This course is primarily concerned with companies as defined in the companies Act, Cap. 2015 of the Laws of Kenya. These are companies which are formed and registered under that Act. There are companies incorporated otherwise than under the companies Act. Some Companies are formed under specific Acts of Parliament. The Parastatal bodies were created under statutes as bodies corporate. Most companies derive their existence via the process of registration under the companies Act, 2015.

EARLY FORMS OF BUSINESS ORGANISATIONS

Early forms business organisation owing their existence to Royal Charter were primarily Ecclesiastical bodies or public bodies such as boroughs. Trading on Joint Account was accomplished through forms of partnerships known as the commenda and the societa and later, through the company. The commenda was a partnership in which one of the partners supplied the capital in money or goods without personally taking part in the management of the venture. The financier advanced a sum of money to the active trader upon the understanding that he should share in the profits of the enterprise, but with no liability beyond the capital advanced.

The societies was a form of Association which developed into the present day partnership, each partner being an agent of the others and liable to the full extent of his private fortune and partnership debts charters of incorporation were sought in order to give members a monopoly over the trading and to give the Government authority to regulate and control foreign trade and colonisation. In this form of organisation, the proprietors pooled their stock and traded on the basis of the joint stock. This is developed. It received its charter in 1600, granting it monopoly of trade with the East Indies. This kind of Company represented state interests, formed primarily for the government of a particular trade and the more modern type of company, designed to trade for the profit of its members. On the other hand, charters of incorporation conferred certain advantages. A corporation was capable of existing in perpetuity, it could sue outsiders and its own members, and the possession of a common seal facilitated the distinction between the acts of the company and those of its members.

COMPANY: A DEFINITION

The companies Act, 2015 Section 3 defines a company to mean "a company formed and registered under this Act or an existing company". This definition is vague. In legal theory the word company demands an association of a member of persons who come together for some common object or objects. A company is an artificial legal person created by complying with the provisions of the companies Act, 2015 of the Laws of Kenya.

FUNDAMENTAL CONCEPTS

IN COMPANY LAW

There are two fundamental concepts on the operational aspects of company law. These are the concept of

Legal personality: A company must be treated as a person in its own right. This separates and creates a distinction between the personalities which constitutes the created entity. This concept also incorporates other aspects such as life and death. A legal person is any person, human or otherwise which has rights and duties. The Non human persons are called corporations. The word corporation derives from the latin word, 'corpus' meaning body. These are legal persons brought into being by artificial process of the law

Limited liability: Liability means the extent to which a person can be called upon to account for something. A person can be called upon to pay the amount of the debt or to account for a debt upto a certain amount. In the context of company Law, liability can be limited by shares or guarantee. A share is an interest which an investor has in a particular company. Under Section 6 of the companies Act, Cap. 2015 a limited liability company is one in which the liability of its members is limited by the memorandum to the amount, if any, unpaid on the shares respectively held by them. This is a company limited by shares. A share is the interest which someone has in a company measured in monetary terms.

The members in a company may sometimes enter an agreement where they may agree to contribute towards the company's assets while they are still members to enable the company to discharge its debts. They cannot be called upon to pay more than they undertook to pay. Such a company is limited by guarantee. Under section 7 of the companies Act, Cap. 2015, a company limited by guarantee is a company having the liability if its members limited by the memorandum to such amount as the members may respectively thereby undertake to contribute to the assets of the company in the event of its being wound up.

In the event that a company does not have this guarantee or liability then it is an unlimited company. Thus section 8 of the companies Act, 2015 defines an unlimited company as "a company not having any limit on the liability of its members."

Nearly all principles in company law are meant for:

(a) Protection of creditors

(b) Protection of investors.

These are the only groups of people protected by the Act. However, when a company is formed its activities may affect the public or its employees. Whether or not companies should have the interest of the community put into account is still a matter of debate.

FORMS OF BUSINESS ORGANISATIONS

There are various legal forms that a business may take VIZ:

(a) Sole Trader

(b) Partnerships with 2 or more people

(c) Limited liability company

SOLE TRADER:

The sole trader is the single owner of the business. He may be on his own or may be assisted by other people mainly members of his family. He procures the necessary capital on his own, makes all the decisions necessary in running the business. He gets the profits alone and equally shoulders any houses. Since a sole trader has no Association in law, he is not in any way regulated by any special rule of law.

PARTNERSHIPS

A Partnership is a relationship that subsists in an association of between two and twenty members in a trading partnership, two or more professional business persons with a view to showing profits. Firms of professional persons like dentists, lawyers, Accomutants and surveyors have no limitation of membership. The partnership Act, Cap. 29 defines a partnership as the relation that subsists between two or more persons carrying on business in common with a view to profit. Under Section 389 of the companies Act, Cap. 486, "No company, association or partnership consisting of more than twenty persons shall be formed for the purpose of carrying on any business that has for its object the acquisition of gain by the company, association or partnership, or by the individual members thereof, unless it is registered as a company under [the] Act. The effect of this section is to prohibit the formation of a partnership of more that 20 people. In case of Forth Hall Bakery Ltd v. Wangoe the Plaintiffs brought an action to recover certain sums of money from the Defendant. During the hearing, evidence disclosed that the Plaintiffs were an association consisting of more than 45 people trading in partnership for gain and that the firm was not registered under the registration of Business Names Ordinance. The counsel for the Defendant thereupon submitted that the action was not properly before the court; that the association was illegal as the companies ordinance prohibited an association or partnership consisting of more than twenty persons formed for the purpose of business that has for its object the acquisition of gain unless it is registered as a company under the ordinance and that the court had no power to grant relief held;