Happy co. Ltd was incorporated in January 2000 with an authorized share capital of 50,000,000 of one shilling per share which is fully issued and fully paid. The original articles of association gave the directors authority to issue the initial authorized share capital.
The directors are proposing to purchase a plot from Mr Karan for KShs.3,000,000 and to finance the purchase a fresh issue of 2,000,000 shares at one shilling per share to
Mr. Karan. In order to develop the plot they propose to raise further capital issuing a further 2,000,000 shares of one shilling each. The directors propose that 1,000,000 of the shares should be offered to existing shareholders and 1,000,000 to the general public. The shares to Mr Karan, the existing shareholders and to the general public are to be offered at one shilling and fifty cents each.
Explain the preliminary checks which the directors must make before proceeding with these proposals. State the steps the directors must take to give them effect.
Since authorized or registered capital of Happy Company Ltd. is fully issued the company must increase the same.
The directors must satisfy themselves that the company‟s articles authorize such
increase pursuant to Section 65 (1 ) of the Act.
The increase of capital must be authorized an ordinary resolution of members in general meeting.
Directors must therefore convene a general meeting to secure the resolution.
A copy of the resolution must be delivered to the registrar for registration within 30 days of its passing so as to register the increase.
For the purpose of allocating or issuing shares directors must satisfy themselves they have the power to do so.
Directors are generally authorized to allot shares, otherwise the same must be authorized an ordinary resolution of members in general meeting.
The allotment in this case must be authorized an ordinary resolution of members in
general meeting and copy thereof must be delivered to the registrar for registration.
In order to disapply pre-emption rights, so that some shares can be issued to members of the public and not to existing members the same, must be authorized a special resolution of members in general meeting.
In order to issue shares to Mr. Karan in return for the plot, the directors require an independent valuation of the plot since consideration is non-cash.
The report must be made or procured a person qualified for appointment as auditor of the company and must be submitted to the company within 6 months before allotment.