Company Law Exam with Answers

QUESTION 1 a. Define a promoter of a company. Explain and illustrate with decided cases his legal position in relation to a company. Though the certificate of incorporation is conclusive for purposes of incorporation, using decided cases, outline circumstances under which it could be withdrawn.(10marks) ANSWER Definition; A promoter is one who undertakes to form a company with reference to a given project and to set it going and who takes the necessary step to accomplish that purpose - A promoter is not an agent of the company he promotes, as it does not exist yet. At common law, he cannot be an agent of a non-existent principle. - A promoter is not a trustee of the company in formation as it does not exist yet. - The English courts have held that he stands in a fiduciary relationship to the company he promotes. Erlanger v New Sombrero Phosphate Co. Ltd. Lord Cairns stated, “they stand in my opinion in a fiduciary position they have in their hands the molding and creation of a company” - Exceptions to the rule in Salomon v Salomon constitute what is called “lifting of the veil” of incorporation. The decision in Salomon v Salomon established that when a registered company is incorporated it becomes a legal person distinct and separate from its members and managers. As a general rule the law does not go behind the veil to the individual members. However, in exceptional circumstances the law ignores the separate legal personality of the company in favor of the realities behind its face. a. Reduction of number of members b. Non-publication/Mis-description of a company’s name – in Penrose v Martyr c. Group accounts d. Investigating e. Investigating of company’s affairs f. Investigation of company’s membership g. Take over bids h. Fraudulent trading

b. Discuss the doctrine of ultra vires with regard to the objects of a company and state the effect of an ultra vires transaction. (5mks) - The doctrine of ultra vires is a legal rule that was articulated by the house of