April 2026 CPA CS Company Law Past Paper Answers

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CERTIFIED PUBLIC ACCOUNTANTS (CPA)
CERTIFIED SECRETARIES (CS) INTERMEDIATE LEVEL
COMPANY LAW

THURSDAY: 23 April 2026. Morning Paper. Time Allowed: 3 hours.
This paper consists of five (5) questions. Answer ALL questions. Marks allocation to each question are shown at the end of the question. Do NOT write anything on this paper.

QUESTION ONE
(a) State FOUR legal consequences of registering a company (4 marks)
(b) Explain THREE legal consequences of incorporation of a company. (6 marks)
(c) Renewable Vision Ltd. was recently formed by a group of investors intending to manufacture solar-powered irrigation equipment. Before the company was incorporated, the promoters entered into the following transactions in the name of the proposed company:
1. A contract for lease of factory premises.
2. A contract for supply of specialist machinery.
3. A contract for employment of a technical manager.

After incorporation, a dispute arose as to whether the company was bound by the transactions entered into before registration. One of the shareholders also claimed that the company had started undertaking activities not contemplated in its constitute documents.

Required:
(i) Advise the parties on THREE legal effects of contracts entered into on behalf of a company before its incorporation. (6 marks)
(ii) Explain the legal significance of the articles of association. (4 marks)

QUESTION TWO

(a) With reference to the Companies Act, explain the following aspects of membership of a company:
(i) Acquisition of membership. (2 marks)
(ii) Rights of members. (2 marks)
(iii) Cessation of membership. (2 marks)

(b) Distinguish between:
(i) “Variation of class rights” and “classes of shares”. (4 marks)
(ii) “Ordinary shares” and “preference shares”. (4 marks)

(c) Apex Manufacturing Ltd., a public company invited members of the public to subscribe for its shares. Due to financial pressure, the directors allotted shares before full compliance with the statutory requirements relating to a public offer. Several applicants later complained that they were not given all the material information necessary to make an informed investment decision.

Required:
(i) Explain TWO legal consequences of the company’s irregular allotment of shares. (4 marks)
(ii) Advise the investors on TWO remedies available to them. (2 marks)

QUESTION THREE

(a) Summarise FOUR purposes of an annual general meeting of a company. (4 marks)
(b) Explain THREE circumstances under which an extraordinary general meeting may be convened.
(6 marks)
(c) Titan Ltd issued debentures secured by a floating charge over all its assets in order to raise capital for expansion. The company has since defaulted in repayment of the loan. The debenture holders now intend to enforce their security. At the same time, a group of minority shareholders has complained that the affairs of the company are being conducted in a manner oppressive to them.
Required:
(i) Explain THREE remedies available to the debenture holders following the company’s default.
(6 marks)
(ii) State TWO remedies available to the minority shareholders. (4 marks)

QUESTION FOUR

(a) A foreign company that is incorporated in Canada intends to establish a place of business in Kenya.
Required:
Explain FOUR legal requirements which the company must comply with before commencing business in Kenya. (8 marks)
(b) Metro Engineering Ltd. recently secured a large loan from a financial institution. At the board meeting convened to approve the transaction, one of the directors participated fully in the deliberations and voted in favour of the borrowing. It later emerged that the director had a personal interest in the lending institution which he had not disclosed to the board.
Required:
(i) Evaluate THREE legal implications of the director’s failure to disclose his interest. (6 marks)
(ii) Explain the rule in Royal British Bank v. Turquand and its relevance to the lender in the above circumstances. (4 marks)

(c) State TWO roles of a company secretary in ensuring compliance with statutory requirements.
(2 marks)

QUESTION FIVE

(a) Explain THREE circumstances in which inspectors may be appointed to investigate the affairs of a company. (6 marks)
(b) Analyse THREE advantages of corporate restructuring through a merger. (6 marks)
(c) Agroline Ltd. is a private company limited by shares. Over the last two years, the company has suffered continuous financial losses and is unable to pay its debts as they fall due. Several creditors have served formal demands, but the company has failed to settle the amounts due. The creditors are now considering legal action against the company.

Required:
(i) With reference to Agroline Ltd., financial position distinguish between “administration” and “liquidation” as insolvency procedures that may be applied to the company. (4 marks)
(ii) Explain TWO legal implications of a liquidation petition presented against the company by its creditors. (4 marks)