THE LAW OF BUSINESS ASSOCIATIONS
Class Notes by T. Mweseli © 2004
University of Nairobi
Section 2 (1) of the Companies Act Cap 486 Laws of Kenya states what company means as 'a company formed and registered under this Act or an existing company. This is a very vague definition, in the statute the word company is not a legal term hence the vagueness of the definition. The legal attributes of the word company will depend upon a particular legal system.
In legal theory company denotes an association of a number of persons for some common object or objects in ordinary usage it is associated with economic purposes or gain. A company can be defined as an association of several persons who contribute money or money’s worth into a common stock and who employ it for some common purpose. Our legal system provides for three types of associations namely 1. Companies
3. Upcoming is the cooperative society.
The law treats companies in company law distinctly from partnerships in partnership law. Basically company law consists partly of ordinary rules of Common law and equity and partly of statutory rules. The common law rules are embodied in cases. The statutory rules are to be found in the Companies Act which is the current Cap 486 Laws of Kenya. It should denote that the Kenya Companies Act is not a self contained Act of legal rules of company law because it was borrowed from the English Companies Act of 1948 which was itself not a codifying Act but rather a consolidating Act.
Exceptions to the Rules are stated in the Act but not the rules themselves. Therefore fundamental principles have to be extracted from study of numerous decided cases some of which are irreconcilable. The true meaning of company law can only be understood against the background of the common law.
FUNDAMENTAL CONCEPTS OF COMPANY LAW
There are two fundamental legal concepts
1. The concept of legal personality; (corporate personality) by which a company is treated in law as a separate entity from the members. 2. The concept of limited liability;
Concept of legal personality
A legal person is not always human, it can be described as any person human or otherwise who has rights and duties at law; whereas all human persons are legal persons not all legal persons are human persons. The non-human legal persons are called corporations. The word corporation is derived from the Latin word Corpus which inter alia also means body. A corporation is therefore a legal person brought into existence by a process of law and not by natural birth. Owing to these artificial processes they are sometimes referred to as artificial persons not fictitious persons.
Basically liability means the extent to which a person can be made to account by law. He can be made to be accountable either for the full amount of his debts or else pay towards that debt only to a certain limit and not beyond it. In the context of company law liability may be limited either by shares or by guarantee.
Under Section (2) (a) of the Companies Act, in a company limited by shares the members liability to contribute to the companies assets is limited to the amount if any paid on their shares.
Under Section 4 (2) (b) of the Companies Act in a company limited by guarantee the members undertake to contribute a certain amount to the assets of the company in the event of the company being wound up. Note that it is the members’ liability and not the companies’ liability which is limited. As long as there are adequate assets, the company is liable to pay all its debts without any limitation of liability. If the assets are not adequate, then the company can only be wound up as a human being who fails to pay his debts. Note that in England the Insolvency Act has consolidated the relationships relating to …. That does not apply here.
Nearly all statutory rules in the Companies Act are...
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