Company law revision question and answer

Mr. and Mrs. Matanguta intend to form a limited company known as M and M Hardware Limited. They approach you and seek you advice.

Advise them on the following issues:
(i) What is the meaning of a private limited company according to the Companies Act?
(ii) What are the advantages of forming a private company as opposed to a public company?
(iii) Assuming Mr. and Mrs. Matanguta wish to convert the private company into a public company, what would they be required to do?

ANSWER
Under section 30 (1) of the Companies Act, a private company means a company whose articles of association:
• Limit the number of members to 50 excluding current and former employees who are members.
• Restrict the right to transfer its shares.
• Prohibit any invitation to the public to subscribe for its shares or debentures.
(ii)
• Original members are able to control membership.
• Members retain control as shares are not freely transferable.
• It is entitled to commence business at anytime after incorporation.
• It is subject to less formalities e.g. need not publish accounts or hold the statutory meeting.

(iii)
• Mr. and Mrs. Matanguta must comply with the provisions of the Companies Act. The company must hold an extra ordinary general meeting to pass a special resolution to amend or alter the provisions of section 30 (1) of the Act.
• The company ceases to be private on the date of the resolution and must within 14 days thereof deliver to the registrar for registration either.
o A prospectus containing the particulars of Part I and II of 3rdschedule or
o A statement in lieu of prospectus containing the particulars of Part I and IIof the 2nd schedule.

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