Company Law Flashcards
what is a company law
This is the set of rules that control how businesses are formed, registered, managed and liquidated.
OHADA: Harmonization of business law in Africa 17 October 1993
What are the forms of businesses recognize by the OHADA law
OHADA law classifies business entities into registered and unregistered companies.
the uniform act on commercial company and economic interest groups makes provisions to 4 types of registered companies namely:
- Ordinary Partnership: section 270 of the OHADA uniform act on commercial companies and economic interest groups defines this form of business entity as one in which all partners and traders have unlimited liabilities to the debt of the business debt. its formed by a contract into by at least 2 partners an individual cannot form this type of business entity. it can have no limited number of partners. In this business entity each partner is individually liable to the full extend of the business debt.
the law does not impose a minimum registered capital on this form of business. - Limited partnership:
this is a type of business entity under the OHADA law with two categories of partners namely active partners. whose liability towards the debts of the business are unlimited, and sleeping or inactive partners whose liability towards the debts of the business are limited to their investment in the business. the daily functioning of this entity is in the hands of the active partners. - Private limited company (Ltd or Sarl):
under section 309 of the OHADA uniform act is a business organization in which shareholders are liable to the debts of the company only up to the extend of their shares in the company and their right are represented by such shares. section 37 of the uniform act gives the rights to an individual to create a Sarl. if that individual can raise the start up capital. the startup capital is 1 million francs which is divided into shares with a face value of 5000frs. the number of shares in a Sarl is limited to 50 shares. it can only be transferred with the unanimous concern of all the shareholders. - Public Limited Company (Plc or SA): is defined under the section 385 of the OHADA uniform act as a company in which liability of each shareholder for the debts of the company is limited to the amount of shares he has in the company and his rights is represented by such shares. a single person can creat a SA as long as he con raise the startup capital. The minimum registered Capital is 100 million francs divided into shares with a face value of 10000frs each. the shares can be easily transferred from 1 shareholder to another.
Unregistered companies under the OHADA law:
OHADA law makes provisions for two forms of unregistered companies
- Joint Venture:
it is a kind of business arrangement in which 2 or more individuals or business comes together to carryout a project that each one of them individually will not be able to execute perhaps it is too expensive or complicated. The companies that come together to form this joint venture each maintains their separate legal entity. once the project is accomplished, the arrangement comes to an end. Each partner is solely responsible to third parties. - Defector Companies:
This is a company which cannot be registered because the founders failed to respect law. It’s an incompletely formed company. this is a company where two or more individuals form a company recognized by OHADA law but do not fulfill all the requirements for it to acquire legal personality. its’ personality is buried in that of its shareholders. - Company Limited by Guaranteed:
This could be a Sarl or a Sa where the liabilities of shareholders is not only limited to the shares invested in the company but extend to an agreed guaranteed amount to enable the company settle its debts if in case of winding up, it owes third parties.
Differences between SA and SARL
- Shares and Shareholders:
SA :
- Unlimited shareholders
- Face value for a share is 10k
- Shares are freely transferable
- Shares can be traded on a stock exchange
SARL:
- shareholders are limited to 2 - 100
- face value for a share is 5k
- shares are not freely transferable but can only under majority vote
- shares cannot be traded on a sock exchange.
- Capital requirement
SA:
The start up capital for a SA is 100 million francs with face value of 10k per share.
SARL:
the startup capital for a SARL is 1 million francs with face value of 5k per share
- Access to capital
SA:
it have greater access to capital markets. they can raise funds by issuing shares to the public. they can attract investors due to the marketability in their shares.
SARL:
have limited access to public capital markets. they typically rely on funding from their shareholder’s loans from financial institutions or other private sources
- Disclosure and reporting requirements:
SA:
they are subject to more disclosure and reporting requirements. they are required to publish financial statements and other relevant into ensure transparency for shareholders and the general public.
SARL:
it have fewer disclosure and reporting obligations. its focuses its primarily on maintaining records for internal use and compliance with tax and regulatory requirements.
- Governance:
SA: its managed by a board of director which are responsible for making strategic decisions. the board of directors are elected by the shareholders and it appoints officers to handle the day-to-day operations.
SARL:
its managed by one or more manages who can be shareholders or external individuals. the company article of association determines the management structure.
Conditions for formation of commercial companies
The conditions to be fulfilled in order for a company to be formed under the OHADA law relate to the capabilities of shareholders, the articles of association, the registration process, amount of shared capital, types of contributions, the registered office and the durations of the company.
Shareholders: any individual or moral person can acquire shares in a company as provided for under article 7 of the uniform act. Minors and person not capable of going into a contract may not be shareholders in a commercial company. article 9 forbids both husband and wife to acquire shares in an unlimited liability company such as a SAEL and SA.
Registered Office; each company must have a registered office where it can be contacted. it can be located where the company carries out its activities or any where decided by the shareholders.
The duration of the company must be stated in the articles of association as provided for in Article 28 of the Uniform Act, the duration must not be more than 99 years. after this period, the company has to be dissolved as provided for under Article 33 of the Uniform Act. the possibilities of modifying the articles of association and extending the period of the company is possible.
Contributions; each shareholder is required to contribute the share capital of the company and in return issued shared corresponding to his or her contributions. the uniform act provides 3 kinds of contributions, namely; contribution in cash, kind and in services.
Shares: this gives shareholders the right to share in the profit making of the company and when the company closes down. the right to share in the net assets of the company. it gives them the right to participate in collective decision making of the company and share in the loses of the company. the rights and obligations of shareholders is proportionate to the number of shares.
Registration Process:
article 97 of the uniform act requires all companies to be registered between 1 month after they have been created except for joint ventures. the company gains its legal personality from the date of registration with trade and personal property credit registry (TPPCR).
What are the documents required for the registration of a company
The registration of a business under OHADA shall require the following documents
i. 2 certified copies of articles of associations
ii. 2 certified copies of certificate of payments of shares
iii. 2 certified copies of list of managers, directors or partners who have limited liabilities.
iv. 2 certified copeis of certificate of non-conviction of managers, partners and shareholders.
v. An afore authorization to operate the business where applicable.
The above documents shall be submitted to the TPPCR office of where the business entity has its registered office and if the TPPC is satisfied with the application, it shall issue a certificate of incorporation or authorization. this is shall give the company a legal personality.
Procedures for registration of a company.
The practical procedures for the registration of a company in Cameroon are as follows:
i. a lawyer will write to the commercial bank requesting it to open a bank account for a company in creation.
ii. Shareholders of the business are required to deposit the startup capital into the bank account and obtain a receipt of deposit.
iii. the founders will hire the services of a notary to establish the artices of association.
iv. The founders or lawyer shall submit their application with the supporting documents to the TPPCR or one-stop-shop.
v. Once the business is registered the owners shall have the incorporation published in newspapers allowed to publish legal notices.
vi. After incorporation, the owners shall apply for a tax exemption for the period of 2 years but the business will still keep declaring its business activities.
vii. After the exemption of tax payment is obtained, the business shall apply for a tax payers card.
viii. The business shall register its workers with the national insurance fund (CNPS) so that they shall benefit from social security or pension.
What is the principle of corporate personality
Once a business is incorporated, it becomes a legal person with its own rights and obligations separate from that of its shareholders. it is significant as it carries certain significant consequences.
This business entity is different from its shareholders, it can enter into a valid contract with its shareholders as in the case of Salomon vs Salomon co Ltd (1897).
The advantages of incorporating a business is listed below:
- once a company is incorporated, the liability of shareholders becomes limited to their investment in the company.
- once a company is incorporated, it acquires the ability to own its own property.
- it can sue and be sued by law
- it acquires a nationality and becomes a citizen of a particular country. The country in which it has its incorporation.
- there is a greater possibility of transfer of shares and perpetual succession.
Rights and obligations of shareholders in a commercial comany
Rights:
There are two types of rights;
i. Pecuniary rights
this are the financial rights a shareholder has in a company
- share in the profit making of the company
- share in the net assets of the company after creditors have being settled or after bad debt issues.
- sale of shares: shareholders have the right to sell their shares to other parties, either privately or on a stock market if the shares are publicly traded. this provides an opportunity for shareholders to realize a financial gain from their investment.
- rights to information: shareholders have the right to access the company’s financial statements, performance and any other relevant financial information.
ii. non pecuniary rights
- voting rights based on number of shares
- attend ordinary and extraordinary meetings
- participate in decision-making
Obligations:
- contribute to the capital of the company in the form of shares
- Share in the losses of the company
- contribute to the smooth functioning of the company
- attend all meetings of shareholders.
