whose shares are not listed on the securities exchange, e.g. ABSA Bank PLC |
| Listed PLC - definition | A public company whose shares are listed on the stock/securities exchange and can therefore be traded publicly |
| Limited company - definition | Members' liability is limited. If assets are insufficient on winding up, shareholders' private property cannot be attached to pay company liabilities |
| Types of limited companies by section | Public companies limited by shares (s.7); private companies limited by shares (s.9); private companies limited by guarantee (s.10) |
| Section 36(2) - names of limited companies | Private company limited by shares or guarantee must include "limited" or "Ltd"; a public limited company must end with "public limited company" or "Plc" |
| Company limited by shares - definition | Members' (shareholders') liability is limited to the unpaid amount (if any) on shares held. Must have share capital. Vast majority of limited liability companies |
| Which companies are limited by shares? | Public companies limited by shares (s.7) and private companies limited by shares (s.9) |
| Section 7(4) and Section 9(3) | Members still owing on their shares are called on to contribute if the company is wound up and assets are insufficient to discharge liabilities |
| When can a member's liability on unpaid shares be enforced? | Both while the company is in normal existence and when it is wound up |
| Company limited by guarantee - section and liability | Section 10: members' liability is limited to the amount they agree to contribute if the company is wound up (s.10(1) and (3)) |
| Subscribers to a guarantee company (s.10(1), (3)) | Each subscriber must sign a declaration guaranteeing the amount he will pay if the company winds up |
| Guaranteed amount - two points | It may differ between members or be fixed by the articles; it is enforceable only during winding up, never while the company is operating |
| Share capital in a Zambian guarantee company | It has no share capital (unlike some jurisdictions); initial capital usually comes from grants, subscriptions, endowments etc. |
| Section 10(6) | Prohibits a company limited by guarantee from carrying on business to make a profit for members or anyone concerned in its promotion or management |
| Why are guarantee companies confined to charitable causes? | Because s.10(6) bars profit-making business for members, they are confined almost exclusively to charitable and philanthropic causes |
| Can a company limited by guarantee be public? | No. A company limited by guarantee can never be a public company |
| Section 37 in practice | Registrar may allow a guarantee company to drop "limited" from its name; often invoked, since "limited" has a business connotation |
| Unlimited company - definition | No limit on members' liability; members are personally liable. If assets are insufficient on winding up, members' personal property can be attached (s.11(3)) |
| Unlimited company - privity and separate identity | Privity of contract and separate legal identity still apply; creditors cannot go after members' property during the company's normal business |
| Section 11 | Provides for unlimited companies; the Act directs that they must have share capital |
| Can an unlimited company be a public company? | No. From ss.6, 8 and 11, an unlimited company can never be a public company |
| Section 11(3) | On winding up of an unlimited company members must contribute without limit, but not while the company operates as a going concern |
| Does an unlimited company add "Unlimited" to its name? | No equivalent of s.36(2) exists requiring "Unlimited" in the name, for reasons not immediately obvious |
| Limited vs unlimited companies | Unlimited: members can be personally called on for the whole of company liabilities. Limited: liability restricted by law to an amount fixed by constitutive documents |
| Requirements for a public company | Must state in its application for incorporation that it is public and formally register as such; only a company limited by shares may be a public company |
| Advantage and drawback of a public company | Can offer shares to the public by advertisement for investment, but is subject to a greater degree of regulation by law |
| Private company - definition | Any company that is not a public company |
| Membership limits - private vs public | Private limited company: limited to 50 members. Public company: membership unlimited |
| Section 8(2) | Private unlimited companies may have more than 50 members if the articles so allow |
| Change of company status | The Act allows a company to alter its status, e.g. from private to public, by conversion |
| Companies limited by shares vs by guarantee | Shares: member not liable beyond amount unpaid on shares. Guarantee: member contributes only on winding up, amount fixed at outset by the articles |
| Statutory corporations | Set up by an Act of Parliament, not the Companies Act. E.g. Bank of Zambia, set up under the Bank of Zambia Act, Cap 360 |
| Promoter - description | Someone who forms a company and performs other tasks necessary for it to begin business, whether or not the company is to issue shares |
| Is "promoter" defined in the Companies Act? | No definition in the Zambian Act, presumably so unscrupulous promoters cannot arrange circumstances to stay outside it |
| Cohen Committee on defining "promoter" | Opposed a statutory definition: it would limit rather than expand scope, let liable persons escape, and cannot be constantly amended |
| Whaley Bridge Calico Printing Co v Green (1879) 5 QBD 109 | Bowen J: "promoter" is a term of business, not law, summing up the operations by which a company is generally brought into existence |
| Whaley Bridge test for a promoter | Ask whether the person placed himself in such a position to the company that equity will not allow him to retain any secret advantage |
| Equity's basis for relief against promoters | Relief against concealed profits is an instance of the general principle by which equity prevents abuse of undue influence and fiduciary relations |
| Condition for relief against a promoter | Relations between promoter and the birth, formation and floating of the company must make a secret profit contrary to good faith. See also Twycross v Grant (1877) 46 LJ CP 636 |
| Twycross v Grant (1877) 46 LJ CP 636 | Cited with Whaley Bridge: relief depends on relations making it contrary to good faith for the promoter to derive a secret profit from the promotion |
| Re Great Wheal Polgooth Co Ltd (1883) 53 LJ Ch 42 | Persons acting in a purely professional capacity (e.g. lawyer or accountant) instructed by a promoter do not become promoters |
| Bagnall v Carlton (1877) 6 Ch D 371 | Professionals who go beyond their role, e.g. agree to become director or secretary of the company, are held to be promoters |
| Is a promoter an agent of the company? | No. An agency relationship cannot be formed before a principal exists. Promoters are similarly not trustees |
| Matters decided by promoters | Company name; kind of business; public or private; limited by shares or guarantee etc. They then take steps to actualise their intention |
| Role of promoters | Decide scope of business; negotiate purchase of existing businesses or property; instruct lawyers and accountants on incorporation documents; provide pre-incorporation expenses |
| Promoter of a public company - extra role | Arranges the preparation and publication of a prospectus |
| Who may be a promoter? | An individual, a group or syndicate, a firm or other corporate body. Even a minor role in formation suffices, but not everyone involved in formation is a promoter |
| Professionals and promoter status | Lawyers, accountants, engineers are not promoters unless they exceed their professional mandate and take a peculiar interest in the formation of the company |
| Section 217(2)(c)(ii) Companies Act 2017 | Refers to promoters: deals with civil liability for misstatements contained in a prospectus |
| Section 220 Companies Act 2017 | Refers to promoters: deals with the waiting period when an invitation is made to the public to acquire shares |
| Section 84 (winding-up; Corporate Insolvency Act No. 9 of 2017) | A promoter may be summoned to court in winding up to be asked if he has any company assets or to supply relevant information about the company |
| Why is the promoter's legal position a concern? | Act is silent on it; the company has no board to form independent judgment, so it can be forced into transactions favouring the promoter |
| Nature of a promoter's duties | Fiduciary; subject to broadly the same statutory duties as apply to directors |
| New Sombrero Phosphate Co Ltd v Erlanger (1877) 5 Ch D 73 | James LJ: promoter is in a fiduciary relation to the company; may sell it his property but must make full and fair disclosure of his interest and position |
| Lagunas Nitrate Co v Lagunas Syndicate [1899] 2 Ch 392 | Lindley MR: promoters are fiduciaries to the company and those they induce to become shareholders; cannot bind the company by contract with themselves without full and fair disclosure |
| To whom is the promoter's fiduciary duty owed? | To the company, but ultimately investors (first buyers of shares) whose money and property are at risk |
| Typical promoter abuse (Erlanger v New Sombrero Phosphate Co Ltd (1878) 3 App Cas 1218) | Promoter forced sale of his own property to the company far above true value and paid himself from share sale cash, diminishing assets and share value |
| Erlanger v New Sombrero Phosphate Co - facts | Syndicate bought an island lease with phosphate rights and sold it to the new company at double market value; syndicate named the first board, whose active members were nominees who ratified the contract |
| Erlanger v New Sombrero Phosphate Co - holding | House of Lords set the contract aside: the syndicate failed to nominate an independent board and to disclose fully that they were the vendors of the property |
| Lord Cairns in Erlanger v New Sombrero | Owner may promote a company and sell his property to it, but must do so through a board able to exercise independent and intelligent judgment and not led to think the property belongs to someone else |
| Lord O'Hagan in Erlanger v New Sombrero | Conduct of the nominee directors was precisely what might be expected from the character of their selection |
| Emma Silver Mining Co v Grant (1879) 11 Ch D 918 | Promoter who gets an undisclosed, unapproved commission on a company transaction cannot keep it, even if the company suffers no apparent direct loss |
| Disclosure by a promoter | If he brings his interest to the relevant persons' notice he can (save in one special class of case) enforce the contract and keep the profit; the crucial question is to whom disclosure must be made |
| Status of a promoter - agency and trusteeship principles | Not defined in law, but agency and trusteeship principles extend to him: accountable for all monies secretly received, like an agent to a principal or trustee to cestui que trust |
| Promoter duty (a) - no secret profit | May not directly or indirectly profit at the company's expense without its knowledge; if he does he must account for it; company is entitled to any profit made during formation |
| Gluckstein v Barnes [1900] AC 240 - facts | Syndicate bought property for 140,000 pounds and resold to company for 180,000; it also bought charges on the property at a discount, later paid in full. Prospectus disclosed 40,000 but not 20,000 profit |
| Gluckstein v Barnes [1900] AC 240 - holding | House of Lords: promoters liable to account to the company for the 20,000 pounds made on the charges as well as the 40,000 pounds |
| Promoter duty (b) - sale of own property | No gain from selling own property to the company unless all material facts are disclosed (no conflict of interest) |
| Remedy where promoter sells own property without full disclosure | Company may repudiate the sale, or affirm the contract and recover the promoter's profit (Erlanger v New Sombrero Phosphate Co [1878]) |
| What does the law forbid regarding a promoter's profit? | Not the making of profit but non-disclosure of it. In Salomon v Salomon the profit was disclosed; law only requires full disclosure |
| Promoter duty (c) - no unfair use of position | Must not make unfair or unreasonable use of his position; must avoid anything suggesting undue influence or fraud. A cross-cutting issue |
| Promoter duty (d) - honesty and care | Must be honest and also careful towards the company and its shareholders. Standard of duty: Hedley Byrne & Co v Heller & Partners Ltd [1964] |
| Sources of promoter liability | Imposed by both common law and the Companies Act; rules on secret profit and failure to disclose are identical to common law rules for agents and trustees |
| Section 217 - promoter liability | Liability of a promoter for misstatements or omissions in a prospectus issued to the public |
| Sections 210 and 224 | Relate to public issue of shares; impose obligations and liabilities on a promoter without necessarily calling them promoters |
| Remedies against promoter making undisclosed profit on sale of asset | Rescission (profit usually evaporates, but ancillary profits still recoverable), or recovery of the profit from the promoter |
| Restitutio in integrum | Needed for rescission. Right to rescind is lost if an innocent third party acquired an interest (e.g. mortgagee) or the company delayed electing after discovery and promoter's position changed |
| Re Leeds and Hanley Theatres of Varieties [1902] 2 Ch 809 | Cited on loss of the right to rescind (restitutio in integrum impossible: third-party interest or delay) |
| Clough v London and North Western Rly Co (1871) LR 7 Ex 26 | Cited with Re Leeds and Hanley Theatres on loss of the right to rescind through delay or changed position |
| Timing of promoter's acquisition and right to rescind | Right to rescind for undisclosed interest exists whether promoter acquired the property before or after he began acting as promoter |
| Recovery of secret profit where rescission is unavailable | Only possible where the promoter acquired the property after he began to act as promoter |
| Re Cape Breton Co (1885) 29 Ch D 795 | Majority of CA: promoter selling pre-acquired property cannot be made to account for profit while contract stands, as that would force a new contract at a lower price |
| Re Cape Breton Co - rejected measure (a) | Difference between promoter's cost and price paid by company: wrong, as when he acquired it he owed no duty and was not acting for the company |
| Re Cape Breton Co - rejected measure (b) | Difference between market value at sale and price paid: rejected because by affirming, the company adopts the contract at the sale price; no secret profit arises |
| Remedy where rescission unavailable for pre-acquired property | Courts hold promoters liable in damages for loss caused by breach of duty or negligence in causing the company to buy an overpriced asset |
| Remuneration of promoters - general rule | Not claimable as of right; only for services where there is a contract. With no contract, not even entitled to recover incorporation expenses |
| Re Clinton's Claim [1908] 2 Ch 515 | Promoters incurred 400 pounds registration fees and stamp duty with no contract to recover them; company went into liquidation. Held: expenses NOT recoverable |
| Articles and preliminary expenses | Articles generally empower directors to pay preliminary expenses from company funds, but in law there is still no binding contract with the promoter; promoters often become first directors and so get paid |
| Modes of paying a promoter entitled to remuneration | Lump sum; issue of shares to the promoter; payment of a commission; granting of discounts on shares |
| Promoters unit summary | Individuals involved in incorporation; owe duties similar to officers; entitled to remuneration; company has remedies for breach of duty |
| Attributes of incorporation - separate legal personality | Company is a legal person with identity separate and distinct from its members; as an artificial person it deals with others in its own name and right |
| Section 16 - coming into existence | Company deemed to exist from the date of incorporation: when its name is entered in the register and certificate of incorporation is given by the Registrar |
| Section 22(b) | Once incorporated, a company has the rights, powers, capacity and privileges of an individual, subject to limitations inherent to its corporate nature and those prescribed by the Companies Act |
| Effect of separate personality on members | A member cannot be held liable for the company's acts, nor claim or enjoy benefits due to the company |
| Salomon v Salomon [1897] AC 22 - facts | Salomon sold his leather business to a company he formed and controlled, paid partly by a debenture. Company failed within a year; other creditors sued saying he and the company were one |
| Salomon v Salomon [1897] AC 22 - holding | House of Lords: Salomon and the company were separate legal persons; as a secured creditor he was entitled to be paid first. Leading case on corporate personality |
| Macaura v Northern Assurance Co [1925] AC 619 | Cited on separate personality: a shareholder has no interest in the company's property |
| Lee v Lee's Air Farming [1961] AC 12 | Cited alongside Salomon and Macaura on separate corporate personality |
| ZCCM and Ndola Lime Ltd v Sikanyka and Others SCZ Judgment No. 24 of 2002 | SCZ upheld Salomon: a change in share ownership cannot make the corporate entity a new employer; distinguished the company as body corporate from its shareholders |
| Newton Silulanda and Others v Foodcorp Products Ltd [2002] ZLR 36 - facts | Workers sought declaration of change of employer without consent after all shares in ZAMHORT Products were sold to Foodcorp or name changed; claimed worse conditions amounting to repudiation |
| Newton Silulanda and Others v Foodcorp Products Ltd [2002] ZLR 36 - holding | SCZ (Ngulube CJ) dismissed appeal: sale of shares to a new shareholder does not alter the corporate character; Salomon and ZCCM v Sikanyka are still good law |
| Attribute - perpetual succession | Company has continuous existence and outlives original members; its continuity does not depend on shareholders. It ends only on winding up or striking off the register |
| Section 16 - perpetual existence | A company continues to exist as a corporate until it is removed from the register of companies |
| Section 22(a) | A company has perpetual succession and a common seal, capable of suing and being sued in its corporate name |
| Section 190 | Where a shareholder dies, his legal representative becomes entitled to the shares by transmission |
| Attribute - ownership of property | Company can own, enjoy and dispose of property in its own name; it is not the joint property of shareholders. Macaura v Northern Assurance Co [1925]: shareholder has no interest in company property |
| Attributes of incorporation - list | Separate legal personality; perpetual succession; ownership of property in own name; limited liability; transferability of shares; common seal; capacity to sue and be sued; can commit crimes |
| Attribute - limited liability | Main advantage of incorporation. By shares: limited to unpaid amount on shares held. By guarantee: limited to amount members undertook to contribute to assets if the company is wound up |
| Section 19 - declaration of guarantee (as cited in this unit) | Each subscriber to an application for a company limited by guarantee must sign a declaration specifying the amount he undertakes to contribute to its assets if it is wound up |
| Attribute - transferability of shares (ss.187 and 188) | Shares are personal estate and movable property, transferable by a written transfer in the manner prescribed by the articles |
| Section 189 | Articles of a private company may restrict transferability of issued shares; transfer only in accordance with conditions laid down in the articles |
| Advantages of free transferability of shares | Company stable (shareholder withdraws no capital); shareholder holds marketable security convertible to cash; company can raise large capital through IPOs or new share issues |
| Attribute - common seal (s.32) | Every company shall have a common seal bearing its name and the words "common seal", used in place of a signature. A rubber stamp may not satisfy s.32 |
| Attribute - capacity to sue and be sued (s.22(a)) | Company sues and is sued in its own name. No action in its name without its authority; a director or shareholder is not a proper plaintiff or defendant to redress wrongs by or against the company |
| Attribute - crimes | A company can be convicted of a crime regardless of whether its directors are also convicted |
| Richmond on Thames Borough Council v Pinn & Wheeler [1989] Crim LR 510 | A company cannot be convicted of a crime requiring the physical act of driving a vehicle |
| Further limits on corporate criminal liability | Cannot be convicted where the only sentence is imprisonment. Mens rea crimes (most common law crimes) are problematic; statutory strict liability offences are less so |
| Attributing mens rea to a company | Courts may treat the mens rea of those who control the company as the company's, but have been very restrictive |
| Tesco Supermarkets v Nattrass [1972] AC 153 | Cited on the restrictive approach to treating controllers' mens rea as the company's |
| R v Kite and OLL Ltd [1996] 2 Cr App R 295 | Cited with Tesco v Nattrass on the restrictive approach to corporate mens rea |
| Criticism of Salomon v Salomon | Called "calamitous" by one commentator: lets unscrupulous promoters abuse the Act via "wafer thin" incorporation of an under-capitalised company, and gives limited liability where not needed to encourage trade |
| Lifting or piercing the veil - meaning | Courts or legislature ignore that an activity was done by a company and treat it as the shareholders', or look behind the company and ascribe shareholders' characteristics to it |
| Is there a single principle for lifting the veil? | No. Cases are diverse, no single principle or uniform categorisation; courts undertake a variety of processes |
| Lifting the veil by the judiciary | Used by a judge to counter fraud, sharp practice, oppression and illegality |
| Lifting the veil by statute | E.g. if the number of members falls below 2 for more than 6 months |
| Fraud and equitable remedies | General consensus: courts lift the veil to prevent use of the registered company for fraudulent purposes or to evade a contractual obligation or liability |
| Gilford Motor Co Ltd v Horne [1933] Ch 935 - facts | H, ex-managing director bound by a covenant not to solicit customers, solicited them through a new company whose shares were held by his wife and another employee, the only directors |
| Gilford Motor Co Ltd v Horne [1933] Ch 935 - holding | Court of Appeal: the company was a "cloak or sham", a device to mask the solicitation. Injunction granted against both H and the company |
| Jones v Lipman [1962] 1 WLR 832 - facts | L contracted to convey land to J, changed his mind, and conveyed it to A Co, formed with a solicitor's clerk as only shareholders and directors, to avoid being compelled to convey |
| Jones v Lipman [1962] 1 WLR 832 - holding | Russell J ordered specific performance against L (he controlled A Co) and A Co (a device and sham, a mask held before his face to avoid recognition by the eye of equity) |
| Adams v Cape Industries plc (1990) Ch 433 | See also on how courts interpret the issue of façade (with Creasey v Breachwood Motors) |
| Creasey v Breachwood Motors Ltd [1993] BCLC 480 | See also on how courts interpret façade; also cited on piercing the veil in the interests of justice |
| Company as agent or nominee - Salomon | Lord Halsbury noted no fraud or agency in Salomon. Even where one shareholder holds virtually all shares and controls the company, there is no implied agency |
| Express agency between shareholder and company | If the company is agent and shareholder principal, court must lift the veil and treat company's activities as the shareholder's; common where the shareholder is a parent company |
| Gramophone and Typewriter Ltd v Stanley [1908] 2 KB 89 | Lord Cozens-Hardy MR: cited on the company as agent of its shareholder (lifting the veil where agency exists) |
| Smith, Stone and Knight Ltd v Birmingham Corporation [1939] 4 All ER 116 | Atkinson J: parent could claim compensation for compulsory acquisition though its subsidiary occupied and traded there; subsidiary acted on parent's behalf (implied agency) |
| Re FG (Films) Ltd [1953] 1 WLR 483 | Vaisey J: English company with no significant assets or employees was merely agent/nominee for its American parent, so its film was not "British" under the Cinematograph Films Acts 1938-48 |
| Veil lifting - single economic unit | Courts have been willing to treat a group of companies not as separate persons but as a single economic unit |
| DHN Food Distributors v Tower Hamlets London Borough Council [1976] 1 WLR 852 | Lord Denning MR: subsidiaries bound hand and foot to parent, group virtually a partnership; the three companies treated as one, the parent DHN |
| Cases doubting the single economic unit principle | Woolfson v Strathclyde Regional Council; Adams v Cape Industries Ltd |
| Veil lifting - state of hostility | In war, courts may regard a British company controlled by enemy nationals as an enemy alien: Daimler Co Ltd v Continental Tyre and Rubber Co (GB) Ltd |
| Veil lifting - justice and equity | Courts sometimes pierce the veil in the interests of justice: In Re a Company; Creasey v Breachwood Motors Ltd |
| Cases against piercing the veil on justice grounds | Adams v Cape Industries Ltd; Ord v Belhaven Pubs Ltd [1998] BCC 607; Yukong Lines Ltd v Rendsburg Investment Corp (No 2) [1998] 1 WLR 294 |
| Attributes of incorporation - unit summary | Company enjoys abilities to sue and be sued, own property, borrow money etc.; veil can be lifted to hold individuals behind the company personally liable |
| Corporate capacity - definition | The power or ability of a company to enter into transactions or contracts with third parties |
| Section 22(a) - corporate capacity | Company has perpetual succession and a common seal, can sue and be sued in its corporate name, and subject to the Act has power to do all acts a corporate may by law do |
| Section 22(b) - corporate capacity | Subject to the Act and limitations inherent in its corporate nature, a company has the capacity, rights, powers and privileges of an individual |
| Section 22(c) | Company has capacity to carry on business and exercise powers outside Zambia to the extent the laws of Zambia and of that jurisdiction permit |
| Effect of s.22(b) | Anything a natural person can do, a body corporate can do; a company has unrestricted capacity to contract, like an individual |
| Two limitations on unrestricted capacity under s.22(b) | Limitations inherent in the company's corporate nature; limitations imposed by the Companies Act itself |
| Section 25(3) | A company shall not carry on any business or exercise any power its articles restrict, nor exercise its powers in a manner contrary to its articles |
| Effect of restrictions in articles on capacity | Company loses unrestricted capacity; expected to conduct business in accordance with the articles and the business in its application for incorporation |
| Limitations inherent in corporate nature | Things an individual can do but a company cannot as it has no physical existence, e.g. marry. They do not necessarily limit capacity to contract with third parties |
| Why consult the articles as well as the Act on capacity? | Act gives unrestricted capacity, but a company may restrict its capacity through its articles (s.25(2)), after which it no longer has unrestricted capacity |
| Doctrine of constructive notice - meaning | Common law principle: third parties are imputed with knowledge of contents of a company document merely because it is registrable with the Registrar or open to inspection at the registered office |
| Example of constructive notice | Third parties were presumed aware of any restrictions in the articles on corporate capacity. See Ashbury Railway Carriage v Riche |
| Section 24 - abolition of constructive notice | A person dealing with a company is not affected by or presumed to have notice of the contents of company documents by reason only that they were lodged with the Registrar or are held for inspection |
| "By reason only" in s.24 | Suggests third parties may be taken to know document contents for other reasons, which are found in s.23(3) |
| Section 23(3) - actual knowledge | Third party must have had, or ought to have had, actual knowledge (not imputed knowledge) of the fact asserted. Onus is on the company to show this, e.g. from previous dealings |
| Third parties and a company's capacity | They may act on the basis that the company has unrestricted capacity, as restrictions in articles cannot be imputed merely because articles are public, registrable or open to inspection |
| Zambia Bata Shoe Company Ltd v Vin-Mas Ltd (cited as Bata Shoe Company Ltd v Vinmas) | Held: the company's authorised agents bound it to comply with the contract and such liability could not be avoided |
| Bank of Zambia v Chibote Meat Corporation | Held: matters of internal procedure in the management of a company are not the concern of third parties |
| National Airports Corporation v Zimba and Konie | Held: an outsider dealing with a representative of appropriate authority, standing or type of transaction cannot be concerned with any alleged want of authority |
| National Airports Corporation v Zimba - dealing with a director | A third party dealing with a director need not worry whether the director has authority to bind the company to the contract |
| National Airports Corporation v Zimba - unauthorised representative | Where the representative lacks standing (e.g. a cleaner), the court looks at the type of transaction: if such a representative could bind the company in that kind of transaction, the company is bound |
| Third parties with actual knowledge of company documents | If they have or ought to have actual knowledge of the articles or other documents through their position or relationship with the company, they cannot assume unrestricted capacity |
| Limit of s.24 for third parties | Does not entitle third parties to assume unrestricted capacity if they have or ought to have actual knowledge that the company does not have it |
| Memorandum of association at common law | Document in which promoters set out the company's objects, defining its power to contract with outsiders; companies were prohibited from pursuing objects not specifically set out |
| Memorandum vs articles of association | Memorandum was outward-looking (told the outside world what business the company could pursue); articles are inward-looking |
| Meaning of ultra vires | Beyond the company's corporate capacity; objects not specifically set out in the memorandum were ultra vires |
| Ashbury Railway Carriage v Riche - holding | Company could not be compelled to perform the contract as the objects directors pursued were not specifically set out in the memorandum of association |
| Ashbury Railway Carriage v Riche - facts | Directors contracted for construction of a railway line but the memorandum did not provide for it; company failed to perform; court held the contract ultra vires so the company could not be compelled |
| Memorandum of association - Zambian position | Requirement to file one was dropped by the Companies Act 1994 and remains so under Act No. 10 of 2017; no longer used for incorporation or part of constitutive documents |
| What happened to the substance of the memorandum? | Condensed into the incorporation forms: name, objects and capital clauses retained in the application for incorporation. Substance the same, form changed |
| How the application for incorporation does the memorandum's job | Indicates the company's capacity (whether the articles restrict its business) and sets out nature of business, but does not strictly define corporate capacity |
| Ultra vires doctrine - original strict form | Acts beyond the company's corporate capacity; no transaction beyond a company's capacity could ever be binding on it |
| JP Karnezos v Hermis Safaris Ltd - facts | Defendant, mainly in transportation, contracted to buy 7,484 bags of burnt maize for K9,729.20; took about half; manager and MD were deported; company failed to perform the rest; plaintiff sued for the price |
| JP Karnezos v Hermis Safaris Ltd - holding | High Court (Sakala J): company had no power under its Memorandum to buy burnt maize; the oral agreement was ultra vires and void |
| UK Companies Act 2006 - memorandum | Retained but used merely for incorporation; no longer defines corporate capacity or the company's relationship with the outside world |
| UK Companies Act 2006 s.31(1) | Unless articles specifically restrict objects, objects are unrestricted. Restrictions limit directors' authority rather than company capacity: directors act without authority, company not ultra vires |
| UK Companies Act 2006 s.39(1) | Validity of a company's act cannot be questioned for lack of capacity by reason of anything in its constitution; capacity cannot be raised as a defence or pleaded against the company by a third party |
| Remaining relevance of ultra vires in the UK | Directors breach duty if they fail to act per the constitution; acts outside a statement of objects are without authority and in breach of duty (s.17 UK Act as cited in the notes) |
| Ultra vires - business restrictions vs directors' powers | Most relevant where breach concerns the company's business (or activities for guarantee companies); breaches of directors' general powers are better called want of authority, though ultra vires is often used |
| Why was the memorandum abolished in Zambia (Cap 388)? | Two reasons: to do away with the ultra vires doctrine, and to simplify incorporation procedures. Maintained by Act No. 10 of 2017 |
| Argument that ultra vires is abolished - no memorandum | Promoters no longer set out objects in a memorandum; at common law ultra vires related to acts outside the memorandum |
| Argument that ultra vires is abolished - s.22(b) | Company has an individual's capacity, so can contract freely and depart from objects in its application for incorporation; inconceivable for a company with unrestricted capacity to act ultra vires |
| Argument that ultra vires is abolished - s.23(a-c) | No act of a company may be called into question solely because it acted contrary to its articles or those acting lacked authority; illogical to call such acts ultra vires |
| Sections 17 and 104 | Require companies to act in accordance with their articles |
| Section 87(1)(a) example | Directors cannot sell company property without members' ordinary resolution, but a sale without it is still valid under s.24; the buyer need not search to check the resolution was passed |
| Argument that ultra vires is only watered down - memorandum | Dropping the memorandum is not conclusive; condensing it into the incorporation forms indicates the doctrine's retention |
| Argument that ultra vires is only watered down - s.25(2) | Company may restrict its business via its articles; then ss.25(3), 17 and 104 operate and departure from the articles would be illegal. All illegal acts are ultra vires |
| Argument that ultra vires is only watered down - s.23(1) | "By reason only" suggests other reasons (s.23(3), e.g. third party's actual knowledge of the company's powers) can still invalidate the act |
| Section 23(1)(a) | A company cannot assert against a third party dealing with it that the articles have not been complied with |
| Section 23(3) - the exception | Company may still assert it acted beyond its capacity if the third party has or ought to have actual knowledge of the articles' contents or the extent of capacity; the act can be declared ultra vires |
| Conclusion on ultra vires in Zambia | Not completely abolished but "watered down": where a third party had actual knowledge of the company's capacity and directors exceeded it, the acts are ultra vires |
| Fresh Mint Ltd v Kawambwa Tea Co Ltd (2008) - significance | Supreme Court confirmed the ultra vires doctrine still applies in Zambia |
| Fresh Mint Ltd v Kawambwa Tea Co Ltd (2008) - facts | Director guaranteed a loan to Kawambwa, signing an MOU with lender that it was for the company's benefit. Kawambwa went into receivership; Fresh Mint (sharing that director) paid and sought recovery; Kawambwa said it never authorised it |
| Section 215(1) (quoted in Fresh Mint) | Subject to the Act, directors manage the company's business, may pay promotion and formation expenses, and exercise all powers not required by the Act or articles to be exercised by resolution |
| Section 215 - borrowing powers (quoted in Fresh Mint) | Directors may borrow money, charge company property, business or uncalled capital, and issue debentures or give security for debts or obligations of the company or of any other person |
| Fresh Mint - SCZ on authority of human agents | A company acts only through human beings who must have its authority. Only contracts by authorised agents (formally authorised by resolution) bind it. Basis of Turquand's case; supported by Zambia Bata Shoe v Vin-Mas |
| Fresh Mint - Zambia Bata Shoe v Vin-Mas principle quoted | Most people dealing with companies rely on Turquand's rule and do not inspect articles; where vendor and purchaser knew a special resolution was needed, the authorised agents bound the company and liability cannot be avoided |
| Fresh Mint Ltd v Kawambwa Tea Co Ltd (2008) - holding | Director acted without Kawambwa's authority, so the loan agreement he entered into on its behalf was ultra vires and not binding on Kawambwa |
| Fresh Mint Ltd v Kawambwa Tea Co Ltd (2008) - burden of proof | Respondent company did not have to prove it had not given the power; the appellants had to prove the director acted within the authority given to him |
| Two dimensions of the ultra vires doctrine | External dimension (company and third parties) and internal dimension, i.e. internal validity (company and its directors) |
| Ultra vires - status of the external dimension | Not abolished but merely watered down |
| Ultra vires - status of the internal dimension | Maintained: members always have specific remedies against directors who act or are about to act in want of authority or beyond the company's capacity |
| Members' remedy - injunction (s.330(1)) | Court injunction to restrain directors from acting in a proposed manner. Available only where directors have merely proposed to act ultra vires and not yet acted |
| Members' remedy - damages (s.335) | Members can sue directors in their individual capacities for damages where directors acted beyond the company's corporate capacity |
| Members' remedy - criminal proceedings (s.104) | Members can ensure criminal proceedings are commenced against the directors and assist in the criminal process |
| Members' remedy - ratification (s.339) | Members can ratify the ultra vires act at a general meeting. Affirmed in Re Duomatic |
| Re Duomatic | Affirmed that members can ratify an ultra vires act (cited with s.339) |
| Members' injunction v third party's acquired rights - whose rights prevail? | Third party's rights prevail if unaware of the extent of the company's capacity (s.23(3)); if they had or ought to have had actual knowledge, members' rights prevail and the injunction is affirmed |
| Is ultra vires relevant where the articles do not restrict business? | No. It is relevant only where articles restrict the company's business or directors' powers; otherwise the company has unrestricted capacity |
| Does s.23 authorise unlawful acts by companies? | No. It protects third parties who acquired rights: an act contrary to the articles is valid, but is an offence under s.104 and directors can be punished |
| Corporate capacity unit summary | Capacity is power to transact; at common law restricted by memorandum; Zambia dropped the memorandum; constructive notice abolished; ultra vires abolished or watered down; members have remedies against directors |
| Pre-incorporation contract - definition | A contract purportedly made by or on behalf of a corporation at a time when it has not yet been incorporated |
| Is a company bound by a pre-incorporation contract when formed? | Not initially bound. Adoption is anticipated by the parties; if the company adopts, it assumes the rights and liabilities in the contract |
| Pre-incorporation contract - void or binding? | Before incorporation the company has no legal existence, so the agreement should not bind it, but it should also not be void ab initio |
| Promoter's liability on a pre-incorporation contract | Personally liable if the company is not formed or does not adopt: bound as agent of a non-existent principal. Privity of contract keeps the company out |
| Kelner v Baxter - facts | Promoter accepted Kelner's offer to sell wine on behalf of an unformed company; company failed to pay and Kelner sued the promoters |
| Kelner v Baxter - holding | Erle CJ: no principal-agent relationship before incorporation; company is a stranger and cannot ratify or adopt; promoters personally liable as the consenting party |
| Newborne v Sensolid (Great Britain) Ltd - facts | Contract for tinned ham signed "Leopold Newborne" beneath "Leopold Newborne (London) Ltd", not yet incorporated. Price fell; Sensolid refused deliveries. Company sued and was dismissed; Newborne then sued personally |
| Newborne v Sensolid (Great Britain) Ltd - holding | Court of Appeal applied a rule of construction: was the promoter intended to be a party? Signature showed a contract with the company only, so Newborne could not enforce it; neither company nor promoter could sue |
| Confusion left by Newborne v Sensolid | Seemed to make an agent-signing promoter liable and entitled to sue, but a signature as director of an unformed company left the contract unenforceable. Criticised by Windeyer J in Black v Smallwood and by Prof Treitel |
| Phonogram Ltd v Lane - facts | Lane took a 6,000 pound cheque from Phonogram, signing "for and on behalf of Fragile Management Ltd" (to manage group "Cheap Mean and Nasty"). Repayable if no album; none produced. Lane said his signature excluded personal liability |
| Phonogram Ltd v Lane - holding | Lord Denning (reviewing Kelner, Newborne, Black v Smallwood and s.9(2) European Communities Act 1972): promoter personally liable; company not bound and cannot ratify, but the contract still has legal effect |
| Common law position on pre-incorporation contracts | Phonogram Ltd v Lane confirms Kelner v Baxter but departs from Newborne v Sensolid |
| UK Companies Act 2006 s.51(1) | A contract purporting to be made by or on behalf of a company not yet formed has effect, subject to agreement to the contrary, as one made with the person purporting to act for it, who is personally liable |
| "Subject to any agreement to the contrary" (UK s.51(1)) | Company may later agree with promoter and/or third party that the promoter's duties and liabilities pass to the company by novation |
| Novation of a pre-incorporation contract | Promoter enters a separate contract with the company assigning his duties and liabilities; promoter ceases to be bound and the company becomes bound, under a new contract on the same terms |
| Novation vs ratification | Novation makes a new contract; ratification dates back to the time of the act, so a company not then in existence cannot ratify as it could not have performed the act |
| Section 20(1) Companies Act 2017 (Zambia) | If a person purports to contract in the name of or for a company before it exists and the contract is not in writing, he is bound by it and entitled to its benefits (common law position) |
| Sections 20(2) and 20(3) | If the contract is evidenced in writing, the company may (adoption is optional) adopt it by ordinary resolution not later than 15 months after incorporation |
| Effect of adopting a pre-incorporation contract (s.20) | Company becomes bound; the person who purported to act for it ceases to be bound by or entitled to the benefits of the contract |
| Section 20(4) | Whether or not the company adopts, the third party may apply to court for an order fixing obligations under the contract or apportioning liability between the company and the person who acted |
| Section 20(5) | If the contract expressly says the person acting is not bound or entitled in any event, s.20(4) does not apply. Arguably an exclusion clause letting a promoter limit or exclude his liability |
| Pre-incorporation contracts unit summary | A contract made for and on behalf of a company before incorporation is a pre-incorporation contract; the company may adopt it upon incorporation |
| Conversions allowed by the Companies Act 2017 (ss.48-53) | Private limited by shares to guarantee (s.48) or unlimited (s.49); guarantee to shares or unlimited (s.50); unlimited to limited (s.51); public to private (s.52); private to public (s.53) |
| Section 48(1)(a) and (b) | Conversion of private company limited by shares to guarantee requires: all members agree in writing; no unpaid liability on any of its shares |
| Section 48(1)(c), (d) and (e) | Members surrender shares for cancellation despite s.150(1)(c); special resolution amending articles to convert, complying with s.10; each member makes a declaration of guarantee |
| Why must each member make a declaration of guarantee (s.48)? | A guarantee company has no shares or share capital; member liability is tied to the declaration. Second most important requirement after written agreement. Articles on shares and profit must be amended |
| Section 49 - private company limited by shares to unlimited company | All members agree in writing; no unpaid liability on shares; special resolution amending articles to convert, complying with s.11; each member agrees in writing to take up a specified number of shares |
| Note on s.49 conversion | Both company types have shares and pursue profit, but liability is limited in one and unlimited in the other; articles suggesting limited liability must be amended first |
| Section 50 - guarantee company to shares or unlimited | All members agree in writing to convert and to a share capital; each member agrees in writing to take specified shares; special resolution amending articles to comply with s.9 or s.11 |
| Note on s.50 conversion | Before converting, members must agree the share capital, number of shares, par value and how many shares each will get |
| Section 51 - unlimited to limited company | All members agree in writing; if converting to guarantee, each member makes a declaration of guarantee (s.10); special resolution amending articles to a private limited company complying with s.8 |
| Professor Gower on unlimited company becoming limited | It is not the members who need special safeguards but the creditors, who are suddenly limited to the amounts stated in the new articles |
| Section 52 - public company to private company limited by shares | Special resolution to convert; amend articles to satisfy ss.8 and 9; members agree in writing to a share capital; each member agrees in writing to take a specified number of shares |
| Why s.52 does not need written agreement of all members | Conversion does not alter members' liability (limited to unpaid amount on shares in both); public companies have unlimited membership so unanimous consent is impractical |
| Section 53 - private company limited by shares to public company | Special resolution to convert to a public company; amend articles to satisfy s.7; members agree in writing to a share capital. Written agreement of all members not required |
| Section 54 - process of conversion | Complete prescribed form and file at PACRA, pay prescribed fees, attach documents under s.54(2); Registrar then issues a replacement certificate of incorporation |
| Section 54(4) - effect from date of conversion | Company stands converted to the status on the replacement certificate; articles stand amended per lodged documents; name is as stated in the replacement certificate |
| Section 54(5) - effect of conversion | Conversion does not alter the company's identity; affect its rights or obligations except as specified in the Act; or render defective any legal proceedings by or against it |
| Meaning of "identity" in s.54(5) | Not defined; seems to relate to the company's name. Conversion does not change the name (separate process); prior contracts and proceedings continue |
| Conversion of companies unit summary | Follow prescribed statutory steps; each conversion has unique requirements; identity, rights, obligations and legal proceedings are unaffected |
| Section 25(1) - articles required | Every company incorporated under Act No. 10 of 2017 must have articles of association regulating its conduct |
| Section 25(2) | Articles may contain restrictions on the type of business a company may carry on or the powers it may exercise |
| Section 25(3) | Company shall not carry on business or exercise a power its articles restrict, or exercise its powers contrary to its articles |
| Section 25(4) | A provision in the articles inconsistent with the Act or any other law is invalid to the extent of the inconsistency |
| Section 25(5) | Articles must be divided into paragraphs numbered consecutively |
| Section 25(6) | Articles must be signed by the persons who are the first members of the company |
| Section 25(7) | Company may adopt the Standard Articles in the Schedules of the Act or any specified regulation in them |
| Section 25(8) | A company adopting the Standard Articles in the Schedules need not file them with the Registrar |
| Traditional role of articles of association | Rules governing relations between company and members, and among members inter se; memorandum was the charter governing relations with outsiders (where retained, and in Zambia before 1994) |
| Matters governed by articles | Share capital; changes in share capital; appointment and powers of directors; conduct of meetings; payment of dividends; voting at general meetings |
| Common law cases on articles | Hickman v Kent or Romney Marsh Sheep Breeders' Association [1915] 1 Ch 881; Beattie v E & F Beattie [1938] Ch 708; Eley v Positive Government Security Life Assurance Co (1876) 1 Ex D 88 |
| More common law cases on articles | Rayfield v Hands; Wood v Odessa Waterworks Ltd ("Oddessa" in notes); Pender v Lushington |
| Principle from the common law articles cases | Articles are inward-looking: outsiders cannot be bound by or enforce them; they bind members only as members, not in another capacity such as director or solicitor |
| Beattie v E & F Beattie [1938] Ch 708 | Articles bind members in their capacity as members, not as a director |
| Eley v Positive Government Security Life Assurance Co (1876) 1 Ex D 88 | Articles bind members as members, not in another capacity such as solicitor |
| Are articles outward-looking? Section 104 | Suggests directors may be bound by the articles; places an obligation on directors to ensure the company acts in accordance with them, so directors can be bound and possibly enforce them |
| Articles binding third parties (ss.25(2), 25(3), 23(3)) | A third party aware of restrictions on the company's business in the articles is bound by them and the company can enforce them against that third party |
| Section 104(1) | Directors must act in accordance with the company's articles and ensure the company complies with them |
| Section 104(2) | It is an offence for directors to act, or allow the company to act, contrary to the articles |
| Modified role of articles - conclusion | Articles can now bind third parties and directors, but only to the extent envisaged by the law |
| Section 26(1) | Articles have the effect of a contract between the company and each member, and amongst the members |
| Section 26(2) | The articles bind the company and its members |
| Effect of ss.17 and 26 on articles | Together they make articles a contract between the company and its members (and members among themselves) only |
| Can a company with deficient articles fall back on the Standard Articles? | No. Only recourse is to amend the articles under s.27. It falls back on Standard Articles only if it has no articles of its own, having adopted them |
| Section 27 - amending articles | By special resolution. Within 21 days of passing it, lodge a copy with the Registrar with each affected paragraph in amended form; takes effect from day of lodgement or later specified date |
| Section 27 - penalty for failing to lodge amendment | Company and each officer in default commit an offence, liable on conviction to a fine not exceeding three hundred thousand penalty units for each day the contravention continues |
| Articles of association unit summary | Mandatory for every company incorporated in Zambia; a binding contract between the company and members and among the members; can be amended from time to time |
| Members or shareholders - who are they? | The natural and/or artificial persons who make up and in essence own a company |
| Ways of becoming a member of a company | Subscription; allotment (private placement or public issue); acquiring transferred shares; transmission; employee share option plan (ESOP) |
| Membership by subscription | Person states in the application for incorporation that he is a shareholder; called a subscriber because his name appears in it. More pronounced for private companies limited by guarantee |
| Section 3 - definition of "member" | A shareholder or stockholder of a company or a subscriber to a company limited by guarantee |
| Section 10(2) | A subscriber to an application for incorporation of a company limited by guarantee shall, on incorporation, be a member of the company |
| Second Schedule, Clause 2 (standard articles, guarantee company) | Subscribers and persons admitted per articles are members. No one admitted unless by company resolution and by signing a declaration of guarantee and delivering it to the company |
| Allotment - meaning | Shares issued by a company after its date of incorporation; a direct divestiture by the company |
| Allotment vs transfer of shares | Allotment is a direct divestiture by the company. Transfer moves shares from one shareholder (not the company) to another shareholder or prospective shareholder |
| Modes of allotment | Private placement and public issue; a third mode, rights issue, goes to existing shareholders so a person does not become a member through it |
| Private placement | Discrete sale of shares privately to allottees specifically identified by the company beforehand; distinguished from a public placement, which is addressed to the public |
| Who can undertake a public issue? | Only a public company. A private company must convert into a public company first |
| IPO and public offers | A company's first public issue is an initial public offering (IPO); subsequent offers are public offers |
| IPO stage 1 - public invitation | Company advertises inviting the public to subscribe for shares; equivalent to an invitation to treat in contract law |
| IPO stage 2 - subscription | Actual applications by the public for shares in response to the invitation; equivalent to an offer in contract law |
| IPO stage 3 - allotment | Shares are allotted to subscribers; equivalent to acceptance in contract law |
| Over-subscribed, fully subscribed, under-subscribed | Over: public response exceeds shares offered. Fully: response matches shares issued. Under: response is less than the anticipated issue |
| Subscription rights issue | Offer to shareholders of the right to subscribe for further shares, usually below market value and in proportion to current holding (e.g. one new share for every five held) |
| Rights issue and public issue | A rights issue may crystallise into a public issue (shares later issued to the public) or be made simultaneously with one |
| Minimum consideration for shares | Shares must not be issued at a consideration less than payment or the promise of payment of the nominal amount of each share |
| Process of share allotment to an outsider | Application, then allotment (appropriating specific shares), then notice to allottee. A binding contract arises: company must enter name in Register of Members; allottee must pay. Share certificate then issued |
| Share issuance - meaning | The whole process from application for shares to entry of the allottee's name in the Register of Members. See Westminster Bank of Britain v Inland Revenue Commission |
| Section 188 - transfer of shares | Subject to the articles, fully paid-up shares may be transferred by entering the transferee's name on the share and beneficial ownership register, evidenced by registration with the Registrar |
| Share transfer form (s.188) | Signed by present holder or his personal representative and delivered to the company or its agent maintaining the register; signed also by transferee if registration imposes liability on him |
| Section 189 - restrictions on transfer | Subject to restrictions in the articles and the Act, shares are transferable without restriction. Only the Act and the articles can restrict transferability |
| Section 189(3) | Board must refuse to register a transfer to a person who is under 18, declared of unsound mind by a Zambian or foreign court, or an undischarged bankrupt |
| When does a transferee become a member? | If no other restrictions apply and he is not caught by s.189(3), he is entitled to be registered; he becomes a member when entered in the share and beneficial ownership register |
| Membership by transmission (s.190) | Automatic transfer of shares by operation of law, not a voluntary act, mainly on death or bankruptcy (to personal representative or trustee). Not a member until name is entered in the register |
| Transmission on death of a shareholder | Survivor(s) of joint holders recognised as shareholder; for a sole holder, his legal personal representative is the only person recognised |
| Employee share option plan (ESOP) | Contract between company and employees giving the right to buy a specific number of shares at a fixed price within a certain period; employees entered in register become members |
| Approved ESOP - Eighth Schedule of Income Tax Act - general requirements | Established in Zambia (or with admin wing here) by employer carrying on business wholly or partly in Zambia; open to all eligible employees including directors |
| Approved ESOP - share limits | No employee may acquire more than one fifth of shares issued under the scheme; only ordinary shares; set number of shares at a fixed price; limited period to use the option |
| Approved ESOP - who may participate | Employees must be citizens or permanent residents of Zambia, wherever they carry out their duties |
| ESOP articles and rules (1) | Provide for participation of all eligible employees; limit to one fifth of shares offered; notify eligible employees with full information on the scheme and its risks and benefits |
| ESOP articles and rules (2) | State how shares are priced and that only ordinary shares participate; employer (or subsidiary) bears expenses; independent audit; set eligibility criteria |
| ESOP articles and rules (3) | Employer and trustees act as tax agent for participants; employees may sell after five years except where service ends or the employee dies earlier |
| ESOP articles and rules (4) | No extra contributions beyond those agreed; no adverse rule changes without trustees' consent and confirmation from the Commissioner-General of ZRA; no credit to finance exercising options |
| Ceasing to be a member - transfer | Under ss.188 and 189 a person may transfer his entire shareholding to an existing shareholder or an outsider; he ceases to be a member when his name is removed from the register of members |
| Ceasing to be a member - death (s.190) | On a member's death his name is removed from the register of members and replaced by that of his personal representative or a named beneficiary under a will |
| Personal representative of a deceased member - option | May ask the company to enter either his own name or a beneficiary's name in the Register of Members |
| Ceasing to be a member - winding up | Corporate Insolvency Act No. 9 of 2017 governs winding up; after voluntary or compulsory liquidation comes dissolution (striking off the register), after which members automatically have no interest in the company |
| Ceasing to be a member - forfeiture or surrender (s.148) | Shareholder may forfeit or surrender shares per the articles (e.g. failure to pay a call); Registrar registers it in prescribed form; forfeiting or surrendering all shares ends membership |
| Ways of ceasing to be a member | Transfer of shares; death; winding up and dissolution; forfeiture or surrender of shares (unit summary says 4 main ways) |
| Capacity to be a member - Act's position | Companies Act is silent. A person does not automatically cease to be a member by becoming insane or bankrupt |
| Sections 12(8) and 14(2) on capacity to be a member | Combined effect suggests persons under 18, of unsound mind and undischarged bankrupts can become members (s.3 includes subscribers) |
| Minors as subscribers to an application for incorporation | Two minors may subscribe in contravention of s.12(8); error forgiven under s.14(2) and they are members by subscription |
| Section 189(3) on capacity to be a member | Suggests persons under 18, of unsound mind and undischarged bankrupts cannot acquire shares by transfer |
| Conclusion on capacity to be a member | Persons lacking legal competence to contract can become members by subscription but not by transfer; insane persons and undischarged bankrupts do not automatically cease to be members |
| Member vs shareholder | Used interchangeably, but a person can be a member without being a shareholder and vice versa |
| Subscriber - member or shareholder? | Becomes a member on incorporation but not a shareholder until he acquires shares |
| Members of a company limited by guarantee | Are not shareholders because a guarantee company has no shares |
| Transferor and transferee - member or shareholder? | Transferor ceases to be a shareholder on executing and delivering the transfer instruments. Transferee becomes a shareholder but a member only when his name is entered in the register of members |
| Personal representative - shareholder or member? | Becomes a shareholder automatically on the member's death; member only once name is entered on presenting evidence of entitlement. Before then entitled to dividends but not to vote (voting is incidental to membership) |
| Membership unit summary | 4 main ways of becoming a member and 4 of ceasing; a person can be a member without being a shareholder and vice versa; capacity to be a member is only subtly addressed by the Act |
| Section 3 - definition of "share" | The Companies Act does not define "share"; s.3 only says "share" includes stock |
| How does a company raise capital? | From its members; the money is called capital and is usually divided into units of fixed amount called shares |
| Boarland's Trustee v Steel Bros & Co [1901] 1 Ch 279 | Farwell J: a share is the shareholder's interest in the company measured by a sum of money (for liability and dividends first, interest second) and a series of mutual covenants among shareholders inter se |
| Farwell J's definition in Zambian company law | A share is a bundle of rights from the statutory contract in s.17; the articles contract is an original incident of the share. It is not a sum of money but an interest measured by one |
| A share as an interest measured by a sum of money | Measured by its nominal amount (par value) plus the rights and liabilities in the Act or articles; represents the holder's pecuniary interest, hence "a bundle of rights and liabilities" |
| Legal nature of a share | Personal estate and moveable property, personal intangible property, transferable by written transfer per articles or Act; may be sold, bequeathed, mortgaged or pledged subject to articles and Act |
| Rights acquired with shares | Vote at general meetings; information about the company; participate in meeting deliberations; receive declared dividends; residue capital on winding up; commence a derivative action against erring directors |
| Three functions of a share | 1) Establishes extent of members' liability and interest; 2) represents mutual covenants among members; 3) entitles holder to dividends, share of profits and return of surplus capital on winding up |
| Share function - liability | Member is liable only to the extent shares are not fully paid up (unpaid or part paid). No liability for unissued shares or fully paid-up shares |
| Example of liability on shares (K5,000 authorised capital) | Authorised K5,000 in 5,000 shares, 2,000 issued: members liable only for the K2,000 issued, to the extent not fully paid; not for the 3,000 unissued |
| Transfer of shares - nature (s.189(1)) | A voluntary inter vivos disposition or change of ownership of shares. Freely transferable unless the articles or the Act impose restrictions |
| Three elements of a transfer of shares | It is voluntary; it arises between a willing buyer and willing seller; it arises during the lifetime of transferor and transferee |
| Section 188 - how shares are transferred | In writing, by a share transfer form executed by transferor and transferee or their agents. A company cannot refuse to register a duly executed transfer on account of form |
| Sections 188 and 190 - duty to register | Company must register as member a person who presents a proper instrument of transfer or on whom the right to shares has been transmitted by operation of law |
| Company refusing to register a transfer | Must inform transferor and transferee within a reasonable period and give written reasons justifying refusal; if it fails, company and each officer in default commit an offence |
| Private company articles and restrictions on transfer | Articles of a private company cannot restrict transferability of shares after issue unless all shareholders agree in writing |
| Section 189(3) - phrased as discretion | This unit says a company may refuse to register a transfer to a person under 18, an undischarged bankrupt or of unsound mind (earlier unit: board shall refuse) |
| Is "capital" defined in the Companies Act? | No. But the Act requires the application for incorporation of a company with share capital to state the amount of share capital and its division into shares of a fixed amount |
| Capital in the widest sense - James and John example | Skills, tools, materials, cash, goodwill and trade secrets contributed by two bricklayers forming a construction company |
| Two senses of "capital" | (a) Tangible and intangible assets forming the profit-making vehicle; (b) measure of each member's share of the assets, fixing profit entitlement and share on voluntary dissolution |
| Nominal value vs real value of shares | Nominal or par value stays the same; real value is what people will pay in the open market. Capital in currency terms often bears little relation to amounts contributed |
| James and John dividend example | Assets K200m; each gets 400,000 shares of K250. Profit of K100m allows a dividend of K125 per share, so K50m each (K125 x 400,000) |
| Authorised share capital | Amount stated in the application for incorporation; the maximum sum a company can raise by issuing shares. Articles state how it is made up (number and nominal value of shares) |
| Issued share capital | Aggregate nominal value of the shares actually issued; a company need not issue all the shares it may |
| Paid-up capital | Money paid to the company in respect of shares; may equal issued capital but could be nil in a private company |
| Call on shares | If a company has partly paid shares and wants more money it can make a call; shareholders are contractually bound to pay the amount specified |
| Called-up share capital | Aggregate of calls made (paid or not), plus capital paid up without being called and capital payable on a specified future date under articles, terms of allotment or other arrangements |
| Uncalled capital | Amount owing on unpaid or partly paid shares which members have not yet been called on to pay |
| Reserve capital | Uncalled capital that the company has resolved not to call unless the company is wound up |
| Shares issued at a premium | Shares issued at a value higher than stated on the certificate of share capital; the extra sum goes into the share premium account |
| Importance of issued share capital - public record | Issued capital is recorded in publicly available documents with the Registrar, with the company's legitimate objects, so people dealing with the company can rely on it |
| Trevor v Whitworth (1887) 12 App Cas 409 - Lord Herschell | Capital may fall through spending on the company's objects or trading losses, which creditors risk, but they may rely on it not being diminished by outside spending or by returning capital to shareholders |
| Trevor v Whitworth (1887) 12 App Cas 409 - Lord Watson | Restrictions on reducing capital protect outside creditors; they bar any transaction returning paid-in money to a shareholder unless the court sanctions it; creditors rely on capital paid and on members' liability for capital at call |
| Share capital and creditworthiness | Capital can be lost through poor decisions but is a measure of creditworthiness; unsecured creditors look to the capital fund and unsecured assets. Not a guarantee of payment; companies often have low issued capital and a wide asset base |
| Rule that share capital must be raised | Shares count as paid up only to the amount actually received in cash or in kind, so money or assets equal to paid-up capital on paper are received; this protects creditors |
| General rule on issue price of shares | Shares must be issued for full value: not at a discount and not as fully paid for less than the nominal amount. Shareholders pay in money or money's worth |
| Two elements of the price of shares | Par or nominal value plus any premium. E.g. K10m capital as 10m shares of K1 (par); a K1 share could be sold for K100 or more |
| Ooregum Gold Mining Co of India v Roper [1892] AC 125 - facts | Company wanted to issue shares of nominal value one pound credited as paid up to 75 pence, leaving shareholders liable for 25 pence |
| Ooregum Gold Mining Co of India v Roper [1892] AC 125 - holding | House of Lords rejected it: company had no such power; shareholders must pay full nominal value. Lord Halsbury LC: limited liability by amount unpaid on shares makes departing from this impossible |
| Share premium account - why separate? | Only par value is relevant to authorised capital in the articles; premium is entered under "share premium account" and treated as capital not returnable to members except by formal reduction of capital |
| Share premium account - statutory rule | Sum equal to the aggregate premiums is transferred to the account; provisions on reduction of share capital apply as if it were paid-up share capital |
| Permitted uses of the share premium account (1) | Paying up unissued shares to be issued to members as fully paid bonus shares; writing off the company's preliminary expenses |
| Permitted uses of the share premium account (2) | Writing off expenses, commission or discount on any issue of shares or debentures; providing for premium payable on redemption of redeemable preference shares or debentures |
| Pricing of shares when raising capital | Shares may be issued at market value (price set by the market), book value and/or breakdown value |
| Issued share capital and creditors | It is the fund creditors look to for payment, so it must be raised and not issued at a discount. A company need not demand full payment of the nominal amount on issue |
| Values at which shares can be issued | At par or nominal value; at a premium; at a discount |
| Issue of shares at par | Issued at the value in the constitutive documents; e.g. 2,000,000 shares of K1.00 are issued at par if issued for K1.00 each |
| Issue of shares at a premium | For consideration in cash or kind above nominal value; premiums go to the share premium account. This unit says those funds are distributable reserves (e.g. dividends) |
| Issue of shares at a discount | Consideration below nominal value. General rule: never allowed; shareholder must pay full nominal value in cash or otherwise |
| What is not an issue at a discount? | Issue at par after exercising an option to take at par even though a premium could have been charged, or at a lesser premium than might have been paid |
| Two types of alteration of share capital | Alterations that do not reduce share capital (s.140) and alterations that reduce share capital (s.150) |
| Section 140 - conditions | If the articles authorise, a company may by special resolution alter its share capital as stated in the certificate of share capital in the ways listed in s.140 |
| Section 140(a) | Increase share capital by new shares of an amount it thinks expedient. The only time a company can increase its share capital |
| Section 140(b) | Consolidate and divide all or any share capital into shares of a larger amount; increases par value while maintaining share capital |
| Section 140(c) | Convert all or any paid-up shares into stock, and re-convert that stock into paid-up shares of any denomination |
| Section 140(d) | Subdivide shares into shares of smaller amounts than stated in the certificate of share capital |
| Section 140(e) | Cancel shares not allotted to anyone at the date of the resolution and diminish share capital by the amount cancelled (not a reduction of capital) |
| Why are reductions of share capital strictly regulated? | Creditors and shareholders need capital maintained; first principle of English company law is that capital cannot generally be reduced without the court's approval |
| Poole v National Bank of China - reduction of capital | A diminution, reduction or extinguishment of capital that affects the fund available to creditors or the rights of different classes |
| Section 150 - reduction of share capital | Company may, if authorised by its articles, by special resolution and subject to Court confirmation, reduce share capital in any manner, but not below the prescribed minimum |
| Section 150 - particular powers | Extinguish or reduce liability on shares; cancel paid-up capital lost or unrepresented by assets; pay off paid-up capital in excess of company's wants; accept surrender of shares |
| Three requirements for reducing share capital | Articles must authorise it; a special resolution must be passed; the Court must confirm the reduction |
| Shares unit summary | Shares are a bundle of rights and personal intangible property; transferable as the Act or articles provide; only fully paid-up shares can be transferred; share capital can be altered |
| Corporate finance - why borrow? | Members' personal funds and share capital are usually limited, so companies seek bank loans; the articles should state how the company may raise finance |
| Raising funds - payment for shares | A company cannot make a gratuitous allotment; the allottee must pay in full at some stage. In a private company shares may theoretically be paid for in kind, e.g. services |
| Raising funds - increasing capital (s.140(1)(a)) | If authorised by articles, alter the capital clause by special resolution to create new shares; shares issued at a premium add the extra sum to share capital |
| Raising funds from the public | Public companies may invite external investors to buy shares. This equity capital is cheaper than borrowing and banks may not lend enough in the formative stages |
| Rights issue (corporate finance) | Company offers new shares to its existing shareholders in proportion to their existing shareholding |
| Placing (private placement) | Company identifies selected investors who agree to take the shares |
| Part X of the Companies Act | Contains stringent restrictions on public trading of shares; the company must prepare a prospectus complying with the Act, and the invitation must comply with s.32(2) of the Securities Act Chapter 354 |
| Prospectus - definition (s.32(2) Securities Act) | An invitation by a company to members of the public to subscribe for shares in the company |
| Section 33(a) Securities Act - content of prospectus | Must contain or be accompanied by all information investors and advisers would reasonably require to assess assets, liabilities, financial position, profits, losses, prospects and the rights attaching to the securities |
| Other prospectus requirements | Must also comply with the Companies Act (Part X) and directions of the Securities and Exchange Commission (SEC) |
| Invitation to the public - definition | Offer or invitation to offer for shares or debentures, other than one made to 15 or fewer persons, or to 50 or fewer persons who are existing shareholders, debenture holders or employees |
| Exclusion (b) of "invitation to the public" | Offer to 50 or fewer persons exclusively existing shareholders, debenture holders or employees on the basis the acceptor may not renounce or assign the benefit to anyone else |
| Prospectus conditions for an invitation to the public (a) | Within six months before the invitation the Registrar must have registered a compliant prospectus for the shares or debentures |
| Prospectus conditions for an invitation to the public (b) and (c) | Every invitee is given a true copy of the prospectus when first invited; every copy states on its face that the Registrar registered it and the date of registration |
| Advertisement of an invitation | Published in a newspaper or magazine advertisement summarising the prospectus; must state with reasonable prominence where full copies are available, that it is registered, and the registration date |
| Conditions for lodging a prospectus with the Registrar | No untrue or misleading statements; all information buyers and advisers would reasonably expect; deals with Fourth Schedule matters and reports, or invitation only to existing members or debenture holders |
| Statutory declaration in a registered prospectus | Registered copy must contain a statutory declaration by a director or secretary that it was prepared in accordance with the Act |
| Registrar's power over prospectuses | May decline to register a prospectus of shares or debentures (of a company or proposed company) if the lodged copy does not conform to the Act |
| Raising funds through borrowing - mortgages and charges | Covered by Part XI of the Companies Act |
| Section 86(3) - directors' borrowing powers | Directors may borrow money, charge company property, business or uncalled capital, and issue debentures or give security for a debt, liability or obligation of the company or another person; reflected in standard articles |
| How a company raises loans by debentures | By issuing a debenture or series of debentures, secured by a charge over company property or unsecured. A charge secures the borrowing (borrower) and lending (lender) |
| Why a lender requires security (1) | Insolvency: a secured lender can access the security ahead of unsecured lenders; and has a right to follow the security up to any proceeds arising from it |
| Why a lender requires security (2) | Enforcement: on default can e.g. appoint a receiver; oversight: can follow the borrower's business to ensure prudent practices that protect repayment |
| Debenture - definition | A document given by a company as evidence of, or to acknowledge, a debt to the holder. Secured by a fixed or floating charge |
| Types of debentures under the Act | Secured by a charge on property, or unsecured |
| Register of debenture holders | A company that has issued debentures must keep a register at its registered office; prospectus provisions for shares also apply to debentures |
| Is "charge" defined in the Companies Act? | No. The Act only says what constitutes a charge, which takes two forms: fixed or floating |
| Floating charge - definition | Security not put into immediate operation but "floats" so the company carries on business using the secured assets; it moves with the property until an event makes it settle and fasten on the subject of the charge |
| Floating charge - cases cited | Illingworth v Houldsworth [1904] AC 355; Amiran & Others v Agriflora (Z) Ltd (In receivership) 2004/HPC/0268 (unreported); Re Yorkshire Woolcombers Association Ltd [1903] 2 Ch 284 |
| Re Yorkshire Woolcombers Association Ltd [1903] 2 Ch 284 - characteristics | Floating if: (1) charge on a class of assets present and future; (2) class changes from time to time in the ordinary course of business; (3) company may carry on business as usual until a future step by the mortgagee |
| Lord Macnaghten in Illingworth v Houldsworth [1904] | Floating charge is ambulatory and shifting, hovering over and floating with the property until an event makes it settle on the subject within its reach. Discussed in AG v Zambia Sugar Co and Nakambala Estates Ltd [1977] at p.254 |
| Crystallisation of a floating charge | Remains dormant until the undertaking ceases to be a going concern or the chargee intervenes (e.g. receiver appointed, debtor defaults); it then crystallises into a fixed charge |
| Gower on crystallisation (Principles of Modern Company Law, 6th ed, p.367) | Crystallised charge bites on all assets covered, since a floating charge normally cannot crystallise over part only; it deprives the company of autonomy to deal with the assets in the normal course of business |
| Specific or fixed charge | Fastened on ascertained or definite property (or property capable of being ascertained); company cannot dispose of it without the chargeholder's consent. A debenture may contain both fixed and floating charges |
| Effect of a floating charge | Charges assets for the time being, so the company can in ordinary business sell, mortgage or otherwise deal with them as if there were no charge, until the security becomes fixed |
| Restrictions on a floating charge | Debenture usually provides that the company shall not create a mortgage or charge ranking in priority to, or pari passu with, the debenture charge |
| When does a floating charge become fixed? | Company ceases to do business; company is wound up; a receiver is appointed; an event occurs on which the charge is to become fixed and notice is given under the charge's terms |
| Effect once a floating charge crystallises | Company cannot deal with any charged property except subject to the charge. See Government Stock & Securities Investment Co v Manila Railway Co [1897] AC 81 |
| Mortgagee's ways of enforcing payment | Action for payment of money due; sale of mortgaged property on default; payment of borrowed money; writ of possession |
| When is a mortgagee's power of sale exercisable? | Only after the mortgagor is served with notice to pay; arises when mortgagor falls into arrears, fails to pay interest or breaches covenants in the mortgage deed |
| Corporate finance unit summary | Four ways: payment for shares, increasing share capital, borrowing, and from the public. No gratuitous allotment; capital increased by special resolution; assets charged as loan security; listed public company can invite the public |
| Two primary organs of a company | General meetings (members act collectively to make decisions) and the Board of Directors; a company, being artificial, acts only through human agencies |
| Section 86(1) - management by directors | Business of the company is managed by directors, who may pay all expenses of promoting and forming the company and exercise all powers not required by the Act or articles to be exercised by resolution |
| Third organ - professional management | Beyond general meetings and the board there is a professional managerial organ; the board acts intermittently so a management team carries out its functions |
| Company secretary - statutory basis (s.82) | Statutory office created by s.82; every company is expected to have a secretary |
| First secretary on incorporation | Persons named in the application for incorporation as first (or joint) secretary are deemed appointed on incorporation for a term of one year |
| Who may be company secretary? | Two or more persons may act jointly; a body corporate may be secretary. An individual must be resident in Zambia; a body corporate must be incorporated in Zambia |
| Section 83 | Sets out the duties of the company secretary |
| Primary role of a company secretary | Ensure the company operates in accordance with the statutory and constitutional regime: the Companies Act, the incorporation form and the articles |
| Other functions of a company secretary | Convene and attend meetings; take minutes; call annual general meetings; file annual returns; maintain registers; ensure the company seal is properly used |
| Secretary - before a board meeting | Dispatch notice to each director; advise invitees and departments producing statements; prepare and circulate agenda with financial statements and draft resolutions; arrange refreshments and transport |
| Secretary - at a board meeting | Record directors present; check quorum is present and maintained; note apologies; take notes of proceedings, instructions and decisions; advise chairman on procedure on request; get chairman's agenda copy to compare notes |
| Secretary - after a board meeting | Notify departments and senior executives of decisions affecting them; write necessary letters; prepare draft minutes |
| Secretary - before an AGM | Get a director's signature on the balance sheet and the chairman's on his statement; sign notice of meeting and directors' report on behalf of the board; prepare agenda, attendance sheets and register of members; send invitations |
| Secretary - at and after an AGM | At: check quorum, read the notice convening the meeting if the chairman asks. After: prepare minutes, send copies to directors, enter in the general minutes book and have signed at the next general meeting |
| Secretary's statutory obligations | Complete and sign annual returns; sign directors' report in annual accounts; complete and sign Companies forms; apply to the Companies Registry; make statutory declarations on behalf of the company |
| Section 86 - powers of directors | May borrow money, charge any property, business or uncalled capital, and issue debentures or give other security for a debt, liability or obligation of the company or another person |
| Director - definition (s.3) | A person appointed as a member of the board of directors, including an alternate director. Appointed to direct and administer the business of the company |
| Directors' legal relationship with the company | Agents of the company (law of agency applies) in a fiduciary relationship with it; duty owed to the company, not necessarily to members; not necessarily trustees but occupy a position of trust |
| Duties directors owe the company | Common law duties of care, good faith and loyalty; act in the best interests of the company rather than individual members. Fiduciary duties are in ss.106-114 |
| Fiduciary duties of directors - list | Loyalty; compliance; no secret profit; independence; avoiding conflict of interest; fairness between shareholders; reasonable care and skill |
| Director's duty of loyalty | Act in good faith in doing what they consider to be in the best interests of the company |
| Director's duty of compliance | Exercise collective powers in accordance with the incorporation form, articles and the law; e.g. declaring a dividend when the company has insufficient funds is a breach |
| Director's duty - no secret profit (ss.110, 111) | Must not use the company's name, property, information or opportunities to advance their own or anyone else's benefit unless the constitution allows |
| Director's duty of independence | Must not restrict their independent judgment; a person not eligible to be a director may not give directions or instructions to duly appointed directors |
| Director's duty on conflict of interest (s.107) | Must never allow personal interests or duties to conflict with those of the company |
| Director's duty of fairness | Act with fairness between shareholders, i.e. treat all shareholders equally |
| Director's duty of reasonable care and skill | What amounts to care and skill is a question of fact; members should choose persons competent to discharge directors' functions |
| Ethiopian Airlines Ltd v Sunbird Safaris Ltd and others SCZ Judgment No 26 of 2007 | SCZ: third respondent did not deny the company traded 1994-2000 with fewer than two members; liable under s.26(1) (as cited); fraudulently allowed trading and held personally liable for its debts |
| Appointment of directors (s.85) | Members can appoint directors by ordinary resolution |
| Persons deemed directors by default (holding out) | A person not duly appointed who holds himself out, or knowingly allows himself to be held out, as director is deemed a director for all duties and liabilities (even criminal) and commits an offence, fine up to 500 monetary units |
| Company holding out an unappointed person as director | It is an offence for the company to hold out as director a person not formally appointed |
| De facto director | A director not formally appointed (contrast de jure). A person on whose directions the duly appointed directors are accustomed to act is deemed a director for all duties and liabilities, including criminal penalties |
| Scope of a director's authority - limitations | A limitation on a director's authority (articles or otherwise) is not effective against a person without knowledge of it unless, given his relationship with the company, he ought to have known; actual knowledge binds the third party |
| Section 90 - number of directors | Every company, public or private, must have at least two directors; it is an offence to operate for more than two months with fewer than two |
| Section 92 - who cannot be a director | A body corporate; a person under 18 or under legal disability; a person disqualified by court order; an undischarged bankrupt. Articles may add further prohibitions |
| Section 91 - residence of directors | At least half the directors, including the managing director (if any) and at least one executive director (if any), must be resident in Zambia |
| Share qualification of directors | Unless the articles provide otherwise, a director need not be a member of the company or hold shares |
| Section 99 - vacation of office (1) | Director vacates office if he resigns by written notice, or is absent from directors' meetings for six months without the directors' consent |
| Section 99 - vacation of office (2) | Holds an office of profit under the company (other than managing director or principal executive officer) without consent by ordinary resolution; or is interested in a contract and fails to declare it |
| Other ways to vacate office as director | A company may provide further circumstances for vacating office in its articles, in addition to s.99 |
| Removal of a director | By ordinary resolution at a general meeting; if removed in breach of his employment contract he may claim damages for breach of contract |
| Categories of directors | The Act makes no distinction between types of directors but recognises that a company may have executive and non-executive directors |
| Executive directors | Full-time officers who manage the business daily and are co-opted onto the board. In an employment relationship with the company, so they enjoy employees' rights, duties and remedies |
| Non-executive directors | Have no employment or executive functions; typically part-time persons who bring an independent voice. A very important category in company management |
| Managing director (Regulation 15 of the Standard Articles) | Directors may appoint a managing director for such period and terms as they think fit and, subject to any agreement, revoke it. In practice appointed by the board and an ex officio board member |
| Alternate director (s.97) | Office of director is personal, but articles may permit an alternate to act in his stead when he cannot attend a meeting or committee. Needs other directors' approval; written, signed by both, lodged with the company |
| Section 86 - meaning of "the directors" | A reference to "the directors" is to the directors acting collectively |
| Section 86 - decisions and signatures of directors | A required decision is made by resolution of the directors; a requirement that a document be signed by the directors means a majority of directors sign it |
| Specific and residual powers of directors | Specific powers are set by the Act and articles. Residual powers are exercised by default where the Act or articles do not assign them to members; using members' powers is acting outside their powers |
| Section 86(4) | Directors may by power of attorney appoint any person as attorney of the company for such purposes, powers, authorities, discretions, periods and conditions as they think fit |
| Section 87 - limits on directors' powers | Without members' ordinary resolution directors may not: sell, lease or dispose of the whole or substantially the whole undertaking or assets; issue new or unissued shares; grant rights or options to acquire shares of any class |
| Directors' interests in contracts with the company | A director can contract with the company unless the articles forbid it or it offends the Act; he must declare the nature and extent of his interest |
| Prohibition on loans to directors | A public company or one related to it may not lend to a director of the company or a related body corporate, or guarantee or give security for a loan by another person to such a director; based on the director's fiduciary relationship |
| Payment of directors | Paid the remuneration the company determines from time to time by ordinary resolution |
| Compensation for loss of office | No payment to a director or former director (of the company or related body corporate) for loss of office or retirement unless particulars, including amount, are disclosed to members and approved by ordinary resolution |
| Registers relating to directors | Register of directors and secretaries; register of each director's and secretary's shares and debentures in the company or related body corporate (incl. rights to acquire); such holdings are notified to the Registrar |
| Boxtel v Kearney 1987 ZR 63 (SC) - facts | Kearney (a minor, through her father) paid K110,000 for 60% of Falcon Air Ltd shares (Boxtel 40%). High Court declared she was a shareholder; appellant argued court could not bind the company and no proper board resolution |
| Boxtel v Kearney 1987 ZR 63 (SC) - held (a) | Court has jurisdiction, in litigation between a shareholder and an alleged shareholder (company not a party), to order rectification under s.60 of the Companies Act binding on the company |
| Boxtel v Kearney 1987 ZR 63 (SC) - held (b) | Shareholders have overriding authority over company affairs; if all shareholders present unanimously pass an intra vires decision, it is valid as a members' decision even if the directors' meeting was defective (Re Express Engineering Works followed) |
| Bank of Zambia v Chibote Meat Corporation SCZ Judgment No. 11 of 2003 | Shareholders have overriding authority over company affairs; unrealistic that a principal unduly influences his nominee (who is the one in a position of trust); internal procedure is not third parties' concern |
| ZCCM v Kangwa & Others (2000) ZR 109 | Appeal from IRC about refusing to extend house sales to "sitting tenants" employed by wholly owned subsidiaries. Held: shareholders as beneficial owners have overriding authority even over nominees or directors |
| John Kasengele & Others v ZANACO (2000) ZR 72 - facts | Retired ZANACO employees (ZIMCO subsidiary; Minister of Finance sole shareholder) claimed terminal benefits under shareholder's directive of 28 March 1995 merging allowances with salaries; were paid under ZIMCO conditions |
| John Kasengele & Others v ZANACO (2000) ZR 72 - held | Shareholders have overriding authority over company affairs, even over the wishes of the board and managers; inability to pay is not a defence nor a bar to judgment |
| Shaw & Sons Ltd v Shaw [1935] 2 KB 113 | Resolution of general meeting disapproving the directors' commencing an action was a nullity. Greer LJ: company is distinct from shareholders and directors; where powers are vested in directors by the articles, they alone can exercise them |
| Shaw & Sons Ltd v Shaw - modern doctrine (Greer LJ) | Shareholders cannot usurp powers vested in directors, nor directors those vested in shareholders. Shareholders may alter the articles or refuse by ordinary resolution to re-elect directors whose actions they disapprove |
| Corporate governance unit summary | Affairs managed through human agents, mainly directors, who are officers in a principal-agent relationship with fiduciary duties; the company secretary is also an officer, ensuring the company acts lawfully and constitutionally |
| General meetings - timing and effect | Can be called any time, any number of times (unless statute fixes it, e.g. AGM within 3 months of year end). Resolution passing is the essence; decisions of shareholders present are legally binding |
| What is a resolution? | A resolution formalises a decision taken by shareholders at a general meeting |
| Part VI of the Companies Act | Deals with meetings. Directors manage day to day, but many decisions need a shareholders' resolution and cannot be decided by directors alone |
| Two collective governing bodies of a company | The board of directors and the shareholders acting in general meeting; general meetings are a medium for shareholders to participate in management and governance |
| Where are meeting rules found? | Now in the main body of the Companies Act, not only in individual articles; some provisions apply by default, others are mandatory and cannot be departed from |
| Section 56 - categories of general meetings | Annual general meeting; extraordinary general meeting; class meeting |
| Section 57 - annual general meeting | Ordinary meeting every company must hold within three months after its financial year; if not, any shareholder may apply to the Registrar to cause it to be convened. Failure is an offence |
| Section 138(4) - private company and AGMs | Entitles a private company to dispense with holding an AGM in any financial year other than the (first) financial year |
| Section 63 - notice of an AGM | 21 days' written notice; articles may give longer notice but not exceeding 30 days; shorter notice suffices if all shareholders agree or consent |
| Failure to serve notice of a meeting | A member not served with notice can apply to invalidate the resolutions passed at the meeting |
| Section 62 - who is entitled to receive notice of a meeting | Registered member with a vote; person to whom a share devolves as legal personal representative, receiver or trustee in bankruptcy (company notified); a director; an auditor; a person entitled under the articles |
| Accidental omission of notice of a meeting | Proceedings are not invalid by reason only of accidental omission to give notice or non-receipt of notice duly sent; "by reason only" suggests something more is needed to invalidate |
| Section 66 | Identifies the persons entitled to attend and speak at an AGM |
| Section 65 - place of meetings | A company meeting must be held in Zambia unless the articles provide otherwise or all members entitled to vote agree in writing to a meeting outside Zambia |
| Who votes at an AGM? Form of deliberations | Only members may vote. Deliberations at an AGM or EGM are in plenary session so all members take part, as the outcome affects them all |
| Quorum - Regulations 10 and 11 of the Standard Articles | No business can be transacted without quorum. Quorum is two members holding not less than one-third of the total voting rights for the meeting |
| Articles and attending meetings | A company may provide that a member cannot attend a meeting unless all sums presently payable by him on his shares have been paid |
| Right to demand a poll (ss.69 and 70) | A poll is voting where each member votes for or against a motion according to the number of shares he holds. Sections 69 and 70 set out when a poll can be decided at an AGM |
| Proxy (s.71) | A member entitled to attend and vote may appoint another person to attend and vote in his place. The notes state a shareholder of such a company is excluded from being appointed as a proxy |
| Extraordinary general meeting (EGM) - nature | Not scheduled or planned like an AGM; for specific business that cannot wait until the AGM. Defined as a general meeting of a company which is not an AGM |
| Section 139(1) - convening an EGM | Convened by the directors whenever they think fit or, if the articles so provide, by any other person in accordance with the Act |
| Length of notice for an EGM | 21 days where a special resolution is to be proposed; otherwise a shorter notice of 14 days may be adopted |
| Section 58 - business of an AGM (ordinary business) | Directors lay annual reports for the latest period; consider accounts and directors' and auditors' reports; elect directors replacing retiring ones; fix directors' remuneration; appoint auditors and fix their remuneration |
| Other points on AGM business | Shareholders may have their own resolutions placed on the agenda. AGMs are traditionally for ordinary business but may transact special business if requisite notice is given |
| Section 59 - business of an EGM | Special business, usually by special resolution; urgent business that cannot wait for the next AGM, e.g. amending articles, conversion of companies, name change, alteration of capital, winding up |
| Section 60 - class meetings | Meetings restricted to members of a particular class. Unless the articles provide otherwise, convened by the directors whenever they think fit, or by two or more members of that class |
| Section 60 - members convening a class meeting | Two or more members of that class holding, when notice is sent out, not less than one-twentieth of the total voting rights of members entitled to vote at meetings of that class |
| Three types of resolutions (s.3) | Ordinary resolution, extraordinary resolution and special resolution |
| Ordinary resolution | Passed by a simple majority (50% + 1) of votes cast by members entitled to vote, in person or by proxy, at a duly convened and held meeting |
| Extraordinary resolution | Passed by a majority of not less than three-fourths of votes cast by members entitled to vote, in person or by proxy, at a duly convened and held meeting |
| Special resolution | Three-fourths majority of votes cast at a meeting duly convened as one where the resolution is moved as a special resolution. Differs from an extraordinary resolution only in that notice must state the proposed motion |
| Resolution described in writing as special | If described in writing as a special resolution for the purposes of the Act, it is deemed to be a special resolution |
| Section 77 - resolution by circulation | Members of a private company may pass a written resolution without a meeting, as valid as one passed at a duly convened meeting. Signed by each member entitled to vote (or authorised representative); effective when the last member signs |
| Registration of special resolutions | Certified copy of every special resolution of a company or class of members must be lodged with the Registrar within 21 days of its making. Only special resolutions must be registered |
| General meetings and resolutions unit summary | 3 meetings (AGM, EGM, class meeting); 3 resolutions (ordinary, extraordinary, special); private companies can pass written resolutions by circulation; only special resolutions must be registered |
| Winding up (liquidation) - definition | Process by which a company's assets are collected and realised, liabilities discharged and any net surplus distributed to members in accordance with the articles |
| Dissolution | The process, following winding up, by which the company's existence is finally terminated |
| Section 9 Corporate Insolvency Act - types of winding up | Compulsory winding up, and voluntary winding up by members or creditors of a company |
| Compulsory winding up - definition | Any liquidation commenced by an order of the court following a petition by a concerned party |
| Section 56(1) Corporate Insolvency Act - who may petition | The company by special resolution; any creditor (incl. contingent or prospective); a member; personal representative of a deceased member; trustee in bankruptcy of a bankrupt member; voluntary liquidator; Registrar of Companies or Official Receiver |
| Section 57(1) CIA - inability to pay debts | Court may order winding up where the company is unable to pay its debts |
| Section 57(3)(a) CIA - inability to pay debts (creditor demand) | Prescribed sum due to a creditor who more than 30 days earlier served a written demand and the company failed to pay, secure or compound it to the creditor's reasonable satisfaction (minimum sum not yet prescribed by the Minister) |
| Section 57(3)(b) and (c) CIA | Execution or other process on a court judgement, decree or order for a creditor returned unsatisfied in whole or part; or the company is unable to pay its debts as they fall due |
| Assessing ability to pay debts | Due regard is given to the company's contingent and prospective liabilities |
| Section 57(1) CIA - other grounds (a) to (c) | Company resolved by special resolution to be wound up by Court; duration period in articles expires or event occurs on which articles say company is dissolved; number of members reduced below two |
| Section 57(1) CIA - other grounds (d) to (f) | Company formed for an unlawful purpose; incorporation obtained fraudulently; in the Court's opinion it is just and equitable to wind up |
| Court winding up - petition | Petition with supporting affidavit filed at the Principal Registry of the High Court; Court sets hearing date at which interested persons who filed documents for or against may be heard |
| Advertising a winding up petition | Advertised in prescribed form for seven days, once in the Government Gazette and once in a national newspaper of general circulation in the area |
| Filings to prove the petition was advertised | Petitioner files a statement in prescribed form satisfying the High Court Registrar that it was duly advertised, an affidavit verifying it, and an affidavit of service |
| Provisional liquidator in a compulsory winding up | Petitioner applies, supported by affidavit stating sufficient grounds; the order describes the property the provisional liquidator must take possession of and his duties |
| Appointment of liquidator after a winding up order | Court appoints a liquidator or gives directions for appointment by the members or creditors of the company |
| Compulsory winding up - lodging the order | Within 15 days of the winding up order the petitioner lodges a copy with the Registrar at PACRA, who strikes the company off the register and notifies the Gazette; company dissolved as at date of Gazette notice |
| Section 88(1) CIA - members' voluntary winding up | Shareholders may voluntarily wind up the company by passing a special resolution that it be wound up |
| Section 88(2) CIA | An ordinary resolution suffices to start winding up where the duration fixed by the articles has expired or an event occurs on which the articles say the company is to be dissolved |
| Section 89 CIA | Winding up commences upon the passing of the resolution for winding up |
| Lodging a voluntary winding up resolution | Company lodges a copy with the Registrar within 7 days; Registrar causes a notice to be published in the Government Gazette within 7 days after lodgment |
| Members' voluntary winding up - when possible | Only when the company is solvent; managed entirely by the members, who appoint a liquidator |
| Section 91 CIA - declaration of solvency | Company may effect a members' voluntary winding up only if it makes a declaration of solvency at least thirty days before passing the winding up resolution |
| Declaration of solvency - contents | Made at a directors' meeting confirming a full inquiry into affairs and their view the company can settle all debts and liabilities in full; attached to a statement of affairs showing assets, liabilities and estimated winding up costs |
| Section 91(3) CIA | Declaration of solvency has no force unless made at a directors' meeting; must be filed with the Registrar before or on the date notice of the shareholders' meeting is sent |
| Section 92(1) CIA | Members must pass a special resolution appointing a liquidator |
| Section 92(2) CIA - effect on directors | Once a liquidator is appointed all directors' powers cease, except as far as the liquidator or the company (by ordinary resolution) approves their continuance |
| Section 92(3) CIA - lodging the resolution | Within 14 days of appointing the liquidator, company lodges a certified copy of the resolution (called an ordinary resolution in the notes) with the Registrar, with the prescribed fee |
| Section 92(3) CIA - notice of appointment | Registrar causes a notice of the liquidator's appointment to be published in a daily newspaper of general circulation in Zambia |
| Section 105 CIA - liquidator's final steps (members' voluntary) (1) | Draw up an account of the winding up showing how conducted and property disposed of; call a general meeting by notice in one Gazette issue and one newspaper at least one month before, stating time, place and object |
| Section 105 CIA - liquidator's final steps (members' voluntary) (2) | Lay the account before the meeting and give explanations; send the Registrar and any Official Receiver a copy of the account and a return of the meetings within 21 days after the meeting (or later meeting) |
| Quorum at final meeting (members' voluntary winding up) | Two members. If less than quorum, the liquidator's return states the meeting was called but no quorum was present; this is deemed compliance with the Corporate Insolvency Act |
| Dissolution after members' voluntary winding up | On lodgment of the return the Registrar strikes the company off the register and publishes a Gazette notice; company dissolved as at the date of publication in the Gazette |
| Creditors' voluntary winding up - when and how | Occurs where the company is insolvent. Company must convene a creditors' meeting where the resolution is put and passed by the creditors (s.95(1) CIA) |
| Section 95(4) CIA - notice of creditors' meeting | Sent by post to each creditor at least 7 days before the meeting and advertised in the Gazette and a newspaper circulating generally in Zambia at least 21 days before; accompanied by statement of creditors' names and claims |
| Creditors' meeting - (i) and (ii) | Director appointed by company and the secretary disclose the company's affairs and circumstances leading to proposed winding up; creditors may appoint one of their members or that director to preside |
| Creditors' meeting - (iii) to (v) | Directors lay a full statement of affairs (asset valuation method, assets, debts, liabilities, creditors, securities held and dates given, other prescribed info); liquidator may be nominated, and committee of inspection appointed, by ordinary resolution |
| Nominating a liquidator in a creditors' voluntary winding up | Creditors and directors may both nominate; if different persons, creditors' choice prevails; if creditors nominate none, company's nominee is liquidator. A director or creditor may apply to court within 7 days to enforce the directors' nomination |
| After appointment of liquidator (creditors' voluntary) | Directors' powers cease unless committee of inspection (or creditors, if none) sanctions otherwise. Creditors may fill a vacancy unless the liquidator was court-appointed, and appoint committee of inspection members at first or later meeting |
| Section 105 CIA - final steps (creditors' voluntary) (1) | Make up an account of the winding up; call a company meeting and a creditors' meeting by notice in one Gazette issue and one newspaper at least one month before; company meeting after, but within one month of, creditors' meeting |
| Section 105 CIA - final steps (creditors' voluntary) (2) | Lay the account before both meetings and give explanations; send the Registrar and any Official Receiver a copy of the account and a return of the meetings within one week after the meetings |
| Quorum at final meetings (creditors' voluntary winding up) | Two members at the company meeting and two creditors at the creditors' meeting. If no quorum, the return states so, deemed compliance with the Act |
| Dissolution after creditors' voluntary winding up | On lodgment of the return the Registrar strikes the company off the register and publishes a Gazette notice; dissolved as at the date of publication |
| Submitting claims to the liquidator - s.127 CIA | Creditors may prove claims at any time after winding up begins. Company assets come under the liquidator's control; he sells them and pays creditors in a particular order of preference |
| Section 72 CIA - statement of affairs (compulsory winding up) | Company prepares for the liquidator, as at date of the order: assets, debts and liabilities; creditors' names and addresses; securities held and dates given; any further information prescribed or required |
| Timing and verification of the s.72 statement of affairs | Submitted within three months of the liquidator's appointment; verified by statutory declaration of at least one director and the secretary, as at the date of the winding up order |
| Creditors' voluntary winding up - list of creditors | Company produces a list of creditors and estimated claim amounts, submitted to each creditor and the liquidator |
| Section 106 CIA - arrangements with creditors | Arrangement between a company being or about to be wound up voluntarily and its creditors binds both if approved by respective resolutions. Creditor or member may appeal to the High Court within 21 days of completion; court may amend, vary or confirm |
| Directors' liability on winding up (1) | Failing to fully reveal to the liquidator all property and how it was disposed of; failing to deliver up property, books and documents in his control; material omission in a statement of the company's affairs |
| Directors' liability on winding up (2) | Failing for one month to tell the liquidator of a debt he knows or believes false; preventing production of any book or paper relating to the company's property or affairs |
| Directors' liability on winding up (3) | Accounting for company property by fictitious losses or expenses; false representation or other fraud to get creditors' consent to an agreement on the company's affairs or to the winding up |
| De-registration of a company - s.318(1), (2) CIA | Alternative to winding up: shareholders, by special resolution, request the Registrar to strike the company off the Register |
| De-registration - documents to lodge (s.318 CIA) | Copy of the resolution; summary of accounts; statutory declaration of two or more directors showing what disposition was made of the assets and that the company has no debts or liabilities |
| Section 318(4) CIA - First Notice | Registrar publishes in the Gazette a notice that unless cause is shown, the company will be dissolved at the expiry of three months from the notice |
| De-registration - Second Notice | After three months, unless cause is shown, Registrar strikes the company off the Register and publishes a notice in the Gazette |
| Effect of de-registration | Company stands dissolved on the Second Notice, but liability of every officer and member continues and may be enforced as if not dissolved. Registrar's fees and notice costs are payable by and recoverable from the company |
| Closing a bank account after winding up or de-registration | Per the bank's guidelines and account type; bank checks outstanding liabilities, timing restrictions on access or transfer, unpaid facilities. Company passes special resolution sanctioning closure by a date or after winding up concludes |
| Tax de-registration after winding up or de-registration | Notify the Commissioner General of ZRA and request de-registration of TPIN, VAT, PAYE, withholding tax and income tax registrations; may apply via ZRA's online system |
| ZRA requirements for tax de-registration | Submit proof of dissolution or de-registration (Gazette notice). ZRA confirms no outstanding tax liabilities and returns are up to date; Commissioner General may first request a tax audit |
| Winding up unit summary (1) | Company may be wound up voluntarily or compulsorily. Compulsory is court-managed after a petition by an interested party; voluntary does not involve the courts and may be initiated by members or creditors |
| Winding up unit summary (2) | A solvent company may be wound up by members' voluntary winding up, needing a directors' declaration of solvency that all debts will be paid within the stated period from the winding up resolution |
| Winding up unit summary (3) | Liquidator assumes the directors' powers unless the company by ordinary resolution, with liquidator's approval, lets directors continue some duties |
| Winding up unit summary (4) | When fully wound up, liquidator convenes a meeting, accounts for the liquidation and files a return; Registrar strikes the company off the Register and publishes a dissolution notice in the Gazette |
| Winding up unit summary (5) - de-registration | Alternative for a company with no debts or liabilities: shareholders by special resolution ask the Registrar to strike it off. Officers' and members' liability continues as if not dissolved |
| De-registration vs winding up | De-registration may be quicker and cheaper if all information and support are given to the Registrar, but directors' resulting liability continues and is enforceable after dissolution |
| Companies Act No. 10 of 2017 - what is it? | Zambia's current Companies Act, covering incorporation, company types, articles, shares, directors, meetings and conversion. Repeats the 1994 Act's removal of the memorandum |
| Old Companies Act Cap 388 - points cited | Ss.190 and 191 required a registered office and a registered records office (now one office). Dropped the memorandum to abolish ultra vires and simplify incorporation |
| Companies Act 1994 | Dispensed with the Memorandum of Association; the application for incorporation replaced it (position retained in the 2017 Act) |
| Corporate Insolvency Act No. 9 of 2017 - sections cited | Governs winding up: ss.9, 56, 57, 72, 84, 88, 89, 91, 92, 95, 105, 106, 127 and 318 (de-registration) |
| Securities Act Chapter 354 - sections cited | S.32(2): invitation to the public to subscribe for shares (prospectus). S.33(a): information a prospectus must contain |
| Bank of Zambia Act Cap 360 | Statute setting up the Bank of Zambia, an example of a statutory corporation (not formed under the Companies Act) |
| Income Tax Act, Eighth Schedule | Sets requirements for an employee share option plan to qualify as an approved share option scheme |
| UK Companies Act 2006 - provisions cited | S.31(1) unrestricted objects unless articles restrict; s.39(1) validity of act not questioned for lack of capacity; s.17 directors' duty (as cited); s.51(1) pre-incorporation contracts |
| European Communities Act 1972, s.9(2) | Considered by Lord Denning in Phonogram Ltd v Lane on personal liability for pre-incorporation contracts |
| Cinematograph Films Acts 1938-48 | Re FG (Films) Ltd: company that was merely agent of its American parent could not claim their benefits for a "British" film |
| Companies Act of 1862 | Ooregum v Roper: condition of limited liability that the memorandum states capital divided into shares of a fixed amount |
| Which section requires an application for incorporation by two or more persons? | Section 12(1) |
| Section for name clearance; refusal grounds; reservation | Name clearance s.39; grounds to refuse a name s.40; reservation for 90 days s.41 |
| Section for company name endings; guarantee company dropping "Limited" | Name endings s.36 (limited, plc); guarantee company dispensing with "Limited" s.37 |
| Section for changing a name | Company applies to change name s.42; Registrar compels a change s.43 |
| Sections on registering a company and issuing the certificate | Register within five days and certificate s.14; rejection s.19 (reasons within 14 days); existence from date on certificate s.15(1)(b) |
| Section making the certificate of incorporation conclusive | Section 15 |
| Section giving a company separate status and perpetual existence | Section 16 (see also s.22(a) for perpetual succession) |
| Section making incorporation a contract between company and members | Section 17 (also s.26(1) for the articles) |
| Section barring minors, bankrupts and persons of unsound mind from subscribing; and saving provision | Bar: s.12(8). Saving provision: incorporation not invalid by reason only of the contravention, s.14(2) |
| Sections on types of companies | S.6 public and private; s.7 public company limited by shares; s.9 private limited by shares; s.10 guarantee; s.11 unlimited |
| Section on private companies and the 50-member limit | Section 8; s.8(2) allows a private unlimited company to have more than 50 members if the articles allow |
| Section on pre-incorporation contracts | Section 20 (15 months to adopt by ordinary resolution) |
| Sections on corporate capacity and ultra vires | S.22(a)-(c) capacity; s.23 acts not invalid for contravening articles; s.23(3) actual knowledge; s.24 no constructive notice; s.25(2), (3) restrictions in articles |
| Sections on articles of association | S.25 requirements; s.26 contract effect; s.27 amendment by special resolution (lodge within 21 days); s.104 directors must comply |
| Sections on registered office and common seal | Registered office ss.28 and 30; common seal s.32 |
| Sections on conversion of companies | Ss.48 to 53 set requirements for each conversion; s.54 process and effect (replacement certificate, identity unchanged) |
| Sections on the company secretary | Section 82 creates the office; section 83 sets out the secretary's duties |
| Sections on directors (1) | S.85 appointment by ordinary resolution; s.86 powers; s.87 limits needing members' resolution; s.90 minimum two directors; s.91 residence; s.92 eligibility |
| Sections on directors (2) | S.97 alternate directors; s.99 vacation of office; ss.106 to 114 fiduciary duties; s.107 conflict of interest; ss.110 and 111 secret profit |
| Sections on members' remedies against ultra vires acts of directors | Injunction s.330(1); damages s.335; criminal proceedings s.104; ratification s.339 |
| Sections on transfer and transmission of shares | S.187 and s.188 transfer; s.189 restrictions; s.190 transmission on death or bankruptcy |
| Sections on altering share capital | S.140 alterations without reduction; s.150 reduction (court confirmation); s.148 forfeiture or surrender of shares |
| Sections on prospectuses and public issues | Part X; s.217 liability for prospectus misstatements; ss.210 and 224 public issue obligations; s.220 waiting period |
| Sections on general meetings | S.56 categories; s.57 AGM; s.58 AGM business; s.59 EGM business; s.60 class meetings; s.138(4) private company AGM; s.139(1) convening EGM |
| Sections on meeting procedure | S.62 notice recipients; s.63 length of notice; s.65 place; s.66 attendees; ss.69-70 poll; s.71 proxy; s.77 written resolutions |
| Sections on filing and language of documents | Registrar's discretion to accept or reject documents s.349(4); documents in English s.351 |
| Zambian cases - company law (1) | ZCCM and Ndola Lime v Sikanyka; Newton Silulanda v Foodcorp Products; JP Karnezos v Hermis Safaris; Fresh Mint v Kawambwa Tea; Zambia Bata Shoe v Vin-Mas; Bank of Zambia v Chibote Meat |
| Zambian cases - company law (2) | National Airports Corporation v Zimba and Konie; Boxtel v Kearney 1987 ZR 63; ZCCM v Kangwa (2000) ZR 109; Kasengele v ZANACO (2000) ZR 72; Ethiopian Airlines v Sunbird Safaris SCZ 26/2007 |
| Zambian cases - charges | Amiran & Others v Agriflora (Z) Ltd (In receivership) 2004/HPC/0268; AG v Zambia Sugar Co and Nakambala Estates Ltd [1977] (discussing Illingworth v Houldsworth) |
| Cases on separate personality | Salomon v Salomon [1897] AC 22; Macaura v Northern Assurance [1925] AC 619; Lee v Lee's Air Farming [1961] AC 12; ZCCM v Sikanyka; Newton Silulanda v Foodcorp |
| Cases on lifting the veil (1) | Gilford Motor v Horne [1933] Ch 935; Jones v Lipman [1962] 1 WLR 832; Adams v Cape Industries (1990) Ch 433; Creasey v Breachwood Motors [1993] BCLC 480 |
| Cases on lifting the veil (2) | Gramophone and Typewriter v Stanley; Smith, Stone and Knight v Birmingham Corp; Re FG (Films); DHN Food Distributors v Tower Hamlets; Woolfson v Strathclyde; Daimler v Continental Tyre |
| Cases on lifting the veil (3) - justice and equity | In Re a Company; Creasey v Breachwood Motors; contra Adams v Cape Industries, Ord v Belhaven Pubs [1998] BCC 607, Yukong Lines v Rendsburg Investment (No 2) [1998] 1 WLR 294 |
| Cases on corporate criminal liability | Richmond on Thames BC v Pinn & Wheeler [1989] Crim LR 510; Tesco Supermarkets v Nattrass [1972] AC 153; R v Kite and OLL Ltd [1996] 2 Cr App R 295 |
| Cases on certificate of incorporation | Bowman v Secular Society Ltd; R v Registrar of Companies ex parte Attorney-General; R v Registrar of Companies ex parte Moore |
| Cases on promoters (1) | Whaley Bridge Calico Printing v Green (1879) 5 QBD 109; Twycross v Grant (1877); Re Great Wheal Polgooth (1883); Bagnall v Carlton (1877) 6 Ch D 371; New Sombrero Phosphate v Erlanger (1877) 5 Ch D 73 |
| Cases on promoters (2) | Lagunas Nitrate v Lagunas Syndicate [1899] 2 Ch 392; Emma Silver Mining v Grant (1879); Gluckstein v Barnes [1900] AC 240; Hedley Byrne v Heller [1964]; Re Cape Breton (1885) 29 Ch D 795; Re Clinton's Claim [1908] |
| Cases on rescission against promoters | Re Leeds and Hanley Theatres of Varieties [1902] 2 Ch 809; Clough v London and North Western Rly (1871) LR 7 Ex 26 |
| Cases on pre-incorporation contracts | Kelner v Baxter; Newborne v Sensolid (Great Britain) Ltd; Black v Smallwood (Windeyer J); Phonogram Ltd v Lane (Lord Denning) |
| Cases on ultra vires and constructive notice | Ashbury Railway Carriage v Riche; JP Karnezos v Hermis Safaris; Fresh Mint v Kawambwa Tea; Re Duomatic (ratification); Turquand's case (indoor management) |
| Cases on articles of association | Hickman v Kent or Romney Marsh Sheep Breeders' Association [1915] 1 Ch 881; Beattie v E & F Beattie [1938] Ch 708; Eley v Positive Government Security Life (1876) 1 Ex D 88; Rayfield v Hands; Wood v Odessa Waterworks; Pender v Lushington |
| Cases on shares and share capital | Boarland's Trustee v Steel Bros [1901] 1 Ch 279; Trevor v Whitworth (1887) 12 App Cas 409; Ooregum Gold Mining v Roper [1892] AC 125; Poole v National Bank of China; Westminster Bank v IRC |
| Cases on floating charges | Illingworth v Houldsworth [1904] AC 355; Re Yorkshire Woolcombers Association [1903] 2 Ch 284; Government Stock & Securities Investment Co v Manila Railway [1897] AC 81 |
| Cases on shareholders' authority over directors | Boxtel v Kearney; Re Express Engineering Works; Bank of Zambia v Chibote Meat; ZCCM v Kangwa; Kasengele v ZANACO; Shaw & Sons Ltd v Shaw [1935] 2 KB 113 |
Created by:
Eddard