dec 2012 (l7) business and company law

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ZAMBIA INSTITUTE OF CHARTERED ACCOUNTANTS

CHARTERED ACCOUNTANTS EXAMINATIONS

LICENTIATE LEVEL

L7: BUSINESS AND CORPORATE LAW

SERIES: DECEMBER 2012

TOTAL MARKS – 100 TIME ALLOWED: THREE (3) HOURS

INSTRUCTIONS TO CANDIDATES

1. You have fifteen (15) minutes reading time. Use it to study the examination paper

carefully so that you understand what to do in each question. You will be told whento start writing.

2. This paper is divided into TWO sections:

Section A: Attempt any TWO Business Law questions.

Section B: Attempt any TWO Corporate Law questions.

3. Enter your student number and your National Registration Card number on the frontof the answer booklet. Your name must NOT appear anywhere on your answerbooklet.

4. Do NOT write in pencil (except for graphs and diagrams).

5. The marks shown against the requirement(s) for each question should be taken asan indication of the expected length and depth of the answer.

6. All workings must be done in the answer booklet.

7. Present legible and tidy work.

8. Graph paper (if required) is provided at the end of the answer booklet.



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SECTION A

Attempt any two (2) questions in this section.

QUESTION ONE

(a) Your uncle has heard from his colleague who is a court clerk about the principles of subsidiary legislation. He has approached you for clarification:

(i) Define subsidiary legislation. (2 marks)

(ii) Identify two (2) different types of delegated legislation. (4 marks)

(iii) State two (2) advantages and two (2) disadvantages of delegated legislation.(4 marks)

(iv) Explain how parliament exercises control over delegated legislation.(4marks)

(b) Identify four similarities and two differences between common law and equity.

(6 marks)

(c) Show how Ratio decidendi differs from Obiter dicta. (5 marks)

[Total: 25 marks]

QUESTION TWO

(a) Using decided cases, identify the types of “invitation to treat “. (8 marks)

(b) Margaret Nalaba received an offer to purchase a fridge from Frank Mukose for K2million. Mr. Mukose’s letter carried a condition that the acceptance of the offer must

be in writing.

On receipt of the offer Margaret tried to get in touch with Mukose on phone but hewas reportedly out of the office. She had left a message on his cell phone acceptingthe offer but Mukose had by mistake deleted the message without reading it.Margaret put the letter of offer in her drawer and forgot all about it. However, shehad made up her mind to accept the fridge at the price of K2 million.

One week later, Rose Smart, a friend of Margaret told her about the new fridge shehad bought from Mr. Frank Mukose. Margaret was upset and she is looking for a wayshe can recover the fridge from Rose. She believes the fridge was legally hers

because she had decided to buy it long before Rose Smart came to know about it.

Required:

Advise Margaret Nalaba on her chances of succeeding if she sues. (13 marks)



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(c) Banda entered into a contract in which Lungu was to supply him with vegetables forhis Shop he had just opened in Chilenje. Banda gave him an initial deposit, butLungu did not have enough capital to pay the farmers and after one week, he starteddefaulting and by the month end he failed to deliver the agreed quantities.

Required:

Explain the remedies available to Banda from a simple contract point of view.(4 marks)

[Total: 25 marks]

QUESTION THREE

(a) Dingitswayo or Dingi, as he was popularly known lived in the United Kingdom. Heappointed his nephew Nigel to sell his properties by public auction, and deposit theproceeds of the auction into a Barclays Bank account in Dingi’s name, without paying

withholding tax. He instructed Nigel not to sell any item below the reserve price.Nigel never took the properties for auction but phoned a few friends he knew whobought some of the properties at double the reserve price, and the rest he sold tohimself below the reserve price. Nigel deposited the money as instructed, keepingthe excess amount to himself.

Required:

Using the law of Agency, explain if Nigel breached any of the duties he owes theprincipal. (10 marks)

(b) Dress manufacturing Company Limited, tailors clothing and sells them through all itsretail outlets within Zambia. The shops employ their own managers. The companyhas four major shops. Jacket, Jeans, Skirt, and Suit, have all been employed by thecompany as managers for the shops. Due to a serious theft at the factory thecompany decided to close down all its retail shops and declare all the four employeesredundant and they have been told that they will not receive any form of compensation from the employer because the money had been stolen from the bank.

Required:

Write a report advising the employees whether they will succeed if they commencedan action for dismissal. (10 marks)

(c) Mulenga entered into an agreement in which he was to buy Chirwa’s car. Theagreement was silent as to the price and duration within which the transaction wouldbe concluded. Mulenga obtained possession of the car, and refused to pay becausethere was no mention of the price in the agreement and duration of payment.

Required:

Advise the parties using the relevant provisions of the Sale of Goods Act.(5 marks)

[Total: 25 marks]



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SECTION B

Attempt any two (2) questions in this section.

QUESTION FOUR

(a) A partnership is an agreement that creates an unincorporated association of anumber of persons who have come together for a matter of common interest, suchas sports, business or trade unionism.

Required:

Discuss the circumstances that may lead to dissolution of the partnership.(7 marks)

(b) After doing business successfully for three (3) years the company wants to discusshow to alter its share capital since the value of its assets have depreciated.

Required:

Explain the procedure and the method that the Company may adopt to alter its sharecapital under section 74 of CA 388 of the Laws of Zambia assuming that all its sharesare ordinary shares. (8 marks)

(c) Big Boy Yoyo wants to buy shares in Stone Crushers Mining Company. He explains toyou that he does not want to just participate in voting or getting dividends, butwants to enjoy exclusive rights over and above other shareholders.

Required:

What advantages and disadvantages would Yoyo enjoy if he were to choose thosetypes of shares. (10 marks)

[Total: 25 marks]

QUESTION FIVE

(a) Show the advantages and disadvantages of Public Companies and Partnerships onthe basis of the following:

formative expenses legal status membership formation Management (10 marks)

(b) Explain what you understand by ‘joint and several liability’, and why it is important inpartnership law. (10 marks)

(c) Explain two ways in which a director of a company may be appointed. (5 marks)

[Total: 25 marks]



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QUESTION SIX

(a) Explain the grounds under which the court may order dissolution of a company.(10 marks)

(b) You have been appointed as a Company Secretary for JB Ltd.

Required:

(i) Discuss who qualifies and who does not qualify to be a Company Secretary.(5 marks)

(ii) Discuss five roles expected of you as a Company Secretary in regard tocompany meetings. (5 marks)

(c) In relation to company law, explain circumstances which may lead to the holding of an Extraordinary General Meeting. (5 marks)

[Total: 25 marks]

END OF PAPER



6

BUSINESS AND CORPORATE LAW

SUGGESTED SOLUTIONS



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SOLUTION ONE

a) (i) Definition of delegated legislation

The complexity of modern legislation means that, in many instances, there is a

great deal of detail which cannot be included into the Act of Parliament.Therefore legislation in Zambia expressly gives powers to a minister or public

body, such as local authority, to make laws for specified purposes and when

they exercise these powers they enact laws that are call delegated or

subsidiary legislation.

(ii) Forms of Delegated legislation

The main form of delegated legislation is found in the form of statutoryinstruments. Where power is delegated to a government minister to makerules and regulation of a specific nature such as the minimum wages and

conditions of employment, these are brought into effect by statutoryinstruments.

Bye-Laws are made by local authorities such as the councils. The rulesmade by the councils have jurisdiction within the specific locality.

(iii) Advantages of having delegated legislation

Without delegated legislation, Parliament would be overwhelmed by thevolume of work. It enables parliament to concentrate on the broaderprinciples of legislative framework, rather than getting into the details.

The use of delegated legislation enables new laws to be passed morequickly, especially in times of emergency

The subject of new legislation is often highly detailed, technical andcomplex and therefore it makes sense to allow the professional or theexperts in that particular field to enact these rules and regulations

Delegated legislation will also make the primary legislation less voluminous

Delegation leads to greater flexibility, because regulations can be alteredwithout the need to revert back to parliament.



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Disadvantages of having delegated legislation

It becomes difficult for parliament to keep track of the effect of thelegislation that is has enacted due to the volume of delegated legislation

Delegated legislation is unrepresentative because it is finalized by

individuals with very little control by parliament

There may be different types of delegated legislation under a single Actand therefore it may confuse the user.

Ministers or local authorities may act beyond their powers stipulated in the Act and the delegated legislation can be challenged through the courts of law as being void.

iv. Control by Parliament

Some statutory instruments must be laid before parliament and will ceaseto be operational if parliament so resolves within 40 days

The scrutinize committee of the parliament which will draw the attention of parliament to a statutory instrument which has a public bearing e.gpayment of taxes.

(b) Similarities

Both are law: common law is law developed by courts while equity meansnatural justice or fairness.

Both are English Law innovations and have very little foreign input.

Both are embodied in the statutes

Both are administered concurrently

Differences

While common law grew from local customs, equity developed from injusticesof common law.

Commencement of proceedings under common law was by the way of acommon law writ, while under equity proceedings were commenced by way of a petition.

The writ limited the plaintiff's claim while the petition allowed greater range of remedies.

Although administered concurrently, the two remain separate Equitable remedies such as injunctions are discretionary while common law

remedies exist as a right.



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(c)

Ratio decidendi is the reasoning behind a decision, while obiter dicta are wordssaid as a by the way.

ratio decidendi is part of the judgment that is binding on future decisions and

lower courts while obiter dicta is persuasive only.

SOLUTION TWO

a) Invitation to treat is not an offer

In the law of contract an offer is a definite promise to another to be bound onspecific terms. It is a promise which is capable of acceptance so as to form a bindingcontract. It cannot be in vague terms.

An invitation to treat on the other hand is an indication that someone is prepared toreceive offers with a view to form a binding contract. When a person displays goods

for sale, he is not making an offer but is inviting other persons to make an offer tobuy the goods.

Case law has established whether a statement is an offer or merely and invitation totreat:

(i) Advertisements

The general rule is that an advertisement is not of itself and offer capable of acceptance but it is usually regarded as an attempt to induce offers andtherefore is invitation to treat. This was stated in the case of Patridge v.

Crittenden (1968).

By way of an exception in limited circumstances an advertisement mayconstitute an offer as in the case of Carlill v. Carbolic Smoke Ball Co. (1893),where the words of the advertisement were held to be an offer to the worldat large, capable of being accepted by anyone fulfilling the necessaryconditions.

(ii) Similarly, the circulation of a price list constitutes an invitation to treat. In thecase of Grainger v. Gough (1896) it was held that the circulation of a price-listby a wine merchant was only an invitation to treat.

(iii) Exhibition of goods for sale in a self-service shop is treated as an invitation totreat. In the case of Pharmaceutical Society of Great Britain v. Boots CashChemists (1952) the chemists exhibited various goods on shelf-serviceshelves. It was held that this was not an offer but an invitation to treat.Customers took up the invitation by taking the goods to the cash point,thereby making an offer to buy.

(iv) Display of goods in a shop window is not an offer but an invitation to treat aswas the issue in the case of Fisher v. Bell (1961) where it was held that thedisplay of the flick knife in the shop window was not an offer to sell.

(v) Invitation to tender



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(b) An offer is a definite promise to another to be bound on specific terms. It is apromise which is capable of acceptance so as to form a binding contract. In the caseat hand it is clear the Frank Mukose is the offeror and Margaret is the offeree andthat the offer was for the purchase of a fridge for K2 m. The only condition was withreference to the mode of acceptance.

Acceptance is the unqualified agreement that corresponds to the terms of the offer.The general rule is that for acceptance to be valid it must be communicated to theofferor unless the offeror waives the need for communication. The offeror maystipulate the sole means of communication of the acceptance in which case onlycompliance with his terms will suffice. It was clear from the facts that the mode of acceptance was compulsory and the method was in writing. Since Margarettelephoned Mr. Mukose she did use the mandatory method of acceptance. On theissue of leaving a message on his cell phone would amount to acceptance of theoffer, it is clear from the case of Yates Building Co v. RJ Pulleyn and Sons (York)(1975) where it was held that acceptance will only be valid if the method used isequally expeditious and does not disadvantage the offeror in any way. Applying thelaw to the facts in the question Margaret had not effectively communicatedacceptance of the offer to purchase the fridge. But if the candidate concludes that aText message is a written communication, then a valid acceptance was made andthere was a contract. Margaret may succeed in an action.

Marker should be alive to both possibilities, and decided cases where possible mayillustragte the answer.

Since there was no acceptance, the agreement had not been formed between theparties. Mr. Mukose is free to sell the fridge to anyone else. Margaret will notsucceed in her action to recover the fridge from rose since she had not

communicated her acceptance of the offer.

(c) The remedies available to Banda are

-he can sue for damages for breach of contract

-he may sue for a refund if there is total failure of consideration

-he can obtain an order of specific performance

-he can obtain a mandatory injunction

-he can affirm the contract

-he can rescind



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SOLUTION THREE

(a) Nigel is an agent.

-He is not under duty to carry out unlawful instructions, such as tax evasion.

- He is under duty to carry out lawful instructions and he breaches this duty by

selling below the reserve price.-he must act in good faith for the benefit of the principal but be breaches this duty

by making secret profits.

-The principal may sue him for money had and received

-He can sue him for damages for breach of the fiduciary duty.

-Duty not act in conflict of interest (any five)

(b) Redundancy arises by operation of the law. The employer is permitted to declare his

employees redundant in the following circumstances:

(i) the business of the company ceases

(ii) When the job that the employee is performing is diminished e.g that the

services of the employee in the accounts department is longer required since

the department is fully computerized.

Once the employer declares the employee redundant he must follow theprovisions of section 26B of the Employment Act.

All the employees should have been given 30 days’ notice informing theemployee the period within which termination will be carried out. The

employees should be afforded representation and given opportunity forconsultations. The measures taken to minimize terminations and the adverseeffects on the employees including the measures taken to mitigate the adverseeffects should be part of the consultative procedures. The employers shouldalso facilitate the employees to secure alternate employment. The employer isfurther required under the law to notify the proper labour officer 60days priorto the impending termination outlining the reasons for redundancy, numberand categories of employees affected, the period within which theredundancies are to be affected and the nature of the redundancy packages.

It is clear from the facts of the case that Dress Manufacturing Co. Ltd had notfollowed the laid down procedure provided for under the Employment Act. Inaddition the employer is statutorily mandated to pay each employee affectedby the redundancy a package. Therefore Jacket, Jeans, Skirt, and Suit cancommence an action and successful argue for the payment of a redundancypackage from the employer.

(c) There are two provisions called into play by this question, one relating to price andthe other relating time of performance of the contract:

-under S.8 of the Sale of Goods Act (SOGA), the price of the goods may be fixed bythe parties or an independent valuer. If the contract is silent as to price, then areasonable amount shall be implied into the contract, and this depends on

circumstances of each case.



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-under S. 10 of SOGA time is not important in a contract of sale of goods, unlessparties refer to it, and if they do then it becomes a condition, and if breached, thebuyer may reject the goods.

SOLUTION FOUR

(a) A partnership can be terminated through the operation of the law or provisions

provided under the Partnership Act of 1890 or through the order of the court. The

following circumstances will terminate the agreement:-

(i) Passing of time, if the partnership was entered into for a fixed term

(ii) Termination of a venture, if the partnership was entered into for a singleventure

(iii) The death or bankruptcy of a partner unless the partnership agreementprovided otherwise

(iv) Where one partner given notice to terminate the agreement but this is onlypossible if the partnership is for indefinite duration.

(v) By subsequent illegality where it becomes unlawful for the business to carryon

(vi) Where it is agreed between the parties that the agreement should beterminated

(vii) By order of the court on several grounds including permanent incapacity of apartner or if it is just and equitable to order dissolution of the partnership.

(b) Under Section 74 CA 388 a company may alter its share capital by the following

procedure:-

(i) its articles of association must permit the alteration if not the first step wouldbe to alter the articles

(ii) the company must hold a meeting and pass a special resolution

(iii) lodge the special resolution and the amended article to the registrar of companies within 15 days

(v) the registrar will issue a new certificate of share capital to the company.

The company may use any of the 3 methods provided for under S74 CA 388.

(i)

consolidate or divide all or nay of its share capital into a larger amount thanits existing shares

(ii) subdivide its shares, or nay of them into shares of smaller amounts then isstated in the certificate of share capital

(iii) cancel shares that have not been allotted and diminish the amount of itsshare capital by the amount of the shares so cancelled.

The company can then proceed to make book entries to reflect the change to

depreciate the assets by the amounts stated.

(c) Yoyo may be advised to acquire preference shares which match his taste. This is

because of the following advantages:



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they carry a prior right to receive an annual dividend of a fixed rate

the right to receive a dividend is cumulative, unless a contrary intention isstated.

they enjoy a right to return of capital

However, they carry the following pitfalls:

if the company is liquidated, arrears of unpaid cumulative preference dividendscease to be arrears.

there is no entitlement to participate in additional dividends over and above thefixed rate.

no right to attend and vote at meetings

SOLUTION FIVE

(a)

A public company incurs greater expenses than a partnership at formation andthroughout its life, even on dissolution. A Partnership does not incur a lot of expenses.

A public company is a separate legal personality distinct from the members,while a firm and individual partners do not enjoy this personality

A public company has unlimited membership while a partnership is limited and20, unless it is a professional body, such as the Zambia Institute of Chartered Accountants, the law Association of Zambia, etc.

A public company is formed by a process of registration with the Registrar of

Companies, Patents and Copyrights. A partnership is formed by express orimplied agreement of the parties.

In a public company members are not entitled to take an active part in themanagement of the company unless they are also directors, where as a partneris an agent of the firm, which binds the firm with his acts.

(b) -Joint liability means that in an action where there is more than one defendant, theliability is shared by all the defendants. Suing one and obtaining judgment does notprevent the plaintiff from bringing an action against others later.

‘Several liability’ means that each individual defendant is liable and the plaintiff can

sue each defendant successively.In partnership law, every partner is liable in tort jointly with his co-partners for allliabilities of the firm, and he is also liable severally. In contract, each partner is liable jointly for the debts and obligations of the firm incurred while he is a partner, andafter his death, his estate is also liable severally for any such debts and obligationswhich remain unsatisfied, subject to prior payment of his separate debt.

(c) Appointment of a Director

Directors of a company are appointed by the members of the company to direct andadminister the company. Each company must have at least two directors. The first

directors are named in the application of incorporation of the company. They willhold office until the first AGM. Subsequent directors will be appointed at the AGM.



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Normally one third of the directors will resign and can be eligible for reappointment.

SOLUTION SIX

(a) Circumstances under which the court may order dissolution of a company are:

- Company’s inability to pay debts

- when a company has by special resolution decided to be wound up

- when the company does not commence business within 12 months.

- At expiry of a fixed term venture of the company.

- where membership of the company is reduced below 2.

- if it is just and equitable to wind up the company

- on the petition of the Registrar

- when the company is involved in illegal dealing.

(b) (i) - One who qualifies may be a Zambian or a foreigner resident in Zambia.

- one who does not qualify is a sole director of a company, who cannot beappointed as a company secretary.

(ii) Roles of a Company Secretary

- Summon meetings at the instance of the Board of Directors by issuing reasonable

notice

- Prepare agenda in consultation with the chairman.

-

Reading of the Notice convening the meeting- Record minutes

- File important returns

- Send copies of minutes to members

(Any five of these but, list is not exhaustive)

(c) An extraordinary meeting may be convened for any reason, though usually forbusiness of some special importance, such as requisition by a resigning auditor.When there is serious reduction of capital of the company, for instance when thecalled up share capital falls below half of the net assets of the company, thedirectors may call an extraordinary meeting to chart the way forward.

END

dec 2012 (l7) business and company law

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