LEGAL ENVIRONMENT OF BUSINESS CONTRACT FORMATION

GIMPA BUSINESS SCHOOL MBA/MSC FEBRUARY, 2011
ENVIRONMENT OF BUSINESS (LEGAL)
LECTURER: OHEMENG-MENSAH DERICK
Derick Ohemeng-Mensah LEGAL ENVIRONMENT OF BUSINESS
UNIT ONE
LAW OF CONTRACT LEARNING OUTCOME To describe the formation of a valid contract To explain the terms of a contract To identify the factors that vitiate a contract To explain the reasons for a breach of contract To identify the remedies available for breach of contract
FORMATION OF A CONTRACT A contract is an agreement enforceable or recognised by law whose essential feature is a promise by one party to another to do or forbear from doing certain specified acts and supported by consideration. For a contract to be valid and legally enforceable there must be Offer and acceptance resulting in an Agreement Capacity to contract Contractual intention to create legal relations Certainty of terms Legality of purpose Consideration element of value
A contract that does not satisfy the relevant requirements may be void or voidable. A void contract has no legal effect. In this case an attempt has been made to contract but the law will not give effect to it e.g. where there is a common mistake on some major term like the existence of the subject matter.
A voidable contract is where the law permits one party to withdraw if it wishes, thus rendering it void e.g. agreements made by minors or contracts induced by duress, misrepresentation or undue influence. A voidable contract remains valid unless and until the innocent party chooses to terminate. Offer and Acceptance An agreement is reached when one party makes an offer which is accepted by the other. The test for an agreement is that both parties should have agreed in the same terms on the same subject matter. An offer is an expression of willingness to contract made with the intention (actual or apparent) that it shall become binding on the person making it as soon as it is accepted by the person to whom it was made (Treitel, G.H). The conduct of the offeror must be such as to induce a reasonable person to believe that he is making the alleged offer and that the alleged offeree must actually hold that belief. An offer must be distinguished from the following: a mere request for information (i.e. an enquiry whether the offeror would vary a term of his proposal) a mere indication of good intentions (i.e. a statement as to future conduct) and an invitation to make an offer (i.e. an invitation to treat).
An offer, capable of being converted into an agreement by acceptance, must consist of a definite promise to be bound provided that certain specified terms are accepted. An invitation to treat is a communication by which a party is invited to make an offer. It is usually not made with the intention to become binding as soon as the person to whom it is addressed simply communicates his assent to its terms. An advertisement may be an invitation to treat or an offer, depending on how it is formulated. It amounts to an offer where it is made with the intention to be bound as in Carlill v. Carbolic Smoke Ball Co. [1892]. Derick Ohemeng-Mensah LEGAL ENVIRONMENT OF BUSINESS 3
In this case, the defendants (Carbolic Smokeball Co) advertised for the offer of 100 to any person who succumbed to influenza after having used one of their smoke balls in a specified manner and period. That they have deposited 1000 with their bankers to show their sincerity. Based on the advert, plaintiff bought the product and used as specified but succumbed. She therefore applied for the 100 as advertised. It was held that the advert was made to those who performed hence plaintiff succeeded. An invitation to treat is a request from one person to another asking the other person to make a proposal for consideration by the one requesting the proposal. In Deegbe v. Nsiah & Another [1984-86] 1 GLR 545 (CA) the Plaintiff, a tenant in the first Defendants house, received a letter from the second Defendants lawyers giving him notice to vacate the house. The Plaintiff sued, originally claiming an oral offer to him to buy, which he accepted by letter, but asking for a reduction in price. It was held that the Plaintiffs letter to the first Defendant was an invitation to the Defendant to make a fresh offer, which the first Defendant did not do. There was thus no contract. In Pharmaceutical Society of Great Britain v. Boots Cash Chemists Ltd, a distinction was made between an offer and an invitation to treat. The defendants had a self-service shop where a customer upon entering the shop took a basket and selected from the shelves the items that he required. He took them to the cash desk. Near the desk was a registered pharmacist who was authorized if necessary to stop a customer from leaving with any particular drug. It was held that the mere fact that a customer picks up a bottle of medicine from the shelves in this case does not amount to acceptance of an offer to sell. It is only an offer by the customer to buy and there is no sale effected until the buyers offer to buy has been accepted by the seller of the acceptance price. An offer must be communicated to be effective. In Fofie v. Zanyo [1992] 2 GLR 475 (SC) it was held an uncommunicated acceptance was ineffective in constituting an agreement. An offer sent through the post is made where it was posted and takes effect when it was posted. Derick Ohemeng-Mensah LEGAL ENVIRONMENT OF BUSINESS 4
An offer must be accepted totally by express oral or written words or by conduct - to constitute an agreement. It must be accepted within reasonable time where no time had been stipulated. Acceptance is the final and unqualified expression of assent to the terms of an offer (Treitel, G. H). A mere intention to accept or silence does not constitute an acceptance. (Felthouse v. Bindley 1863). In this case, P negotiated to purchase his nephews horse and wrote to his nephew adding, If I hear no more about him, I consider the horse mine at 30 15s. The horse at the time was with the auctioneer, D. The nephew wishing to sell at the price given by P told D, the auctioneer not to sell but D had already sold the horse inadvertently. The court held that there was no valid agreement between P and his nephew at the time of the sale because the nephew had not communicated his acceptance of the offer. Silence is usually equivocal as to consent but failure to reply to letters is a common human weakness. Any form of alteration of an offer amounts to a counter offer and thereby cancels or destroys the original offer. In this respect the acceptance becomes an offer, which the offeror can accept or reject. In Hyde v Wrench, D offered estate for 1000 on 6th. June. P offered to buy at 950. D rejected by 27th. June. P on 29th. June offered to buy at 1000. D refused. P sued D for specific performance. It was held that the original offer was not opened to P to accept by accepting to buy the estate for 950 instead of 1000, which was offered. They rejected the original offer and made a counter offer. A counter offer creates an obligation if accepted, either expressly or by conduct. An acceptance in ignorance of offer does not amount to an acceptance. This is an act which merely coincides with the requirements of the offer. A cross offer occurs when two identical offers are sent by two parties to each other by post or by any other means and the offers cross in the post or en route. This does not constitute Derick Ohemeng-Mensah LEGAL ENVIRONMENT OF BUSINESS 5
an acceptance since they are both offers nor was there consensus ad idem. Where a purported acceptance is qualified by the term subject to contract, liability is postponed until formal agreement or the document is signed. Communication of the acceptance. The general rule is that an acceptance must be communicated to the offeror in writing or orally or by conduct. By communication the acceptance must be brought to the notice of the offeror or by the method proposed by the offeror. The person accepting an offer must indicate it either by words, in writing or by conduct. Acceptance must be expressed and a mere intention to accept or silence cannot pass as acceptance (Felthouse v. Bindley). Where the method is prescribed, but not insisted on as the only mode of acceptance; any mode safer and faster can be used other than the one prescribed otherwise. If the mode is insisted upon it must be complied with. Acceptance by post takes effect the moment the letter is posted (Adams v. Lindsell). By a letter dated 2nd. September 1817, D, wool merchants offered to sell a quantity of wool to Ps wool manufacturers and required a reply by post. D misdirected the letter and it did not reach P until 5th. September. The same night, P posted a letter of acceptance, which reached the D on 9th. September. If the offer letter had been properly addressed an answer ought to have been received by 7th. September. Meanwhile on 8th. September not having received the reply from P, D sold the wool to another person. P sued for breach of contract. D argued that there was no contract until the acceptance was actually received. Held that in a contract concluded by post, the contract comes into effect the moment the letter of acceptance is posted 5th. September and D committed a breach by selling the wool to third parties on 8th. September. The reasons given for this rule are that the post office is the common agent for the parties so a letter put in the post is technically an acceptance communicated to the offeror and with that a contract is completed. An offeror can make it a term of his offer that there can be no valid acceptance until he receives the letter of acceptance. Derick Ohemeng-Mensah LEGAL ENVIRONMENT OF BUSINESS 6
However, where the rule will produce manifest inconvenience, or the letter is wrongly addressed or inadequately stamped or the letter is improperly posted, it will not apply. With instantaneous communication, using the telephone, e-mail, fax, telex and other electronic data interchange, the parties are regarded as being in the presence of the other and are only separated by space. The offeree must ensure that his acceptance has been understood by the offeror in the case of the telephone conversation, and in the case of the fax that it has gone through and the message is legible, while in the case of the e-mail that it has been delivered. Revocation of acceptance and offer. Acceptance can be revoked before it reaches the offeror while an offer can also be withdrawn or revoked at any time before it is accepted. The offer can also be revoked through lapse of time, death, rejection or if a condition upon which it is subject fails to materialize. Subject 8(1) of the Contracts Act, 1960 Act 25 an offeror is at liberty to withdraw his offer at any time before the offerees acceptance, if any, is communicated to the offeror. Capacity to contract The law presumes that everybody has the capacity to contract. The claimant of an exemption from liability for want of capacity must strictly establish this. The following classes of individuals, however, are subject to some degree of personal contractual incapacity: minors, mentally disordered persons and drunken persons, enemy aliens, corporate bodies and governments. The immaturity of reason in one who has attained full age, or abnormal weakness of mind short of such mental disorder as prevents a person from understanding the nature of the transaction, or the mere absence of skill upon the subject of the particular contract does not afford a person a ground of relief at law or equity. However, where there has been undue influence or unconscionable dealing by the other party or inequality of bargaining power may permit the transaction to be set aside as Derick Ohemeng-Mensah LEGAL ENVIRONMENT OF BUSINESS 7
inequitable. Where a contract is entered into under duress or undue influence it means that it was entered into under the threat of violence or actual violence. A minor is a person who has not attained the age of eighteen. Article 28 (5) defines a child as a person below the age of eighteen years. Section 1 of Childrens Act, 1998 Act 560, supports this. The only contracts, which bind a minor, are contracts for necessaries contracts that are beneficial to infants beneficial contracts of service and when the infants have themselves performed their side of the bargain.
Necessaries are defined as goods suitable to a minors condition in life and to his actual requirements at the time of sale and delivery. Necessaries may not be restricted to only food and clothing but could also be extended to contracts of apprenticeship, education and service. Since it is of obvious advantage to a minor that he should be able to fit himself for the future trade or profession and to obtain a livelihood, a minor may enter into contracts of apprenticeship, service, education and instruction, provide that these are beneficial to him. Apart from contracts of necessaries and contracts of apprenticeship, education and service, the general rule is that a minors contract is voidable at his option i.e. not binding on the minor but the other party. Whether an article is capable of being a necessary depends on the social standing, profession and duties of the minor. Things like food, clothing, shelter, means of transport and contract for the burial of a minors wife and children have been held to be necessaries (Chappel vrs. Cooper, 1844). In the case of contracts other than for necessaries, the general rule is that a mentally disordered person is bound by his contract unless he can show that owing to his mental condition he did not understand what he was doing, and that the other party was aware of this incapacity to make the contract voidable. Derick Ohemeng-Mensah LEGAL ENVIRONMENT OF BUSINESS 8
A person in a state of complete intoxication has no agreeing mind (Lord Ellenborough, 1811). Any agreement signed by such a person is voidable at the option of the drunken person, and could accordingly be ratified when he becomes sober. Apart from alcohol, drugs could be considered under intoxicating substances. Courts can not enforce contracts between parties including an enemy alien. An enemy alien is a national of another country at war with the other. Corporate bodies may enter into agreements in furtherance of their business as legal entities who have the power to enter into contracts. Government can also enter into contracts in conformity with provisions in the Constitution or other enactments. Intention to contract or create legal relations An intention to create a contract can be determined by the importance of the agreement and by the fact that one of the parties acted in reliance to it. The test for intention is an objective one. An intention should be distinguished from a mere puff or where there is a clause expressly excluding the intention to enter into a legal relation. Domestic agreements, like a husband agreeing to make a monthly allowance to his wife for her personal enjoyment, would not be considered as creating legal relations. Certainty of terms An agreement may be too vague or uncertain that it cannot give rise to a binding contract. Where an offer for employment is made subject to satisfactory references it was held to be vague (Wishart v. National Association of Citizens Advice Bureaux [1990]). The vagueness and uncertainty in a contract can be qualified as follows. Derick Ohemeng-Mensah LEGAL ENVIRONMENT OF BUSINESS 9
Custom and trade usage: these are words that have come to be accepted in the particular trade or the custom of the parties or commonly used. For instance, where a shop is to be leased in prime position it was held to be a common phrase dealing with shops. Reasonableness could also be applied to where the parties were well acquainted with the subject business of the contract. Where a phrase is meaningless, the court will try to give it a meaning. However, a meaningless phrase will not vitiate the entire contract, since such clauses can be severed from the entire contract. But whether or not this can be done depends on the importance which the parties attach to that clause. Legality of Purpose A contract may be illegal at the time of formation or during its performance if it may involve a breach of the criminal law or where the subject matter was forbidden by the law or where both parties or one of them intends to perform the contract in an illegal manner or effect some illegal purpose. Ignorance of the law will still make the contract void. In Miller v. Karlinski, an employee, whose mode of payment amounted to a fraud on the Revenue, was held to unable to recover arrears of salary, whether or not the parties knew about the illegality. Consideration To constitute a simple contract an agreement must amount to a bargain, each of the parties paying a price for that which he receives from the other. This price is referred to as consideration. In Currie v. Misa (1875) consideration was defined as some right, interest, profit or benefit accruing to one party, or some forbearance, detriment, loss or responsibility given, suffered or undertaken by the other. Consideration moves from the promisee. In this case a person can only enforce a promise if he himself provided consideration for it. A consideration must have value even though the Derick Ohemeng-Mensah LEGAL ENVIRONMENT OF BUSINESS 10
value need not be adequate. Prof. Sagay has drawn the following conclusions for the sufficiency of consideration as follows: If a party surrenders at the instance of the other party what he is entitled to keep, or refrains from exercising a right he is entitled to exercise, he has furnished a good consideration The consideration does not need to have any economic value provided it is the price demanded by the defendant for his own consideration. The consideration must be reasonably ascertainable and definite.
The Contracts Act 1960 in its Section 8, has provided as follows: a promisor who has promised to keep an offer open for a specified period is not at liberty to withdraw his offer before the expiration of that period on he ground that the promise has not provided any consideration for the offer a creditor who promises without receiving consideration for the whole or part of a debt or to waive the performance of some other contractual or legal obligation can be held to his promise if one is bound to perform a legal duty, the performance or promise to perform that act may be sufficient consideration Consideration may be supplied by someone other than the promisee (Section 10 of Contracts Act). Privity of Contract The doctrine of privity of contract is that a stranger to a contract can not sue on it (Pneumatic Tyre Co. Ltd. V. Selfridge & Co. Ltd. [1915] AC 847). In that regard, only persons who are parties to a contract and those on whom a contract expressly reserves a benefit can enforce a contract. Section 5 of the Contracts Act 1960 has also extended the benefits of contracts to third parties if so contemplated by the contracting parties and if sufficient consideration has been given. In Koah v Royal Exchange Assurance [1968[GLR 398, it was said that third Derick Ohemeng-Mensah LEGAL ENVIRONMENT OF BUSINESS 11
parties not parties to a contract can sue but if and only if and when the contract purports to confer a benefit on that third person. CONTRACTUAL TERMS A term is an obligation each party undertakes and the representations made in respect of discharging the contractual obligations. Contractual terms may be a warranty or condition. A warranty creates minor obligations, a breach of which entitles the party to damages only. A condition creates a fundamental obligation on the contractual parties, a breach of which entitles the other party to repudiate the contract. An example of a condition of a contract is the subject matter. The terms of a contract may also be express or implied. Express terms are clearly discussed and agreed to by the parties. Implied terms are not categorically discussed by the parties but if brought to their attention, the parties would have agreed to the said terms. The test for construing implied terms is on what the reasonable man would have done. Terms can be implied by the courts, by statute (the parties need not provide for such terms) and by custom (where the parties have established a pattern of consistent behaviour). Exemption Clauses Exemption clauses are clauses in an agreement incorporated to abridge the rights and limit the liabilities of the parties or where one party may agree to accept a reduction in liability by the other party. Exemption clauses may be contained in Standard Form Contracts or in individually drafted contracts. VITIATION OF CONTRACT Derick Ohemeng-Mensah LEGAL ENVIRONMENT OF BUSINESS 12
A contract may not be enforced as a result of factors which vitiate its performance such as mistake (including non est factum) undue influence, duress, public policy, illegality, unconscionability, misrepresentation or fraud. Mistake: mistake may be unilateral, cross-purpose or common. It is unilateral when one party is wrong about an aspect of the contract and the other party is aware that the first party was mistaken. In Smith v Hughes [1871] LR 6 QB 597 where the Defendant was sold new oats when he wanted to buy old oats, it was held that the defendant believed the oats to be old and was thus induced agree to buy them, but he omitted to make their age a condition of the contract. That the two minds were not ad idem as to the age of the oats; they were certainly ad idem as to he sale and purchase of them. Cross-purpose mistake is where the parties are thinking of different things and yet both are unaware that they are on different wave lengths. Common mistake is where the contracting parties made an identical error about the same subject matter. Where the mistake affects only the quality of the subject matter, the contract is not void. Non est factum (not my deed): it is a mistake over documentation where a party relies on the plea of non est factum to claim that the document bearing his signature is in fact not his because he was misled into signing a document that was completely different from that which he was made to sign. This plea especially protects the illiterate and the blind. To protect the party who is not illiterate or blind a clause should be included in the agreement stating that the terms of the contract were read over to the person and that the said person understood the said terms before appending his signature or thumbprint. The person who read over the terms of the agreement has to sign against his name in support of his function. Derick Ohemeng-Mensah LEGAL ENVIRONMENT OF BUSINESS 13
Duress: this nullifies consent and therefore the contract. In Orthodox School of Peki v Tawlma-Abels [1974] 1 GLR 419, it was held that the party relying on the plea of duress must establish that there was actual or threatened physical violence to, or unlawful constraint of, the person of the contracting party. Undue influence: is a defence to avoid a contract where the relationship between the contracting parties is such that one party, being the dominant party, will presumably or in fact have taken advantage of the dominant position over the servient party. In Mercer v Brempong II [1975] 2 GLR 376 undue influence was described as any influence by which the exercise of free and deliberate judgement is excluded at a time when some benefit or interest is given another by someone over whom such influence was exercised. Influence comes from the power to affect another persons character, beliefs or action through admiration, example, relationship, office, fear, etc. Public policy: a contract is contrary to public policy if it offends against the public interest such as promoting immorality, illegality, disorderly conduct, discrimination on grounds of ethnicity or religion or gender, stifles free and fair competition, injures the environment or public safety or health. Unconscionability: where the transaction is oppressive, grossly unfair or patently unreasonable. They are usually between powerful parties on one hand and a poor and ignorant party on the other hand. Section 18 of the Conveyancing Act 1973, NRCD 175 states that the court shall have power to set aside or modify an agreement to convey or a conveyance of an interest in land on the ground of unconscionability. Misrepresentation: a misrepresentation is a false statement of fact that is made by one party to another intended to induce the other to enter into a contract. The issue of inducement relates to the party relying on that statement made to enter into the contract. Where the statement is an opinion it would not constitute a false misrepresentation. Misrepresentation may be: Derick Ohemeng-Mensah LEGAL ENVIRONMENT OF BUSINESS 14
innocent: contained a falsehood that was unknown to the declarant or that the declarant believed to be true negligent: made by a person who had a duty of care towards the other party fraudulent: declarant knew very well that the statement being made was false or it was recklessly made without caring that it was true or false, or stated a material untruth, which brought about wholly or partially the contract.
Fraud: is to induce by wilful falsehood or to obtain by false pretence by word or conduct. The state of facts presented is with the knowledge that it was false or without the belief that it was true and made with the intent to defraud. Fraud vitiates everything: fraud omnia vitiate. PERFORMANCE AND BREACH OF CONTRACT There may be reasons for not performing a contract. A contract may not be performed due to circumstances beyond the control of the parties. However, if substantial performance has taken place, the party who has the obligation to pay for the services rendered can not treat himself as discharged from performing his obligations under the contract, though he may not be expected to pay fro full performance of the contract. Repudiation: where one of the parties shows by actions or words that he does not intend to honour his obligations when they are due. Repudiation can in some circumstances constitute a breach of contract. Fundamental breach: the person expressly or impliedly refuses to perform the contract. REMEDIES FOR BREACH Specific performance: this is a discretionary remedy given by the courts to compel a party to specifically perform the contract, such as for the sale, purchase or lease of land, or for the recovery of unique chattels (i.e. not obtainable on the markets). It is usually given when damages would be inadequate compensation for the breach of the agreement. Specific performance will not be decreed for contracts of personal service, but a defendant may be Derick Ohemeng-Mensah LEGAL ENVIRONMENT OF BUSINESS 15
restrained by injunction from the breach of a negative stipulation in such a contract, e.g. the covenant not to give services elsewhere during the term of the contract. Damages: this is the monetary value placed on the breach of contract. The principle of payment of damages is to effect restitutio in integrum ie to bring the party into the position in which he would have been had the breach not had occurred. The plaintiff however is required to take steps to mitigate his losses.
References Chitty on Contracts (1994) 27th. Edition London Sweet & Maxwell Abbott & Pendlebury (1996) Business Law 6th. Edition Continuum Treitel G. H., Law of Contract Cheshire, Fifoot & Furmstons Law of Contract (2001) Buttereworths Bondzi-Simpson, P.E Law of Contract (2002) Excellent Publishing and Printing
UNIT TWO Derick Ohemeng-Mensah LEGAL ENVIRONMENT OF BUSINESS 16
BUSINESS ORGANISATIONS UNDER GHANAIAN LAW LEARNING OUTCOME To identify the business organisations existing in Ghana To describe the procedures in the registration of business organisations To describe the functions of the organs of the business entities To describe how business organisations raise capital for their businesses To explain the merits and demerits of formation and existence of the various business organisations References Davies, P. L. & Prentice, D. D. Gowers Principles of Modern Company Law Sixth Edition 1997 Sweet and Maxwell Kelly, D. Holmes, A & Hayward, R. Business Law 2002 Fourth Edition
Introduction Derick Ohemeng-Mensah LEGAL ENVIRONMENT OF BUSINESS 17
Under the laws of Ghana the undertaking of business enterprises operating for profit can be done as follows: 1. 2. 3. Sole proprietor Partnerships Companies
SOLE PROPRIETORSHIP A sole proprietorship is a form of business organization whereby an individual conducts his business activities on his own. The business is registered under the name and style of the particular business name. A business name is registered under the Business Names Act of 1962, Act 157. The key feature of this form of organization is that someone who registers a business name does not intend to establish a business organization with a separate legal identity distinct from that of its owner. A sole proprietor with a registered business name only seeks to protect his exclusive right to use the name for business purposes. As a sole proprietor, a persons tax liability is the same as that of any individual paying personal income tax. A registered business name must not be misleading and the proprietor should be over 21 years old. When registering a business name the following particulars must be provided. 1. 2. 3. 4. The business name The general nature of business The principal place of business The particulars of the proprietor as follows (a) (b) (c) his present first name and surname any previous first name and surname the persons present nationality 18
(d) (e) (f)
the persons former nationality, if any his residential address and usual occupation His date of birth and the date of commencement of the business.
The form containing the above information must be signed by the sole proprietor. There is a penalty for providing false information. The main advantage is the relatively simple structure. The disadvantages are that the proprietors personal liability is not distinct from his business liability and the life of the business does not usually extend beyond the life of the owner/proprietor of the business. PARTNERSHIPS A partnership is a form of business organization made up of not less than two (2) and not more than twenty (20) people carrying on business for the purpose of making profit. Corporate bodies, infants, persons of unsound mind and persons who within five years prior to the formation of the partnership have been convicted of offences involving fraud and/or dishonesty can not form a partnership. Partnerships are formed under the Incorporated Private Partnership Act of 1962, Act 152. Partnerships have the following features 1. The partners are personally liable for all the debts and liabilities of the partnership/ business. 2. The property and the rights of the partnership belong to its members. A change in the Membership of the partnership results in the partnership assets being transferred to the new partners. 3. The partners have unlimited liability and are therefore all expected to contribute, without any limitation towards the payment of the partnerships debts and liabilities. Derick Ohemeng-Mensah LEGAL ENVIRONMENT OF BUSINESS 19
4. Partners may be limited or ordinary members. An ordinary member has the right to take part in the management of the partnership, unless the partnership agreement provides otherwise. The limited partner does not participate in the Management of the Partnership. However both limited and ordinary partners have the authority to bind the partnership in dealings with other persons/ third parties. The following information must be provided when registering a partnership 1. The partnerships name 2. The general nature of the business/operations of the partnership. 3. The address and post office box of the principal/ main place of business of the partnership 4. The details of any other place(s) where the business is carried out 5. The particulars of each of the partners including a. their present names, surnames and ages b. their former first names and /or surnames c. their respective nationalities d. their nationality or origin(if this is different from their present nationalities) e. their usual residence and their business occupation f. any particulars of charges on the Partnerships assets 6. The date of commencement of business When the registering the partnership, a copy of the partnership agreement spelling out the terms and conditions agreed by the partners for doing business together must be attached. The distinguishing legal characteristics of a partnership are as follows: 1. A partnership is a corporate body and has a separate legal identity from its members. 2. A partnership has permanent succession 3. Partnerships like companies are expected to keep proper accounts and records. 4. A partnership is easier to register than a Company. Derick Ohemeng-Mensah LEGAL ENVIRONMENT OF BUSINESS 20
5. The liability of the partners for the debts and liabilities of the partnership are joint and several. COMPANIES Introduction The primary law on company law in Ghana is the Companies Act 1963 Act 179. However various legislations in Ghana have a direct or indirect impact on company law and practice in Ghana such as the Bodies Corporate Official Liquidations Act 1963 Act 180 and Statutory Corporations (Conversion to Companies) Act, 1993 Act 461 Definition A company which is an association of persons formed for the purpose of some business or undertaking carried in the companys name is defined in First Schedule to the Companies Act as: a body corporate formed and registered under this Act or an existing company A body corporate is also defined as: ...a corporation formed under this Act or otherwise and whether in Ghana or elsewhere but does not include a corporation sole such as an incorporated office. There are different types or forms of corporate bodies. These are: Statutory Corporations (these are usually established by specific laws) e.g. former ECG, GWSC etc. which under the Statutory Corporations (Conversion to Companies) Act, 1993 Act 461 were converted to companies limited by shares. 152. Other statutory bodies Types of Companies Section 9 of the Act defines the various types of companies. Derick Ohemeng-Mensah LEGAL ENVIRONMENT OF BUSINESS 21 Companies incorporated under the Companies Act. Partnership incorporated under the Incorporated Private Partnership Act 1962, Act
them.
Company limited by shares: a company having the liability of its members limited to the amount, if any, or any part thereof that is unpaid on the shares respectively held by Company limited by guarantee: a company where the liability of its members is limited to such amount as the members may respectively undertake to contribute to the assets of the company in the event of it being wound up.
Unlimited liability company: a company which does not have any limit on the liability of its members A company of any of the above types may either be a private or public company. A private company shall be a company which by its Regulations: restricts the right to transfer its shares, if any limits the total number of its members and debenture holders to 50 prohibits the company from making any invitations to the public to acquire any of the companys shares or debentures prohibits the company from making any invitation to the public to deposit money for fixed periods or payable at call, whether bearing interest or not. In counting the number of share or debenture holders the Act excludes persons who presently or previously were in the genuine employment of the company and became shareholders or debenture holders while in that employment. Formation of Company In order to form a Company the Companys document i.e. Regulations under Ghanaian law, have to be delivered to the Registrar of Companies with the following details The name of the Company Limited as the last part of the Companies name for limited companies The nature of the Companys business otherwise referred to as the Companys objects - which clearly defines all the business undertakings that the Company is authorized to carry on Derick Ohemeng-Mensah LEGAL ENVIRONMENT OF BUSINESS 22
A statement that the Company has all the powers of a natural person with full capacity to take any decisions as a natural person The names of the first directors of the Company In the case of a limited liability Company a statement that the liability of its members are limited For a Company with shares, the number of the shares with which the Company is to be registered.
It is for the Registrar of Companies to accept the Regulations and issue a Certificate of Incorporation. However the Registrar may refuse to register a company for the following reasons: When the proposed Regulations do not comply with the provisions of the Act When the Companys object or business intended to be carried on are illegal When any of the Companys subscribers is of unsound mind When any of the Companys Directors is incompetent under the provisions of the Act to be appointed as a Director(s). The Regulations of the Company constitute a contract between the Company and its members i.e. shareholders, a Company and its officers, and the members and officers of the Company. Corporate Status of Companies When a Company is incorporated it becomes a direct, separate and artificial legal person. This principle was firmly established in the English case of Salomon vrs. Salomon & Co. Ltd [1895-99] AER. 33. The facts are as follows: Mr. Salomon, previously a boot manufacturer, formed a Company to take over his boot manufacturing business. The Company was called Salomon and Co. Ltd. The Company had seven members Mr. & Mrs. Salomon and their five children. Mr. Salomon had 20,000 shares, and Mrs. Salomon and the children had one share each. Mr. Salomon sold his boot making business to the Company at the price of 38,782.00. The Company Derick Ohemeng-Mensah LEGAL ENVIRONMENT OF BUSINESS 23
purported to pay for Mr. Salomons interest by the Company allotting to him 20,000 shares at 1 each, making him a payment of 20,000.00. The Company also issued him debentures of 10,000.00. The Company further paid Mr. Salomon the balance of 8,782.00 in cash. The Company owned him 10,000.00 since he was a debenture holder secured by a charge on the Companys assets in his favour. Mr. Salomon and two of his sons were appointed Directors of the Company, with Mr. Salomon himself as the Managing Director. The boot business however ran into difficulties and the Company had to be wound up a year later. The value of the Companys assets as realized amounted to only 6000.00, but the Company owed 7,733.00 to unsecured creditors, and 10,000.00 to Mr. Salomon whose debt was secured as a debenture holder. In the circumstances the unsecured creditors were going to receive nothing because the Companys debts exceeded its assets. The unsecured Creditors therefore challenged Mr. Salomons right to receive payment on the grounds that, although the Company was incorporated it was a sham because it was merely Mr. Salomon doing business under a different name. Another argument that they raised was that the business still belonged to Mr. Salomon and that it carried on business as Mr. Salomons agent with Mr. Salomon acting as the principal, and as such Mr. Salomon as the principal had the duty of indemnifying the agent Salomon & Co. Ltd. for liabilities incurred in the course of the agency. The Judges ruling summarized the legal position as follows: The Company is in law a different person altogether from the subscribers to the memorandum and though it may be that after incorporation the business is precisely the same as it was before, and the same persons are the Managers, and the same hands receive the profit, the Company is not in law an agent of the subscribers or a trustee for them. Nor are the subscribers as Members liable in any charge or form except to the extent and manner prescribed by the Act.
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In Ghana, in the case of Appenteng and others vs. The Bank of West Africa Ltd. and others [1961 GLR.199], the plaintiffs sued the defendant bank for damages arising to them as Shareholders of a Company, Mpotima Ltd. The case of Plaintiffs was that the Bank had given their Company, Mpotima Ltd. negligent advice leading to severe losses in excess of 42, 000.00. The defendants moved for summary judgment to dismiss the suit on the grounds that the Plaintiffs had no cause of action against the defendants, in that the damage was done to the Company and not the Plaintiffs who were the Companys Shareholders. Ollenu J. as he then was, stated inter alia: In law the Company is a separate legal personality, quite apart from its members (Shareholders). The Company is not an agent of its members the Directors of the Company are agents of the Company . they are however not agents of Shareholders therefore in a transaction with the defendants the only person who in law could be entitled to a duty of care from the defendants is the legal entity Mpotima Ltd. and not the members thereof or any one of them. Companies are artificial legal persons. They are bodies that have a separate legal identity and are the creation of the law. As an artificial legal person: 1. A company may do all the things that a natural legal person can do namely: it can own property it can enter into contracts/agreements It can sue and be sued Its rights belong to the Company alone and can not be enforced by or against its Directors, agents, members or employees in their individual capacity. 2. 3. 4. A company has a common seal It has perpetual succession. Criminal Liability: A company is treated as having a mind capable of committing a criminal offence i.e. it has mens rea. The mental state of its agents in senior managerial positions is synonymous with that of the company. In Tesco Supermarkets Ltd v Nattrass (1971) a shop manager contravened Derick Ohemeng-Mensah LEGAL ENVIRONMENT OF BUSINESS 25
the Trade Descriptions Act (1968) by charging a customer more for an article than the price specified in the special offer poster. The company was prosecuted but was found not guilty of an offence under the Act as the manager was not a senior official of the company and was one of the hands of the company and not part of its brain. The mental state of the companys controllers will not be attributed to the company in certain cases e.g. where the controllers conspire to act in breach of various provisions laid down by statute to protect companies. In R v Phillopou (1989), the two directors of a group of companies, which included Sunny Tours Ltd., were its only shareholders. The company went into liquidation and the directors transferred a block of flats in Spain owned by Sunny Tours Ltd to a Spanish company of which they were the directors and only shareholders. The purchase price was paid with money drawn from Sunny Tours Ltd. It was held that where the directors were also the companys only shareholders, it was possible for them to steal from their own company. Both the company and its officers were liable for criminal offences occasioned by the acts or defaults of the companys officers. Companies are managed by their Directors, and the decisions are made by passing resolutions at Directors meetings. The Directors exercise their power as a collective group i.e. as the Board of Directors, and not as individual Directors. Members/Shareholders in their capacity as Members/Shareholders do not, and are not responsible for managing companies. The Member/Shareholder may only be directly involved in the Management of the Company as a member of the Board of Directors. Lifting the Veil There are certain circumstances when the courts have disregarded the concept of the separate entity of the company and have lifted the veil of incorporation. The circumstances under which the veil of incorporation can be lifted are as provided by: Derick Ohemeng-Mensah LEGAL ENVIRONMENT OF BUSINESS 26
The Companies Act Other laws By the courts in the public interest
The Companies Act, 1963 Act 179 Under Section 29 (a) of the Act, where the company fails to comply with the minimum capital requirement the company and every other director in default shall be liable to a fine not exceeding a prescribed amount for every day during which the default continues. A company limited by guarantee cannot carry on any profit making enterprise hence any officer and members of a company limited by guarantee that conducts profit making business shall be jointly and severally liable to discharge all debts and liabilities incurred if they knew that the company was undertaking a profit making venture (S. 10 (2). Other legislation Where a wholly owed subsidiary company is being used as vehicle by its holding company to avoid taxes, the Internal Revenue Service may ignore the declared income of the company operating in Ghana and base the tax liability on the consolidated income of the holding or related company. The Courts In times of war where a company is owed or controlled by nationals of an enemy country, public policy dictates that such a company should be regarded as an enemy company with all attendant disabilities of enemies. (Daimler Co. Ltd v Continental Tyre and Rubber Co. (Great Britain) Ltd.) The corporate veil may also be lifted to prevent the deliberate evasion of a contractual obligation (Gilford Motor Co. vrs. Horne) Ultra Vires Doctrine Section 25 (1) of the Act provides as follows; Derick Ohemeng-Mensah LEGAL ENVIRONMENT OF BUSINESS 27
A company shall not carry on any business not authorized by its Regulations and shall not exceed the powers conferred upon it by its Regulations or this Act. However, Section 25 (3) provides that notwithstanding section 25 (1), no act of a company and no conveyance or transfer of property to or by a company shall be invalid by reason of the fact that such act, conveyance or transfer was not done or made for the furtherance of any of the authorized business of the company or that the company was otherwise exceeding its objects or powers. The Act provides that if the contract or act remains executory, action may be taken by a member or debenture holder to restrain the company from performing it. Protecting Persons Dealing with the Company The Rule in Turquands Case The rule in Royal British Bank vrs. Turquand [1856] (usually called the Turquands case) postulates that third parties are not required to ascertain that all procedures of the corporation have been complied with, that all powers exercised by officers of the corporation have been properly exercised and that all terms and conditions set out in the companys Regulations have been fulfilled. In the Turquand case, under the companys deed of settlement, the board could borrow on bonds such sums as from time to time should be authorised by a resolution of company in general meeting. The bank brought an action on the recovery of the loan. It was held that the bank need not prove that the company had passed a resolution at a general meeting authorising the directors to borrow funds from it. The bank had a right to infer that the resolution passed was legitimately done. NOTE: The principle in the Turquands case does not apply to persons who by virtue of their position in the company know or ought to know whether or not the companys Regulations have been complied with. Derick Ohemeng-Mensah LEGAL ENVIRONMENT OF BUSINESS 28
Below are few examples of cases in which this principle has been applied: The appointment of a director A director acting for a company after he has ceased to be a director The failure of the company to properly convene a board meting to authorise the company to enter into a given transaction. The directors disregard for the limitations imposed on them by the Regulations Where without support from the Regulations the directors borrow without approval of any ordinary resolution of the company a sum exceeding the stated capital of the company. The rule in Turquands case is supported by Section 202 [6] of the Act which provides as follows: No person dealing with the company in good faith or registering any disposition of or title to property shall be concerned to see whether the conditions of this section have been fulfilled and the provisions of sections 139 to 143 of this Act shall apply to any transactions of the type referred to in this section notwithstanding that such conditions have not been fulfilled In Commodore Vrs Fruit Supply [Ghana] Limited, the name of a non-shareholder who had not been appointed a director was printed on the companys letter head as a director and was also allowed to transact business for the company. The Court of Appeal not only held that he was a director but that his acts were binding on the company unless the person with whom he dealt with knew or ought to have known of the irregularity.
Acts of the Company A company acts through: its members 29 its board of directors Derick Ohemeng-Mensah LEGAL ENVIRONMENT OF BUSINESS
officers or agents appointed either by themselves or the board.
Members The members of the company are; the subscribers to the Regulations of the company persons who agree to be members of the company and whose names are entered in the register of members. The members of the company are normally called shareholders Two ways of determining whether a person is a shareholder or not are: by his/her share certificate by confirming whether the name is entered in the register of members at the
companies registered office These details may also be found with the companys documents filed at the Registrar Generals office. Rights of Members To receive proper notice of general meetings and to receive various statutory reports such as a copy of all directors and auditors reports, financial statements and other documents. All materials required for the meeting are to be given to members in advance. To attend general meetings or appoint a proxy to attend on their behalf. To speak at general meetings. To vote on any resolution at general meetings. To have the members name & shareholding duly registered and to receive a share certificate in respect of same. To receive dividends duly declared under the Regulations. To exercise pre-emption rights. (A pre-emption right is conferred on a shareholder/member by the Regulations. It permits the shareholder to subscribe to any new shares issued by the Company such that the balance of control between the shareholders is maintained). Derick Ohemeng-Mensah LEGAL ENVIRONMENT OF BUSINESS 30
To have the Members capital returned in the proper order of priority on a winding up of the Company or in case of a properly authorized reduction of capital. To transfer shares, unless otherwise restricted after the shares have been duly issued. Not to have the members financial obligations to the Company increased without their consent. To inspect the Companys registers relating to members, debentures, mortgages or charges and the records of the Companys directors and other such records. To obtain a copy of the Regulations on payment of a nominal fee. To recover compensation from the promoters and directors for misrepresentation, even if the misrepresentation is not fraudulent. To obtain repayment from the Company if money is paid for shares which cannot be legally allotted. To take legal action against the Company To determine who should manage the affairs of the Company.
Liabilities of Members (Section 37 of the Act) Prior to winding up, the Members are liable to contribute to the balance of the amount payable in respect of shares. In case the Company winds up its affairs, the past members of the Company are liable for the debts, liabilities, costs and charges and expenses of the winding up, if the winding up occurs within one year of their ceasing to be members. In any event for limited liability companies the contributions by past and present members is linked to the unpaid value of shares. Termination of Membership A persons membership of a company with shares continues until one of the following events occurs. The valid transfer of his shares which is registered by the Company.
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The operation of law such as nationalization of a company, and typically when a legal personal representative, receiver or trustee in bankruptcy takes over the running of the Company.
Directors Section 179 defines a director as a person, by whatever name called, appointed to direct and administer the business of the company. The appointment of directors is regulated by the companys Regulations which may provide for the appointment of directors by certain class of shareholders, debenture holders, creditors, employees or indeed any other person. The first directors are however normally named in the Regulations. Directors may be called by whatever name. The Managing Director or other executive directors are directors to whom the directors have entrusted and conferred on any or all power[s] exercisable by the directors with such terms and restrictions that the board of directors deem fit. They hold office within the Company and are paid salaries. The Directors are appointed by the shareholders in a general meeting, except for casual vacancies in the number of Directors which may be filled by the Board of Directors. The Company may also appoint a substitute director or alternate director. A substitute director is one who is appointed to act as a deputy for another named director and as a substitute in the absence of that director (Section 187). An alternate director is one appointed in respect of a period of not more than six months in which a director is absent from the country or unable for a reason to act as a director (Section 188). Where a person who is not duly appointed as a director holds himself out or knowingly allows himself to be held out as a director, he may be saddled with the duties and liabilities of a director. Derick Ohemeng-Mensah LEGAL ENVIRONMENT OF BUSINESS 32
The conduct of a companys business is the responsibility of the board of directors Okudjeto Vrs Irani Brothers per Hayfron-Benjamin J. See also Section 137 [3] of the Act. Section 137 [4] further provides that unless the Regulations shall otherwise, provide, the board of directors when acting within the powers conferred upon them by this Act or the Regulations shall not be bound to obey the directions or instruction of members in general meeting. The shareholders may however: make recommendations to the board ratify or confirm decisions taken by the board institute legal proceedings in the name and on behalf of the company, if the board of directors refuse or neglect to do so act, if members of the board are disqualified or are unable to act because of a deadlock on the board or otherwise The following decisions are however resolved by shareholders: declaration of dividends [upon recommendation from the board] consideration of the companies accounts and the report of directors and auditors removing and electing directors and auditors fixing remuneration of the auditors.
The conduct of a companys business is the responsibility of the Board of Directors. A Director need not be a member or a shareholder of the Company, however every Company needs to have at least two directors. The Directors have all the powers that are necessary to manage, direct and have oversight over the affairs of the Company. Duties of Directors (Section 203 of the Act) Derick Ohemeng-Mensah LEGAL ENVIRONMENT OF BUSINESS
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A directors stands in a fiduciary relationship towards the company and shall observe the utmost good faith in any transaction with or for the company To act at all times in the best interest of the company so as to preserve its assets, further its business and promote its purposes as a faithful, diligent, careful and ordinarily skilful person
An officer of a company is a Director, Secretary or any other employee of the company. The company, as an artificial legal person can only act through the said officers. However the auditor of a company is not an officer of the Company. Meetings of the Members of the Company The Annual General Meeting (AGM) of a company is held every year and it considers the following: The declaration of dividends The consideration of the companys reports The election of directors to replace those who are retiring Fixing the remuneration of the auditors Removing and/or electing the Auditors and Director(s) in accordance with the
provisions of the Act An Extraordinary General Meeting (EGM) may be convened by the Directors whenever they consider it fit or by any Director upon fulfilling the requirements of the Act. EGMs deal with matters of an extraordinary nature that cannot wait until the next AGM to be dealt with. All Members/ Directors must be given adequate notice of meetings together with notice of the business to be transacted at the meeting, in order for the Member/Director to take an informed decision about whether to attend the meeting or not. To this end the relevant documents should be circulated before the meeting in order for members to make meaningful contributions at the meeting. Derick Ohemeng-Mensah LEGAL ENVIRONMENT OF BUSINESS 34
The Registrar of Companies The Registrar of Companies performs two main functions under the Act: As a regulator and watchman to ensure that the companies registered under the Act comply with the Act and the Regulations. As a custodian of information on companies and therefore required to regularly file certain information with the registrar of companies. Company Secretary The Company Secretary is usually appointed and removed by the Directors but the Regulations of the Company may vest the appointment of the Secretary with the shareholders. The Company Secretary as an administrative assistant and officer of the Company has the authority to bind the company in administrative matters. The Company Secretary assists the Board of Directors to discharge its duties. The Company Secretary makes arrangements for board meetings when requisitioned by a member of the Board. He sends out the notices of the meeting and the agenda and prepares the Chairmans agenda; he takes down the minutes of the meeting and keeps copies in the minutes book of Directors meetings. The Company Secretary is the keeper of the companys records and seal. He may also be the administrative officer conducting correspondence on behalf of the Company, negotiating contracts, drafting documents and issuing shares and debentures. Register of Directors and Secretary The Company must have a register containing the particulars of the Directors and Secretary. The information must contain their full names, residential addresses, business occupation, and in the case of Directors particulars of any other directorships or alternate directorships that they hold. The register of Directors is supposed to be available for inspection by the public. Auditors Derick Ohemeng-Mensah LEGAL ENVIRONMENT OF BUSINESS 35
The Companys Auditor is not an officer of the Company but he has a fiduciary relationship with the company. They are required to be qualified accountants who have responsibility to report on the accounts and confirm that they give a true and fair view of the state of affairs and the profit and loss of the Company. They have the right of access to all the books of the Company and have the right to attend the Companys General Meetings to deal with issues in respect of the accounts. The Auditors are appointed and removed at the Annual General Meeting of the Company. Shares Shares are instruments used by the Company to raise funds. The ownership of shares in the Company confers on the owner or holder certain rights in the company. A shareholder contributes to the capital of the company and as a business venture or undertaking, may suffer a loss of his capital. His contribution entitles him to the payment of dividends when profit is made and declared. The shareholder is entitled to attend and vote at general meetings, and to have his capital returned when the Company is wound up. The shareholders liability to the Company is the potential loss of the capital that he has contributed to the company if it is wound up. He is also bound to pay the balance of his shares if they have not already been paid to the company where the company when it is to be wound up. The company can create different classes of shares with different voting rights and rewards. There can be ordinary shares and preference shares, and the right of ownership of the shares is evidenced by the share certificate that is issued to the holder of shares in a company. Preference shares are issued and its holders receive dividends, usually fixed income with priority over ordinary shareholders dividends. The company is obliged annually to file its annual returns and information on the current shareholding status of the company. Derick Ohemeng-Mensah LEGAL ENVIRONMENT OF BUSINESS 36
The company can vary the number of shares it has and the rights attached to those shares. Debentures Companies can raise long term funds by issuing debentures. Shares constitute equity while debentures form part of the companys loan or debt. A debenture is a written acknowledgment of the debt of a Company and it usually states the amount of money that has been lent to the Company, the interest payable on the debt, the period of full repayment (Section 80). A debenture holder must be issued a certificate and the company must keep a register of debenture holders. Registration of Particulars of Charges (Section 107) The Act requires particulars of charges created by a company together with the original or certified copy of the instrument to be registered with the Registrar within 28 days of the creation of the charge. Failure to register the particulars of the charge makes the charge void. However, where the charge becomes void, the money secured by the charge becomes immediately payable notwithstanding any provision to the contrary in any contract. The company or any person interested in the charge may apply to the court for an extension of time within which to register the charge. NOTE: Though it is the responsibility of the company to register the charge, any other interested person may apply to register the charge. A charge is security on property and includes a mortgage, whether legal or equitable. Public Invitations and Prospectus Derick Ohemeng-Mensah LEGAL ENVIRONMENT OF BUSINESS 37
A company may raise funds through its shareholders, borrow from financial institutions or if a company is interested in obtaining long term money it may issue shares and invite the public to subscribe to its shares. A company is only obliged to pay dividends when it has made profits. Share capital is potentially present till the winding up of the Company. Because shares of a public company may be readily transferred the obligations of a public company are greater in order to protect the public while raising money to carry on the business. The Company makes a general offer to the public to acquire shares and securities and informs the public of the status of the company and its prospects through its Prospectus. The Prospectus provides detailed information about the company, its financial and trading history, its prospects, the proposed new issue of shares, the companys officers, bankers, stockbrokers, underwriters, lawyers and auditors. The Prospectus is registered with the Registrar of Companies and distributed to any person to whom a public invitation is made to acquire and dispose of any securities. Sometimes in addition to a Prospectus, Companies try to persuade members of the public to patronize their issue by adding reports or forecast of experts. Experts are referred to by the Companies Act as any person(s) whose professional calling give(s) authority to a statement made by them. The experts written consent is required to register and publish such a Prospectus and the statement in the form made. If at any time before the registration of the prospectus the expert withdraws his consent the Registrar should be notified immediately. The issue usually goes through an issuing house and may be floated on a Stock Exchange. Because Companies float securities to raise money for specific purposes there is usually a minimum subscription amount that has to be raised. The purpose of the minimum subscription is to ensure that floatation does not get underway unless the essential minimum capital for the purpose for which it was formed has been raised. Derick Ohemeng-Mensah LEGAL ENVIRONMENT OF BUSINESS 38
In the event that the minimum amount is not subscribed within 28 days after the waiting period any agreement to subscribe becomes void and the company must immediately and in any event within 8 days repay without interest all the money received from any person in response to the invitation. Any money that is not repaid within 8 days will have to be repaid by the Directors jointly and severally at the rate of 5% per annum unless it can be shown that there was no misconduct or negligence involved in the matter. Liquidation & Winding Up Liquidation is the winding up of a company. The process of liquidation commences with the passing of a special resolution by the Company calling for its liquidation or by the presentation of a petition to a court or the Registrar. A liquidator will be appointed to conduct the liquidation process. He assumes the powers of the Directors, takes control of the affairs of the company, collects its assets, pays the debts and then distributes any surplus to members in accordance with their rights. When a liquidator is appointed the Directors are rendered functus officio (having discharged their duties). The Company continues as a corporate entity until its dissolution when it ceases to do any business except as is required for its beneficial winding up. The financial year of the company shall be deemed to end just before the commencement of winding up and therefore the preparation, auditing and dispatch of all statements, accounts and reports have to be done. Transactions entered into within certain periods before the commencement of liquidation may be invalid on the grounds of being fraudulent preferences or fraudulent conveyances. An example of a fraudulent transaction is where the company as a debtor settles all or parts of his debt with a particular creditor as against other creditors knowing that the company Derick Ohemeng-Mensah LEGAL ENVIRONMENT OF BUSINESS 39
will soon proceed into liquidation or where a conveyance is executed giving property to a third party making it almost impossible for the creditors to be repaid. All actions against the company except by secured creditors who are taking action for the realization of their security shall be stayed unless the Court grants leave to proceed. Any transfer of shares during this period is void. If in the course of liquidation the liquidator forms the opinion that the Company will be unable to pay its debts he must notify the Registrar and add a statement of the Companys liabilities. The Registrar must then register this notice and cause publication of the notice in the gazette. The liquidator is not a director of the company but has the powers of a director to continue with the companys business during this period for the purposes of facilitating its winding up. At this time all the companys letters, documents and correspondence should contain statements to the effect that the company is being wound up. When the registrar is satisfied that the winding up process is complete he issues a series of notices in the Gazette, the Companys name will be struck off the registrar of companies and he will notify the public by publication in the gazette. The company shall be deemed dissolved on the date of publication and notification in the gazette.
UNIT THREE CONTRACT OF EMPLOYMENT
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Introduction Laws create and regulate relationships between persons and group of persons. There are laws that regulate the relationship between an employer and worker, between a company and a contractor or service provider and between the human resources of an organisation. Employment laws are based on the law of contract and provide a distinction between a contract of employment and a contract for service. In Ghana the basic statute on employment is the Labour Act 2003, Act 651. Other laws which affect labour relations include the Childrens Act, 1998 Act 560, Social Security Act 1991 PNDCL 247, Workmens Compensation Act 1987 PNDCL 187, Persons with Disability Act 2006, Act 715. The Contract of Employment In Section 175 of the Labour Act Employment means employment under a contract of employment or agreement of employment, A contract of employment means a contract of service whether express or implied, and if express whether oral or in writing A worker means a person employed under a contract of employment whether on a continuous, part-time, temporary or casual basis An employer means any person who employs a worker under a contract of employment. The relationship between an employer and worker exists under a contract of employment or service. A contract of service or employment is distinguished from that of an employer and an independent contractor where the worker is employed under a contract for services.
The Factors That Distinguish A Contract of Employment from a Contract for Services They are: Derick Ohemeng-Mensah LEGAL ENVIRONMENT OF BUSINESS 41
The degree of control exercised by the employer Whether the workers interest in the relationship involved any prospect of profit or risk of loss Whether the worker was properly regarded as part of the employers organisation Whether the worker was carrying on business on his own account or carrying on the business of the employer The provision of equipment The incidence of tax and social security The parties respective view of their relationship The traditional structure of the trade or profession concerned and the arrangements within it.
Control and superintendence. The employer normally has the power to direct and control the work of the worker. The control test must be supported by such other factors as the payment of the worker, the working hours and place of work and the right to dismiss. The greater the degree of independence from continuous and detailed control enjoyed by the person in question, the more likely it is the inference that it is not a contract of employment but a contract for services. Transfer of control may not necessarily mean that the person is not a worker. For instance the temporary transfer of a worker to another place does not result in the transfer of the contract of employment. The organisation test. A worker is an integral part of the firm and not a casual or temporary person engaged only for the purpose of completing a specific task. The test is as follows: Is the person who has engaged himself to perform these services performing them as a person in business on his own account?
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The power to select and appoint, dismiss or suspend. The employer has the power to appoint and may delegate this power to another person. Even though a person may not have the power to control the manner that another person works, to the extent that he can dispense with the service of the latter by giving a certain period of notice, the relationship can be said to be one of employment. Payment of wages and salaries. Normally a regular, fixed sum is payable to a worker but it is possible to be remunerated wholly on commission basis. The typical worker is paid according to time worked. The amount of wages payable is normally determined by either the collective agreement between the representatives of the workers and the employers or as specified in the companys conditions of service. Where the minimum amount of wages is fixed by government, the employer is by law not allowed to pay the worker a wage below the minimum set. Supply of equipment and ownership of assets. In a contract of employment, the worker is supplied with the equipment, tools or machines used. Time and place of work. The power to fix the place and time of work resides in the employer in a contract of employment. The extent of the obligation to work or to employ. If the contract entitles some person to the full-time or exclusive services of the other person, it points to a contract of employment. Payment of social security and tax. The deduction by the employer of income tax and social security contributions is an indication that the relationship is one of employment.
FORMATION OF THE CONTRACT OF EMPLOYMENT Derick Ohemeng-Mensah LEGAL ENVIRONMENT OF BUSINESS 43
The general principles of the law of contract apply to the relationship between an employer and a worker. Section 12 of the Labour Act 2003, Act 651 provides as follows: (1) The employment of a worker by an employer for a period of six months or more or for a number of working days equivalent to six months or more within a year shall be secured by a written contract of employment. (2) A contract of employment shall express in clear terms the rights and obligations of the parties. Schedule 1 of the Act sets out the terms of the contract of employment as follows: Date of first appointment Job title or grade Rate, method and intervals of pay Hours of work Periods of holidays and details of holiday pay Conditions relating to incapacity to work due to sickness or injury and details of sick pay Details of social security or pension scheme Amount of notice to terminate employment given by (a) the employer (b) the worker The disciplinary rules applicable Procedure of dealing with any grievance or dispute Overtime payment, if any
The contract of employment which must be furnished to the worker within two months of the employment must be signed by both the worker and the employer. Types of Employment Section 16 of the Act indicates three types of contract of employment based primarily on the mode of remuneration as follows: Derick Ohemeng-Mensah LEGAL ENVIRONMENT OF BUSINESS 44
Monthly contract - where remuneration is paid monthly. This is the most common type of employment in Ghana. Weekly contract - where remuneration is paid weekly. Contract determinable at will- where remuneration is neither weekly or monthly
RIGHTS AND DUTIES ASSOCIATED WITH CONTRACT OF EMPLOYMENT The express terms of the contract of employment govern the relationship between the employer and the worker. In practice, however, many aspects of the relationship are left to be implied normally. DUTIES OF THE WORKER Section 11 of the Labour Act 2003 sets out the duties of the worker which include the following: To work conscientiously in the lawfully chosen occupation To report for work regularly and punctually To enhance productivity To exercise due care in the execution of assigned work To obey lawful instructions regarding the organisation and execution of his or her work To take all reasonable care for the safety and health of fellow workers To protect the interests of the employer and To take proper care of the property of the employer entrusted to the worker or under the immediate control of the worker.
DUTIES OF THE EMPLOYER Section 9 of the Labour Act 2003 the duties of an employer include the following: Provision of work and appropriate raw materials, machinery, equipment and tools
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Payment of agreed remuneration at the time and place agreed on in the contract of employment or collective agreement or by custom without any deduction except deduction permitted by the law or agreed between the employer and the worker
Ensuring that the worker is free from risk of personal injury or damage to his or her health during and in the course of the workers employment or while lawfully on the employers premises
The development of the human resources by way of training and retraining of the workers Provision of adequate procedure for the discipline of workers Furnishing the worker with a copy of the workers contract of employment To keep open the channels of communication with the workers and The protection of the interest of workers.
RIGHTS UNDER THE LABOUR ACT 2003 A right is an interest recognised and protected by the law, respect for which is a duty and disregard of which is wrong (Salmond). It is a capacity residing in one man of controlling, with the assent and assistance of the State, the actions of others (Holland). Rights of a Worker Section of 10 of the Labour Act 2003 sets the rights of a worker as follows: work under satisfactory, safe and healthy conditions; receive equal pay fro equal work without distinction of any kind; have rest, leisure and reasonable limitation of working hours and period of holidays form or join a trade union be trained and retrained for the development of his or her skills and receive information relevant to his or her work.
with pay as well as remuneration for public holidays
Rights of the Employer Section 8 of the Labour Act sets out the rights of the employer as follows: Derick Ohemeng-Mensah LEGAL ENVIRONMENT OF BUSINESS 46
worker -
employ a worker, discipline, transfer, promote and terminate the employment of the formulate policies, execute plans and programmes to set targets modify, extend or cease operations and determine the type of products to make or sell and the prices of its goods and
services. Payments The following payments requirements are required under the Labour Act. Payment of remuneration (Section 67) the whole of the salary, wages and allowances of a worker shall be payable by legal tender in addition to any non-cash contribution that may be paid. Prohibited deductions (Section 69) where an employer provides advance payment to the worker, the employer shall not make any deduction by way of interest or such charge. The employer shall not also impose a pecuniary penalty upon any worker or make any deductions not permitted by the Act. Permitted deductions (Section 70) sets out deductions from the workers remuneration with the consent of the worker. The deductions contributions to provident fund, pension schemes, membership subscriptions, refund of money paid to the worker in error, meeting of losses incurred by the worker, or deductions authorized by the National Labour Commission. Holidays and holiday pay. The Constitution provides that a worker should have periods of holidays with pay, as well as remuneration for public holidays (Article 24 (2) 1992 Constitution of Ghana). Sections 20 to 32 makes provision for Annual leave with pay. Every worker is entitled to at least 15 days of annual leave with full pay. The period of the annual leave is not affected by public holidays and sick leave. The leave is to be uninterrupted unless where it becomes extremely necessary. The worker may take his or her leave in two equal parts. A worker shall be entitled to leave earned even upon Derick Ohemeng-Mensah LEGAL ENVIRONMENT OF BUSINESS 47
termination in which case he may take the leave or be paid salary in lieu thereof. Any agreement to relinquish the entitlement to annual leave or to forgo such leave is void. Payment during absence due to sickness. This depends on the contract terms. In the case where wages are based on actual work done, wages are not payable during the workers illness. Maternity pay. The Constitution provides that mothers be accorded a reasonable period of rest before and after childbirth; and during those periods, working mothers shall be accorded paid leave (Article 27(1) 1992 Constitution of Ghana). Payment during disciplinary suspension. This must be clearly stated in the terms of the employment and brought to the notice of the worker. Equality of pay. The Constitution provides that workers should be given equal pay for equal work done (Article 24 (1) 1992 Constitution of Ghana). The right to itemised statements of pay and deductions. The employer is under obligation to give each worker an itemised pay statement on the payment of wages or salary. The statement must give particulars of the gross amount of the remuneration, any deductions and the purpose for which they have been made, of the net amount of the remuneration and the amount and method of any part payment made in a different way. Deductions of any amount from the remuneration should be statutory or by agreement between the employer and the worker. Duty of Care The employer is to take reasonable care of the workers safety, health and welfare at work. The duty includes the provision and maintenance of plant and systems of work arrangements in connection with the use, handling, storage and transportation of articles and substances Derick Ohemeng-Mensah LEGAL ENVIRONMENT OF BUSINESS 48
provision of information, instruction, training and supervision provision and maintenance of means of access to and egress from any place of work provision and maintenance of facilities and arrangements for the welfare of the workers.
Hours of work What are normal hours of work should be determined and made known to the worker. Section 33 provides that the maximum hours of work shall be 8 hour in a day or 40 hours per week. Any additional period of work shall be deemed as overtime for which the worker should be compensated, excluding exceptional cases. The following are implied duties of he employer: Duty to insure against liability for bodily injury or disease contracted by his workers arising out of and in the course of their employment and to pay social security for the worker. References and testimonials if given for a former employee must be accurate. Appraisal of probationary workers and to give guidance when required. Disciplinary procedure requires that the worker is given a fair opportunity to defend charges made against him under the audi alteram partem rule. (Aboagye vrs. Ghana Commercial Bank [2001]). For dismissal not to be wrongful, the disciplinary procedure in the service agreement must be followed (Rep. V. Commission of Enquiry ex parte Bannerman [1967].
EMPLOYMENT OF CERTAIN GROUPS OF PEOPLE Under the Labour Act, women, young persons and persons with disability have been granted special rights and protection. Persons With Disability (Sections 45 To 54) A person with disability means an individual with a physical, mental or sensory impairment including a visual. Hearing or speech functional disability which gives rise to Derick Ohemeng-Mensah LEGAL ENVIRONMENT OF BUSINESS 49
physical, cultural or social barriers that substantially limits one or more of the major life activities of that individual (Section 59 of the Persons with Disability Act, 2006 Act 715). In the Labour Act a person with disability means an individual who, on account of injury, disease or congenital deformity, is substantially handicapped in obtaining or keeping employment or in engaging, in any work on his or her own account, of a kind which apart from that injury, disease or deformity would be suited to his or her age, experience and qualification. The Labour Regulations, 2007 L.I. 1833 provides for the establishment of Disablement Unit in each district, whose functions are to keep a register of persons with disability. An employer is required to notify the nearest employment centre, attached to the Disablement Unit, of the employment of any person with disability. In the Labour Act special incentives are provided for employers who employ persons with disabilities. Disabled persons who engage in business or enterprise are also entitled to incentives as indicated by the Minister. Under Regulation 17 of L.I. 1833, tax rebate shall be given to an employer who engages at least five persons with disability. Employment not to cease upon disablement: the employment of a person shall not cease if the person suffers disability after employment and if his or her residual capacity for work is such that he can or she can engage in some other corresponding job for the employer. If no corresponding job can be found, the disabled worker may be terminated by notice (Sec. 50) Length of notice of termination (Sec. 51): in all cases of termination, the notice shall not be shorter than one month. Transfer of person with disability (Section 52): a person with disability may be transferred to another job within the same establishment if the other job is a corresponding job. Derick Ohemeng-Mensah LEGAL ENVIRONMENT OF BUSINESS 50
Women (Sections 55 to 57) The provision on women basically relate to pregnant women and nursing mothers. The Act provides that such women shall not be made to do night work or engage in overtime work unless they wish to do so. Pregnant women may not also be assigned any work which is outside the place of residence after the completion of the first four months of pregnancy. Pregnant women are also entitled to 12 weeks maternity leave in addition to their annual leave. The period of maternity leave may be extended if a medical practitioner certifies that additional leave is required. Young Persons (Sections 58 to 60) A young person is defined as a person above 18 years of age but below 21 years of age. Prohibition of employment of young persons in hazardous work: it is an offence to employ a young person for any work that exposes the person to physical or moral hazard such as: manual lifting of loads in excess of twenty-five kilograms work on scaffold and other structures at a height exceeding two and a half metres the use of substances and materials that emit harmful gases production and screening of pornographic materials and working at areas in a hotel that are likely to corrupt the moral development of the young person Health of young person: an employer shall not employ a young person unless a medical officer has certified that the young person is in good health and fit for the job. Registration of young person: employers are required to keep a register of young persons employed in the establishment. Derick Ohemeng-Mensah LEGAL ENVIRONMENT OF BUSINESS 51
TERMINATION OF EMPLOYMENT Employment may be terminated (brought to an end) either at the end of the period or before the contract of employment comes to an end as may be agreed between the parties. Either party to the contract, viz, the employer and the worker has a right to terminate the contract of employment, subject to the Labour Act. Section 15 of the Labour Act 2003 Act 651 gives the grounds upon which the contract of employment may be terminated as follows: by mutual agreement between the employer and the worker by the worker on grounds of ill-treatment or sexual harassment by the employer on the death of the worker before the expiration of the period of employment by the employer if the worker is found on medical examination to be unfit for employment by the employer because of the inability of the worker to carry out his or her work due to: sickness or accident or the incompetence of the worker or proven misconduct of the worker.
Both the worker and the employer are not bound to give reasons for terminating the contract of employment. In Aryee v. State Construction Corporation (1985) GLR the employee wrote letters to discredit the Corporation and his contract was terminated in lieu of notice. The Court of Appeal held that the employer could terminate without giving reasons. What the party terminating has to do is to give notice for the termination or payment in lieu of notice. Section 17 of the Act provides that a contract may be terminated at anytime by either party giving to the other party notice. The length of notice depends on the length of the contract. Section 18 (4) also provides that either party may terminate the contract without Derick Ohemeng-Mensah LEGAL ENVIRONMENT OF BUSINESS 52
notice if that party pays to the other party a sum equal to the amount of remuneration which would have been accrued to the worker during the period of notice. The Doctrine of Notice. In the absence of an express provision or customary arrangement as to notice, a contract of employment can be terminated after giving reasonable notice depending on the circumstances and the nature of the employment. The Labour Act 2003, however makes provision in Section 17 for the notice period depending on the contract between the worker and employer. Section 17(1) of the Act provides the following: (a) in the case of a contract of three years or more, one months notice or one months pay in lieu of notice; (b) in the case of a contract of less than three years, two weeks notice or two weeks pay in lieu of notice; or (c) in the case of contract from week to week, seven days notice. A contract of employment determinable at will may be terminated at the close of any day without notice. Termination must be in writing and the day on which the notice is given shall be included in the period of the notice. Termination can be made without notice if that party pays to the other a sum equal to the amount of remuneration which would have accrued to the worker during the period of the notice - Section 18(4). Section 18 provides that the employer shall pay to the worker remuneration when the contract is terminated as mentioned in Section 15. The following due the worker before the termination shall be paid: any remuneration earned deferred pay compensation due as a result of sickness or accident 53
in the case of foreign contract, expenses and necessaries for the journey and repatriation expenses for the worker and accompanying members of the family in addition to any of the payments stated about if due.
The payment shall be effected before the expiration date of the notice period and where no notice is required, by the close of the next working day after termination. An exception to the above provisions on termination and remuneration on termination is where there exist in a collective agreement, provisions which are more beneficial to the worker. Fair and Unfair Termination of Employment Termination is fair if the contract of employment was terminated by the employer on any of the following: incompetence proven misconduct redundancy legal restrictions imposed on the worker. (Section 62)
Termination is not fair (Section 63) for the following reasons: joining or intending to join or ceasing to be a member of a trade union seeking office or having acted in the capacity of a workers representative filing a complaint or participating in proceedings against an employer involving alleged violation of the Labour Act gender, race, colour, ethnicity, origin, religion, creed, social, political or economic status in the case of a female worker to pregnancy or absence from work during maternity leave in the case of a worker with a disability temporal illness or injury certified by a recognised medical practitioner 54
not possessing current level of qualification required, in relation to the work for which the worker was employed which is different from the level of qualification required at the commencement of the appointment or
refusal to do any work normally done by a worker, who at the time was on a lawful strike unless the work is necessary to prevent actual danger to life, personal safety or health or the maintenance of plant and equipment.
Termination is also unfair if the worker has to terminate the contract as a result of the following: ill-treatment of the worker by the employer or failure of the employer to take action on repeated complaints of sexual harassment of the worker at the workplace. Sexual harassment means any unwelcome, offensive or importunate sexual advances or request made by an employer or superior officer or a co-worker, whether the worker is a man or woman. The termination of a worker must be done by an authorised person. In Blay-Morkeh v. Ghana Airways Corporation [1972] 2 GLR the letter of dismissal of the plaintiff written by the personnel manager, purporting to act for the managing director and the board, was held to be illegal and void since it was only the Board that could dismiss the Plaintiff. A subsequent ratification by a new board could not validate the act which was void ab initio. Remedies for unfair termination (Section 64) A worker who claims that the termination is unfair may present a complaint to the National Labour Commission. If the Commission after investigation finds the termination to be unfair it may order the re-instatement of the worker from the date of the termination of the contract of employment Derick Ohemeng-Mensah LEGAL ENVIRONMENT OF BUSINESS 55
order the employer to re-employ the worker, either in the work for which the worker was employed before the termination or in other reasonably suitable work on the same terms and conditions enjoyed by the worker before the termination or
order the employer to pay compensation to the worker.
In the Blay-Morkeh v. Ghana Airways Corporation case, the court held that where there has been a purported termination of a contract of service, a declaration to the effect that the contract subsists will rarely be made since the general principle of law is that the courts will not grant specific performance of a contract of service unless special circumstances can be shown. The employees remedy lay in damages. He must satisfy the court that his contract of service gave him a status with special privileges attached thereto. Damages for wrongful dismissal cannot include compensation for the manner of dismissal or for his injured feelings or for the loss he may sustain from the fact that the dismissal of itself makes it more difficult for him to obtain employment. Damages are to be measured by the amount of wages or salary which the servant has been prevented from earning by reason of his wrongful dismissal. Redundancy To be declared redundant means that the services of the worker are no longer needed since they are in excess of the organisational requirements. Redundancy is usually contemplated when there is the introduction of major changes in production, programme, organisation, structure or technology of an undertaking (Section 65 of Labour Act 2003 Act 651). A worker in this situation will have his employment terminated, especially in cases where the organisation is unable to place the worker in an alternative position. The procedures set out by the Labour Act for the employer are as follows: provide in writing to the Chief Labour officer and the trade union concerned, not later than three months prior to the contemplated changes, all relevant information and reasons for the termination, the number and categories of Derick Ohemeng-Mensah LEGAL ENVIRONMENT OF BUSINESS 56
workers likely to be affected and the period within which any termination is to be carried out, consult the trade union concerned on measures to be taken to mitigate any adverse effects of the termination. Where the close down, arrangement or amalgamation causes severance of the legal relationship between the worker and the employer or a diminution of the workers terms and conditions, the worker is entitled to be paid prior to the redundancy compensation referred to as redundancy pay. The amount of redundancy pay and the terms and conditions of the payment are subject to negotiation between the employer and the worker or their representatives. Any dispute on the redundancy and the terms of payment shall be referred to the Commission whose decision subject to any other law is final. The following are exempted from redundancy: contract of employment for a specified period of time or specified work worker serving probation and casual workers
NATIONAL TRIPARTITE COMMITTEE The National Tripartite Committee is established and made up of representatives from the Government, the Ghana Employers Association and representatives of organized Labour. The functions of the Committee as set out in Section 113 of the Act are as follows: determine the national daily wage advise on employment and labour market issues, including labour laws, international labour standards, industrial relations and occupational safety and health consult with partners in the labour market on matters of social and economic importance and perform such other functions as the Minister may request for the promotion of employment development and peace in the labour sector. Derick Ohemeng-Mensah LEGAL ENVIRONMENT OF BUSINESS 57
The Act also provides for the setting up of regional and district committees with defined responsibilities.
References Chitty on Contracts (1994) 27th. Edition London Sweet & Maxwell Abbott & Pendlebury (1996) Business Law 6th. Edition Continuum Treitel G. H., Law of Contract Selwyn N.M. (2002) Laws of Employment 12th Edition Jefferson, M. Principles of Employment Law 2000 Fourth Edition Cavendish Publishing Limited
UNIT FOUR EMPLOYER-WORKER RELATIONS Derick Ohemeng-Mensah LEGAL ENVIRONMENT OF BUSINESS 58
Introduction The employer-worker relationship is seen as a continuous relationship between a defined group of employees (represented by a union or association) and an employer. The relationship includes the initial recognition of the rights and responsibilities of union and management, the negotiation of a written contract concerning wages, hours of work and other conditions of employment and interpretation and administration of this contract over its period of coverage (Milkovich and Boudreau, 1990). The main concern of this relationship is the recognition of rights and responsibilities of both employers and workers, conditions of employment and the administration and interpretation of the contracts negotiated between management and the trade union representing the employees. Industrial relations is the way in which the working groups, both formal and informal, behave and interact. It describes the efforts aimed at securing cooperation between management and trade unions in the workplace so that efficient methods of production may be achieved (Cumin, 1993). The Labour Act 2003 inter alia was enacted to regulate this relationship between workers and employers. The Labour Act 2003 Act 651 defines the trade union as: any association of workers the principal purposes of which are to promote and protect their economic and social interests and which is registered under Section 84 of this Act and includes a federation of trade unions registered under this Act. A trade union aims at protecting and promoting the interest of its members in the workplace, mainly by the use of collective bargaining and consultation with their employers. Trade Unions in Ghana, prior to the enactment of the Labour Act, were categorised into two: those to which junior members of staff belong, known as the local unions and those to which some senior members of staff subscribe to and known as the Professional and Managerial Staff Union (PMSU). The latter was introduced into the country in 1992. The unions in the workplaces are affiliated to a mother union such as the Industrial and Derick Ohemeng-Mensah LEGAL ENVIRONMENT OF BUSINESS 59
Commercial Workers Union (ICU), Union of Industry, Commerce and Finance, (UNICOF), Public Services Workers Union (PSWU) etc under the umbrella of either the Trades Union Congress (TUC) or the Ghana Federation of Labour (GFL). Membership of the trade unions is not restricted and indeed the Constitution of the Republic of Ghana gives workers the right to join or form a trade union of their choice (Articles 21(1)(e) and 24(3) of the Constitution) for the promotion of his economic and social interests. Trade unions and employers organisations are regulated by the Labour Act 2003 Act 651.
FORMATION OF TRADE UNIONS AND EMPLOYERS ORGANISATIONS According to Section 80 of the Act, at least two workers employed in the same undertaking may form a trade union. Similarly, two employers in the same industry or trade, each of whom employs at least fifteen workers may form or join an employers organisation. Under Section 79(2) membership of the union is restricted to workers who are considered as policy and decision makers, managers, holding positions of trust, persons who perform duties of highly confidential nature or an agent of a shareholder of an undertaking. A trade union and an employers organisation should not be subject to the control of or be financially or materially aided by a political party (Section 82). To register a trade union, an application together with the constitution, rules, names of officers and the office address of the trade union or the employers organisation must be submitted to the Chief Labour Officer, who would issue a certificate after satisfying himself that the applicant has complied with the legal requirements and the registration is in order (Sections 83 and 84). The Chief Labour Officer keeps and maintains a register of trade unions and employers organisations.
60
The registration and certification is evidence of the recognition of the trade union under law and the employer in whose employment the members of the union are employed. It also gives the union the right to represent the interest of its members and to enter into collective bargaining on their behalf. Section 88 provides that certification confers on the union and the employers organisations the rights and powers exercisable under the Act.
Section 85 of the Act sets out the rules of the union or organisation. These include: The name and registered office of the union or organisation The principal objects Qualifications of members Disciplinary procedures Membership and subscription fees The powers, functions and duties of their officers. One of the principal objects of the union and the employers organisation is to promote the interest of its workers and employers respectively through the collective agreement. Section 94 provides that trade unions and employers organisations must prepare accounts and be audited at the end of every financial year and to submit copies of the audited accounts to the Chief Labour Officer.
COLLECTIVE AGREEMENT A collective agreement made between an employer or an employers organisation on the one hand and the trade union on the other hand, relates to the terms and conditions of employment of workers (Section 96) covered by the agreement.
Subject to any agreement a collective agreement may include provisions on: The class or category of workers to which it relates The conditions of work, including the hours of work, rest period, meal breaks, annual leave, occupational health and safety measures Derick Ohemeng-Mensah LEGAL ENVIRONMENT OF BUSINESS 61
The remuneration and method of calculating the remuneration of the workers Period and conditions of probation Period of notice of termination of employment, transfer and discipline Procedures for the avoidance and settlement of disputes arising out of the interpretation, application and administration of the agreement Principles of matching remuneration with productivity and Essential services within the establishment. Essential services (Section 175) includes areas where an action could result in a particular or total loss of life or pose a danger to public health and safety and such other services as the Minister by legislative instrument may determine.
A list of services considered as essential has been provided for in Regulation 20 of the Labour Regulations, 2007 L.I. 1833.
The collective agreement is concluded between one or more trade unions on one hand and representatives of one or more employers organisations on the other hand through negotiations. Negotiations can only be done by a trade union, which has been granted a bargaining certificate by the Chief Labour Officer upon application. In the event that there is more than one trade union in an organisation, Regulation 10(1) of L.I. 1833 provides that the The Chief Labour Officer shall invite the unions and verify which union represents the majority of the workers to be issued with the bargaining certificate. The gazetted certificate gives the trade union the right to negotiate on behalf of the class of workers recognised by the certificate. The other unions may be invited to join in the negotiation process. Section 99(6) provides that a certificate shall have effect, notwithstanding that some of the workers of the class specified are not members of the trade union appointed under the certificate. In the event of a dispute as to who should represent the workers, the matter shall be referred to the National Labour commission for resolution.
Negotiation Section 97: it is the duty of the parties to negotiate in good faith, aim at reaching an agreement and to disclose and make available relevant information to each other. Derick Ohemeng-Mensah LEGAL ENVIRONMENT OF BUSINESS 62
Confidential information, which has been made available by one party to the other, can only be made public with the written consent of the party who provided that information. In negotiating, parties must not provide false or fraudulent misrepresentations.
Negotiation is done by representatives of the trade union and the employers who would constitute a standing negotiation committee. The standing negotiating committee shall make rules to govern its proceedings and shall have the power to appoint sub-committees to which their functions would be delegated. All negotiations shall be conducted through the standing committee. Section 102(2) states that either party represented on the committee may give notice to the other party, requiring them to enter into negotiations on any matters which may properly be dealt with by the committee. Negotiations may be conducted by an authorised union member or officer along the same terms. An agreement concluded by the standing committee shall be in writing and signed by the authorised members of the committee and two copies of the agreement deposited with the National Labour Commission and the Chief Labour Officer.
In the event that a party fails to negotiate within fourteen days after notice is given, the Commission shall direct the party to enter into negotiations immediately, and the party shall comply with the directive.
The issues that would be agreed on by the parties to the negotiation shall be binding on both parties and shall be embodied in a collective agreement. Implementation Section 106 states that the parties to the negotiations shall bring the terms of the concluded collective agreement to the notice of the workers concerned. The terms of a collective agreement are applicable to all workers of the class specified in the certificate and all their employers. The provisions of the collective agreement in terms of employment, termination Derick Ohemeng-Mensah LEGAL ENVIRONMENT OF BUSINESS 63
of employment, personal obligations and rights granted to a worker or employer shall constitute the terms of contract between each employee to whom the certificate applies and the employer. The worker cannot waive the terms of the collective agreement. Where the terms of the collective agreement is in conflict with any other contract entered into by the employee, the collective agreement shall prevail (Section 105(4). Duration The duration of a collective agreement shall be at least one year - Section 107(1). It may be continued in force after the said period, unless it is varied or rescinded, after twenty eight days notice has been given in writing by one party to the other. Extension to Other Workers Section 109 provides that the terms of the collective agreement may be extended either fully or partially, to a class of workers who are not trade union members but belong to the class that was negotiated for, as would be directed by the Chief Labour Officer after negotiation with the said class of workers. The directive shall only be effective after the CLO has consulted with the appropriate union and the employers describing the said class of workers and then giving particulars of the manner in which objections may be submitted to the CLO. Thereafter notice of the said collective agreement shall be brought to the said class of workers. The extension of the terms of the collective agreement to that class of workers and their employers shall be regarded as the terms of a contract between each worker and the employer. The worker shall not waive the rights so conferred on him and if there is a conflict between the term extended by the directive and the terms of any contract, the directive shall prevail, unless the terms of the contract are more favourable to the worker (Section 110). Provision must be made in all collective agreements for final and conclusive settlement of all differences between the parties through the National Labour Commission (Section 108), who in settling the dispute shall have the powers, privileges and immunities of the High Court. Derick Ohemeng-Mensah LEGAL ENVIRONMENT OF BUSINESS 64
SETTLEMENT OF INDUSTRIAL DISPUTES Section 153 obliges parties to an industrial dispute to negotiate in good faith with a view to reaching a settlement of the dispute in accordance with the dispute settlement procedures established in the collective agreement or contract of employment. Mediation and Arbitration The first step in the resolution of any industrial dispute is the application to the Commission to appoint a mediator (Section 154) and in the event that this also fails, then the appointment of an arbitrator(s) (Section 157) when it has been established that parties have failed to negotiate and settle their differences. Mediation is the act of interceding while arbitration is a legally effective adjudication of a dispute otherwise than by the ordinary procedure of the courts. Dispute resolution by adjudication shall be governed by the Arbitration Act, 1961 Act 38. Clear terms are set down for these processes with defined time frames for the completion of the dispute resolution. In the event that either of these methods bring the dispute to a successful completion, the parties shall sign the relevant conclusive documents and deposit same with the Commission. However, where none of these methods for dispute resolution succeeds, the parties may by notice declare its intention to resort to a strike or lockout (Section 159). Strike and Lockout A strike means any action by at least two workers acting in concert with the intention to restrict in any way the service they normally provide to the employer or diminish the output of such service with a view to applying coercive pressure upon the employer and includes sympathy strike and those activities commonly called work-to-rule, a go-slow or a sit down strike. A lockout means the closing of a workplace, the suspension of work by an employer or refusal by an employer to employ or re-engage any number of his workers, in consequence of an industrial dispute. Derick Ohemeng-Mensah LEGAL ENVIRONMENT OF BUSINESS 65
However, it is an offence to declare or instigate or incite others to take part in a strike or lock out which is declared illegal by the Act. It is also an offence under Section 161, to resort to a strike or lockout during the period when negotiation, mediation or arbitration proceedings are in progress. Section 163 prohibits a strike or lockout action which would affect essential services. Where there are any such disputes they would be settled without resorting to a strike or lockout. A worker who takes part in an illegal strike may either have his services terminated by the employer without notice or may forfeit his remuneration for the period of participating in the strike action. An employer who also under takes an illegal lockout is liable to pay the unpaid remuneration of the workers for that period (Section 168). The party, which intends to strike or lockout, may only do so after seven days of giving the notice. If the dispute remains unresolved within seven days from the commencement of the strike or lockout action, the dispute shall be resolved by compulsory arbitration (Section 160). A lawful strike or lockout, does not affect the employment relationship of the parties and no civil proceedings can be brought against any of the parties (Section 169). During a strike, an employer may not employ any temporary worker or cause another worker to do the work of a striking worker except where the said work is necessary to secure the minimum maintenance services. In Section 175 essential services includes areas in an establishment where an action could result in a particular or total loss of life or pose a danger to public health and safety and such other services as the Minister may by legislative instrument determine. In the Regulation 20 of the Labour Regulations 2007 L.I. 1833 the following are considered essential services: water supply services electricity generation, transmission and distribution services health and hospital services sanitary services air traffic control meteorological services 66
fire services air transport services supply and distribution of fuel, petrol, power and light telecommunications services public transport services ports and harbours services, and Bank of Ghana.
The collective agreement also makes provision for essential services within the establishment. UNFAIR LABOUR PRACTICES Part XVII of the Act deals with unfair labour practices. Unfair labour practices constitute an offence and therefore punishable. The following constitute unfair labour practices: Discrimination against a person with respect to the employment or conditions of employment because that person is a member or an officer of a trade union Intimidation, dismissal, threat of dismissal, or by any kind of threat or by imposition of a penalty, or by giving or offering to give a wage increase or any other favourable alteration of terms of employment, or by any other means, seeks to induce a worker to refrain from becoming or continuing to be a member or officer of a trade union the employer during negotiations of a collective agreement Threats by the workers to intimidate the employer during negotiations of a collective agreement Threats by the employer to intimidate the workers during negotiations of a collective agreement Interference by employers in union affairs with the intention of adversely influencing a trade union or making a contribution in money or moneys worth to that trade union Refusal of the employer to allow trade union officers reasonable facilities for conferring with the employer or employees on matters affecting the members of Derick Ohemeng-Mensah LEGAL ENVIRONMENT OF BUSINESS 67
the trade union in that employment. The workers are to give at least twenty-four hours notice to the employer. Reasonable facilities are those facilities that the employer and his workers may agree are reasonably required for their activities The carrying on of any activity by an employee with the intention of seriously interfering with the business of the employer that may result in financial loss An officer of a trade union persuading or inducing a person not covered by a collective agreement to become a member or officer of a trade union while the employee is on the premises of the employer, without the consent of the employer or During normal working hours conferring with an employee on trade union matters while the worker is on the premises of his or her employer without the consent of the employer. Section 132 provides that any complaint of unfair labour practice should be lodged with the Commission, which shall investigate and issue relevant orders upon their findings. An appeal on the orders of the Commission can be filed at the Court of Appeal, since the Commission has the powers of a High Court.
NATIONAL LABOUR COMMISSION Section 138 sets out the functions of the Commission as follows: to facilitate the settlement of industrial disputes to settle industrial disputes to investigate labour related complaints, in particular unfair labour practices and take such steps as it considers necessary to prevent labour disputes to maintain a database of qualified persons to serve as mediators and arbitrators to promote effective labour co-operation between labour and management perform any other related function 68
Section 139 gives the following powers to the Commission: receive complaints from workers, trade unions and employers or employers organisations require an employer to furnish information and statistics concerning the employment of its workers and the terms and conditions of their employment require a trade union to provide any necessary information notify employers and employers organisations or workers and trade unions of any default or irregularities and direct them to rectify them.
UNIT FIVE LEGISLATIVE INTERVENTIONS TO PROMOTE ENTERPRISE DEVELOPMENT The Ghana Investment Promotion Centre Act 1994, Act 478 The Ghana Investment Promotion Centre Act was a development on the original Ghana Investment Promotion Law which was designed to promote both foreign and local investment and encourage joint venture arrangements between Ghanaian businesses and foreign businesses with a view to promoting our own local business culture. The object of the centre was to encourage and promote investment in the economy. Derick Ohemeng-Mensah LEGAL ENVIRONMENT OF BUSINESS 69
The Act aims to encourage the establishment of wholly foreign owned businesses and joint venture businesses in Ghana. Indeed one would submit that the focus of the act was really to encourage the establishment of Ghanaian/foreign joint ventures because the start up capital requirements for joint ventures is relatively low, and this was probably to ensure that prospective Ghanaian investors would also be able to raise the necessary capital in order to participate meaningfully in the business. The GIPC Act does not however cover mining and petroleum enterprises because these come under separate statutory regimes. The relevant features of the GIPC Act are as follows: 1. Firstly, the business must be registered as a company under the Companies Act and must show proof of transfer of funds into Ghana sufficient to meet the minimum capital requirements under the Act. 2. 3. 4. 5. The Company must register with the Ghana Investment Promotion Centre. For a Ghanaian/Foreign joint venture the minimum capital requirement is $10,000.00. For a wholly owned Foreign Company the minimum capital requirement is $50,000.00. For a foreign investor that wants to engage in trading activities only. The minimum capital requirement is $300,000.00 by way of foreign capital and must employ at least ten Ghanaian citizens. 6. A business that registers under the act is entitled to the following: i. ii. iii. iv. v. Unconditional transfer out of the country of all dividends attributable to the investment. Free transfer out of the country of any payments to be made in respect of a servicing loan obligations. Free transfer out of the country of fees or charges to be paid in respect of a technology transfer agreement. Can freely transfer out of the country all proceeds of the business net of any taxes and other obligations in the event that the Company is sold. Is given a Government guarantee against expropriation or nationalization. 70 Derick Ohemeng-Mensah LEGAL ENVIRONMENT OF BUSINESS
vi. vii.
A foreign/local investor can not be compelled to cede his interest in the capital to any person. There can be no nationalization of the business or acquisition by the state unless the following conditions are fulfilled.
The acquisition must be done under a law which makes provision for the payment of fair compensation and protects the right of the investor to go to court to determine his right to go to court on the issue of compensation and a determination of the amount to be paid as compensation. The compensation paid can be repatriated in foreign currency without any special/unusual approval requirements and without undue delay. viii. Provides for automatic immigrant quotas foreign investors to assist them to obtain valid residence and work permits depending on their level of investment. In the case where the investor had invested between $50,000.00 and $100,000.00 the Company would be entitled to two automatic quota positions, and finally where an investor had invested over $500,000.00 the Company would be entitled to four automatic quota positions. ix. The Ghana Investment Promotion Centre would provide assistance to the enterprise and the relevant Government Ministries, Departments and Agencies in order to ensure that the bottlenecks hindering the establishment and operations of the business are properly resolved. x. Further if the Company wished to enter into any technology transfer agreements appropriate to the enterprise it was free to do so, and transfer the relevant fees as required. The Act was passed especially to encourage Ghanaian and Foreign joint ventures and to encourage Ghanaians who had contacts with foreign companies and already existing Derick Ohemeng-Mensah LEGAL ENVIRONMENT OF BUSINESS 71
business relations to bring them into the country and encourage the establishment of subsidiaries which would be Ghanaian/Foreign partnerships. THE EXPORT PROMOTION AND INVESTMENT FUND ACT (EDIF) 2000, ACT 582 The purpose of the EDIF is to encourage the development of businesses that primarily wished to conduct their businesses by focusing their attention to the Export Market. Funds have been made available from specific sources for the purposes of developing business focusing on exports and the rules governing those funds are as follows: 1. 2. i. ii. 3. The monies in the fund are divided into two categories (section 5 of Act 582) namely Export Development and Promotion Funds and Credit Facility Funds. In order to be eligible for credit facilities a person or enterprise must be: Registered in Ghana under the Companies Act, or the incorporated private partnerships act or any other enactment for the registration of business. Wholly owned by a Ghanaian, or partly owned by a Ghanaian with majority Ghanaian shareholding. The following activities have been identified in the Act as activities that are relevant for funding and in respect of which applications can be considered (Section 2(2) of the Act): i. ii. iii. iv. v. Development and promotion of products for exports; Capacity building, market research and development of infrastructure; Development and promotion of other entrepreneurial activities; Export trade oriented activities of institutions and bodies both in the public and private sectors of the economy; and The provision of credit, export insurance, re-financing and credit guarantee through designated financial institutions to persons in the export trade sector of the economy. 4. The source of money for the fund has been determined in S.3 of the Act to be as follows: Derick Ohemeng-Mensah LEGAL ENVIRONMENT OF BUSINESS 72
i. ii. iii.
Ten percent of the net proceeds obtained from divestiture carried out by the Divestiture Implementation, The levy on the dutiable value of all non-petroleum imports for commercial purposes that amounts to 1.5% of the CIF value of any such import, Any other monies that the Minister of Finance in Consultation with the Minister of Trade and Industry, and with the approval of Parliament may determine to be paid into the Fund.
5. 6.
The money assigned to the Export Development and Promotion Account is to be disbursed by the Board of the Fund (S.3 of the Act.) The monies assigned to the Credit Facility Account are to be disbursed to designated financial institutions (S.14 of the Act), and the Board is to determine the proportion of monies to be assigned to each financial institution under the Credit Facility Account. Further the designated financial institutions tasked with the responsibility of managing the credit facility bear the full credit risk. The financial institutions may apply the monies to grant credit, export insurance, re-financing and credit guarantee to applicants under the act in accordance with policy outlines issued by the Board of the Fund.
7.
A company applying for a credit facility shall make the application to one of the designated financial institutions, which has seven days within which to respond to the application, and thereafter thirty days within which to approve or otherwise of the application.
8.
A credit facility granted by any of the designated financial institutions shall be in respect of: i. ii. iii. Long term development of financing facilities for a period exceeding five years, Medium term financing facilities for a period not exceeding five years Short term financing facilities for a period not exceeding twelve months,
9.
In respect of the Export Development and Promotion Account it is provided in S.7 under the heading Management of the Fund that the board will in consultation with the Minister for Trade and Industry formulate policies to determine among other things:
73
i. ii. 10.
The level of interest rate chargeable on any credit facility granted under the act. The maximum credit facility that may be granted to an applicant.
The Board is required by law to meet at least once every two months though it may meet more often that that.
The EDIF Fund Act was to create opportunities for private sector growth with a focus on export led growth. The funds are made available to the Banks for on lending who then assume the risk of lending. THE FREE ZONE ACT, 1995 ACT 504 The Free Zone Act was also brought into being on the assumption that it would help to develop the export industry and promote export led growth, and further to encourage businesses that are developed with the primary purpose of exporting out of the country not to be subjected to the same kinds of constraints facing those operating internally and being subjected to domestic customs regulations and barriers. There have been the development of some free zone enterprises, and one would only hope that more businesses would take advantage of the opportunities that have been created within the Free Zone Act, bearing in mind that the EDIF Fund also exists to support these kinds of business operators and give the necessary push to make their businesses grow. The major feature of a Free Zone operator is as follows: 1. Rights and Responsibilities of Free Zone Operators a. A free zone enterprise may engage manufacturing of any foreign or domestic raw material into intermediate, semi-finished, or finished goods or components for export or re-export. b. c. d. Carry out any activities relevant to its license as may be considered necessary by the free zones board. May change its production lines and processes as often as it considers necessary subject to prior approval of the free zones board. A free zone enterprise must be a registered company or partnership. 74
e.
It shall have the right to produce any type of goods or services for export but shall not produce any goods that are environmentally hazardous.
2.
Import and Export a. The laws applying to the import of goods and services other than consumer goods for commercial purposes shall not apply to brining of goods directly from outside of Ghana into a Free Zone, or the export of goods from a free zone. b. c. The imports of a free zone enterprise are exempt from direct and indirect taxes and duties. The Minister (Trade and Industry) may approve the sale of up to 30% of the annual production of a free zone enterprise into the national customs territory. d. e. Sale of goods from a free zone enterprise in the national customs territory is considered as imports and duty must be paid on them. An enterprise in a free zone may purchase domestic goods and services.
3.
Incentives a. b. c. d. e. Free Zone Enterprises are exempt from the payment of income tax on profits for the first ten years of operations. The income tax rate after ten years shall not exceed a maximum rate of 7%. A shareholder is exempt from the payment of withholding taxes on dividends arising out of free zone investments. A foreign shareholder may take and hold a maximum of 100% shares in a free zone enterprise. Free zone enterprises are granted unconditional transfer through any authorized dealer bank in free convertible currency of: Dividends or net profits attributable to the investment Payments in respect of loan servicing where a foreign loan has been obtained. Free and charges in respect of any technology transfer agreement. 75
Remittance of proceeds net of all taxes and other obligations in the event of the sale or liquidation of the enterprise or any interest attributable to the investment.
f.
Free zone enterprises cannot be nationalized or expropriated and no person who owns wholly or partly the capital of a free zone interest can be compelled by law to cede his interest in the capital to any other person
g.
A free zone enterprise can only acquired by the state if the acquisition is in the national interest or for a public purpose. Such acquisition can only be done under a law that allows for the payment of fair and adequate compensation and a right of access to the high court for the determination of the investors interest or the right amount of compensation to which he is entitled.
h. i.
Free Zone enterprise may negotiate conditions of employment as consistent with ILO conventions on workers rights and conditions of service. Foreigners may work in free zone enterprises will require work and residence permits, and shall be liable to pay income tax on their earnings.
4.
Dispute Resolution a. b. Where a dispute arises between a free zone enterprise and the government all efforts are made to reach a settlement through mutual discussion. Any matter not settled amicably may be settled by reference to the United Nations Communication of International Trade Law (UNCTRAL) rules and arbitration, or in accordance with any national or international machinery agreed to by the parties. c. Where there is a dispute between free zone enterprise and the government as to the method of dispute settlement to be adopted the choice of the free zone enterprise will prevail.
GHANA INVESTMENT FUND ACT, 2002 ACT 616 The Ghana Investment Fund was established under the Ghana Investment Fund Act of 2002. Derick Ohemeng-Mensah LEGAL ENVIRONMENT OF BUSINESS 76
The object of the fund is as follows: Firstly, to provide financial resources for the grant if medium and long term credit facilities to investors through designated financial institutions. The funds are available for the following activities, manufacturing, marketing, medical, technology, electronics, computer technology, software development, plant assembly, real estate developmental technology, tourism including eco-tourism, agro-processing and the development of small medium and large scale enterprises. The monies for the fund includes the amount of money constituting the business assistance fund, grants and loans obtained from banks and financial institutions, grants and loans obtained from bi-lateral and multilateral sources, voluntary contributions to the fund from the private sector and any other monies as may be allocated by parliament for the fund. The funds will be lent to persons or enterprises through the banking institutions if: the person has a business to expand or start is registered as a company under the Companies Act or is registered under the Incorporated Private Partnerships Act or is wholly owned by a Ghanaian or is partly owned by a Ghanaian with majority Ghanaian shareholding.
An application for such a facility has to be made through a designated financial institution designated as such by the Ghana Investment Fund Board. Credit facilities will be granted as follows: Long term financing for periods exceeding five years, Medium term financing for periods not exceeding five years, Short term financing for a period not exceeding five years, Short term financing for a period not exceeding 12 months, 77
The Ghana Investment Fund will be administered by the Ghana Investment Fund Board. VENTURE CAPITAL TRUST ACT, 2004 ACT 680 The Venture Capital Trust was also established to provide financial resources for the development and promotion of venture capital financing for medium and small scale enterprises in specified sectors of the Ghanaian economy. The object of the Venture Capital Trust is to provide both credit and equity financing to eligible venture capital financing companies to support small and medium enterprises which qualifies for equity and quasi-equity financing. A venture capital financing company qualifies to apply for funding from the trust fund if: it is incorporated under the companys Act it has a name that includes venture capital, equity fund or any abbreviation of these description, it has its sole authorized business, the business of assisting the development as small businesses by making equity and quasi-equity investment and providing business and managerial expertise to small businesses in which it has made or proposed to make an eligible investment. A company incorporated under the fund must be managed by an investment adviser licensed by the Security and Exchange Commission and in good standing. Further, it must have met the minimum equity requirements prescribed by the Minister on the advice of the venture capital fund board. It should also have ensured that it had put in the place adequate governance and internal control and monitoring procedures for the selection of investment projects and for monitoring and managing such projects.
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Any Venture Fund Company must undertake to enter into an agreement on broad terms and conditions to be approved by the Board of the Venture Capital investment fund with any SME it provides funding for and meet any other conditions prescribed by the Board from time to time. A venture capital company will provide equity or credit financing on terms prescribed by the Board, and will enter into written agreement with any SME to which it provides funding. Small and medium enterprises means an industry, project undertaking or economic activity which employs not more than one hundred persons and have total asset base, excluding land and building, does not exceed the cedi equivalent of $1million in value. UNIT SIX CONTRACT OF INSURANCE Definition An insurance is a contract whereby a person called the insurer agrees in consideration of money paid to him, called the premium, by another person, called the assured, to indemnify the latter against loss resulting to him on the happening of certain events. The insurance policy is the document in which is contained the terms of the contract. Insurance is a contract uberrimae fidei (utmost good faith) and of indemnity only, except in the case of life and accident insurance, when an agreed sum is payable. In contracts of indemnity, the insurer agrees to compensate the assured fully for the loss sustained on the liability insured against. The Insurance Act, 2006 Act 724 (referred to in this lecture as the Act) in its Interpretation Section (Section 212) defines insurance business as the business of undertaking liability to indemnify a person in respect of loss or damage, and the liability to pay damages or compensation contingent upon the happening of a specified event and any Derick Ohemeng-Mensah LEGAL ENVIRONMENT OF BUSINESS 79
business incidental to insurance business and reinsurance business. Reinsurance means insuring insurers. The Contract Insurable Interest An insurable interest is the interest a person has in the subject matter insured. The insurable interest determines the type of insurance to take. The interest could be the persons life or an asset or a liability such as a loan. It is that asset to which an advantage may arise or prejudice may happen from the circumstances which may attend it and for which its condition as to safety and quality should continue so that it be preserved to continue to enjoy its existence and prejudiced by its destruction. Parties The parties to a contract of insurance are: the insured or assured: the person with insurable interest the insurer: the person who is licensed to carry on the business of insurance under the Act and includes an association of underwriters but not an insurance intermediary. An insurance intermediary means an insurance broker, insurance agent, and insurance subagent and an insurance loss adjuster. the insurance agent: a person appointed and authorized by an insurer to solicit applications for insurance or negotiate for insurance business on behalf of the insurer and to perform such other functions that may be assigned to the agent by the insurer but does not include an individual who is a salaried employee of the insurer. the insurance broker: a person who acts as an independent contractor who fro commission or other compensation, and not being an agent of the insurer, carries out any of the following: Derick Ohemeng-Mensah LEGAL ENVIRONMENT OF BUSINESS 80
(a) soliciting or negotiating of insurance business, including the renewal and continuance of such business, on behalf of an insurer or a prospective insured other than himself, (b) the bringing together, either directly or through the agency of a third party, width a view to the insurance of risks, of persons seeking insurance and insurers, and carries out work preparatory to the conclusion of contracts of insurance. Uberrimae Fidei An insurance contract is a contract of utmost good faith. This obligation is a continuing one and does not cease after the execution of the contract. Contracts of insurance are founded on facts which are nearly always in the exclusive knowledge of the assured and unless this knowledge is shared, the risk insured against may be different from that intended to be covered. The duties of the assured are: to disclose material facts. Material facts are facts that would influence the judgment of a prudent insurer in fixing the premium or determining whether to take the risk. A party to a contract of insurance shall not be under any obligation to disclose any fact about which no question is asked by the insurer or his agent. An insurer may rescind the contract if the party with intent to avoid the rejection of the risk by the insurer or the payment of higher premiums, conceals from, or fails to disclose to the other party to the contract any fact which he knows or believes or has reasons to believe to be material to the contract. Not to misrepresent material facts. A misrepresentation is a representation that is not true or a statement or conduct which conveys a false or wrong impression Not to make fraudulent claims
81
Premiums It is the consideration (sum payable in advance) for a contract of insurance; the price for which the insurer agrees to insure. The amount and form of payment are to be decided by agreement between the parties. Cover Notes A cover note may be required from the moment the assured offers to enter into the contract with the insurer who is usually willing to provide such preliminary protection. The period is either a fixed term or until when the insurer accepts the offer. Days of Grace This is usually a period beyond the end of the original period of insurance during which the renewal premium may be paid. Recovery of loss during that period depends on the contract terms. Where the renewal is of right, recovery can be made but where the insurer can reject the recovery offer, then there would be no recovery. Policy A policy includes every writing whereby any contract of insurance is made or agreed to be made. It is the legally binding contract between the insurance company and the insured. A policy may be renewed under the terms of the contract. They are not renewable beyond their original term unless they are expressed to be so, and where there is no provision for renewal they can only be renewed by a new agreement between the parties. In the case of a life policy, the assured has an unconditional right to renew the policy or as is generally the case with other policies renewal may be conditional on the assent or agreement of both parties. A policy may be described as third party or comprehensive. A third party risk policy is against liability in respect of injury caused by the insured or his servants to the property or persons of others. A comprehensive policy is against liability for all risks not restricted to only third parties. Derick Ohemeng-Mensah LEGAL ENVIRONMENT OF BUSINESS 82
CLAIMS Payment of Claims A claim is made on the occurrence of the event insured against. Usually the steps to make a claim and recover the compensation are stated in the policy. These are: notice of the loss to be made by the insured or the beneficiary details of the loss
The burden of proof of the loss rests on the assured. However, the burden of proof of causing the loss deliberately lies on the insurer. The amount recoverable: where there is a total loss, the assured recovers the agreed value and if the loss is partial, then in proportion. Rights of the Insurer upon Payment of Claim If the insurance is to indemnify the assured, the insurer has the following rights: Salvage: where there is total loss and the insurer indemnifies the insured, the insured is required to abandon his interest in the subject-matter to the insurer. In the case of constructive loss where the subject-matter is not totally destroyed but not commercially useful, this right may apply. In constructive loss, the subject-matter could not be preserved from actual total loss without expenditure which would exceed its market value after the expenditure had been incurred or the assured had been deprived of possession and it would be unlikely that he would be able to recover the possession within reasonable time or where the repair to the damage would exceed the repaired value. Subrogation: it is the substitution of one person for another so that the same duties and rights attach to the other person. Where the assured receives payment/benefit in respect of the loss which together with the insurance payment exceeds the loss insured, he must account to the insurer for the excess up to the amount that the insurer has paid. The insurer can also enforce any action against the tortfeasor on behalf of the Derick Ohemeng-Mensah LEGAL ENVIRONMENT OF BUSINESS 83
assured after the payment. The assured must do nothing to prejudice the insurers rights. Contribution: an assured can take as many insurance policies as he chooses against the same risks and he may claim payment from his insurers in such order he chooses. The insurer has a right to recover contribution from the other insurers if he pays for the loss. National Insurance Commission The business of insurance is regulated by the National Insurance Commission, a body corporate with perpetual succession and a common seal and who may sue and be sued in its corporate name. The object of the Commission is to ensure effective administration, supervision, regulation, monitoring and control of the business of insurance to protect insurance policy holders and the industry other than health insurance under the National Health Insurance. Conclusion Insurance is the cushion for the risks associated with business and the recovery of any damages to the assets of the entrepreneur. It is a contract that requires utmost good faith and the satisfaction of all requirements to obtain the full benefits thereunder. The business of insurances is regulated under the Insurance Act, 2006 Act 724 by the National Insurance Commission.
84
UNIT SEVEN DISPUTE RESOLUTION Introduction In the course of doing business an entrepreneur is likely to come across disputes. When disputes arise, they need to be resolved and as soon as is possible. The conventional way by which disputes are resolved is through the judicial system. Lately, other forms of dispute resolution have become popular particularly for the settling of business related disputes. These methods are usually called Alternative Dispute Resolution (ADR). Avoiding disputes The process of dispute resolution can be expensive in terms of time and money and in terms of negatively affecting business relationships. Accordingly it is always better to avoid or at least minimize the occurrence of disputes. Many disputes arise because the business relationships of the parties are not clearly described and or prescribed at the time of entering into the relationship. Sometimes the business relation starts without any clear written contract or where there exists a contract, the contract fails to anticipate certain important issues that are likely to crop up in the course of the relationship. It is therefore important to seek professional help before one makes any serious business commitment. It is also important to discuss thoroughly the business relationship that is anticipated and the expected rights and obligations of the parties. After the relationship has been clearly defined, it is appropriate to put same in writing, ideally with the help of lawyer. The role of the lawyer will be to assist the parties to communicate the understanding in writing in a way that will reduce ambiguity. Derick Ohemeng-Mensah LEGAL ENVIRONMENT OF BUSINESS 85
The responsibility of the parties will then be to perform the contract in good faith and in accordance with the stipulations thereof. Procuring the services of a lawyer. The role of a lawyer is to assist prevent disputes and when they arise to assist in resolving those disputes or problems. The process of dispute resolution involves the application of complex rules and laws. In most cases therefore, it may be necessary to obtain the services of a lawyer. The lawyer will assist the party to package his case in a way that will satisfy the demands of the court or dispute resolution body. The lawyer will also help the party to identify and apply the appropriate laws applicable to the facts of the dispute. Of course as noted earlier if the lawyer is consulted earlier, the dispute may be prevented in the first place. Resolving dispute through the Courts. Parties who go to court may go for two main reasons. First to have a dispute resolved by the court or second to seek redress for a wrong done them or to enforce a certain right that they may have by virtue of the law. A party should consider going to court when: Attempts at amicably resolving the matter have failed Where the dispute involves complex legal matters that are difficult to determine without recourse to the courts Where the remedies available or requested can only be adequately obtained through the courts Where the remedy sought is against the larger community
Courts structure In Ghana there are two main types of courts- the Superior Courts and the Lower Courts of judicature. The Superior Courts comprise; The Supreme Court which is the highest court of Ghana, The Court of Appeal which hears only matters on appeal, The High Court. The High court has original jurisdiction in all matters except matters affecting the interpretation of the constitution. A division has now been created called Commercial Court, which handles mainly commercial cases. 86
The Regional Tribunal which deals only with criminal matters. The regional is on the same level as the high court.
The Lower Courts comprise the district magistrate, the family tribunal and the circuit courts. The jurisdiction of these courts is usually determined by the laws that established the court and include their geographical area of control and the monetary value of the dispute that they are able to resolve. The Act may also determine the types of disputes the court is able to resolve. The courts remain the most popular way by which parties resolve disputes. Alternative Dispute Resolution (ADR) It is important to many entrepreneurs that a resolution of dispute be reached quickly, that it be cheap, that it be private, or that the parties retain substantial control. The ADR methods include, Arbitration, Mediation and Conciliation Arbitration Arbitration is like a trial, in that the arbitrator substantially fulfils the role of a judge in deciding between the cases presented by the parties and giving a decision. However, the role is not identical, in that the parties may have control over the appointment of the arbitrator(s) and the drawing up of his terms of reference. An arbitrator may be a specialist in the subject in question, and may sit with assessors. Arbitration is most commonly used where commercial or specialist knowledge is particularly important. The decision as to the use of arbitration must be by agreement. The decision of the arbitral tribunal is called an award and is final and binding on all the parties. Arbitration can be very expensive particularly because the members of the arbitral tribunal have to be paid in addition to legal counsel. Arbitration in Ghana is governed by the Arbitration Act, 1960 (Act 38). Mediation and Conciliation Derick Ohemeng-Mensah LEGAL ENVIRONMENT OF BUSINESS 87
The term mediation and conciliation are sometimes used interchangeably but they are not strictly the identical. In mediation, the mediator has some role in suggesting answers to the parties. A conciliator is only concerned as a facilitator. The essential point however is that in both cases there is an independent third party who is called to assist the parties in reaching an agreement, but the parties retain the right to say whether or not they accept any suggested answer. The mediator /conciliator acts as an objective third party trying to find points for mutual interest. There are no formal requirements or any particular procedures to be followed. The main advantage is that it positively seeks to resolve issues, to find points of common interest and to defuse tension. The parties retain full control of the proceedings and are therefore likely to comply with it. Since unlike arbitration the suggestions of a mediator /conciliator are not binding, the dispute may still end up in court. Other alternatives Different laws have set up some bodies to settle certain specific kind of disputes. Among these bodies are THE COMMISION FOR HUMAN RIGHTS AND ADMINISTRATION OF JUSTICE (CHRAJ), THE NATIONAL LABOUR COMMISSION (NLC) and THE NATIONAL MEDIA COMMISSION CHRAJ CHRAJ was set up by the 1992 Constitution of Ghana to among others investigate and handle issues affecting the human rights of persons in Ghana. In the course of the discharge of heir functions, the Commission became inundated with complaint from employees. These complaints were handed as a human rights issue. It would appear now that with the establishment of the National Labour Commission, the appropriate forum for the handling of all labour matters is the NLC National Labour Commission The National Labour Commission was set up under the Labour Act, 2003 Act 651 to deal with all labour and industrial disputes. Derick Ohemeng-Mensah LEGAL ENVIRONMENT OF BUSINESS 88
In the settlement of dispute the Commission has the powers of the High Court to compel attendance of witnesses and the production of documents. Where any party fails to comply with the decision of the Commission, the Commission may apply to the High Court for an order to compel the party to comply with the directions of the Commission. The Labour Act encourages other ADR methods like arbitration, Mediation and Negotiation in the resolution of disputes. UNIT EIGHT
ETHICS Definition Ethics is the study of the way of life: its values, its rules and justifications. As a discipline: it is the study of the values and their justification. Subject-matter: it is the actual values and rules of conduct by which we live. Why we should study ethics: Ethics are continually changing as a result of changing economic and social conditions in society Society is ethically pluralist and there is no single code of ethics. People have different values. Hence the need to understand the nature of these differences Ethics involve choices between alternative courses of action or opposed values, which require intelligent deliberation Ethical values are often in conflict. Conflicting goals and customs lead to a reconsideration continually of ethical values e.g. newspapers publishing classified secrets; balancing the virtue of honesty with the consequences of telling the truth and the virtue of courage must be measured with the danger that one faces. Derick Ohemeng-Mensah LEGAL ENVIRONMENT OF BUSINESS 89
Ethics define the specific values by which people live including honesty, courage, success, money, marriage, the value of life and the significance of death. Ethics determine what a person wants, should do, prefer an dhow to live. Generally, it is the concept of good and evil, right and wrong. Ethics comes from the Greek word ethos which means character or custom. Business ethics affects the business, its stakeholders, management, employees and even the society at large. It is also a personal matter for the manager as they reveal, define and shape their personal values. Personal ethical values consists of the duties, commitments and ideals that shape and guide individual lives. Corporate Ethics Corporate ethics seeks to demonstrate credibility to customers, investors, partners, regulators and the public. It deals with a code or set of principles by which the entity seeks to perform its corporate duties. It involves knowing what is right at the workplace and how it affects productivity, the services or products being offered and their relationship with stakeholders. Essence of Corporate Ethics to the Organisation Ethics has the potential to: enhance competition preserve legitimacy deter crime promote trust, and prevent conflict.
Personal Ethics and Corporate Demands Derick Ohemeng-Mensah LEGAL ENVIRONMENT OF BUSINESS 90
Managers usually face a dilemma in their personal and professional situations. The dilemma revolves around: personal and work values personal standards and corporate behaviour personal gratification and corporate requirements personal aspirations and corporate goals, and personal interests and corporate objectives.
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LEGAL ENVIRONMENT OF BUSINESS CONTRACT FORMATION

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GIMPA BUSINESS SCHOOL MBA/MSC FEBRUARY, 2011

ENVIRONMENT OF BUSINESS (LEGAL)

LECTURER: OHEMENG-MENSAH DERICK

Derick Ohemeng-Mensah LEGAL ENVIRONMENT OF BUSINESS

Derick Ohemeng-Mensah LEGAL ENVIRONMENT OF BUSINESS

UNIT TWO Derick Ohemeng-Mensah LEGAL ENVIRONMENT OF BUSINESS 16

Introduction Derick Ohemeng-Mensah LEGAL ENVIRONMENT OF BUSINESS 17

Derick Ohemeng-Mensah LEGAL ENVIRONMENT OF BUSINESS

(d) (e) (f)

Derick Ohemeng-Mensah LEGAL ENVIRONMENT OF BUSINESS

officers or agents appointed either by themselves or the board.

Derick Ohemeng-Mensah LEGAL ENVIRONMENT OF BUSINESS

UNIT THREE CONTRACT OF EMPLOYMENT

Derick Ohemeng-Mensah LEGAL ENVIRONMENT OF BUSINESS

Derick Ohemeng-Mensah LEGAL ENVIRONMENT OF BUSINESS

FORMATION OF THE CONTRACT OF EMPLOYMENT Derick Ohemeng-Mensah LEGAL ENVIRONMENT OF BUSINESS 43

Derick Ohemeng-Mensah LEGAL ENVIRONMENT OF BUSINESS

with pay as well as remuneration for public holidays

Derick Ohemeng-Mensah LEGAL ENVIRONMENT OF BUSINESS

Derick Ohemeng-Mensah LEGAL ENVIRONMENT OF BUSINESS

order the employer to pay compensation to the worker.

UNIT FOUR EMPLOYER-WORKER RELATIONS Derick Ohemeng-Mensah LEGAL ENVIRONMENT OF BUSINESS 58

Derick Ohemeng-Mensah LEGAL ENVIRONMENT OF BUSINESS

Derick Ohemeng-Mensah LEGAL ENVIRONMENT OF BUSINESS

Derick Ohemeng-Mensah LEGAL ENVIRONMENT OF BUSINESS

Derick Ohemeng-Mensah LEGAL ENVIRONMENT OF BUSINESS

Derick Ohemeng-Mensah LEGAL ENVIRONMENT OF BUSINESS

Derick Ohemeng-Mensah LEGAL ENVIRONMENT OF BUSINESS

Derick Ohemeng-Mensah LEGAL ENVIRONMENT OF BUSINESS

Derick Ohemeng-Mensah LEGAL ENVIRONMENT OF BUSINESS

Derick Ohemeng-Mensah LEGAL ENVIRONMENT OF BUSINESS

Derick Ohemeng-Mensah LEGAL ENVIRONMENT OF BUSINESS

Derick Ohemeng-Mensah LEGAL ENVIRONMENT OF BUSINESS

Derick Ohemeng-Mensah LEGAL ENVIRONMENT OF BUSINESS

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