Company Law and Commercial Law: Personality, Management and Transactions
Scope
The paper covers incorporation under the Companies Act (which replaced the old Cap 32:01 regime), corporate personality, management and directors' duties, share capital, charges, winding up, and the commercial statutes: sale of goods, partnership, agency and negotiable instruments. Expect problem questions that mix a company-law issue with a commercial one.
Core concepts
- On incorporation the company becomes a separate legal person (Salomon v Salomon), owns its property, contracts in its own name and survives its members.
- The memorandum and articles define capacity and internal governance; acts outside the objects may be restrained by members, though outsiders are protected by the usual rules on corporate capacity.
- Directors owe fiduciary duties (good faith, avoiding conflicts, not misappropriating assets) and a duty of care and skill. Breach is actionable by the company, not ordinarily by individual shareholders.
- Minority shareholders may sue in limited circumstances, including fraud on the minority and a petition for winding up on the just and equitable ground.
- Charges over company assets must be registered; failure to register affects priority and enforceability against creditors.
- Sale of goods imports implied terms as to title, description, fitness for purpose and merchantable quality; the nemo dat rule governs transfers by a non-owner.
Worked example
A single-member private company's director pays his personal debts from the company account and then resigns. A creditor, unable to recover, sues the director personally.
Reasoning: the company is a separate person, so the creditor's claim lies against it, not against its director. The veil may be lifted where the company is a mere façade used to evade an existing legal obligation, or where statute imposes liability. Here the better routes are a claim against the director for breach of fiduciary duty brought by the company or liquidator, and criminal liability for misappropriation. Personal liability is the exception, not the rule.
Traps
Assuming limited liability shields directors from their own torts and fraud; using 'lifting' and 'piercing' interchangeably; ignoring registration and stamping formalities for charges and debentures; and forgetting that an agent's authority may be actual or apparent.