Company Law glossary

The company holds its assets in its own name and is the proper claimant when it is wronged. Two things follow:

• A member cannot sue on the company's behalf without the leave the derivative action provisions require (see the chapter on membership).
• Property transferred to a company belongs to the company, and a member who takes it commits theft.

Taught in Nature and classification of companies

A company acts, and accounts for itself, with formalities a sole trader does without:

• Execution: a company may execute documents under a common seal, though since section 37 of the Act it may instead execute by the signatures of two authorised signatories or a director in the presence of a witness.
• Compliance: it is bound by the Act's requirements of registration, returns, registers and audited financial statements, which a sole trader is not.

Taught in Nature and classification of companies

Members undertake to contribute a stated amount to the company's assets if it is wound up while they are members or within a year afterwards, and are liable for nothing beyond that. Used for clubs, professional bodies, schools and charities that do not distribute profits and have no share capital.

Taught in Nature and classification of companies

Members' liability is limited to the amount, if any, unpaid on their shares (section 5). The ordinary trading company: Mwangi's Bakery Limited and Kilifi Cement PLC are both companies limited by shares.

Taught in Nature and classification of companies

Limited liability is a consequence of separate personality (the debts are the company's, not the members') and it is what makes it possible to raise capital from the public, since an investor risks only the investment. How far a member's liability for the company's debts reaches depends on the kind of company:

• Company limited by shares: it is limited to any amount unpaid on the member's shares. Once the shares are fully paid the member owes nothing more, whatever the company owes.
• Company limited by guarantee: it is limited to the amount the member has undertaken to contribute on a winding up.

Taught in Nature and classification of companies

A company acts through human agents, so ownership and control are separated. That separation is the problem that directors' duties and the protection of minorities, covered in the chapters on directors and meetings, exist to manage. Power is divided like this:

• The members: appoint directors.
• The board: the articles vest management in it.
• The general meeting: retains only the powers the Act and the articles reserve to it.

Taught in Nature and classification of companies

The company continues to exist until it is dissolved by the process the Act prescribes, however often its membership changes and whether or not any original member survives. The death, bankruptcy or withdrawal of a member does not end it. Kilifi Cement PLC has outlived several generations of shareholders; a partnership dissolves when a partner dies unless the partners have agreed otherwise.

Taught in Nature and classification of companies

A company whose articles restrict the transfer of its shares, limit its membership (the Act sets the ceiling for a private company, and a single member is enough) and prohibit any invitation to the public to subscribe for its shares or debentures. What it needs:

• Directors: at least one director (section 128).
• Secretary: only if its paid-up capital is five million shillings or more (section 243).
• How common: most Kenyan companies are private.

Taught in Nature and classification of companies

A company whose certificate of incorporation states that it is a public company, which may offer its shares and debentures to the public and, if it meets the Capital Markets Authority's requirements, list them. Its name ends in PLC. What it needs:

• Directors: at least two directors (section 128).
• Secretary: a qualified secretary (sections 244 and 246).
• Capital: a minimum allotted share capital.
• Trading certificate: one before it starts business.
• Annual general meeting: held within six months of its accounting reference date (section 310).

Taught in Nature and classification of companies

The company is a legal person distinct from its members and directors. Three consequences follow:

• Property: it owns its own property, so a shareholder has no insurable interest in the company's assets and no right to use them.
• Contracts: it makes its own contracts, so a director who signs for the company is not personally bound.
• Proceedings: it can be sued and can sue, and it can be convicted of an offence.

Taught in Nature and classification of companies

Some companies carry a second status, and some bodies called societies are not companies at all:

• State corporation: a company in which the government holds shares is a state corporation under the State Corporations Act (Cap 446) as well as a company under the Companies Act.
• Single-member company: a company owned by a single member is a single-member company with its own procedural rules.
• Bodies formed under other Acts: companies formed under other Acts (co-operative societies, building societies) are not companies within the Act at all.

Taught in Nature and classification of companies

A share is a form of personal property and can be transferred, subject to the articles.

• Public company: a share is freely transferable and can be listed and traded on the Nairobi Securities Exchange.
• Private company: the articles restrict transfer, typically by giving the directors a discretion to refuse registration or the other members a right of first refusal.

Taught in Nature and classification of companies

Members have no limit on their liability for the company's debts on a winding up. Rare, because the point of incorporation is usually to limit liability, but chosen where secrecy about accounts or a specific regulatory regime makes it attractive.

Taught in Nature and classification of companies