Somaliland Company Law

REPUBLIC OF SOMALILAND

THE COMPANIES LAW OF SOMALILAND (Law No. 25/2004)

THE HOUSE OF REPRESENTATIVES

Having seen: articles 11^th, 38^th,and 39^th of the constitution.

Having heard: the proposal of the Minister of Commerce and Industry

ENACTED THIS LAW:

A law of amend and consolidate the Law relating to the incorporation, regulation and winding up of companies limited by shares or by guarantee

PART I

PRELIMINARY

Section 1- Short title

This Law may be cited as the Companies Law.

Section 2 – Interpretation

In this Law, except where the context otherwise requires –

“Articles” means the articles of association of a company as generally framed or as altered by special resolution, including so far as they apply to the company, the regulations contained in table A of the first Schedule.

“certificate of incorporation” means a certificate delivered by the registrar of companies which certify that the company has been duly registered under this Law and that the company is limited.

“company” means a company formed and registered under this Law, or an existing company;

“company limited by guarantee” and “company limited by shares” have the meaning assigned to them respectively by subsection (2) (a) and (b) of section 4 of this Law.

“court” used in relation to a company means the court having jurisdiction to wind up the company;

“debenture” include debenture stock, bonds and any other securities of a company whether constituting a charge on the assets of the company or not;

“director” includes any person occupying the position of director by whatever name called;

“document” includes summons, notice, order, and other legal process and registers;

“existing company” means a company formed and registered under any of the former Companies Law.

“financial year” means, in relation to any body corporate, the period in respect of which any profit and loss account of the body corporate laid before it in general meeting is made up, whether that period is a year or not;

“foreign company” means a company incorporated elsewhere than in Somaliland which after the commencement of this Law or before that commencement, establishes or has established a place of business in Somaliland;

“limited company” means a company limited by shares or a company limited by guarantee;

“memorandum” means the memorandum of association of a company as generally framed or as altered from time to time;

“minimum subscription” has the meaning assigned to it by subsection (2) of section 43 of this Law.

“officer” in relation to a body corporate, includes a director, manager or secretary;

“public company” and “private company” have the meaning given by section 4 (3) of this Law, unless the context otherwise requires;

“prospectus” means any prospectus, notice, circular, advertisement or other invitation, offering to the public for subscription or purchase any shares or debentures of a company;

“registrar of companies” and the “registrar” mean the registrar of companies or other officer performing under this Law the duty of registration of companies in Somaliland;

“share” means share in the share capital of a company and includes stock except where a distinction between stocks and shares is expressed or implied. Shares represent a shareholder’s ownership of a company ;

“statutory meeting” means the meeting required to be held by subsection (1) of section 140 (1) of this Law;

“statutory report” has the meaning assigned to it by subsection (2) of section 140 of this Law;

“un distributable reserves” has the meaning given in section 112 (3) of this Law.

(2) Any provision of this Law overriding or interpreting a company’s articles shall, except as provided by this Law, apply in relation to articles in force at the commencement of this Law, as well as to articles coming into force thereafter, and shall apply also in relation to a company’s memorandum as it applies in relation to its articles.

Section 3 – Register of Companies

There shall be kept by the registrar a record called ‘the Register of Companies” wherein shall be entered all the matters prescribed by this Law.

PART I

FORMATION AND REGISTATION OF COMPANIES,

JURIDICAL STATUS AND MEMBERSHIP

Chapter 1

Registered Company Formation

Memorandum of association

Section 4. Mode of forming incorporated company

(1) Any two or more persons associated for a lawful purpose may, by subscribing their names to a memorandum of association and otherwise complying with the requirements of this Law in respect of registration, form an incorporated company with or without liability.

(2) A company so formed may be either –

a) A company having the liability of its members limited by the memorandum to the amount, if any, unpaid on the shares respectively held by them (”a company limited by shares”);

b) A company having the liability of its members limited by the memorandum to such amount as the members respectively thereby to contribute to the assets of the company in the event of its being wound up (“a company limited by guarantee”);

c) A company not having any limit on the liability of its members (“an unlimited company”).

(3) Being a company -

a) a public company is a company limited by share or limited by guarantee having a share capital and formed by any seven or more persons;

b) A private company is a company limited by share or limited by guarantee having a share capital and formed by any two or more persons.

c) A company cannot be formed as, or become, a company limited by guarantee with a share capital.

(4) Notwithstanding subsection (1), one person may, for lawful purpose, by subscribing his name to a memorandum of association and otherwise complying with the requirement of this Law in respect of registration, form an incorporated company limited by shares or by guarantee.

Section 5. Requirements with respect to memorandum

(1) The memorandum of every company shall be in English language to constitute the original. A certified translation into Somalia language will be attached for purpose of facilitating understanding and comprehension.

(2) The memorandum shall be printed and shall state –

a) The name of the company. The name of the company shall be as agreed by the subscribers but shall not offend the rights of third parties and shall include the words “Company limited by shares” which may be abbreviated to “Ltd” for a private limited company or “plc” or “limited” for a public company limited by shares.

b) The registered office of the company or principal place of business and its full address in Somaliland;

c) The object of the company. A company, which has been incorporated under the Act, cannot be engaged in activities, which are not expressly or implicitly authorized by the Memorandum.

(3) The memorandum of a company limited by shares shall also state that the liability of its members is limited.

(4) The memorandum of company limited by guarantee must also state that each member undertakes to contribute to the assets of the company it should be wound up while he is a member, for payment of the debts and liabilities of the company contracted before he ceases to be a member, and of the costs, charges and expenses of winding up, and for adjustment of the rights of the contributories among themselves, such amount as may be required, not exceeding a specified amount.

(5) In the case of a company having a share capital –

a) The memorandum shall also state the amount of share capital with which the company proposes to be registered and the division of the share capital into shares of a fixed amount.

b) no subscriber of the memorandum may take less than one share;

c) There must be shown in the memorandum against the name of each subscriber the number of shares he takes.

(6) The memorandum must be dated and signed by each subscriber before the Attorney General in the presence of at least one attesting witness, who must attest his occupation, postal address and the signature.

(7) Opposite the signature of every subscriber there shall be written in legible roman characters his full name, his occupation and postal address.

(8) A company may not alter the conditions contained in its memorandum except in the cases, in the mode and to the extent for which express provision is made by this Law.

Section 6 – Statement of company’s object: general commercial company

Where the company’s memorandum states that the object of the company is to carry on business as a general commercial company-

a) the object of the company is to carry on any trade or business whatsoever,

b) The company has power to do all such things as are incidental or conducive to the carrying on of any trade or business.

c) The company should apply for commercial license to the Ministry of Commerce, when required.

Section 7 – Alteration of company’s object by special resolution

(1) A company may by special resolution alter its memorandum with respect to the statements of the company’s object as specified under section 23.

(2) If an application is made under section 24, alteration does not have effect except in so far as it is confirmed by the court.

Articles of association

Section 8 - Articles prescribing regulations for companies

(1) There may in the case of a company limited by shares, and there shall be in the case of a company limited by guarantee or unlimited, be registered with the memorandum articles of association signed by the subscribers to the memorandum and prescribing regulations for the company, must be registered with the memorandum.

(2) Articles must be –

a) in the English language constituting the text original with a certified translation in Somali attached;

b) printed;

c) divided into paragraphs numbered consecutively;

d) dated;

e) Signed by each subscriber of the memorandum before the Attorney general in the presence of at least one witness who must attest the signature.

Section 9 - Alteration of Articles by special resolution

(1) Subject to the provisions of this Act and to the conditions contained in its memorandum, a company may alter by special resolution alter or add to its articles. Alterations so made in the articles are (subject to this Law) as valid as if originally contained in them, and are subject in like manner to alteration by special resolution.

Form of Memorandum and Articles

Section 10 - Statutory Form of Memorandum and Articles

(1) Being limited by shares, the company needs not submit Company Articles of association and may adopt all or any of the regulations for the management contained in:

a) Table A part I in the first Schedule for a Company limited by shares, nor being a private company;

b) Table A part II in the first Schedule for a Private Company limited by shares.

(2) The form of the memorandum and articles of a company limited by guarantee and not having a share capital shall be in accordance with the forms set out in table C in the first Schedule, or as near thereto as circumstances admit.

Registration and its consequences

Section 11 - Documents to be sent to the Registrar of Companies

(1) The company ‘s memorandum and articles, if any, shall be de delivered to the Registrar of Companies, at the office of the Attorney General in Hargeysa.

(2) With the memorandum there shall be delivered a statement in the prescribed form containing the names and requisite particulars of-

a) the person who is, or the persons who are, to be the fist director or directors of the company; and

b) the person who is, or the persons who are, to be the first secretary of the company.

(3) The statement shall be signed by or on behalf of the subscribers of the memorandum and shall contain a consent signed by each of the persons named in it as a director, as secretary, to act in the relevant capacity

Section 12 - Minimum authorized capital (public companies)

When a memorandum delivered to the registrar of companies under section 11 states that the association to be registered is to be a public company, the amount of the share capital stated in the memorandum to be that with which the company proposes to be registered must not be less than the authorised minimum defined in section 58.

Section 13 - Duty of registrar

(1) The Registrar of Companies shall not register a company’s memorandum delivered under section 11 unless he is satisfied that all the requirements of the Law in respect of registration have been complied with.

(2) Subject to this, the Registrar of Companies shall retain and register the memorandum and articles delivered to him under that section.

(3) A statutory declaration in the prescribed form by –

a) a solicitor engaged in the formation of a company, or

b) a person named as a director or secretary of the company in the statement delivered under section 11(2), that those requirements have been complied with shall be delivered to the registrar of companies, and the registrar may accept such a declaration as sufficient evidence of compliance.

Section 14 - Effect of registration

(1) On the registration of a company’s memorandum, the registrar of companies shall give a certificate – the certificate of incorporation. The certificate of incorporation shall be conclusive evidence that all the requirements of this Act in respect of registration have been complied with and that the association is a company authorized to be registered, duly registered under this Law and that the company is limited.

(2) The certificate may be signed by the Registrar or authenticated by his official seal.

(3) From the date of incorporation mentioned in the certificate, the subscribers of the memorandum, together with such other persons as may from time to time become members of the company, shall be a body corporate by the name contained in the memorandum, capable of exercising all the functions of an incorporated company, with power to hold land and having perpetual succession.

(4) The persons named in the statement under section 11 as directors, secretary are, on the company ‘s incorporation, deemed to have been respectively appointed as its first directors, secretary.

Section 15 - Effect of memorandum and articles

(1) The memorandum and articles, when registered, bind the company and its members to the same extent as if they respectively had been signed and sealed by each member, and contained covenants on the part of each member to observe all the provisions of the memorandum and of the articles.

(2) All money payable by any member to the company under the memorandum or articles shall be a debt due from him to the company.

Section 16 - Effects of alteration on company’s members

(1) A member of a company is not bound by an alteration made in the memorandum or articles after the date on which he became a member, if and so far as the alteration –

a) requires him/her to take or subscribe for more than the number held by him/her at the date on which the alteration is made; or,

b) In any way increases his liabilities as at the date to contribute to the company’s share capital or otherwise to pay money to the company.

(2) Subsection (1) operates notwithstanding anything in the memorandum or articles; but it does not apply in a case where the member agree in writing, either before or after the alteration is made , to be bound by the alteration.

Section 17 - Power to alter conditions in memorandum

(1) Subject to the provisions of section 13, any condition contained in a company’s memorandum which could lawfully have been contained in articles of association instead of in the memorandum may, subject to the provisions of this section, be altered by special resolution.

Provided that if an application is made to the court for the alteration to be cancelled, it shall not have effect except in so far as it is confirmed by the court.

(2) This section shall not apply where the memorandum itself provides for or prohibits the alteration of all or any of the said conditions, and shall not authorize any variation or abrogation of the special rights of any class of members.

Section 18 - Copies of memorandum and articles to be given to members

(1) A company shall, on being so required by any member, send to him a copy of the memorandum and of the articles, if any, and a copy of any written law which alters the memorandum, subject to payment as the company may prescribe.

(2) If a company makes default in complying with this section, the company and every officer of the company who is in default shall be liable for each offence to a fine.

Section 19 - Issued copies of memorandum to embody alterations

(1) Where an alteration is made in the memorandum of a company, every copy of the memorandum issued after the date of the alteration shall be in accordance with the alteration.

(2) If, where any such alteration has been made, the company at any time after the date of the alteration issues any copy of the memorandum which are not in accordance with the alteration, it shall be liable to a fine for each copy so issued and every officer of the company who is in default shall be liable to the like penalty.

A company’s membership

Section 20 - Definition of “member”

(1) The subscribers to the memorandum of a company shall be deemed to have agreed to become members of the company, and on its registration shall be entered as members in its register of members.

(2) Every person who agrees to become a member of a company, and whose name is entered in its register of members, is a member of the company.

Provision with Respect to Names of Companies

Section 21- Reservation of names and prohibition of undesirable name

(1) The Registrar may, on written application, reserve a name pending registration of a company or a change of name by a company.

(2) Any such reservation shall remain in force for a period of thirty days or such longer period, not exceeding sixty days, as the registrar may, for special reasons, allow, and during such period no other company shall be entitled to be registered with that name.

(3) No name shall be reserved, and no company shall be registered by a name which, in the opinion of the registrar, is undesirable.

Section 22 - Change of name

(1) A company may, by special resolution and with the approval of the registrar signified in writing, change its name.

(2) Where a company changes its name under this section, it shall within fourteen days give to the registrar notice thereof and the Registrar shall enter the new name on the register in place of the former name, and shall issue to he company a certificate of name, and shall notify such change of name in the Official Gazette.

(3) A change of name by a company under this section shall not affect any rights or obligations of the company or render defective any legal proceedings by or against the company, and any legal proceeding that might have been continued or commenced against it by its former name may be continued or commenced against it by its new name.

Chapter II

Alteration of objects

Section 23 - Resolution to alter objects

(1) A company may by special resolution alter its memorandum with respect to the statement of the company’s objects if the alteration would enable the company: :

a) to carry on its business more economically or more efficiently; or

b) to attain its main purpose by new or improved means; or

c) To enlarge or change the local areas of its operation; or

d) To carry on some business which under existing circumstances may conveniently be combined with the business of the company; or

e) To restrict or to abandon any of the objects specified in the memorandum; or

f) To sell or dispose of the whole or any part of the undertaking of the company; or

g) To amalgamate with any other company or body of persons.

(2) the resolution would be effective immediately if it was voted for by the holders of at least 86% in nominal value of the company ‘s issued share capital.

Section 24 - Procedure for objecting to alteration

(1) Where a company’s memorandum has been altered by special resolution under section 23, application may be made to the court for the alteration to be cancelled.

(2) Such an application can be made –

a) by the holders of not less in the aggregate than 15 percent in nominal value of the company’s issued share capital or any class of it.

b) by the holders of not less than 15 percent of the company’s debentures entitling the holders to object to an alteration of its objects. but an application shall not be made by any person who has consented to or voted in favour of the alteration.

(3) The application, under this section, must be made within thirty days after the date on which the resolution altering the company ‘s objects was passed, and may be made on behalf of the persons entitled to make the application by such one or more of their number as they may appoint in writing for the purpose.

(4) The court may on such an application make an order confirming the alteration either wholly or in part on such terms and conditions as it thinks fit and may –

a) if it thinks fit, adjourn the proceedings in order that an arrangement may be made to its satisfaction for the purchase of the interests of dissentient members, and

b) give such directions and make such orders as it thinks expedient for facilitating or carrying into effect any such arrangement.

(5) The court’s order may (if the court thinks fit) provide for the purchase by the companies of the shares of any members of the company , and for the reduction accordingly of its capital, and may make such alteration in the company’s memorandum and articles as may be required in consequence of that provision.

(6) If the court’s order requires the company not to make nay, or any specified, alteration in its memorandum or articles, the company does not then have power without the leave of the court to make any such alteration in breach of the requirement.

Section 25 - Provisions supplementing sections 23, 24

(1) Where a company passes a resolution altering its objects and no application is made to the court under section 24 for its cancellation, the company shall within 15 days from the end of the period for making such an application, deliver to the Registrar of companies a printed copy of its memorandum as altered;

(2) If such an application is made, the company shall –

(i) forthwith give notice of that fact to the registrar, and

(ii) within 15 days from the date of any order cancelling or confirming the alteration, deliver to the registrar a certified copy of the order, and in the case of an order confirming the alteration, a printed copy of the memorandum as altered.

(3) The court may by order at any time extend the time for the delivery of documents to the registrar under subsection (1) (b) for such period as the court may think proper.

(4) If a company makes default in giving notice or delivering any document to the registrar of companies as required by subsection (1), the company and every officer of it who is in default is liable of a fine and, for continued contravention, to a daily default fine.

Chapter III

Private Companies

Section 26 – Meaning of private company

(1) For the purpose of this Act, “private company” means a company which by its articles-

a) Restricts the right of transfer its shares; and

b) Limit the number of its members to thirty, not included persons who are in the employment of the company and persons who, having been formerly in the employment of the company, were while in that employment, and have continued after the determination of that employment to be, members of the company;

c) Prohibits any invitation to the public to subscribe for any shares of the company.

Section 27 – Consequences of default in complying with conditions constituting a private company

(1) Wherethe articles of a company include the provisions which, under section 26, are required to be included in the articles of a company in order to constitute it a private company but default is made in complying with any of those provisions, the company shall cease to be entitled to any privilege or exemption conferred on private companies under any provisions of this Act, and thereupon the provisions of this Act shall apply to the company as if it were not a private company.

(2) Provided that the court, on being satisfied that the failure to comply with the conditions was accidental or due to inadvertence or to some other sufficient cause, or that on other grounds it is just and equitable to grant relied, may, on the application of the company or any other person interested and on such terms and conditions as seem to the court just and expedient, order that the company be relieved from such consequences as aforesaid.

Section 28 - Statement in lieu of prospectus by company on ceasing to be private company

(1) If a company, being a private company, alters its articles in such a manner that they no longer include the provisions which, under section 26, are required to be included in the articles of a company in order to constitute it a private company, the company must, on and from the date of the alteration, cease to be a private company and must within a period of fourteen days after the said date, deliver to the registrar for registration a statement in lieu of prospectus in the form and containing the particulars set out in Part I of the second Schedule “Form ofStatement in Lieu of Prospectus to be Delivered to Registrar by a Private Company on becoming a Public Company”.

(2) If default is made in complying with subsection (1) the company and every officer of the company who is in default shall be liable to a default fine.

(3) Where a statement in lieu of prospectus delivered to the registrar under subsection (1) include any untrue statement, any person who authorized the delivery of the statement in lieu of prospectus for registration shall be guilty of an offence and liable to a default fine unless he/she proves that the untrue statement was immaterial or that he/she had reasonable ground to believe and did, up to the time of the delivery for registration of the statement in lieu of prospectus, believe that the untrue statement was true.

Chapter 4

A Company’s Capacity, Formalities of Carrying on Business

Section 29 - A company ‘s capacity not limited by its memorandum

(1) The validity of an act done by a company shall not be called into question on the ground of lack of capacity by reason of anything in the company’s memorandum.

(2) A member of a company may bring proceedings to restrain the doing of an act but for subsection (1) would be beyond the company’s capacity; but no such act shall lie in respect of an act to be done in fulfilment of a legal obligation arising from a previous act of the company.

(3) It remains the duty of the directors to observe any limitations on their powers flowing from the company’s memorandum; and action by the directors which but for subsection (1) would be beyond the company’s capacity may only be ratified by the company special resolution.

(4) A resolution ratifying such action shall not affect any liability incurred by the directors or any other person; relief from any such liability must be agreed to separately by special resolution.

Section 30 – Power of directors to bind the company

(1) In favour of a person dealing with a company in good faith , the power of the board of directors to bind the company, or authorize other to do so, shall be deemed to be free of any limitations under the company’s constitution.

(2) For this purpose –

a) a person “deals with” a company if he/she is a party to any transaction or other set to which the company is party.

b) a person shall not regarded as acting in bad faith by reason only of his knowing that an act is beyond the powers of the directors under the company’s constitution; and

c) a person shall be presumed to have acted in good faith unless the contrary is proved.

(3) The references above to limitations on the directors’ powers under the company constitution include limitations deriving-

a) from a resolution of the company in general meeting or a meeting of any class of shareholders, or

b) from any agreement between the members of the company or of any class of shareholders.

(4) Subsection (1) does not affect any right of a member of the company to bring procedure to restrain the doing of an act which is beyond the powers of the directors; but no such proceedings shall lie in respect of an act to be done in fulfilment of a legal obligation arising from a previous act of the company.

(5) Nor does that subsection affect any liability incurred by the directors, or any other person, by reason of the directors’ exceeding their powers.

Section 31- Events affecting a company’s status

A company is not entitled to rely against other persons on the happening of any of the following events –

a) the making of a winding-up order in respect of the company, or the appointment of a liquidator in a voluntarily winding up of the company, or

b) any alteration of the company’s memorandum or articles, or

c) any changes among the company’s directors, or

d) (as regards service of any document on the company) any changes is the situation of the company ‘s registered office, if the event had not been officially notified at the material time and is not shown by the company to have been known at that time to the person concerned.

Reduction of Numbers of Members Below legal Minimum

Section 32 - Minimum membership for carrying on business

(1) If at any time the numbers of members of a company is reduced , in the case of a private company, below two, or, in the case of a public company, below seven, and it carries on business for more than six months while the number is so reduced, every member of the company during the time that it carries on business after those six months, is personally liable (jointly and severally with the company) for the payment of the whole debts of the company contracted during the period or, as the case may be, that part of it and may be severally sued therefore.

(2) If a company other than a private limited by shares or by guarantee carries on business without having at least two members and does so for more than 6 months, a person who, for the whole or any part of the period that it so carries on business after those 6 months –

a) is a member of the company, and

b) knows that it is carrying on business with only one member,

Is liable (jointly and severally with the company for the payment of the company’s debt contracted during the period or, as the case may be, that part of it.

(3) When the numbers of members are below the legal minimum or the company does not posses the prescribed organs, the court may order the winding-up of such a company on the application of a member or creditor. The court may adjourn its decision upon such term as it thinks fit to permit of the reorganization of the company and order such conservatory measures as may be necessary.

PART III

CAPITAL ISSUES

Chapter I

The Prospectus

Section 33 - Document offering shares for sale deemed a prospectus

(1) If a company allots or agrees to allot its shares with a view to all or any of them being offered for sale to the public, any document by which the offer for sale to the public is made is deemed for all purposes a prospectus issued by the company.

(2) A prospectus issued by or on behalf of a company or in relation with an intended company shall be dated, and that date shall, unless the contrary is proved, be taken as the date of publication of the prospectus;

Section 34 - Matters to be stated and reports to be set out un prospectus

(1) Every prospectus issued by or on behalf of a company, or by or on behalf of a person who is or has been engaged or interested in the formation of the company, shall state the matters specified in Part I of the Third Schedule and set out the reports specified in Part II of that Schedule.

(2) If any persons act in contradiction of the provisions of this section, he shall be liable to a default fine.

(3) In the event of non-compliance with or contravention of any of the requirements of this section, a director or other person responsible for the prospectus shall not incur any liability by reason of non-compliance or contravention, if-

a) As regards any matter not disclosed, he/she proves that he/she was not cognizant thereof; or

b) He/she proves that the non-compliance or contravention arose from an honest mistake of fact on his part; or

c) The non-compliance or contravention was in respect of matters which in the opinion of the court dealing with the case were immaterial or having regard to all the circumstances of the case, reasonably to be excused

(4) Nothing in subsection (3) above shall limit or diminish any liability, which any person may incur under the general law or this Act apart from that section.

Section 35 - Expert’s consent to issue of prospectus containing statement by him/her

(1) A prospectus inviting persons to subscribe for shares in a company and including a statement purporting to be made by an expert shall not be issued unless-

He/she has given and has not, before delivery of a copy of the prospectus for registration, withdraw his written consent to the issue thereof with the statement included in the form and context in which it is included.

(2) In this section, “expert” includes engineer, valuer, accountant and any other person whose profession gives authority to a statement made by him.

Section 36 - Registration of prospectus

(1) No prospectus shall be issued by or on behalf of a company or in relation to an intended company unless, on or before the date of publication, there has been delivered to the registrar for registration a copy thereof signed by every person who is named therein as a director or proposed director of the company.

(2) The registrar shall not registrar a prospectus unless it is dated and the copy thereof signed in manner required by this section and unless it has endorsed thereon or attached thereto the documents (if any) specified as aforesaid.

(3) If a prospectus is issued without a copy thereof being delivered under this section to the registrar or without the copy so delivered having endorsed thereon or attached thereto the required documents, the company and every person who is knowingly a party to the issue of the prospectus, shall be liable to a fine and, for continued contravention, to a daily default for every date from the date of the issue of the prospectus until a copy thereof is so delivered with the required documents endorsed thereon or attached thereto.

Section 37 - Restrictions on alteration of terms mentioned in prospectus or statement in lieu of prospectus

(1) A company limited by shares shall not previously to the statutory meeting vary the terms of a contract referred to in the prospectus, or statement in lieu of prospectus, except subject to the approval of the statutory meeting.

(2) This section shall not apply to a private company but shall apply to a company which was a private company before becoming a public company.

Section 38 – Civil liability for miss-statements in prospectus

(1) Subject to the provision of this section, where a prospectus invite persons to subscribe for share in a company, the following persons shall be liable to pay compensation to all persons who subscribe for any shares on the faith of the prospectus for the loss or damage they may have sustained by reasons of any untrue statement included therein, that is to say –

a) Every person who is a director of the company at the time of the issue of the prospectus;

b) Every person who has authorized himself to be named and is names in the prospectus as a director or as having agreed to become a director either immediately or after an interval of time.

c) Every person who has authorized the issue of the prospectus.

(2) No person shall be liable under subsection (1) if he proves –

That having consented to become a director of the company, he withdrew his consent before the issue of the prospectus, and that it was issued without his authority or consent; or

That the prospectus was issued without his knowledge or consent, and that on becoming aware of its issue he forthwith gave reasonable public notice that it was issued without his knowledge or consent; or

That after the issue of the prospectus, he on becoming aware of any untrue statement therein, withdrew his consent thereto and gave reasonable public notice of the withdrawal and of the reason therefore.

Section 39 – Expert’s Liability

(1) An expert who gives a report for inclusion in a prospectus is placed in a similar position in that he is liable for an untrue statement contained in his report as being a person who has authorized the issue of the prospectus.

(2) However, he is not liable for any part of the prospectus other than his own report and he shall not be liable if he proves –

a) that having given his consent under section 35 to the issue of the prospectus he withdrew his consent in writing before the registration of the prospectus;

b) that after such registration but before allotment, on becoming aware of the untrue statement, he withdrew his statement in writing and gave reasonable public notice of such withdrawal and the reason for it; or

c) that he was competent to make the statement and up to the time of allotment he believed on reasonable grounds that it was true.

Section 40 - Criminal liability for misstatements in prospectus

Where a prospectus includes any untrue statement, any person who authorized the issue of the prospectus shall be guilty of an offence and liable to a fine, unless he proves either the statement was immaterial or that he had reasonable ground to believe and did, up to the time of the issue of the prospectus, believe that the statement was true.

Section 41 – Interpretation of provisions relating to prospectuses

For the purpose of the foregoing provisions of this Part-

a) a statement included in a prospectus shall be deemed to be untrue if it is misleading in the form and context in which it is included; and

b) a statement shall be deemed to be included in a prospectus if it is contained therein or in any report or memorandum appearing on the face thereof or by reference incorporated therein or issued therewith.

PART IV

ALLOTMENT OF SHARES AND DEBENTURES

Chapter I

General Provisions as to allotment

Section 42 – Authority of company required for certain allotment

(1) The directors of a company shall not exercise any power of the company to allot relevant securities unless they are, in accordance with this section authorized to do so by-

a) The company in general meeting; or

b) The company ‘s articles.

(2) In this section “relevant securities” means-

a) shares in the companies other than shares shown in the memorandum to have been taken by the subscribers to it,

b) any right to subscribe for, or to convert any security into, shares in the company (other than shares so allotted);

and references to the allotment of relevant securities include the grant of such a right but not the allotment of shares to such a right.

Section 43 - Prohibition of allotment unless minimum subscription is received

(1) No allotment shall be made of any share capital of a company offered to the public for subscription unless the amount stated in the prospectus as the minimum amount which, in the opinion of the directors, must be raised by the issue of capital in order to provide for the matters specified in paragraph 4 of the Third Schedule has been subscribed, and the sum payable on application for the amount so stated has been paid and received by the company.

(2) The amount so stated in the prospectus shall be reckoned exclusively of any amount payable otherwise than in cash and is in this Act referred to as the “minimum subscription”

(3) The amount payable on application on each share shall not be less than five per cent of the nominal amount of the share.

(4) If the conditions aforesaid have not been complied with on the expiration of sixty days after the first issue of the prospectus, all money received from applicants for shares shall be forthwith repaid to them without interest, and if any such money is not so repaid to them within seventy- five days after the issue of the prospectus, the directors of the company shall be jointly and severally liable to repay that money with interest at the appropriate rate per annum from the expiration of the seventy-five day. Provided that a director shall not be liable if he proves that the default in the repayment of the money was not due to any misconduct or negligence on his part.

Section 44 - Prohibition of allotment unless statement in lieu of prospectus delivered to registrar.

(1) A company having a share capital which does not issue a prospectus on or with reference to its formation, or which has issued such a prospectus but has not proceeded to allot any of the shares allotted to the public for subscription shall not allot any of the said shares unless, at least three days before the first allotment, there has been delivered to the registrar for registration a statement in lieu of prospectus. The statement must be signed by every person who is named therein as a director or a proposed director of the company.

(2) The statement must be in the form set in Part I of the Fourth Schedule to the Act and must contain the particulars set out therein and, where applicable, set out the reports specified therein.

(3) a statement shall be deemed to be untrue if it is misleading in the form and context in which it is included.

(4) Where a statement in lieu of a prospectus delivered to the registrar under subsection (1) include any untrue statement, any person who authorized the delivery of the statement in lieu of prospectus for registration shall be guilty of an offence and liable to a default fine, unless he proves either that the untrue statement was immaterial or that he had reasonable grounds, up to the time of the delivery for registration of the statement in lieu of prospectus, to believe that the untrue statement was true.

(5) This section shall not apply to a private company.

Section 45 - Effect of irregular allotment

An allotment made by a company to an applicant in contravention of the provisions of section 43 shall be void able at the instance of the applicant within one month after the holding of the statutory meeting of the company and not later, or in case where the company is not required to hold a statutory meeting, or where the allotment is made after the holding of the statutory meeting, within one month after the date of the allotment and not later, and shall be so void able notwithstanding that the company is in course of being wound up.

Section 46 - Applications for and allotment of, shares and debentures.

(1) No allotment shall be made of any shares in or debentures of a company in pursuance of a prospectus issued generally and no proceedings shall be taken on application made in pursuance of a prospectus so issued, until the beginning of the third day after that on which the prospectus is first so issued, or such later time (if any) as may be specified in the prospectus.

(2) The validity of an allotment shall not be affected by any contravention of the foregoing provisions of this section but, in the event of any such contr