Work-based Assignment

Work-based Assignment

Business Law

1. Discuss the meaning of prospectus and list its features/characteristics.

A prospectus is an in-depth description of a business. The prospectus should always include information on the business’s properties and the competition. Additionally, a prospectus should have a list of directors and their salaries and allowances. Any company wishing to issue securities to the public must file a prospectus with the Securities Exchange Commission. A company’s prospectus has important facts and relevant information to help investors make informed decisions.

The features of a prospectus are:

• It is a document that serves to invite the members of the public to subscribe to shares or debentures of the company.
• It includes any circular, notice or advertisement inviting public deposits.
• It is a document through which a company procures the share capital required to continue its activities.

2. What are the modes of winding up a company?

Winding up a company is the process of putting an end to the existence of a company. The process includes dissolving the company’s assets during which the assets are collected, and any unsettled debts paid off. If any surplus is left after all liabilities have been settled, then this surplus is distributed among members per the members’ rights.

In Kenya, there are three modes of winding up a company:

1. Compulsory winding up by a court of law.

Also known as compulsory winding up, this mode occurs if the court passes a winding-up order. A court may choose to wind up a company should the company fail to commence its business activities within a year of its incorporation. The court’s power is discretionary since the court may opt-out of winding up the company if such a dissolution is opposed to the company’s or the public’s interest.

1. Voluntary winding up by the members.

This mode of winding up involves the members or creditors choosing to dissolve the company without the court’s interference. If the company, for whatever reason, passes a special resolution to wind up, then the company may be dissolved. In as much as members or creditors have their terms of winding up, they may apply to the court for directions if necessary.

1. Winding up under court supervision.

Under this mode of winding up, the court must call a meeting to make certain the wishes of the creditors and the contributors. The court will often step in to supervise a voluntary winding up if there is a considerable dispute between the creditors and the company.

3. Write short notes on the following:
4. Share capital

Share capital refers to any funds a company raises in exchange for issuing an interest of ownership in a company in the form of shares. The two main types of share capital are preferred stock and common stock. Preferred stock refers to shares in a company’s equity which entitle the holder to a fixed dividend. Common stock, on the other hand, refers to shares in a company’s equity that vary depending on the company’s profitability. If a company is dissolved, owners of preferred shares get paid back before common shareholders.

1. Debentures

Debentures are a type of debt instrument that is unsecured by any form of collateral. Debentures, owing to their lack of collateral backing, have to rely on the creditworthiness of the issuer. Governments and corporations issue debentures to raise funds.

1. Share guarantees

Share guarantees may be applied inventory or to dividends. When applied to inventory, guaranteed shares or guaranteed stock refers to commonly purchased items whose supply a company maintains for its customers to buy. When applied to dividends, guaranteed shares refer to infrequently used common or preferred stock whose dividends are secured by one or more companies.

1. The doctrine of indoor management

This doctrine proposes that any individual dealing with a company knows the articles and memorandum of that company. As such, if the said individual enters into a transaction with another company under terms that depart from the extent permitted by preset statutes, then such a transaction cannot be binding on the company.

1. Lifting the corporate veil

Lifting the corporate veil is a general rule that states that a company is a legal person separate from its members. This impassable rule serves to protect the members from the liability of the company.

References:

‘What Is the Difference Between a Prospectus & a Business Plan?’ https://bizfluent.com/info-7767849-difference-between-prospectus-business-plan.html (February 20, 2020).

‘Company Prospectus: Features, Contents and Mismatch’. http://www.yourarticlelibrary.com/company/prospectus/company-prospectus-features-contents-and-mismatch/70419 (February 20, 2020).

‘Prospectus | Meaning & Examples | Investing Answers’. https://investinganswers.com/dictionary/p/prospectus (February 20, 2020).

‘Kenya Legal Resources: WINDING UP OF COMPANIES’. http://www.kenyalawresourcecenter.org/2011/07/winding-up-of-companies.html (February 20, 2020).

‘The Types of Share Capital — Accounting Tools’. https://www.accountingtools.com/articles/what-are-the-types-of-share-capital.html (February 20, 2020).

‘Debenture Definition’. https://www.investopedia.com/terms/d/debenture.asp (February 20, 2020).

‘Guaranteed Stock Definition’. https://www.investopedia.com/terms/g/guaranteedstock.asp (February 20, 2020).

‘Kenya Legal Resources: DOCTRINE OF INDOOR MANAGEMENT’. http://www.kenyalawresourcecenter.org/2011/07/doctrine-of-indoor-management.html (February 20, 2020).