INTRODUCTION TO COMPANY LAW – STUDY NOTES, MAY
2021
Nature and classification of companies
Definition of a company
A company can be defined as an association of people who contribute resources into a business
and in return acquire shares or ownership of the business and they share out the profit that is
generated by the business.
A company is considered to be a legal person and therefore the persons who have created it are
always considered to be separate from that company.
BASIC CHARACTERISTICS OF COMPANIES
Legal personality
A registered company is considered to be a legal person that is separate from the person who
formed it.
The concept of legal personality was explained in the case of reference Salomon vs Salomon co.
In this case Salomon had converted his sole trade business into a company where he was a
majority shareholder together with his family members. He had also given the company a loan
that was not secured by the company’s assets making him a secured creditor. When the company
went into liquidation the other creditors argued that Salomon should not be paid as a secured
creditor before them because according to them, he and the company were the same. The court
held that Salomon and the company were separate and according to the court once a company is
registered it becomes a separate legal person different from its owners.
Limited liability
The liability of members of the company is limited up to the extent of any amount that remains
unpaid on the shares that are taken by the members. Therefore, where the member has fully paid
for his shares, he cannot be called upon to contribute to the debts of the company if the company
is unable to pay its debts.
Ownership of the property
A registered company can acquire and own property under its registered name. Such property
does not belong to the members or shareholders. This was explained in the case of Macaura vs
, Northern Assurance Co Ltd 1925. In this case Macaura had converted his timber business into
a company. He took an insurance cover to protect the timber against fire. However, the policy
was registered in his own name. When the timber was destroyed by fire Macaura made claim for
compensation but the insurance company refused arguing that Macaura had no insurable interest
on the timber. When he sued the company, the court held that Macaura could not be
compensated because the property he insured belonged to the company. The court explained that
companies’ properties do not belong to the members.
Capacity to contract
A registered company can enter into legally binding contracts with other parties in order to
pursue its objectives.
Capacity to sue or be sued
A registered company can sue another party to protect its interest and can also be sued if it fails
to fulfill its obligations.
Perpetual Succession
The company’s life is not affected by the death of its members. If a member dies the company
continues to exist.
Common Seal
A registered company can acquire a common seal that can be used as an official signature of the
company.
Borrowing Power
A registered company can borrow money from lenders to finance its operations.
Management
Registered companies are usually managed by trained personnel that are able to provide
professional services to the company.
Transfer of shares
Shares of registered company can be transferred from one member to another.
2021
Nature and classification of companies
Definition of a company
A company can be defined as an association of people who contribute resources into a business
and in return acquire shares or ownership of the business and they share out the profit that is
generated by the business.
A company is considered to be a legal person and therefore the persons who have created it are
always considered to be separate from that company.
BASIC CHARACTERISTICS OF COMPANIES
Legal personality
A registered company is considered to be a legal person that is separate from the person who
formed it.
The concept of legal personality was explained in the case of reference Salomon vs Salomon co.
In this case Salomon had converted his sole trade business into a company where he was a
majority shareholder together with his family members. He had also given the company a loan
that was not secured by the company’s assets making him a secured creditor. When the company
went into liquidation the other creditors argued that Salomon should not be paid as a secured
creditor before them because according to them, he and the company were the same. The court
held that Salomon and the company were separate and according to the court once a company is
registered it becomes a separate legal person different from its owners.
Limited liability
The liability of members of the company is limited up to the extent of any amount that remains
unpaid on the shares that are taken by the members. Therefore, where the member has fully paid
for his shares, he cannot be called upon to contribute to the debts of the company if the company
is unable to pay its debts.
Ownership of the property
A registered company can acquire and own property under its registered name. Such property
does not belong to the members or shareholders. This was explained in the case of Macaura vs
, Northern Assurance Co Ltd 1925. In this case Macaura had converted his timber business into
a company. He took an insurance cover to protect the timber against fire. However, the policy
was registered in his own name. When the timber was destroyed by fire Macaura made claim for
compensation but the insurance company refused arguing that Macaura had no insurable interest
on the timber. When he sued the company, the court held that Macaura could not be
compensated because the property he insured belonged to the company. The court explained that
companies’ properties do not belong to the members.
Capacity to contract
A registered company can enter into legally binding contracts with other parties in order to
pursue its objectives.
Capacity to sue or be sued
A registered company can sue another party to protect its interest and can also be sued if it fails
to fulfill its obligations.
Perpetual Succession
The company’s life is not affected by the death of its members. If a member dies the company
continues to exist.
Common Seal
A registered company can acquire a common seal that can be used as an official signature of the
company.
Borrowing Power
A registered company can borrow money from lenders to finance its operations.
Management
Registered companies are usually managed by trained personnel that are able to provide
professional services to the company.
Transfer of shares
Shares of registered company can be transferred from one member to another.
