Business Law (BUSI 210) – Week 3 & 4 Notes

Formation and Registration of Companies

Registration Formalities

  • A company must submit to the Registrar:

    • Articles of incorporation (or equivalent)

    • Forms detailing registered office, directors, and company secretary

  • Effective date and corporate name are key elements.

  • Section 4- Provides for the issuance of a Certificate of Incorporation by the Registrar of Companies which includes on it the date of incorporation

  • Section 8 -

  • Section 9 - A company comes into existence on the date shown in its certificate of incorporation.

  • Section 10 - The word “limited”, “corporation” or “incorporated” or the abbreviation “Ltd.” or “Corp.” or “Inc.” shall be part of the name of every company;

Corporate Capacity and Powers

  • Section 17 – Defines corporate capacity.

  • Section 18 – Powers reduced. The company should not conduct activities that are not included in the articles. For example an educational business should not be conducting casino activities. Additionally, the company must allot shares before conducting business.

  • Section 19 – Acts of a company including transfers of property to or by a company are valid even if contrary to its articles.

  • Section 24 – Power of Attorney.

  • Company Seal – Used for formal company documents.

Contracts of A Company

Shares

Nature of Shares

  • Company assets are owned by the company, not shareholders.

  • Shareholders have rights such as:

    • Voting rights

    • Right to dividends when declared

    • Return of contributed capital and surplus assets on winding up

  • Rights depend on class of shares.

Types of Shares

  1. Preference Shares

    • Right to fixed dividend before ordinary shares.

    • Dividend depends on distributable profits.

    • Lower risk, but often no voting rights.

  2. Ordinary (Equity) Shares

    • Dividends paid after preference shares.

    • Higher risk, but usually carry majority of voting rights.

    • Dividend fluctuates depending on profits.

  3. Redeemable Shares (Section 41)

    • Company may buy back shares at redemption price.

    • Restrictions: Company cannot redeem if it would be unable to pay liabilities or if assets would fall below liabilities + stated capital.

Dividends

  • Section 51 – Prohibited Dividend: Cannot declare if:

    • Company cannot pay liabilities, or

    • Assets < liabilities + stated capital.

  • Section 52 – Payment of Dividends:

    • May be paid in money, property, or fully paid shares.

    • Cannot be paid from unrealised profits.

    • If issued as shares, amount must be added to stated capital account.

Shareholders’ Rights

  • Right to transfer shares (may be restricted by articles).

  • Right to attend meetings and receive notices.

Meetings

  • Section 107 – Directors fix meeting date.

  • Section 108 – Record date set to determine eligible shareholders.

  • Section 111 – Notice of meeting (7–30 days prior) sent to shareholders, directors, auditors.

Annual General Meeting (AGM) – Section 112

Held to consider:

  • Financial statements

  • Directors’ report

  • Auditor’s report

  • Dividends

  • Election of directors

  • Reappointment of auditor

  • Extraordinary general meetings may also be called for special business.

Quorum

  • Majority of voting shares must be present (in person or proxy).

  • A proxy is someone who can stand in on behalf of a shareholder.

Resolutions

  • Written resolutions signed by all shareholders = valid as if passed at a meeting.

  • Must be kept with company minutes.

Shareholder Protection

  • Section 238 – Derivative Action: Allows complainant (shareholder) to act on behalf of company if in good faith and in company’s best interest.

  • The complainant must notify to the directors that they are bringing the action against the directors, act in good faith, and be in the best interest of the company.

  • Section 241 – Oppression: Shareholders can seek court orders if company acts are oppressive, unfairly prejudicial, or disregard shareholder interests.

Management of the Company

Directors

  • Section 58 – Duty to manage company, exercise powers, and direct affairs.

  • Section 59 – Company must have a secretary (appointed by directors or by-laws).

  • He/she acts as a mediatory between the board and management.

  • They ensure that the business is operating appropriately, files are up to date, and that all laws are being followed.

  • Directors may:

    • Make/amend by-laws

    • Authorise share issues

    • Appoint officers and auditors

    • Make banking arrangements

    • Borrow money, issue debentures, give guarantees, or mortgage assets

By-Laws

  • Directors can make/amend/repeal by-laws.

  • Must be confirmed/amended/rejected by shareholders at next meeting.

Directors Power After Incorporation (read)

Borrowing Powers (read)

Duty of Care

  • Directors must act honestly, in good faith, and in best interest of company.

  • Must comply with Companies Act, regulations, articles, by-laws.

  • Cannot disclose company information unless legally required.

  • Directors remain liable for breaches (cannot contract out of duties).

Disqualification & Termination

  • Court can disqualify directors deemed unfit.

  • Director’s office ends when:

    • They die or resign

    • Removed under Section 73

    • Disqualified under Section 66 or 67

Discussion Case Study

Scenario: Manager of We Fix It Inc. planning AGM.
Considerations:

  • Effective planning of meeting logistics.

  • Roles:

    • Shareholders – Vote on company matters.

    • Directors – Report on company management and propose actions.

    • Auditors – Present audit report and financial oversight.

  • Matters voted on: dividends, director elections, auditor appointments, etc.