Unit Two company law

UNIT TWO: COMPANY INCORPORATION AND THE CONSTITUTION OF A COMPANY

MS K. CHILESHE

COMPANY INCORPORATION

Creating a company under Zambian law involves several legal and procedural steps governed mainly by the Companies Act No. 10 of 2017. Here’s a detailed overview of the process:

1. Choosing a Company Name

Before registering a company, it is essential to ensure that the name intended for incorporation is unique and not already in use. The name must be registered through the Patents and Companies Registration Agency (PACRA). If the name is available, it can be reserved for a specified period. Guidelines for choosing a company name are provided in Section 39 of the Companies Act.

2. Preparation of Incorporation Company Documents

To incorporate a company, one must complete Companies Form 3 based on the type of company to be registered. Section 12 of the Companies Act specifies the documentation needed for incorporation, which includes but is not limited to the following:

  • Proposed articles of the company or a statement indicating the adoption of the Standard Articles of Association.
  • A Declaration of Compliance made in accordance with Section 13 of the Companies Act.
  • Signed consent from each individual named as a director or secretary.
  • A Declaration of Guarantee signed by each subscriber, applicable if the company is limited by guarantee.
  • A Statement of Beneficial Ownership in the prescribed manner (See Form 21).
  • Declaration by applicants stating that the particulars of the beneficial owners have been submitted to the Registrar with the owners' knowledge.
  • Details on the amount of share capital and the end date of the first financial year of the company.
  • Each subscriber must sign the incorporation application in front of at least one witness who attests to the signature.

Furthermore, individuals are disqualified from subscribing to an application for incorporation if they are under the age of eighteen, are undischarged bankrupts, or are legally declared of unsound mind (Section 12(8)).

3. Submission and Registration

Once the application form and relevant documents have been completed, they must be lodged with the Registrar alongside payment of lodgment fees. Section 14 of the Companies Act states that the Registrar shall register the proposed company, issue a Certificate of Incorporation, a Certificate of Share Capital, and assign a registration number if the applicant meets the requirements of the Act.

However, Section 19(1) empowers the Registrar to reject applications if the applicant fails to satisfy the requirements or submits false information. Several cases, such as R V Registrar of Joint Stock Companies, ex parte More, illustrate the Registrar's authority to deny registration. The company’s birth occurs on the date specified in the Certificate of Incorporation.

CONTRACTUAL EFFECT AND CONSEQUENCES OF INCORPORATION

Section 17 of the Companies Act states that the incorporation of a company has the same effect as a contract under seal between the company and its members, as well as among the members themselves. This incorporates the business agreements as outlined in the application for incorporation, the certificate of share capital, the articles of the company, and the Act itself.

According to Section 22, a company possesses rights and capacities akin to an individual’s, subject to inherent limitations. Upon incorporation, the company gains a separate legal status distinct from its members as dictated by Section 16 of the Companies Act. Additionally, Section 15 provides that the Certificate of Incorporation serves as conclusive evidence of compliance with the Act from the date of registration.

POST INCORPORATION PROCEDURES

After incorporation, a company must hold the following post-incorporation meetings:

1. Members Meeting

The members’ meeting is critical to address issues such as:

  • Formalizing any formation agreements, including loan acquisition and leasing agreements.
  • Officially appointing the company’s directors.
  • Adopting pre-incorporation contracts.
  • Executing any shareholder agreements.
2. Director’s Meeting

A first meeting of the directors should occur within a reasonable timeframe to:

  • Report on the incorporation of the company and authorize any required changes.
  • Transact specific business, including:
    • Appointment of the chairman of the board.
    • Receiving various reports from the chairman.
    • Confirming the list of first directors and company registered office.
    • Tabling incorporation forms and the company’s articles.
    • Opening a bank account and appointing signatories.
    • Producing the company’s common seal.
    • Possibly changing the accounting date and maintaining statutory books per Sections 30 and 31 of the Companies Act.

COMPANY PROMOTION AND PRE-INCORPORATION CONTRACTS

Promotion in company law refers to the process of establishing a company where individuals, known as promoters, take necessary steps to form the entity and prepare it for operations. Promotion encompasses the conception of the business idea, capital raising, and fulfilling legal requirements for incorporation.

Promoters

A promoter is a person or group of persons responsible for forming a company and is in a fiduciary relationship with the prospective company. This relationship obligates the promoter not to derive secret profits from promotion activities, protecting third parties looking to buy shares post-incorporation, a principle