Unit: Company law
18 Questions(ii) Outline two ways in which a company auditor might receive his remuneration.
Required:
(i) Highlight three legal consequences of contravening this provision.
(ii) Summarise two exceptions to the above statement.
Advise on the legal implication of each of the following situations:
(i) Vulture's son has recently turned eighteen and Vulture wishes to appoint him a director of the company.
(ii) The company is considering the purchase of a substantial quantity of goods from Fly Limited in which Sparrow has a large shareholding though he is not a director. Peacock and Vulture are unaware of Sparrow's interest in Fly Limited.
(iii) In view of adverse publicity, Vulture and Sparrow decide to exclude Peacock from participating in the company's affairs.
Preference shares are shares that provide holders with preferential rights to dividends and repayment of capital over ordinary shareholders. They can be classified as participating or non-participating, based on whether they share in surplus profits beyond the fixed preference dividend.
| Feature | Participating Preference Shares | Non-Participating Preference Shares |
| Right to Dividends | Entitled to fixed preferential dividend and additional dividends if the company declares surplus beyond ordinary dividends. | Entitled only to the fixed preferential dividend; no right to share in surplus profits. |
| Participation in Surplus | Shareholders participate in the distribution of remaining profits after ordinary and preference dividends are paid. | Shareholders do not participate in surplus profits; they only receive the stated dividend. |
| Capital Redemption | Rights on redemption are usually fixed as per terms of issue; may also have a bonus if specified. | Rights on redemption are limited to the nominal value or stated redemption price. |
| Risk Exposure | Higher potential reward due to participation in surplus; risk is lower than ordinary shares because of fixed dividend priority. | Lower potential reward; risk is moderate because only fixed dividends are guaranteed before ordinary shareholders. |
| Example | A company declares 10% fixed preference dividend, but also distributes additional 5% from profits; participating preference shareholders receive both. | A company declares 10% fixed preference dividend; non-participating preference shareholders receive only 10%, no extra. |
The main difference lies in sharing surplus profits:
Participating preference shares allow holders to benefit beyond the fixed dividend.
Non-participating preference shares limit holders to the fixed dividend only, without any additional participation.
(ii) Jairo Chai would like to start a company. He has approached you as a student of company law to guide him through the process.
With reference to the above statement, describe the procedure of registering a limited liability company.
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