Company Law and Practice (Chapters 1-4)

A comprehensive set of practice flashcards covering company formation, structure, governance, capital, liabilities, and winding up as presented in the lecture notes.

What is the definition of a company under S.2 of the Companies Act?

A body corporate incorporated or continued under the Companies Act.

What is the minimum number of promoters required to form a company, and the maximum for private companies?

Minimum two promoters; maximum fifty for private companies.

Name three broad forms a business entity can take in The Gambia.

Sole proprietorship, partnership, or company.

Under which section is a business association of more than 20 persons prohibited from carrying on business for gain unless incorporated?

Section 4 of the Companies Act.

Who typically bears the responsibility for company formation in practice?

Legal practitioners.

List the basic steps involved in forming a company as described in the notes.

Taking instructions from promoters; name search; prepare incorporation documents (memo and articles); pay required fees; file documents with Registrar and obtain certificate of incorporation.

What information is collected when taking instructions for incorporation to affect registrability and fees?

Full names, address, nationality of promoters, company name, share capital, and share distribution.

What are the payable fees before a company is incorporated (list at least three).

Incorporation fee, name search fee, registration fee, Tin certificate fee, and legal fees.

Is there any prohibition on foreign participation in company formation in The Gambia, and what payroll-related tax applies to foreign workers?

There is no legal prohibition on foreign participation in formation; payroll tax applies to foreign employees.

What is the ECOWAS/nationality-related financial requirement for foreign workers, as stated?

ECOWAS nationals pay D10,000 and non-ECOWAS nationals pay D40,000.

What does section 6 say about capacity to form a company and minor involvement?

An individual who is a minor is prohibited from forming a company unless at least two other non-disqualified persons are involved.

What are the main classifications of companies under section 7?

Limited by shares; limited by guarantee; unlimited company; holding and subsidiary; private company; public company.

What defines a private company under section 8?

Memo states it is private; restrictions on transfer of shares; members not exceed 50; not inviting the public to subscribe (unless authorized).

How is a public company defined, given that the act does not positively define it?

Section 10 provides that a public company is a company other than a private company whose memorandum states it is public.

Can a private company be re-registered as a public company, and what is required?

Yes; requires a special resolution, filing with Registrar, and meeting conditions for re-registration.

What is the legal principle of separate personality and which case established it?',

The company is a separate legal entity from its members; Salomon v Salomon & Co Ltd (1897) established the veil of incorporation.

Name the cases cited that illustrate lifting the veil or piercing the corporate veil.

Salomon v Salomon; Lee v Lee’s Farming Co Ltd; Charterbridge Corp. v Lloyds Bank; Len­nard’s Carrying Co. v Asiatic Petroleum; GILFORD MOTOR CO. v HORNE; Jones v Lipman; Nigerite Ltd v Dalami.

What are the main incidents that flow from incorporation (list at least four).

Legal capacity; property ownership; perpetual succession; ability to sue and be sued; publicity; nationality/domicile/residence.

What is the rule in ROYAL BRITISH BANK v TURQUAND in relation to third parties and internal company documents?

Third parties dealing with a company are deemed to know public documents; indoor management rule applies; internal details not required to be known by outsiders.

What is the significance of sections 47 and 48 regarding notice and knowledge in relation to the act?

Section 47 abolishes constructive notice of registered documents; Section 48 allows third parties to assume memo and articles have been complied with.

Who is defined as a Promoter and what is the general duty of a Promoter?

A Promoter is a person who undertakes to form a company and raise capital; they owe fiduciary duties and must disclose profits and avoid conflicts of interest.

What are the remedies for breach of fiduciary duty by a Promoter?

Rescission (with restoration in integrum), recovery of profits, damages for breach of fiduciary duty.

What is novation in the context of pre-incorporation contracts?

After incorporation, the company may enter into a new contract on similar terms (novation) to avoid personal liability.

What is the general rule about corporate liability for acts under the doctrine of alter ego?

A company is liable in contract, tort, and crime through its directing mind and will; liability passes through officers/agents acting within scope.

Name and describe two key categories of directors mentioned and their roles.

Shadow directors (give directions), Executive directors (management duties); Non-executive directors (no management duties); Alternate directors (sit in for another).

What are the minimum number of directors for a company and can a private company have only one?

Minimum two directors; a private company may have only one director.

Which section requires consent for appointing a director and what is the general rule about being a director and shareholder?

Section 241 requires consent in writing; there is no requirement to be a shareholder unless the articles say so (Section 243).

What is the role and power of the Board vs. management in director authority?

Directors carry powers jointly; may delegate to committees or a single director; minutes serve as evidence of proceedings.

What are fiduciary duties of directors as outlined (list at least two).

Exercise powers bona fide in the company’s interests; avoid secret profits; account for profits; avoid conflicts of interest; disclose interests in contracts.

What is the case law on the duty of care and standard expected from directors?

Re City of London/ Re City Equitable Fire Insurance → objective standard of care (reasonable diligence) is expected.

What is the role of the Company Secretary and its apparent authority to bind the company?

Secretary handles administrative duties; has apparent authority to bind the company on administrative matters; not a policy-maker; duties include notices, registers, and filing.

Which section requires a company to appoint a secretary and what are consequences of not having one?

Section 237; offence and fines for officers if not appointed.

What is required for meetings to be properly convened (notice, quorum, etc.)?

Properly convened with statutory notice, quorum, notice to entitled persons, and business to be stated; ordinary business at AGM; extra-ordinary meeting by requisition or court order.

What is the standard notice period for general meetings, and when can shorter notice be used?

Twenty-one days usually; shorter notice possible if all members consent or 95% of voting rights (for non-ordinary meetings).

What is the difference between ordinary and special resolutions, including the notice requirement for special resolutions?

Ordinary resolutions pass by simple majority; special resolutions require 75% majority and at least 21 days’ notice; 95% can waive the notice.

What is the effect of a failure to observe the notice requirements for a meeting?

Generally valid meeting unless bad faith is shown; or where nature of business is non-routine, the full text should be provided.

What is a Class Meeting and when is it required?

If there are multiple share classes, a class meeting may be required to approve variation of rights attached to that class.

How are share capital and rights typically structured (ordinary vs preference) and what is meant by

Ordinary shares carry residual profits; preference shares carry fixed dividends and often no voting rights; rights can be varied with consent of class (3/4 majority).

What is authorised share capital and how is it different from issued share capital?

Authorised share capital is the maximum amount the company may issue; issued share capital is the portion actually issued to shareholders.

What is called up and paid up share capital?

Called up capital is the amount demanded by the company; paid up capital is the amount actually paid by shareholders.

What happens if a member fails to pay a call on shares?

The company may issue a notice to pay; non-payment may lead to forfeiture of shares.

When may a company issue shares at a discount or at a premium, and where is the premium accounted for?

Shares may be issued at a discount under section 100 if allowed; premium occurs when issued above nominal value; premiums go to a share premium account for specified purposes.

Describe the process of allotment of shares and the legal effect after allotment.

Offer application; acceptance by the company; entry in the register of members; contract formed by allotment; filing of allotment details with Registrar; issue of share certificates.

What is meant by transmission of shares on the death of a member?

Shares pass to the legal representative or survivors; may elect to register as a member by notifying the company.

How is a transfer of shares conducted and what is the company’s power to refuse registration?

Transfer executed by instrument of transfer; company registers transferee; may refuse to register a transfer if not fully paid or not consented as per articles; must notify within one month if refused.

What must a share certificate contain and within what period must it be issued after allotment?

Certificate evidencing title; issued within two months of allotment or transfer lodging.

Under what circumstances may a company reduce its share capital, and what is required to obtain court approval?

Reduction allowed if authorized by the articles; special resolution; court confirmation required to ensure solvency and fairness.

What is financial assistance to purchase a company’s own shares and what are the general prohibitions?

Maintenance of capital prohibits a company from giving financial assistance to purchase its own shares; exceptions include certain lawfully permitted activities and distributable profits; special public/private rules apply.

Which sections govern financial assistance to acquire own shares for private vs public companies?

Section 138 generally prohibits; Section 139 imposes special rules for public companies; Sections 140-143 outline procedures for private companies.

What is a debenture and what is a trust deed in relation to debentures?

A debenture is a debt instrument; a trust deed protects debenture holders by appointing a trustee to hold security for them.

What are the forms of debentures listed in the notes (name at least four)?

Registered debentures; bearer debentures; perpetual debentures; convertible debentures; secured and naked debentures; redeemable debentures.

What is the role of a Receiver and under which section may a Receiver be appointed?

A Receiver takes control of company assets in default; appointment can be made under section 183 for fixed or floating charges.

What is the rule regarding discharge of a Receiver and the duties owed by the Receiver?

A Receiver owes a duty of care and acts in good faith; must manage assets commercially and in best interests of the creditors/company.

What are the main stages and purposes of winding up a company?

Winding up dissolves the company; assets are liquidated to satisfy liabilities; surplus distributed to members; can be voluntary, creditor’s voluntary, or compulsory.

What is the difference between members’ voluntary winding up and creditor’s voluntary winding up?

In a members’ voluntary winding up the company can pay debts in full; in a creditor’s voluntary winding up, the company cannot pay debts in full and creditors have a greater role.

Name a key case that illustrates unfairly prejudicial conduct under the rule in Foss v Harbottle and its exceptions.

Foss v Harbottle (1843); exceptions allow minority protection under section 298 for unfair prejudice.

What is the purpose of the derivative action and how may a member obtain it?

A member may bring a derivative action on behalf of the company with leave of the court (section 298) when directors fail to act in the company’s best interests.

What constitutes just and equitable winding up and give an example case.

An order for winding up on grounds of oppression or illegality; e.g., German Date Coffee case; Yenidje Tobacco case shows deadlock can justify winding up.

What is the purpose of investigations under sections 306-312 and what powers do inspectors have?

To investigate company affairs when there are concerns of mismanagement or fraud; inspectors can compel production of documents and examine witnesses under oath.

What are offshore companies and what Act governs them in The Gambia?

Offshore companies are incorporated outside The Gambia; governed by Offshore Companies Act Cap 94:03; the main act excludes application of the Companies Act to offshore entities.

Name three advantages of offshore companies mentioned in the notes.

Tax advantages; simplicity of reporting; asset protection and confidentiality; lower regulatory burdens in some jurisdictions.

What is the process for forming an offshore company under The Gambia’s regime?

Formed by one or more persons (not minors or disqualified); memo and articles filed; Registrar issues certificate of incorporation; name guidelines; unlimited capacity outside The Gambia.

What is required to register a foreign company with a place of business in The Gambia?

Certified true English copy of governing documents; full registered office address; directors’ particulars; appointor for service; secretary’s particulars.

What is a perpetual succession and its relevance to a company?

A company has perpetual succession; its existence continues despite changes in membership; original members' lives do not affect the company.

What is the ‘indoor management’ rule and its exception in the context of a company’s operations?

Outside parties are not bound to know internal procedures; they may assume compliance with memo/articles; exceptions include misrepresentation or fraud.

What is the importance of a company’s memorandum and articles in contract law?

The memorandum and articles have the binding effect of a contract among members and between the company and its members; acts contrary may be actionable.

What is the test for observance of the memorandum and articles against a member’s rights?

A member may sue to restrain breaches and to enforce rights; the contract between company and members binds parties who are parties to it.

What is the effect of a transfer of shares not being registered in the register of members?

The transferor remains the registered holder until the transferee is entered in the register; transfer is not complete.

What is the statutory requirement for the annual return, and what must accompany it?

Annual return must be delivered to the Registrar; accompanied by a certified copy of the auditors’ and directors’ reports and the balance sheet.

What are the consequences if a domestic company fails to file annual returns or hold AGMs?

Investigations may be initiated and inspectors appointed; potential winding up or other enforcement actions under sections 306-315.

Outline the key elements of the capital clause and its relation to the object clause.

Capital clause requires authorised share capital; objects clause previously constrained ultra vires; changes can be made via special resolutions.

What is the ‘creditors buffer’ concept in relation to financial assistance and capital maintenance?

Maintaining capital to protect creditors; prohibitions on using capital to fund share purchases (with limited exceptions).