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L1.2 Business Law

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INSIDE COVER - BLANK INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS OF RWANDA Level 1 L1.2 Business Law First Edition 2012 This study manual has been fully revised and updated in accordance with the current syllabus. It has been developed in consultation with experienced lecturers. © CPA Ireland All rights reserved. The text of this publication, or any part thereof, may not be reproduced or transmitted in any form or by any means, electronic or mechanical, including photocopying, recording, storage in an information retrieval system, or otherwise, without prior permission of the publisher. Whilst every effort has been made to ensure that the contents of this book are accurate, no responsibility for loss occasioned to any person acting or refraining from action as a result of any material in this publication can be accepted by the publisher or authors. In addition to this, the authors and publishers accept no legal responsibility or liability for any errors or omissions in relation to the contents of this book. Page 1 BLANK Page 2 CONTENTS Study Title Page Unit CHAPTER 1: Introduction to the Course 8 Definition of Law 15 Purpose of Law 15 Law & Morality 16 Law & Ethics 17 Substantive and procedural law 17 Criminal and Civil Law 17 Main divisions of Law 18 Characteristics of a Legal Rule 20 Sanctions of a Legal Rule 22 Major legal systems (families) of the world 22 CHAPTER 2: Sources of Law 24 Material Source of Law 24 Formal Sources 25 Sources of Rwandan Business Law 30 CHAPTER 3: Administrative Law 32 Meaning 32 Separation of Powers 32 CHAPTER 4: The Business Disputes Resolution 39 Review of key constitutional provision regarding the Court System 39 Rwandan Commercial Justice System 39 Arbitration 44 CHAPTER 5: Law of Persons 50 Juridical or legal personality 50 Legal identification of physical persons 52 CHAPTER 6: Law of Tort 58 The liability for personal acts 58 Liability for acts committed by others 60 CHAPTER 7: Law of Contract 64 General overview on Contract 64 Contract formation 67 End of Contractual Obligations 85 CHAPTER 8: Sale of Goods 96 Definition 96 Essentials of contract of sale 96 Distinction between a sale and an agreement for sale 97 CHAPTER 9: Agency 100 Agency: Definition and key features 100 Agent 100 Creation of agency 102 CHAPTER 10: Insurance 104 Definition of the Contract of Insurance and Insurer 104 Common Types Insurance and their Role 104 Categories of Insurance Business 106 Page 3 Study Title Page Unit CHAPTER 11: Negotiable Instruments 107 Definition and distinct characteristics of negotiable instruments 107 Different kinds of negotiable instruments 107 CHAPTER 12: The Law of Property 124 Definition of property 124 Real Rights 130 Overview of the 2005 Organic Law on land use and management in Rwanda 140 CHAPTER 13: Nature and Classification of Companies 148 Definition of Company 148 The Company as Contract 149 Shares 150 Vocation to Profits Sharing 151 Affectio Societatis 152 Company as Institution 152 Forms of Business Organisation 153 Distinction between companies and other Business Organisations 154 Legal Status of Companies 155 Companies Moral Personality 166 CHAPTER 14: Registration of Companies 169 Public Limited Company 169 Formation of the Public Limited Company 170 Substantive Requirements 170 Procedural Requirements 171 Office of the Registrar General (ORG) 171 Memorandum and Articles of Association 172 Promoters 174 Legal Consequences of Incorporation 177 Constituent Ordinary Meeting 178 The main differences between a private and a public company 179 CHAPTER 15: Share Capital 180 Subscription of Share Capital 180 Payment of Shares 180 Types of Share Capital 181 Raising Share Capital 185 Variation of Shareholder’s Rights 187 Rights and Obligations of the Shareholders 188 Prospectuses 191 Alteration, maintenance and reduction of Share Capital 192 The Acquisition and Redemption by a Company of its own Shares 194 Financial Assistance by a Company for the Purchase of its own Shares 195 Dividends 195 CHAPTER 16: Debt Capital 196 Debentures 196 Charges 200 Registration of Charges 202 Remedies for Debenture Holders 202 Comparison between a share-holder and a debenture-holder 203 Page 4 Study Title Page Unit CHAPTER 17: Membership of a Company 204 Becoming a Member 204 Register of Members 204 Rights, Obligations and Liabilities of Members 204 Termination of Membership 206 CHAPTER 18: Shares 207 Classes of Shares 207 Issue and Allotment 207 Transfer and Transmission 207 Share Warrant 208 CHAPTER 19: Meetings 209 Classification of Meetings 209 Notice of Meeting 211 Agenda 211 Proxies 211 Quorum 211 Proceedings at the Meeting 212 Resolutions 212 Minutes 213 CHAPTER 20: Directors 214 Management of Companies 214 Appointment of Directors 215 Qualification, Disqualification and Removal of Directors 217 Powers and Duties of Directors 218 Remuneration or Compensation for Loss of Office 219 Loans to Directors 219 Register of Directors 219 Disclosure of Directors’ in Contracts 220 The Turquand’s Rule 221 CHAPTER 21: The Secretary 222 The Company Secretary 222 Qualification, Appointment and Removal 223 Liability of a Secretary 224 Removal of a Secretary 224 Register of Directors and Secretary 224 CHAPTER 22: Auditors 226 Qualification, Appointment and Removal 226 Remuneration 227 Powers and Duties 227 Liability of Auditors 227 Dismissal of Auditors 228 Page 5 Study Title Page Unit CHAPTER 23: Company Accounts, Audit and Inspection 229 Form and Content of Accounts 229 Books of Account 229 Group Accounts 230 Directors’ Report 230 Auditor’s Report 231 Investigation by the Registrar General 231 Appointment and Powers of Inspectors 233 Inspector’s Report 234 CHAPTER 24: Corporate Insolvency 235 The Disappearance of Legal Personality 235 Winding up by the Courts 238 Voluntary Winding Up 239 Liquidators: Appointment and Duties 239 Release of Liquidators 240 CHAPTER 25: Alternatives to Winding Up 242 Reconstruction 242 Amalgamation, Mergers and Take-overs 243 Schemes of Arrangement 243 Rights of Shareholders 244 Rights of Creditors 244 CHAPTER 26: Foreign Companies 245 Definition 245 Registration of Foreign Companies 245 Obligations applicable to foreign companies 246 Cessation of foreign company activities 246 CHAPTER 27: Dormant Company 248 Dormant Company 248 CHAPTER 28: Removal from Register of Companies and Penalties 249 Removal from Register of Companies 249 Solvency and company’s inability to pay 249 Pertinent provisions in relation to the removal from the register of companies 250 Penal Provisions 251 Page 6 Study Title Page Unit CHAPTER 29: Accounting Records and Audit 252 Definition 252 Financial Statement and Annual Report 255 Mandatory Investigation 257 Amalgamation of Companies 259 Alteration of the nature of companies 263 Appendix 1 265 Page 7 Stage: Level 1 Subject Title: L1.2 Business Law Aim The aim of this subject is to ensure that students have an understanding of the law relating to the accountant and the ability to identify problems that require the advice of a legal professional. Learning Outcomes On successful completion of this subject students should be able to: • Distinguish between and describe sources of law • Interpret, describe and discuss aspects of the law of property Interpret, describe and discuss aspects of the law of contract and of sale of goods and supplies of services • Interpret, describe and discuss aspects of the law relating to negotiable instruments and insurance • Recognise if and when more specialist legal knowledge is required and identify the source of that expertise • Describe, discuss and explain aspects of company law relating to the structure of business entities and of their commercial relationships. Page 8 Syllabus: 1. Nature, Purpose and Classification of Law Nature and purpose of law Classification of Law Law & Morality Ethics and the Law 2. Sources of Law The Constitution Legislation Statutes of general application Substance of common law and doctrines of equity Judicial precedent 3. Administrative Law Separation of Powers Natural Justice Judicial control of the Executive Administrative Legislation Arbitration 4. The Court System Courts and tribunals: composition, jurisdiction Structure, composition and jurisdiction of courts justice Subordinate Courts 5. Law of Persons Legal Personality Types of persons: natural person, artificial person Sole proprietorships Partnerships Unincorporated Associations Limited Companies Page 9 6. Law of Tort Nature of tortuous liability General defences in the law of tort Negligence Nuisance Trespass Vicarious liability Occupier’s liability Limitation of action Defamation 7. Law of Contract Nature of a contract Classification of Contracts Formation of Contracts Terms of a contract, conditions, warranties and exemption clauses Vitiating factors: mistake, misrepresentation, duress, undue influence, illegality, illegal contracts Discharge of contract Remedies for breach of contract Limitation of actions 8. Sale of Goods Nature of the Contract Formation of the Contract Terms of the Contract Transfer of property in goods Rights and duties of the parties International contracts of sale 9. Agency Nature and creation of agency Types of Agents Authority of an agent Rights and duties of the parties Termination of agency Page 10 10. Hire Purchase Nature of the contract Formation of the contract Terms of the contract Rights and duties of the parties Termination of the hire purchase contract 11. Negotiable Instruments Nature and characteristics Negotiability and transferability Types: cheques, promissory notes, bills of exchange Rights
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