1-Formation of a company Law Notes for Malawi

Company law

1. CHAPTER ONE: Formation of a Company
(A selection of factual past questions)
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1.Union Bus Company (UBC), once a successful passenger transport company, is now on
the verge of liquidation mainly due to stiff competition from minibus operators. Of
immediate concern to UBC is its failure to pay its suppliers most notably General Tyre
Merchants Ltd (GTM) whom UBC had contracted to supply it with K10 million worth
of tyres. In its present financial position, the only option available to UBC is to have the
sale agreement rescinded without attracting a legal suit for loss of business. In their
desperate bid to justify the intended rescission of the contract, UBC conducted a search
at the Registrar of Companies. To UBC’s delight the search has revealed that while GTM
is a duly registered company No. M0922490, some formalities required for registration of
a company had not been fulfilled. Mr Chifisi, the Managing Director of UBC, has
approached you for advice eager to confirm his conviction that although registered,
GTM Ltd is an illegal company and therefore cannot enforce or in any way sue on the
contract.
Required
Advise Mr Chifisi whether or not the information discovered justifies the rescission of
the contract. (7 marks- Dec 2004) (10 marks- June 2007) (7 marks- Dec 2008)
2.Mr Kamowa, a chartered accountant, was engaged by a consortium of businessmen “to
do everything necessary” for the establishment of a limited liability cement
manufacturing company to be known as Kumanga Ltd. The consortium put a lot of
money and other resources at Kamowa’s disposal but also urged him to be accountable
and sternly warned him against making any secret personal profit out if the project.
Required
(a)Mention any four essential activities that Kamowa, as a promoter, will have to
undertake in the course of establishing Kumanga Ltd. (6 marks- June 2003) (6
marks- Dec 2006)
(b)Was the warning to Kamowa by the consortium against making secret personal profit
out of the project valid? (6 marks- June 2003) (6 marks- Dec 2006)
During the establishment of Kumanga Ltd not only did Kamowa make secret personal
profits, but also failed to pay several suppliers with whom he had entered into contracts
although fund for such payments had already been provided for by the consortium.
Makombo Ltd was one such frustrated supplier but having discovered recently that
Kamowa was a mere promoter, has resorted to sue the newly formed and operational
Kumanga Ltd for payment.

Required
(i)Advise Kumanga Ltd on the recoverability of the secret profits from
Kamowa. (4 marks- Dec 2006)

2. (ii)Advise Makombo Ltd on the proposed legal suit for payment against (4
marks- Dec 2006)
3.Wanangwa Jere, acting as a promoter for a prospective fruit juice company to be known
as Golden Canners Co. Ltd, borrowed K10 million from Horizon Investment Bank Ltd
in March 2006. The loan agreement expressly stipulated that Wanangwa was contracting
the loan as an agent of a group of investors of the proposed company. The conviction of
the bank was that the incorporation of the company was underway. In fact, on a number
of occasions, Wanangwa had shown Mr Brown, the Bank Manager, a number of legal
documents to that effect. The loan was repayable by April, 2008 the bank having been
convinced that by then the company would have been incorporated and be in apposition
to effect the repayment. Contrary to expectations, Golden Canners Co. Ltd is yet to be
incorporated and consequently no single instalment has been paid on the loan to date.
Mr Brown is now under intense pressure from the Head Office, Durban, South Africa,
to have the loan recovered immediately.
Required
Advise Mr Brown on the recoverability of the loan in the circumstances. (10 marks- Dec
2008)