Company law revision question and answer

Martha is engaged in the promotion of a company. She seeks your advice on several matters relating to the promotion of a company. You are required to advise her on the following matters:

(a) The restrictions upon the choice of a corporate name with which a promoter must comply. (8 marks)

(b) The legal duties of a promoter with regard to her responsibility where she sells her own property to the company she is promoting. (6 marks)

(c) The promoter‟s right to payment for her services the company after
incorporation.
ANSWER
The name chosen must have “Limited” or “Ltd” as the last word thereof for companies limited shares or guarantee.
• The name must be undesirable in the opinion of the registrar.
• It must not be too similar to that of an existing company.
• It must not contain the term co-operative, its equivalent or any abbreviation thereof.
• It must not suggest any patronage of the president, government ministry, department or local authority.
• It must not suggest a criminal or moral intent or purpose.
• It must not contain the term “bank,” “insurance” or hotel unless the company proposes to carry on such business.
• It must not mislead the public in any way.
• It must not contain the term “national” or “international”. However, the latter may be used in certain circumstances.

(b)
• As a fiduciary Martha is bound to:
o Actbonafidefor the benefit of the company in formation.
o Disclose her personal interest in the contract to an independent board of directors or in the prospectus. She must disclose any secret profit made failing which she is liable to account the same to the company.
• Render proper accounts on the application of monies or assets coming to her hands during the promotion exercise.

(c)
A promoter is not entitled to any remuneration for incorporating a company. This is because there is no contractual relationship between the promoter and the company. In any event the company did not contract for her services. However a promoter may be rewarded in other ways, for example; being offered deferred shares, freedom to sell assets to the company at an over valuation, being appointed director or liberty to sell over-valued assets to the company in return for fully paid shares.

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