Podcast
Questions and Answers
What is a company primarily defined as?
What is a company primarily defined as?
- An economic entity that does not share profits.
- A legal body that operates without any members.
- An association of persons sharing profits and losses. (correct)
- A group of individuals working independently.
Which statement accurately describes the legal nature of a company?
Which statement accurately describes the legal nature of a company?
- A company exists only in the eyes of the law as an artificial person. (correct)
- A company acts solely through its shareholders and cannot appoint directors.
- A company is a natural person capable of independent action.
- A company cannot own property or enter contracts.
What is a key requirement for forming a public company?
What is a key requirement for forming a public company?
- At least seven persons must subscribe to the Memorandum of association. (correct)
- No minimum number of persons is needed.
- At least ten persons are required if it is a banking company.
- At least five persons must register.
What happens if an association of more than twenty persons carries on business without registration?
What happens if an association of more than twenty persons carries on business without registration?
What is one characteristic of a company regarding liability?
What is one characteristic of a company regarding liability?
What legal status does a company have in relation to its members?
What legal status does a company have in relation to its members?
What happens to a company's existence when its shareholders or directors retire or pass away?
What happens to a company's existence when its shareholders or directors retire or pass away?
How is the legal personality of a company recognized under the Income Tax Act?
How is the legal personality of a company recognized under the Income Tax Act?
Which of the following statements about a company's common seal is correct?
Which of the following statements about a company's common seal is correct?
In what way do creditors have the right to recover debts owed by a company?
In what way do creditors have the right to recover debts owed by a company?
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Study Notes
Definition and Meaning of Company
- A company is a group of individuals united for a common social or economic goal.
- Members contribute resources to a common fund, engaging in business activities and sharing profits and losses.
- Chief Justice Marshall described a company as an artificial, invisible legal entity that exists only through law.
Characteristics of a Company
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Incorporated Association:
- Created upon registration under the Companies Act; gains legal status from the date on a certificate of incorporation.
- Minimum members required: seven for a public company, two for a private company.
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Artificial Legal Person:
- Acts through a board of directors and is treated as a legal person, able to own property, enter contracts, and sue or be sued.
- Does not have fundamental rights like a natural person but can engage in legal contracts.
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Separate Legal Entity:
- Legally distinct from its members; creditors can only claim from the company’s assets, not from individual members.
- Company’s assets are separate from those of its shareholders, ensuring liability protection for members.
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Perpetual Existence:
- Continuity of existence independent of shareholder or director changes; can be dissolved only by law.
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Common Seal:
- Acts as a signature substitute for a company, used in legal documents to bind the company’s approval.
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Limited Liability:
- Members’ financial responsibility is restricted to their unpaid share amounts in a limited by shares company.
- In a company limited by guarantee, members contribute a predetermined amount towards assets upon winding up.
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Transferable Shares:
- Shares in public companies can be freely transferred; statutory rights protect these transfer rights.
- Articles of association may set procedures and reasonable restrictions but cannot impose absolute limitations.
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Delegated Management:
- Management is delegated to elected directors who oversee daily operations, enabling democratic governance through majority shareholder votes.
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