Description

Commercial Transactions

QUESTION ONE

Leah, Evans, Mike and Grindle want to start a business. They wish to deal in handcrafts and ornaments. They have a starting capital of Kshs.8 Million. They have agreed to divide the ownership of the business into eight shares. Each member to be allocated two shares. They hope that with time they wilt have more members along with capital to expand the business. They also wish to limit the exposure they might face. Leah and Evans have agreed to be the directors. Mike and Grindle are anxious about the business. They wish to protect theirprivacy and the business from unscrupulous parties who may endanger it. They have approached your office.

• Advise them on the structure of business they should establish and why. (8 marks}
• Write to Leah, Evans, Mike and Grindle oh the procedure they witl have to follow in order to establish this structure. (4 •marks)

• Evans, while on holiday in or about December 2018 met his niece Olivia. While having a chat about the business, Evans inquired from Olivia whether she knew anybody who could supply them with the necessary machinery to commence operations. She proposed that Evans purchase the necessary machineryfrom her father Duncan at a preferablycheaper price. Evans. agreed to this arrangement. Three months later, a formal contract was drawn up and executed by Evans on behalf of the business and Duncan. In or about April 2019, Evans accepted delivery of the machinery. He did.not inspect or obtain written guarantees from Duncan as to the quality of the machinery, The machinery has since broken down. Duncan has also forwarded his invoice to the business for the machinery supplied to be settled. Leah, Mike and Grindte are shOcked they were not privy to Evans’ transaction. They wish to distance themselves from this arrangement. They have approached you. Advise them:

• Owing to tensions with the other members over his transaction with Duncan, Evans has decided to sell his shares to Duncan. They have since executed a Share Transfer Agreement, Duncan now claims to be a memberof the business.

Leah, Mike and Grindle have approached your office. The wish to know the status of Duncan and whether he has any interest the business. Ådvise them.           (4 marks)