Answer to Question #201410 in Management for Derrick

Question

A school of thought is of the view that a limited liability company is said to be best in respect 

of setting up a business, others are of the opinion that a limited liability just shifts the burden 

of the failure of business to a non-existent person called a company and its creditors.

a) with the aid of the Company’s Act 1960, Act 179 and decided cases, discuss what is termed 

as a limited Liability Company

(5 marks)

b) According to case law and statute, at what time is a company liable for acts committed by

its directors. 

(10 marks)

c) Discuss the Mechanics of Incorporation

(5 marks)

d) Explain the Ultra Vires Principle 

Answer 1

Introduction

Companies act 1956 defines a company formed and created under the companies act, and its meaning features is that it is an artificial legal person and it happens only under the law and cannot act on its own. The policies within LLCs are different in each state. The owners are referred to as members.

Explanation

a) According to Company's Act 1960, a limited liability company means shares or a company limits a corporation is limited by guarantee. The liability of members is limited to the unpaid value of shares.

b) Directors are the professional in the company who directs the company affairs and company will be liable for acts committed by its directors when there is a breach of fiduciary duty, ultra vires act, mala fide acts, and negligence.

c) Mechanics of Incorporation:

·        Shares limit the company.

·        Have the capacity to sue and be sued.

·        Protects the owner's assets against the company's assets.

·        Transfer of ownership to another party can be done

·        Through the sale of stock, the company can raise capital.

d) Ultra vires means beyond the powers. It is an act that lies beyond the power and authority, and this action is prohibited in the corporate charter as this power cannot be legally defended in court and leave the corporate vulnerable to lawsuits by others.