COMPANY LAW LECTURE NOTES

for
METHODIST UNIVERSITY COLLEGE GHANA
FACULTY OF BUSINESS ADMINISTRATION
DEPARTMENT OF HUMAN RESOURCE MANAGEMENT
DANSOMAN & TEMA CAMPUSES (DAY, EVENING & WEEKEND)
LECTURER: FRANK ASAMOAH

NOTICE: The information provided in this handout is prepared in

accordance with the company law course outline of MUCG and is not
intended to exhaustively treat a detailed company law course.
THE NATURE OF THE SUBJECT
Company Law enables individuals to achieve their objectives of setting up
companies by providing the rules to enable them do that as well as providing the
required framework for corporate governance. The basic company law principles
are few and the main difficulty encountered in learning the subject is in
memorizing details. If the principles are well understood, the details are easier
to learn. In the chapters which follow an attempt has been made to arrange the
material so that the student can understand it with as little effort as possible.
There are two fundamental legal concepts to be grasped in company law; these
are
1. The concept of legal personality and
2. The theory of limited liability.

THE STARTING POINT

Every subject should have a starting point which a beginner with no previous
knowledge can understand. Here, it is suggested that the easiest way of
beginning to study Company Law is to imagine that you yourself are about to
enter ‘into business’.

For easy understanding, the course will be discussed under the following
topics;
a. Classification and formation of Companies
b. Operation and regulations of companies
c. Management of companies and
d. Dissolution of companies

Before discussing each of these topics, it is necessary to consider the

SOURCES OF COMPANY LAW IN GHANA. Sources of company law as used
here means, where an individual or the courts may find the law to
determine a matter/ issue involving companies which come up for
determination. These sources are the following.

1. The Companies Act 2019 (Act 992). This is the primary source of
 company law in Ghana. Please note that Companies Act 2019 assented
to by the President on the 2nd day of August, 2019 repealed the
Companies Act, 1963 (Act 179).
2. Common Law and Equity- Section 5 of Ghana’s Companies Act provides
that the rules of equity and of common law applicable to companies shall
continue in force except where they are not consistent with the
provisions of the Act.
3. Case law- We may consider this type to be our third source of company
law. Here, it principally comes a source about from deciding matters that
come up for adjudication, the courts interpret and apply the Act to set up
precedents. Foremost among such cases are Salomon v Salomon [1895-
9] All E.R Rep 33 which has received statutory backing under section
18 of Act 992.
4. The last source of company law we want to consider here is the Report of
the Commission of Enquiry that led to the passage of the Companies Act
2019 (Act 992). This source is generally considered as an aid to
interpretation in particular where a Court is concerned with ascertaining
the meaning of an enactment, the Court may consider the report of the
Commission.

CLASSIFICATION OF BUSINESS ORGANIZATION

Every subject should have a starting point which a beginner can understand.
The easiest way of beginning to study Company law is to imagine that you are
about to ‘go into business’. There are a number of businesses listed below that
you may like to go into. Whichever type one chooses, the legal form in which
the business operates varies and one needs to understand that there are
differences between them as explained below. These are;
1. A company limited by shares
2. A company limited by guarantee
3. An unlimited company
4. External Company.
5. Sole Proprietorship
 6. Partnership
6. Statutory Corporations

A COMPANY LIMITED BY SHARES (LIMITED LIABILITY COMPANIES)

A company limited by shares is a company which has the liability of its
members limited to the amount unpaid on the shares respectively held by
them. A company limited by shares may be a private company or public
company. Private Companies limited by shares shall be “Limited Company” or
the abbreviation “LTD”. Public company limited by shares shall be “Public
Limited Company” or the “PLC”- see Section 21 (1) of Act 992. Whenever there
is any issue of shares (other than a re-issue of treasury shares), the company is
required to file a return indicating the number of shares issued the amount
payable etc. and deliver it to the Registrar of companies within 28 days after
the issue of the shares. Section 46 of Act 992.

In limited liability companies, the shares are usually fully paid up. But broadly
speaking where shares are not fully paid up, then the liability of a member will
continue even if the shares are transferred until payment is finally received.
Section 40(1) of Act 992 says a member is liable to contribute to any balance
on shares held by him. One’s liability is up to the amount of unpaid shares one
holds.

UNLIMITED LIABILITY COMPANIES

An unlimited liability company is a company which does not have a limit on the
liability of its members. An unlimited liability company may be a private
company or public company. Private companies unlimited by shares shall be
“Private Unlimited Company” or the abbreviation ‘PRUC’. Public company
unlimited by shares shall be “Public Unlimited Company” or the abbreviation
‘PUC’. The name of these companies either private or public cannot end with
the word “Limited”. The liability of members is limited only by their own
personal fortunes. Liability may depend on certain events e.g. if a company is
being wound up and its assets are not sufficient to meet its liability. This
means that where a company is in operation (going concern) the member’s
liability is more or less like that of the limited liability company. Furthermore,
even though the liability is unlimited, you cannot begin to enforce the
unlimited liability whilst the company is not yet in liquidation. Thus creditors
of the company with unlimited liability cannot sue the members or levy
execution against their properties in respect of debts owed by the company to
those members. The only way to do this would be for the company to be wound
up.

A COMPANY LIMITED BY GUARANTEE

A company limited by guarantee is a company which has the liability of its
members limited to an amount that the members may respectively undertake
to contribute to the assets of the company in the event of its being wound up. A
company limited by guarantee shall be “Limited by Guarantee” or the
abbreviation ‘LBG’. A company limited by guarantee may be a Private company
or a Public Company. These are companies that are not to issue or create
shares. Secondly, a company limited by guarantee will not lawfully be
incorporated for the purpose of making profit for distribution to members.
Guaranteed companies are for charitable organizations. It is not precluded
from having its income exceeding its expenditure. But the profit should be used
solely towards the achievement of the object of the company and no portion
shall be distributed to members. (Section 8 of Act 992).

In the event of the company being wound up, if there are excess assets, these
should be given to other guaranteed companies with similar objects or you
identify a charitable cause into which you can put the money. Where a
company limited by guarantee carries on business for the purpose of making
profit other than for the furtherance of the objects of the company, the officers
and members who are cognisant of the fact that the company is so carrying on
business are each liable to pay to the Registrar an Administrative penalty of
twenty-five penalty units for each day during which the company carries on
that business. Membership ceases upon death, retirement and exclusion.

EXTERNAL COMPANY
An external company is a body corporate formed outside Ghana which has an
established place of business in the country. The expression “established place
of business” means a branch, management, share, transfer or registration
office, factory, mine or any other fixed place of business, but does not include
an agency unless the agent has, and habitually exercises, a general authority
to negotiate and conclude contracts on behalf of the body corporate or
maintains a stock of merchandise belonging to that body corporate from which
the agent regularly fills orders on behalf of the body corporate.

PUBLIC AND PRIVATE COMPANIES-SECTION 7(5) OF ACT 992

A company whether limited, unlimited or by guarantee as earlier said can be
private or public. A private company is defined under section 7(5) of Act 992 so
that any company which is not private is public. Under section 7(5) of Act 992,
the characteristics of a private company are given:
It restricts the right to transfer its shares if any;
It limits the total number of its members and debenture holders to 50.
This does not include persons who are bona fide employees of the
company and persons who were formerly bona fide employees of the
company but continue to be members or debenture holders.
It prohibits the company from making any invitation to the public to
deposit money for fixed periods or payable at call, whether bearing or not
bearing interest.
It prohibits the company from making any invitation to the public to
acquire any shares or debentures of the company.

SOLE PROPRIETORSHIP
In a Sole Proprietorship one typically registers a business and carries on
business as the only owner bearing all of the liabilities and debts, if any of the
business venture. A business name may be registered by either a natural
person or a body corporate. The procedures in registering a business name is
governed by the Registration of Business Names Act 1962 (Act 151). This
Act requires every business name be registered other than a business operating
under the true personal name or surname or initials of the proprietor. The
name must not be misleading and the applicant must at least 21 years.
Registration of a business name is valid for a year and must be renewed
annually, else it elapses. Form (A) of Act 151 sets out the particulars to be
registered with the Registrar, namely: the business name, the general nature of
business, the principal place of business, all other places (if any) at which the
business is carried out, particulars of the proprietor including, his present first
name and surname any former first name or surname, nationality etc.

The effect of registration under Act 151 was considered in the case of Barclays
Bank of Ghana Ltd. v Lartey [1978] GLR 282. Mr. Lartey (L), during his
lifetime, registered the name of his business under the Registration of Business
Names Act, 1962 (Act 151), as "Scarts." For the purposes of his business, he
took a loan from the plaintiff (Barclays Bank of Ghana) to whom he mortgaged
his landed property with buildings thereon as security for the loan. On the
death of L., his administrators, the defendants herein, floated a limited liability
company called “Scarts Ltd.” to take over the assets and liabilities of the
business. The plaintiff wrote to the defendants demanding repayment of the
loan. When they failed to repay, the plaintiff instituted an action against them
for an order for judicial sale of the mortgaged property. Counsel for the
defendants argued that L.'s business registered as Scarts upon registration
became an artificial legal entity with perpetual succession and a distinct
personality from that of L. and that it was wrong for the plaintiff to hold the
defendants, who were only liable for the personal debts of L., liable for the
indebtedness of Scarts. It was held that, “a business name registered under the
Registration of Business Names Act, 1962 (Act 151), did not by the act of
registration acquire any legal personality distinct from the person registering it.
A registration of business name merely protected the exclusive use and the right
of the person registering the name….”
 PARTNERSHIPS

Another legal entity that may be formed for the purpose of carrying on business
in Ghana is a partnership. The law on partnership is the Incorporated Private
Partnership Act, 1962 (Act 152). A partnership is defined under section 3 of the
Act as an association of two or more individuals carrying on business jointly for
the purpose of making profit. This definition excludes an association, members
of a company, body corporate or unincorporated association formed under any
enactment in Ghana other than the Incorporated Private Partnership Act.
Family ownership or co-ownership of property shall not of itself create a
partnership whether or not the family or co-owners share any profits made by
the use of that property. Subject as aforesaid, the sharing of the net profits of a
business shall, prima facie, be evidence of a partnership, but,
a. the remuneration of a servant or agent of a person engaged in business
by a share of profits of the business shall not of itself make the servant
or agent a partner; and
b. a person shall not be deemed to be a partner if it is shown that he did
not participate in the carrying on of the business and was not authorised
so to do.

TYPES OF PARTNERS
1. Active Partners- this occurs where all the partners are participating
actively in the partnership.
2. Sleeping or Dormant Partner- He takes no part in the management of the
firm but he contributes to the capital of the firm and shares in its profit.
3. Nominal Partner- is a person who lends his name to the partnership
without having any real interest in it.
4. Partner by estoppels or holding out-he is a person who by his conduct
leads other persons to believe that he is partner in a particular firm even
though he is not. see Section 18 of Act 152.
CAPACITY TO FORM A PARTNERSHIP
Every person who is outside the category of persons mentioned in section 5 (2)
(d) of Act 152 is qualified to be partner or form a partnership. The said
provision makes the following persons ineligible;
a. bodies’ corporate
b. infant
c. persons of unsound mind and
d. person who within the preceding 5 years have been found guilty of any
offence involving fraud or dishonesty.
e. An undercharged bankrupt

HOW TO ESTABLISH A PARTNERSHIP

A partnership is incorporated pursuant to section 5 of Act 152 upon the
completion of Form A of the said Act signed by all the partners and delivered to
the Registrar for registration. Form A must be signed and dated by the
partners. There is liability of a fine and or jail term for knowingly furnishing
false particulars. The application must also be accompanied by a stamped copy
of the Partners Agreement. Registration of partnership must be renewed every
year and any changes in the particulars requiring registration, such as the
admission of a new partner or the relocation of the registered office must also
be registered within 28 days following. A partnership is required to be
registered with the Registrar-General and to do so a Partnership Agreement or
Deed of Partnership must be dated and filed. The partnership Agreement will
contain provision relating to the following;
a. the name of the firm.
b. the registered address of the partnership and any branch offices.
c. the nature of the firm’s businesses.
d. the names and addresses of the foundation partners.
e. the amount and percentage of contribution of each partner to the capital
of the firm.
f. admission to partnership.
 g. Exit from partnership profit-sharing arrangements.

Section 5(2) of the IPPA gives the Registrar power to refuse to register any
partnership on any of the following grounds;
a. the partnership is not one which is registrable under this Act
b. any of the businesses which the partnership has been carrying on or is
to carry on is unlawful
c. the name of the firm is misleading or undesirable
d. any of the partners is an infant or of unsound mind or a person who,
within the preceding five years, has been guilty of fraud or dishonesty,
whether convicted or not, in connection with any trade or business or is
an undischarged bankrupt; or
e. the statement is incomplete, illegible, inaccurate, irregular, or on paper
insufficiently durable to be suitable for registration,

It is usual to provide in the Partnership Agreement for a date on which the

partnership is to begin as well as end. In Kalmoni v Tackie [1961] GLR 446
the plaintiff and defendant, then husband and wife, set up in 1958 a
partnership and traded under the firm name of Express Grocery. By 1960, they
had separated and were living apart. The plaintiff (wife), suspecting that the
defendant (husband) was misusing her portion of the profits from the business,
sued him for accounts and dissolution of the partnership. The partnership
agreement provided for dissolution only on the death of one of the partners.
The High Court held that where no fixed period has been agreed upon, the
partnership is one at will, and is determinable at any time by any partner
giving notice to the other partners of his intention to dissolve it and in the
absence of mutual trust and confidence a partnership cannot survive; it then
becomes incumbent on the court, at the suit of any of the partners, to dissolve
the partnership and order a distribution of the assets.

EFFECT OF NON-REGISTRATION
Section 4 (1) of Act 152 makes it mandatory for every partnership to be
registered. Section 9 of the Partnership Act, 1962 provides that where the
partnership is not registered in accordance with Section 5 of the Partnership
Act, 1962 or the registration renewed pursuant to section 8 of the Act, "the
rights of the firm concerned and of the partners therein arising out of any
contract made during such time as the default continues shall not be enforceable
by action or other legal proceedings". However, where the firm is brought to
Court, it shall be lawful for the firm to enforce any counterclaim or set-off
within that legal action or proceeding. See the case of In Re SASU-TWUM
(decd); SASU-TWUM v. TWUM [1976] 1 GLR 23 where the High Court held
that “since the partnership agreement was never registered, neither of the
partners could enforce any right arising out of the said agreement. Consequently,
the Plaintiff could not rely on the partnership agreement to claim her half-share of
the value of the shop". Clearly, the penalty for non-compliance with the
requirement of registration and its annual renewal is the closure of the judicial
doors to the unregistered partners and partnerships.

EFFECT OF REGISTRATION OF PARTNERSHIP

Registration of a partnership under Act 152 establishes a corporate body-
section 12 of Act 152. The partnership firm becomes a body corporate distinct
from the partners and capable of exercising all the powers of a natural person
of full capacity. As a separate and distinct corporate body should a partner
incur a private debt, the partnership assets shall not be liable to settle that
debt. Partnership is required to keep proper accounts. Not later than 15
months apart, profit and loss account and the balance sheets of the
partnership have to be prepared.

LIABILITY OF PARTNERS
The partners are personally liable for all debts and liabilities of the partnership
without any limitation. The effect of sections 6(1) and 12(1) of the IPPA is that
even though a partnership on receiving its certificate of registration is a body
corporate separate and distinct from the partners yet the liability of each
partner is unlimited unlike the case of limited liability companies. Section 16 of
IPPA stipulates that “every partner in a firm shall be jointly and severally liable
with the firm and the other partners for all debts and obligations of the firm
incurred while he is a partner.” With respect to the rights and obligations of
the partners vis-à-vis third parties and between themselves, the Partnership
Act provides that every partner shall be an agent of the firm for the purpose of
the business of the firm; the acts of the partners shall bind the firm, if the acts
were authorized expressly or impliedly by his other partners or were
subsequently ratified by them or such acts were done for carrying on in the
usual way the business of the kind carried on by the firm, unless the partner so
acting has in fact no authority to act for the firm in the particular matter and
the person with whom he is dealing knows that he has no authority. The
meaning of this provision is that where the partner has express or implied
authority to act or acts for the purpose of carrying on the usual business of the
firm, the firm shall be bound by the acts of the partners so acting unless it is
shown that the person he deals with actually knows that the partner lacks the
authority so to act.

VOLUNTARY ASSOCIATIONS
Under The Trustees Incorporation Act 1962 (Act 106) Unincorporated voluntary
associations of persons use the mechanisms established under Act 106 to
achieve a corporate status. These voluntary associations have as their object,
religious, educational, literary, scientific, social, sports, or charitable goals.
Upon registration the association itself does not become a body corporate.
However, its trustees (of the association) become a body corporate with power
to sue and be sued in the name of the association. They have perpetual
succession and power to acquire and own property. (Section 1 of Act 106).

STATUTORY CORPORATIONS
It is a body corporate established by statute for a specific purpose. (Section 1,
Statutory Corporations Act 1964, Act 232). Upon establishment a statutory
corporation becomes a body corporate with perpetual succession, a common
seal and capacity to sue and be sued in its own name. e.g. GNPC, GNTC AND
ECG. The Statutory Corporation (conversion to companies) Act 1993 (Act 461)
permits specified statutory Corporations specified in the first schedule of the
Act to be converted into companies.

FORMATION OF COMPANIES
Who may form a company?
A company under the 1st schedule of Act 992 means “a body corporate formed
under this Act or any other enactment”. Sections 6 and 12 of the Companies
Act tells us who may form a company under the Act and by what process. It
states that any one or more persons may form an incorporated company by
complying with the provisions of the Act in respect of registration. In the case
of a person, the individual must be a least 18 years of age. It is therefore clear
from our law that one or more persons are required to form a company. These
persons must be associated for a lawful purpose. No company to be formed
must have an illegal object or purpose. The same persons must subscribe their
names to, i.e., sign a document called the constitution of the company where
the company opts to have a registered constitution. Illustration-Wofa K. alone
or Wofa K. and his friends may form a company in Ghana once he complies
with the provisions of the Act. The association among Wofa K. and his friends
according to our law must not be one intending to promote an illegal object.
For example, it should not be one with the purpose of promoting prostitution.
Once this is not the case, the original members of the company who are called
the subscribers are required to sign the proposed constitution of the Company,
which is the basic constitutional document/instrument which sets out the
purpose of the company, defines the limitations of the powers of the company
(what it can and cannot do), defines the duties, rights and powers of the board
of directors, etc. In effect it defines and regulates the manner in which a
company’s affairs are managed. The proposed constitution must comply with
the requirement of the Act in respect of registration. The proposed constitution
is then submitted to the Registrar who when satisfied with them, will register
the company. Once registered, the company becomes incorporated with or
without limited liability. This means that the members’ liability for the
company’s debt may be limited or unlimited. Now that an incorporated
company has come into being, let us consider what the contents of the
proposed constitution which are required for registration must contain. This
information can be found under section 13 of Act 992. Among others, this
document shall state;
1. the name of the company.
2. an indication of the type of the proposed company.
3. the nature of the proposed business in the case of a company
registered with an object.
4. the address of the proposed registered office and principal place of
business of the company in the Republic, the telephone number and
the post office box, private mail bag or digital address of the registered
office of the company.
5. the electronic mail address and website of the company, if available;
etc.

It is worth noting that the delivery of the proposed constitution does not
impose an automatic obligation on the Registrar to register the company and
issue a certificate of incorporation. As already stated, the registrar may refuse
to register the constitution and the grounds upon which he may do so under
the Act are;
1. When the regulations do not comply with the provisions of the code
2. When the company’s objects or business intend to be carried on are illegal
3. When any of the subscribers is an infant
4. When any of the subscribers is of unsound mind
5. When any of the directors are incompetent to be appointed as a director.

Is the constitution of any significance at all? In other words, what is the effect
of the constitution when the Registrar registers them to give birth to an
incorporated company. In Adehyeman Gardens v Assibey 2003-2004 SCGLR
1016 it was held that, “Section 21 of the Code shows that the Regulations of a
company is no mean document. It is the registration of the Regulations that
brings the company into existence as a body corporate (see section 14 (d) of the
Code). Once registered, the Regulations have (inter alia) the effect of a contract
under seal between:
i. the company and its members
ii. the company and its officers
iii. the members and the officers of the company
iv. the members of the company inter se and
v. the officers of the company inter se

This may be looked as follows;

1. It constitutes a contract under seal between the company and his members.
It means that the regulations bind the company and the members as though
it were signed by each member to observe their provisions. In the case of
Hickman v Kent, an attempt to expel the plaintiff from the association was
challenged on the basis of a provision in the regulation, which required that
all disputes between members and the association should be submitted to
arbitration. The court held that, the regulation was a statutory agreement
(contract) between the association and the member and should have been
complied with. (Emphasis)- So here we see the effect/benefit of registering
regulation. In Hickman case, because the regulations were registered and it
constituted a contract between the association and its members, the
association could not expel him without first complying with the laid down
requirement contained in the regulation/ contract. Registering it is therefore
very important.

2. Secondly, the constitution constitutes a contract between the

members. This is different from the first instance above. Here, the effect
of the registration is seen among the members themselves. An illustration
may be seen in the case of Rayfield v Hands 1960 Ch. 1 where the
regulations provided that a member was compelled to tell the directors (who are
also members) to buy his shares if he wishes to sell those shares. The plaintiff
notified the directors with the intention to sell the shares to them. The
directors refused to purchase his shares. The courts held that, the directors
were bound in their capacity as members to purchase the shares and that the
regulations constituted an enforceable contract between the directors in their
capacity as members and the other members of the company.

3. The third effect of when registered is that it does not constitute a contract
between the company and a member who is acting in a different capacity
other than membership. (Please note that the registration being referred to
here is the one to be done by the Registrar General) In Eley v Positive Life
Assurance the regulations provided that Eley should be the company’s
solicitor. He was appointed by the company and took shares in it but later the
company dismissed him from his employment with it. His action against the
company failed on the ground that the regulations he relied on were not a
contract between the company and any other person but for the action to
succeed the action must be in respect of enforcing membership rights (rights
that a member enjoys) (Emphasis) Here too we see that because the regulations
did not constitute a contract between the company and the plaintiff in his
capacity as the Solicitor of the Company his action failed. This case illustrates
the principle that the regulations are not a contract between the company and
any person in a capacity other than that of member.

ADOPTION, ALTERATION, AMENDMENT AND REVOCATION OF

CONSTITUTION (S30 OF ACT 992)
Can a constitution when registered, be altered? Yes, they can. It does not mean
that once you incorporated a company with a set constitution, it can never be
altered. The law has prescribed a procedure to be followed in adoption,
alteration, amendment and revocation of constitution. A major requirement is
the passage of a special resolution. However, there are a number of instances
that the law restricts the altering of the regulation. These include;

1. Where the name of the company is to be altered.

2. Where the number of the company's shares is to be altered.
PROMOTERS (SECTION 10 OF ACT 992)
Under this topic, we shall understand how individuals go about forming a
company and the steps that are required in order to achieve that goal. As
already mentioned, any one or more persons may form an incorporated
company by complying with the requirements of registration. But who are the
persons who are responsible for the company coming into existence and what
are the duties. These persons are known as promoters. Promoters are defined
by section 10 of Act 992 as a person who is or has been engaged or interested in
the formation of the company. In the case of Twycross v Grant (1877) the court
held that the promoter is one who undertakes to form a company and takes
steps to accomplish that purpose. A person acting in a professional capacity
(for e.g. a Solicitor or an Accountant) for persons engaged in procuring the
formation of a company is not a promoter of that company unless they go
beyond the scope of their professional engagements by participating in
activities outside their professional engagement, e.g. agreeing to look for
investors to partake in the ventures. In forming a company, the following are
some of the typical activities that a promoter undertakes.
1. He draws up a business plan
2. He identifies potential investors
3. He engages the professionals required for the promotion
4. He prepares the company's constitution.
5. He registers the company and
6. He negotiates the initial contracts etc.

DUTIES OF PROMOTERS
Promotion starts when the first verifiable step/act of promotion takes place at
which point the fiduciary obligation of the promoter will also commence. The
duty of the promoter starts from when he takes step to set up the business and
the duties would continue until the formation of the company is complete and
its capital has been raised- s10(3) of Act 992.
1. A promoter stands in a fiduciary relationship with the company and is
 required to observe good faith/ be sincere in any transaction with it or on
its behalf. He cannot make secret profit and he is required to compensate
the company for any loss suffered by the company. A fiduciary is
someone who has undertaken to act for or on behalf of another in a
particular matter in circumstances which give rise to a relationship of
trust and confidence. The distinguishing obligation of a fiduciary is the
obligation of loyalty. The principal is entitled to the single-minded loyalty
of his fiduciary. This core liability has several facets.
2. A fiduciary must act in good faith and in the best interest of the
company; he must not make a profit out of his trust; he must not place
himself in a position where his duty and his interest may conflict; he
may not act for his own benefit or the benefit of a third person without
the informed consent of his principal. This is not intended to be an
exhaustive list, but it is sufficient to indicate the nature of fiduciary
obligations. They are the defining characteristics of the fiduciary.
3. Exercising reasonable care- a promoter owes a duty to the company to
exercise reasonable care and skills in the performance of his duties.
4. Inviting other persons to become directors.

REMEDIES FOR BREACH OF PROMOTERS’ DUTIES

1. Rescission of any contract made with them
2. Account of secret profit
3. Damages for breach of a fiduciary duty

Where a promoter breaches his fiduciary obligations and acquired property for
himself when he should have acquired it for the company, he is obliged to
account to the company for the property and for any profits he may have
obtained for the use of that property. In the case of Attorney General v Reid
[1994] 1 All ER 1, the court held that where a fiduciary in breach of his duties
acquires property for himself, he is liable to account to the beneficiary of the
duty not only the proceeds of the breach of duty but any advantage he may
have obtained from the use of those proceeds. The court further held that the
fiduciary holds the proceeds of his breach of duty as a constructive trustee for
the beneficiary of the duty and the beneficiary has an equitable right of tracing
in order to claim any advantage obtained by the fiduciary.

In the case of secret profits in relation to transactions involving the transfer of

his own property to the company, the company is entitled to be compensated
for any damages it may have suffered from the promoter’s failure to uphold his
fiduciary obligations. The company is also entitled to rescind the relevant
contract. Rescission may however not be granted by the court if after
considering all the facts, the court thinks it will be inequitable to grant such a
relief. Having discussed who promoters are and the role they play in the
formation of the company, it is now necessary to find out the legal effect, if any,
of those contracts they enter into on behalf of the company prior to its
incorporation. The next topic discusses how the law treats those contracts
which are referred to as pre- incorporation contracts.

PRE-INCORPORATION CONTRACTS
These are contracts entered into by a company prior to its formation or by a
person on behalf of the company prior to its incorporation. It suffices to be said
that, no legal person, natural or artificial, can contract before he or it exists.
Therefore, a contract made by a promoter on behalf of the company before
incorporation never binds the company, because the company is not yet
formed. It has no legal existence. As a consequence of this rule, the position of
the law (section 11 of Companies Act (Act 992)) is that a contract or any other
transaction purporting to be entered into by a company before the formation of
the company, or by a person on behalf of the company before its formation,
may be ratified by the company within 18 months after the formation of the
company.

It means that these contracts are only binding on the company upon it being
ratified by the company. After ratification, the contract is binding on the
company as if it was a party to the original contract and was in existence at the
date of the contract. In this context ratification means an act of the company
adopting the previous acts of the promoter. How is ratification possible? In this
context, ratification is achieved through (a) the members in a general meeting
passing a resolution adopting the contract or (b) a decision of the board of
directors confirmed by the members in general meeting. Before ratification by
the company, a person who purported to act in the name or on behalf of the
company, in the absence of any express agreement to the contrary, shall be
personally be bound by the contract or the transaction and is entitled to its
benefit.

At common law, a company could not ratify a pre-incorporation contract. In

situations where the promoters purported to enter into a contract in the name
of the unborn company itself, the contract was held to be unenforceable by all
parties to it. In situations where the promoter purported to enter into the
contract on behalf of the unborn company, the contract was only binding if
there was novation of the contract by the company upon coming into existence.
In a Newborne v. Sensolid [1954], Kelner v. Baxter Ltd (1866) LR 2 CP 174 the
court held that a company is not bound by a contract purported to be entered
into on its behalf by the promoter prior to incorporation unless after
incorporation the company has entered into a new contract to the same effect
as the previous contract.

EFFECT OF RATIFICATION
Ratification has a retroactive effect, so that upon ratification, the company
takes the place of the promoter at the time the contract was entered into. After
ratification the promoter drops out of the picture and the company is then able
to incur liability or enjoy advantages.

THE PRINCIPLE OF ARTIFICIAL LEGAL PERSONALITY

The corporate legal person is different from the natural or human legal person.
Under Section 18 of the Companies’ Act, a company upon incorporation, has
all the powers of a natural person of full capacity for the furtherance of its
objects. This means that, the company has a separate legal existence from the
persons who formed it and can therefore operate as an independent legal
person. The locus classicus on the incorporation principle can be found is
Salomon v. Salomon (1897) AC 22. This case helps to establish that upon
incorporation, a company becomes an artificial person, separate and
independent from the people who formed it. Lord MacNaghten said: “the
company is at law a different person altogether from the subscribers and though
it may be that after incorporation the business is the same as it was before and
the same persons are managers and the same hands received the profit, the
company is not in law the agent of the subscribers or a trustee for them. Nor are
the subscribers as members liable, in any shape or form, except to the extent and
in the manner provided by the Act”. The Separate legal personality principle was
affirmed by the Supreme Court in Gateway Worship Centre v David Soon
Boon Seo unreported No. J4/12/2008 (delivered on 21st January, 2009). In
this case, the Appellant (David Soon Boon Seo) was a missionary of Korean
nationality and resident in the Tema. The 1 st Respondent was the Pastor of the
2nd Respondent, a church located in Tema. According to the Respondents, the
Appellant promised to raise funds for the 2 nd Respondent whilst on a projected
trip to Korea. Prior to his departure, the Appellant, with the members of the
church as participants, produced a video film, which depicted members of the
church living in the Ashaiman Community in abject poverty and degradation.

The purpose of the video was to curry the sympathy of prospective Korean
benefactors and foster their generosity. Upon his return from his Korean trip,
the Appellant made an open declaration to the church that the said funds had
been so raised from a benefactor. The Appellant, however, did not disclose the
quantum of the monies he had collected; nor did he hand over any such fund
to the respondent church, but retained the same in his own bank account. He
then used part of it to acquire the land in dispute. Subsequently, the pastor of
the church, Ben Adjei, together with the church, acting by its trustees, sued
the Appellant in the Circuit Court for a declaration of title to the land in
dispute, recovery of possession, perpetual injunction, an order for accounts
and other orders. The Supreme Court per Akuffo JSC reaffirmed the separate
corporate legal personality principle as follows, “As is clear from the record, the
2nd Respondent is a company limited by guarantee and incorporated under the
Companies Act, 1963 (Act 179) (as revised). As a result, pursuant to Section 24 of
the Companies Act, it has all the powers of a natural person of full capacity. As
such, it is a fully-fledged legal entity, with a personality separate from the
natural persons forming it, and with capacity to sue and be sued in its own
name. In law, the members of a company have no direct proprietary rights over
its assets, the company being the sole owner of its assets (see Majdoub & Co.
Ltd. v. W. Bartholomew & Co. Ltd. [1962] 1 GLR 122). Since it is patent from the
record that the subject matter of the action was being claimed as the Church’s
asset rather than the joint property of the church and the 1 st Respondent, there
was no reason why the 1st Respondent should have been included as a co-
claimant. From the record, Pastor Ben Adjei really has no business in the suit,
since he does not make any claim of interest or right in the subject matter of the
suit. The 2nd Respondent church is capable of handling its own litigation and the
1st Respondent is an unnecessary party”

A number of consequences flow from the principle of artificial legal person

among which are the following.

1. Limited Liability- Limited Liability means the liability of the members of the
company is limited to the unpaid liability on your shares. It is limited to what
you have committed to the business. Limited liability refers to the liability of a
member of a company to contribute to the assets of a company after it has
been wound up. A member of a limited liability company is only liable to
contribute the amount outstanding on his shares in the company. In the case
of the company limited by guarantee, the liability of a member is limited to the
amount he has agreed to contribute in case of the winding up of the company.
2. Property- Upon incorporation a company holds its property separate from
shareholders and shareholders have no rights of ownership in those properties.
In Macaura v. Northern Assurance (1925) All ER 51 the appellant was the
owner of an estate. The respondents were 5 insurance companies with whom
the appellant effected insurance against fire on timber and wood goods which
were lying in the estate. Along the way the appellant became a creditor of the
company for the sum of 19,000 Pounds. The cut timber remained lying on the
appellant’s land and was destroyed by fire. The appellant claimed against the
respondents upon the policies and respondents declined liability for the loss of
the timber within a hundred yards of the sawmill. It was held that the
appellant had no insurable interest in the timber described. It was not his. It
belonged to the company he had assigned it to. He had no lien or security over
it, and though it lay on his land by his permission, he had no responsibility to
its owner for its safety, nor was it there under any contract that enabled him to
hold it for his debt. He owned almost all the shares in the company and the
company owed him a great deal of money, but neither as creditor nor as
shareholder, could he insure the company’s assets.

3. Perpetual Succession- the Company will exist on its own right and changes
in its membership have no effect on its existence. Members may die or become
insane but this will not have an effect on the company. As an abstract legal
person the company cannot die, although its existence can be brought to an
end through the winding up procedure.

4. Capacity to sue and be sued. The company has contractual capacity in its
own right and can sue and be sued in its own name. - Contracts can be
entered in the company's name and it is liable on such contracts. The extent of
the company's liability, as opposed to the member's liability, is unlimited and
all its assets may be used to pay off debts.

DISADVANTAGES OF INCORPORATION (INCORPORATED AS A COMPANY

AS OPPOSED TO PARTNERSHIP)

1. Sometimes incorporation may work against the interest of the person

who is trying to use it Marcura v. Northern Assurance supra.
2.
2. Technical formalities: the company must satisfy certain regulatory
requirements which are backed by criminal action in case of a default.
 There is the need to employ auditors since the laws do not allow one to
start a company without one. Also every company must have a secretary.
The engagement of these people may impose burdensome cost on the
company.
3. Loss of privacy: The Company as a corporate body may lose privacy.
There are several disclosure requirements and the Company has to
satisfy these disclosure requirements. Certain documents must be made
available for inspection by members of the public.
4. Loss of control: unless shareholders are directors, they do not have
direct control of the management of the day to day running of the
company. Sometimes Management’s interest may be different from that
of shareholders. A Managing Director may want to build an empire to
enhance the company’s reputation and price in the market while
shareholders may simply be looking to reap dividend.

LIFTING THE VEIL OF INCORPORATION

When a company is duly incorporated, it becomes a separate artificial legal
person. Upon incorporation therefore, an invisible veil is said to separate the
company from its owners. But will this veil permanently separate the company
from the owners? The concept of lifting the veil enables us to understand for
instance even though the company is a separate legal entity which should
incur its own liability, there are instances where the court will draw aside the
veil and attach liability to the members.
In a general sense, the courts in Ghana and most Common Law countries
uphold the principle of separate legal personality. However, there are a number
of occasions when the separate legal personality principle will not be
followed/upheld as mentioned above. On these occasions it is said that the veil
of incorporation, which separates the company from its members, is pierced,
lifted or drawn aside. The reason for the court piecing the veil is to look beyond
the corporate veil and seek to attach liability to the shareholders and officers of
the company perhaps for using the company to commit fraud or for improper
purpose. The responsibility that may be attached to the shareholders and
officers as a result of lifting the veil may be in the form of fines, liability for
losses and debts and other legal consequences such as unenforceability of
contracts. The following are circumstances when the corporate veil may be
lifted.
1. When the Companies Act requires it.
2. By other legislation
3. By the courts when it is just and in the public interest so to do.

1. Where the Act requires the veil to be lifted.

Under Act 992 there are numerous instances where the veil of Incorporation is
lifted for liability to attach to persons other the company itself. A few examples
are;

1. Where a company limited by guarantee carries on business for the

purpose of making profits, other than for the furtherance of the objects of
the company, the officers and members of that company who are
cognisant of the fact that the company is so carrying on business are
jointly and severally liable for the payment and discharge of the debts
and liabilities of the company incurred in carrying on that business, and
the company and those officers and members are each liable to pay to
the Registrar, an administrative penalty of twenty- five penalty units for
each day during which the company carries on chat business- Section
8(2) of Act 992.

2. A company shall, upon request of a member, send to that member a copy

of its registered constitution on payment of the fee prescribed by the
company. Where an amendment is made to the registered constitution,
each copy of the constitution issued after the date of the amendment and
whether to a member or to any other person, shall be in accordance with
the amendment. Where a company defaults in complying with this
section, the company and every officer of the company that is in default
commits an offence and is liable on summary conviction for each offence
to a fine of not less than twenty-five penalty units and not more than fifty
 penalty units. see section 32 of Act 992.

3. Every company is mandated to have Register of its members. Where a

company defaults in complying with this section, the company and every
officer of the company that is in default is liable to pay to the Registrar,
an administrative penalty of twenty-five penalty units for each day during
which the default continues. Section 35 (15) of Act 992.

4. If at any time a company ceases to have a member and it carries on

business without at least one member, every person who is a director of
the company during the time that it so carries on business is jointly and
severally liable for the payment of all the debts and liabilities of the
company incurred during that period-section 41 of Act 992.

2. The Corporate veil may also be lifted pursuant to other legislation

By section 119 of the Corporate Insolvency and Restructuring Act, 2020 (Act
1015) A director who causes a company to engage in any form of business or
trade or incur a debt or liability where that director has reasonable grounds to
believe that the company is insolvent or will become insolvent or ought to have
known at the time of causing the company to engage in the business or trade
or incur the debt or liability that the company was insolvent or would become
insolvent as a result of incurring that debt commits an offence and is liable on
summary conviction to a fine of not less than five hundred penalty units and
not more than one thousand penalty units to a form of imprisonment of not
less than two years and not more than five years of both.

3. The Courts will also lift the corporate veil when it is just and equitable or in
the public interest to do so. Below are some of the instances that will allow the
court to lift the corporate veil;
a. Where the corporate form is being used for a fraudulent purpose or to
evade a legal duty. An example can be found in the case Gilford Motors
v Horne [1933] 1 Ch 935, where an employee who had entered into a
contract with his employer that he would not compete with them
 attempted to do so by setting up a company. The court lifted the veil of
incorporation and refused to allow the employee to use the company
avoid/evade the agreement he made with his employer. The Courts will
also lift the corporate veil to prevent fraud and improper conduct.
Similarly, in Jones v Lipman 1962 1 All E.R 442, A vendor agreed to
sell his piece of land. Subsequently he changed his minds and in an
effort to defeat a move to obtain specific performance, the vendor
transferred the land to a company which he controlled. The defendant
argued that the company as a separate legal person was a bona fide
purchaser for value without notice. The court refused to countenance
this. The veil was lifted and specific performance was ordered against the
vendor and company. The court held that the company was a creature of
the first defendant, a devise and a sham, a mask, which he held before
his face in an attempt to avoid recognition by the eyes of equity.

b. The courts may also lift the veil to allow a group of associated companies
to be treated as one and not several separate entities (Agency). In Kuni
v. State Gold Mining Corporation (1978) 1 GLR 205 The plaintiff, an
employee of the Prestea Goldfields Ltd., a subsidiary of the State Gold
Mining Corporation, sustained serious injuries when a mass of loose
graphite rocks fell on him whilst working underground at the mines. He
therefore brought the present action against both the State Gold Mining
Corporation and the Prestea Goldfields Ltd. for damages. The main issue
for the determination of the court was whether it was proper for the
plaintiff to sue the State Gold Mining Corporation. The evidence adduced
at the trial, showed that the State Gold Mining Corporation held all the
shares of the Prestea Goldfields Ltd. The profits of Prestea Goldfields
Ltd. were treated as profits of the State Gold Mining Corporation. The
State Gold Mining Corporation was also responsible for appointing the
general manager, the mines manager and the chief engineer who
conducted the business of the mines and were in effective and constant
control. Some of the directors of the State Gold Mining Corporation
 constituted the board of directors of Prestea Goldfields Ltd. It was held
that under the ordinary rules of law, a parent company and a subsidiary
company, even a hundred per cent subsidiary, were distinct legal
entities. However, there was no rule of law which said that a company
could not, and should not, act as an agent of its holder. From the facts it
was clear that the Prestea Goldfields Ltd. were the agents of the State
Gold Mining Corporation and carried on its business.

MEMBERSHIP OF COMPANIES

Under this topic, we shall understand how individuals become members of the
company. The human family is made up of members. How do they become
members of the family and into which category of the family can we place
them? It is usually through a variety of modes, for example, through birth,
adoption etc. We need to bear this illustration in mind to enable us understand
membership of the companies. Similarly, a company is made up of members
whose membership is acquired through two main modes.

Section 33 of the Companies Act (Act 992) deals with membership of

Companies. It sets out the different categories of members in a company. The
words members and shareholders are often used interchangeably. However
please note that it is not in all cases that a member of a company can be
described as a shareholder. The distinction is usually in relation to the kind of
company under consideration. Where it is a company registered with shares,
the word can be used interchangeably because in that instance, members are
the same as the shareholders. However, where it is a company limited by
guarantee, the members are not described as shareholders but members
because they do not own shares in that company. There are two main types of
members; they are subscribers and subsequent members. In Adehyeman
Gardens v Assibey 2003-2004 SCGLR 1016 Sophia A. B. Akuffo, J.S.C (as
she then was) held that “there are two kinds of members of a company; those
who become members at the inception of a company by subscribing to its
Regulations and those who, after the company comes into existence, agree to
become members. The membership of a subscriber is by legal prescription and in
the absence of a valid forfeiture, is not predicated on full or partial payment of
the consideration for he shares taken. Indeed, even in the case of a non-
subscribing member of a company, his membership is not dependent on whether
or not he is fully paid up.”

1. Subscribers: A company should have subscriber/s to the constitution or

incorporation documents and by virtue of this subscription becomes a
member of the company. They are the original members of the company
at the time of its formation. The law requires that those individuals
should have their names entered into the incorporation documents of the
company. Once this is done, they are deemed to have agreed to become
members of the company and after incorporation, the company is bound
to register their names in the register of members. Through this mode, a
company gets its first set of members/ shareholders. However, in
Adehyeman Gardens v Assibey supra, Akuffo JSC on the legal status of
subscribers held as follows, “As a subscriber, therefore, the Respondent’s
shareholding, as well as the consideration payable by him therefore, is
contractual. He does not need to be issued with a certificate for his
membership to take legal effect.”

2. Subsequent Members: These others category of members unlike

subscribers are those who agree to become members of the company after
the company has been incorporated. The law requires that their names are
entered in the register of members and once this is done, they also become
members/ shareholders of the company. But how does a person become a
subsequent member? It is through the modes discussed below;

(a) Membership through issuance of shares: This occurs when a company

issues/ floats shares to the public. As individual purchase these shares
and their names are entered in the company’s register of members. They
thereafter become members/ shareholders in that company.
(b) Membership through transfer of shares: Another mode by which a person
may become a subsequent member is through the transfer of shares. This
occurs when existing members transfer their shares to third parties.

c. Membership through transmission of interest: On the death of a member his

legal representatives become the persons recognised by the company as
shareholders and the company is obliged to enter the name of the legal
representative as the holder of the shares once the appropriate evidence has
been produced to the company (section 102 of the Companies Act (Act 992).
The legal representative of the deceased member, shall be entitled to the same
dividend, interest and other rights and advantages of a duly registered member
except that he shall not have the right to attend and vote at any shareholder
meeting. Do these members enjoy rights for which a person should desire
membership in a company? Yes, they do. Not only do they enjoy rights but
there are duties and liabilities that are attached to those rights. Let us now
examine some of the rights the law accords shareholders/ members.

THE RIGHTS OF MEMBERS (SECTION 34)

Section 34 of the companies Act says that, every member of the company has
rights which are conferred by the Act and the constitution of a particular
company. One of the key rights of membership is that which the members have
to attend, speak and vote on any resolution at the meeting of the company.
Although this is a right, a member may lose it if the constitution/incorporation
documents of a company impose restrictions on the right to attend and vote at
meetings in the case of shares with unpaid liability. (i.e. where a member has
not finished paying for his shares. Shareholders do not have a right to
participate in the management of the company except where that management
powers have been reserved for them under the Act or the constitution of the
company but they may make recommendations to the directors even though
directors are not obliged to comply with those recommendations. The personal
rights of members are distinguishable from the collective rights of members,
the latter of which are exercised through members’ resolutions. A few examples
of Personal Rights are as follows;
1. Right to be entered in the register of members.
2. Right to receive a share certificate.
3. Right to attend, speak and vote at meetings.
4. Right to be properly notified of shareholders meeting.
The personal rights of members must also be distinguished from the
Company’s rights (Corporate Rights) which belong to the company as such and
are exercised on the company’s behalf generally by the directors.

Other rights of members relate to the following;

1. Appointment and removal of directors of that company.
In the case of Okudzeto and Irani Brothers 1974 1 GLR 374 the courts held
that section 185 of the code [now section 176 of Act] has vested in shareholders
the absolute right to determine who should manage the affairs of the business.
2. To sue on an illegal and ultra vires conduct.
3. Rights issue- This refers to the issue of shares to shareholders in compliance
with their pre-emption rights. Thus, each shareholder will be allotted a
proportionate number of shares to the shares already held by that shareholder.
To obtain a copy of the regulations on payment of a nominal fee.
4. Determination of the remuneration of directors-
Section 185 (1) and (2) of Act 992 provides that the fees and other
remuneration payable to the directors in whatsoever capacity, shall be
determined from time to time by ordinary resolution of the company and not by
a provision an agreement. The fees payable to the directors as such shall be
determined from time to time by ordinary resolution of the company and not in
any other way (emphasis supplied). In Daniel Sackey Quarcoopome v Sanyo
Electric Trading 2009 6 G.M.J 58 the trial found that the Plaintiff worked as a
director of the defendant company and held that he was to be rewarded on
quatum meruit basis. On appeal the Supreme Court held as follows;
“…consequential award to the plaintiff in quantum meruit offended the clear
provisions of section 194 of the Companies Code (quoted above) for it amounted
to usurping the functions of members of the 2 nd defendant company. There being
no evidence that such a resolution has ever been passed by the company, the
trial judge erred in deciding to remunerate the plaintiff for services rendered to
the second defendant in his capacity as a director.”

MEMBERS’ LIABILITY (Section 40 of ACT 992)

There are corresponding liabilities of members in the enjoyment of their rights.
These may include, prior to winding up, members are liable to contribute the
balance of the amount payable in respect of shares. In the event of winding up,
past members are liable if winding up occurs within one year of them ceasing
to be members and if the contributions of the present members are insufficient
to meet the debt, liabilities, cost and other expenses of the winding up. In any
event, for limited liability companies the contribution by past and present
members is limited to unpaid value of shares.

CESSATION OF MEMBERSHIP/ HOW A MEMBER LOSES HIS/HER

MEMBERSHIP
1. Where there is a valid transfer of shares registered by the company.
2. Transmission of shares to another person by operation of law.
3. Forfeiture of shares for non-payment calls.
4. The death of a member: -in the case of a guarantee company,
membership will continue until the member dies, resigns or is excluded
from membership in accordance with the terms of the regulations of the
company.

EVIDENCE/PROOF OF MEMBERSHIP
a. Subscribers to the Regulations- Membership is established by the
subscription as found in the constitution. Adehyeman Gardens v Assibey
supra.
b. The Register of Members-every company as part of its statutory
requirements must keep a Register of members. By Section 35 of Act 992
every company is required to keep a register of members in which the
following details must be recorded:
 i. Names and addresses of members
ii. For a company registered with shares, the number of shares held by
each member
iii. The amount paid for the shares or payable for them
iv. The date of entry in the register of each member
v. Date of cessation of membership.
Under section 39, the Register of members is prima facie evidence of any
matters that are entered therein (in the register). Apart from the subscribers to
the constitution/incorporation documents, entry in the register of members is
a condition precedent to membership. The register of members is available for
inspection and must be kept in the registered head office or main place of
business of the company. A member may inspect the register without charge
Section 36 of Act 992. A member can apply to have the register rectified if there
are any names that should not be in the register or vice versa section 38 of Act
992. The reality is that most companies do not keep register even though they
are expected to do so and many of them also have not issued their members
with Share Certificates despite what the law says. In Luguterah v Northern
Engineering Co., Ltd. [1978] GLR 477 it was held that, “the effect of section
30 of Act 179 was to make entry in the register of the company at least some
prima facie evidence of the fact of membership and the extent of shareholding.
The subscriber continued to be a shareholder and a member even if the company
defaulted by omitting to perform its statutory obligation of putting the
subscriber's name in the register or allotting the shares to him. Even if there was
deliberate refusal of the company to issue share certificates to subscribers to the
regulations, those subscribers would, at least in the case of a private company,
be nevertheless members and shareholders of the company by virtue of section
30. In the instant case, the position of the eight respondents who had agreed to
become members of the company was regulated by section 30 (2) of the Act
under which the placing of the name of the shareholder on the register was a
condition precedent to membership. “
 CORPORATE MANAGEMENT

The focus of this module is to examine how the company is managed. On

directors, our study will focus on the appointment, removal and duties of
directors. The role of the company secretary and auditors will also be
considered. The chapter will end with a study of meetings and minority
protection.

INTRODUCTION
Shareholders in public limited company somehow remain external to the actual
operations of the enterprise in which they have invested. They tend to assess
the performance of their investment in relation to dividend payment and share
prices of the shares they hold. This has led to the emergence of what is known
as the separation of ownership and control. Thus, those who provide a
company’s capital are not actually concerned in determining how that capital is
used within the specific business enterprise. In effect the day-to-day operation
of the business enterprise is left in the hands of a small number of company
directors while the large majority of shareholders remain powerless to
participate in the actual business from which they derive their dividend
payment. The separation of ownership and control, however, has resulted in
the concentration of power in the hands of directors and has given rise to the
possibility of abuse of that power, interest, etc.

Who are directors?

The Companies Act defines directors as persons who by whatever name called
have been appointed to direct and administer the business of the Company-
Section 170 of the Act. The point of this definition is that it emphasises the fact
that it is the function that the person undertakes rather than the title given to
them that determines whether they are directors or not.

Types of Directors
1. De jure Directors: These are directors who are duly appointed in
accordance with the provisions of the Companies Act, the
constitution/incorporation documents of the company or a shareholders’
agreement.
2. De Facto Directors (section 170): They are persons who hold
themselves out or allow themselves to be held out as directors of the
company though they have not been duly appointed. A de facto director
is fixed with the same duties and liabilities as if he were a duly appointed
director. When a person acts as a de facto director both the company, if
the company has held him out and the person may be liable to a fine. In
the Ghanaian case of Commodore v Fresh fruit supply 1977 1 GLR 241, it
was held that a person who was not a duly appointed director but whose
name appeared on the companies letter head as a director, conducted
business on behalf of the company and sometimes shared in its profits
was a de facto director and his acts were binding on the company.
3. Shadow Directors: This is a person who, although not actually
appointed to the board, instructs the directors of the company as to how
to act. In other words, he is that person on whose directions or
instructions the duly appointed directors are accustomed to act.
4. Substitute Director: These are directors appointed by the company to
act as deputies to main directors or substitutes in their absence. Other
than quorum requirements, a substitute director is not counted as a
director for the purpose of any provision in the Act requiring a specified
number of directors. A substitute director cannot vote at any meeting
where the main director is present. A substitute director is a full director
of the company for all purposes and shall be appointed and may be
removed in the same way as directors are required to be appointed and
removed. A substitute director shall not cease to be a director by reason
of the fact that the director for whom that person is a substitute ceases
to be a director-section 180 of Act 992.

5. Alternate Directors (Section 188)

These are directors appointed by another director to be his alternate for a
period not exceeding 6 months if for some reason a director is unable to act as
a director during that period. The appointment shall be in writing signed by the
appointor and appointee and lodged with the company. The alternate may
himself be a director of the company or he may be a third party. Where the
proposed alternate is a director no approval is required for his appointment.
However, if he is not a director then, board approval is required. The company
is not liable to pay additional remuneration by reason of the appointment of an
alternate director. The registered constitution of a company may provide that
(a) the alternate director shall be entitled to receive from the company during
the period of the appointment, the remuneration to which the appointer, but
for the appointment, would have been entitled, and (b) the appointor shall not
be entitled to remuneration for that period. In the absence of a provision in the
registered constitution referred to under (a) and (b) above, the alternate director
is not entitled to be remunerated otherwise than by the director appointing the
alternate director. An alternate director who is personally a director, shall have
an additional vote for each director for whom the alternate director acts as
alternate director at every meeting of the directors.

6. Executive Directors and Managing Directors-Section 183 and 184 of Act

992
Except as otherwise provided in the constitution of a company, the Companies
Act permits a director to take up employment in the company in addition to his
directorship provided that he does not become the auditor of the company. The
directors may from time to time appoint one or more of their body to such other
office for such period and on such terms as they may determine and, subject to
the terms of any agreement entered into in any particular case, may revoke
such appointment. Also section 184 of the Act authorises the board of directors
to appoint a Managing Director and entrust him or her powers exercisable by
the directors collaterally with or to the exclusion of their powers. Unless the
agreement for his appointment as MD specifies the contrary, the appointment
of Managing Director shall automatically determine if the holder ceases to be a
director.

NUMBER OF DIRECTORS
Section 6 of Act 992 states that one person can form a company but section
171(1) of the Act provides that every company shall have at least two directors
with one of these directors being ordinarily resident in Ghana. If at any time
the number of directors is less than two and the company continues to carry
on business for more than four weeks after that time, the company, the
director and each member of the company that is in default is liable to pay to
the Registrar, an administrative penalty of twenty-five penalty units for each
day during which the company so carries on business after the expiration of
the four weeks without having at least two directors. Every director and every
member of the company who is cognisant of the fact that the company is
carrying on business with fewer than two directors are jointly and severally
liable for the debts and liabilities of the company incurred during that time.
Apart from the minimum of two directors fixed by the Act section 171(4) of the
Act allows each company to have more than two directors if it so desires by
stating it in its constitution.

Appointment of Directors
Every company must have at least two directors. The first directors are to be
named in the application for incorporation and it serves as a historical fact that
cannot be changed by subsequent amendment of the regulations. Before a
person can be appointed as a director, he should have given his prior written
consent to the appointment and file the consent within twenty-eight days.
Failure to obtain the consent invalidates the appointment. see Politis v
Plastico Ltd. (No. 2) [1967] GLR 24 and Daniel Sackey Quarcoopome vrs
Sanyo Electric Trading & Anor. Civil Appeal No. J4/3/2008 12 th November,
2008.

CASUAL VACANCY
A casual vacancy on the board is one which occurs otherwise than by a
director’s term of office expiring. That is one that occurs between meetings of
the company by death, retirement, resignation removal or by becoming
disqualified-see section 172 of Act 992. A casual vacancy may be filed in two
ways;
1. By the continuing director.
2. By an ordinary resolution of the company in general meeting. But
directors appointed to fill a casual vacancy shall cease to be directors as
soon as persons entitled to be appoint director duly appoint someone
else.

Qualification/Competence of Directors-Section 173 of Act 992

Persons are qualified to be appointed directors unless disqualified. The
following persons are disqualified from acting as director:
a. an infant
b. a person adjudged to be of unsound mind;
c. a body corporate
d. a person who is prohibited from being a director or promoter of, or
being concerned or taking part in the management of a company as a
result of an order made under section 177 so long as the order
remains in force unless leave to act as director bas been granted by
the Court in accordance with that section
e. an undischarged bankrupt, unless that bankrupt has been granted
leave to act as director by the Court by which that person was
adjudged bankrupt.
The company's constitution may also lawfully provide that certain classes of
persons additional to those provided above shall be incompetent to be directors
of the company.

Share qualification of a director-section 174

Except as otherwise provided in the constitution of a company, a director is not
required to be a member of the company or hold a share in the company.
Where the constitution of a company requires a director to hold a specified
share qualification, every director shall obtain that qualification within two
months after appointment as director or a shorter period that may be fixed by
the constitution. The office of director shall be vacated if the director fails to
hold the specified share qualification within two months after appointment or if
at any time after the expiration of that period that person ceases to hold that
qualification. Where a company amends the constitution so as to introduce or
increase the requirement of a share qualification, every director holding office
at the date of the amendment shall have two months within which to obtain
the qualification and shall not vacate office under this section unless that
director fails to do so. A person who vacates office under this section is not
qualified to be re-appointed a director of the company until that person has
obtained the qualification.

DUTIES OF DIRECTORS (SEE SECTION 190)

A director of a company will often be in charge of property of the company and
most often the investment of shareholders. It is therefore obviously necessary
to control the behaviour of someone in such a position of power and to impose
upon him a standard of conduct which will protect people who stand to lose if
the director is incompetent or dishonest. As fiduciaries, directors owe their
duties to their company. (Note- the duty is owed to the company as a distinct
legal person and not to shareholders of the company. Among the duties of
directors are the following.
1 The duty to act bona fide in the interest of the company- This in effect
means that directors are under an obligation to act in what they
genuinely believe to be in the best interest of the company.
2 The duty not to act for any collateral purpose- the Director acts for a
collateral purpose if instead of acting bona fide in the interest of the
company, they use their powers for some ulterior purpose. For
example, directors should not issue shares to particular individuals in
order merely to facilitate or prevent a take-over bid (Howard Smith v
Amprol Petroleum (1974) AC 821.
 3 The duty not to permit a conflict of interest and duty to arise- this may
arise in a situation where a director is alleged to have profited
personally from an opportunity or information which came to him in
his capacity as director. A famous case where this type of situation was
in issue was Regal Hastings Ltd v. Gulliver (1942) 1 ER 378 where
directors involved in the negotiation of a contract for their company
took for themselves part of the contract. The director where held to
have allowed their duty to the company and their personal interest to
conflict and were therefore in breach of their duty as directors.
4 The duty not to fetter their discretion.

Vacation of office of director-section 175

The office of director shall be vacated if the director
a. becomes incompetent to act as a director by virtue of section 173
b. ceases to hold office by virtue of section 174, or
c. resigns from office by notice in writing to the company.
d. The constitution of a company may provide for the termination or
vacation of office in circumstances additional to those specified above.

Removal of Directors (section 176)

There are a number of ways in which a person may be obliged to give up their
position as director
Rotation– this occurs where the directors are required to retire at the
first AGM of the company, but are eligible for re-election.
Retirement- Directors of public companies are required to retire when
they attain the mandatory age for retirement even though they may
retire before then.
Removal- A Company may by ordinary resolution remove any director
not withstanding any provision in the company’s regulations or in any
agreement with the director. A director cannot be removed at any
meeting unless not less than 35 days’ notice of the intention to remove
him has been given to the company. The company is required upon
 receipt of the notice, to notify the relevant director.
Disqualification- The regulations may provide for the disqualification of
directors on the occurrence of certain circumstances: bankruptcy,
mental illness, conviction for an offence involving fraud or dishonesty.

OFFICERS AND OTHER MATTERS RELATED TO THE ADMINISTRATION

OF COMPANIES

COMPANY SECRETARY-SECTION 211

A company shall have a Company Secretary who shall possess the qualification
specified in the law. The Company Secretary may be a body corporate except
that the body corporate must have as one of its promoters, subscribers,
directors or operating officers, a person who is qualified to be a Company
Secretary. The directors shall not appoint a person as a Company Secretary
unless that person

a. has obtained a professional qualification or a tertiary level qualification

that enables that person to have the requisite knowledge and experience
to perform the functions of a Company Secretary

b. has held office, before the appointment, as a Company Secretary trainee

or has been articled under the supervision of a qualified Company
Secretary for a period of at least three years

c. is a member in good standing of (i) the Institute of Chartered Secretaries

and Administrators, or (ii) the Institute of Chartered Accountants,
Ghana

d. having been enrolled to practice, is in good standing as a barrister or

solicitor in the Republic, or

e. by virtue of an academic qualification, or as a member of a professional

body, appears to the directors as capable of performing the functions of
secretary of the company.
For the purpose of paragraph (a), a professional or tertiary level qualification is
a discipline with an offering in company law practice and administration.
Unless the constitution of a company otherwise provides, the Company
Secretary shall be appointed by the directors for the term, at the remuneration
and on the conditions that the directors consider fit, and may be removed by
them, subject to the right of the Company Secretary to claim damages from the
company if removed in breach of contract. The Company Secretary shall, before
assuming office, lodge with the company for onward transmission to the
Registrar, the written consent to serve as a Company Secretary.

Duties of a Company Secretary-section 212

The duties of a Company Secretary include

a. assisting the Board to comply with the constitution of the company and
with any relevant enactment

b. keeping the books and records of the company

c. ensuring that the minutes of the meetings of the shareholders and the
directors are properly recorded in the form required by this Act

d. preparing and issuing out notices in the name of the company

e. ensuring that the annual financial statements of the company are

despatched to every person entitled to the statements as required by this
Act

f. ensuring that all statutory forms and returns are duly filed with the
Registrar

g. maintaining the statutory registers of the company

h. providing the Board with guidance as to the duties, responsibilities and

powers of the Board and on the changes and development in the laws
affecting the operation of companies
 i. informing the Board of legislation relevant to or affecting meetings of
shareholders and directors and their failure to comply with the
legislation and reporting accordingly at any meeting; and

j. advising the directors on their responsibilities as directors

AUDITORS
Companies are to appoint an auditor whose duty it is to report to the
company’s members whether or not the company’s account have been properly
prepared and to consider whether the directors’ report is consistent with those
accounts. An auditor is neither an officer of the company nor an agent of the
company. They are independent outsiders charged with the duty to express an
independent opinion on the financial state of a company. The audit function
plays an important role in corporate governance by giving investors an
opportunity to obtain an independent assessment of the financial stewardship
of the directors. In the case of a newly registered company, the first auditors
are appointed by the directors until the first general meeting at which they may
be reappointed by the members of the company. Thereafter, auditors are
appointed annually at general meetings.

The auditors of the company are required to audit the accounts once a year
and present a report to the shareholders stating whether in their view the
account present a true and fair view of the financial state of the company. It
was held in Caparo Industires v. Dickman, that the primary purpose of the
statutory audit is to allow shareholders who may not have a personal
involvement in the management of the business to collectively hold the
directors to account. The auditor’s duty is owed to the members as a collective
body and not to individual shareholders. They are removed on the basis of a
procedure that is similar to the removal of directors. They are required to be
given 35 days’ notice of the intention to remove them and they should be given
an opportunity to be heard or to present a written statement to the
shareholders. An auditor shall hold office for a term of not more than six years
and is eligible for appointment after a cooling-off period of not less than six
years.

MEETINGS
One of the ways by which the company’s business is controlled lies with the
members in general meeting. There are 3 main types of meetings as discussed
below.
(1) Annual General Meeting (Section 157 of Act 992) - Every company is
required to hold an Annual General Meeting (AGM) every year. However,
if an AGM is held within 18 months of incorporation, then an AGM need
not be held in the year of or the following year. In addition to holding
AGM every year, it is also to be held not later than 15 months between
these meeting. This means that if a company holds its AGM on 1st
January, 2018, then it must hold its next AGM by 31 st March, 2019 at
the latest. The Auditor(s) of the company and all the company’s members
who are entitled to attend and vote at an AGM may agree in writing to
dispense with an AGM for that year. If an AGM shall be held, the
company shall at least 21 days before the AGM dispatch to members and
debenture holders the following documents; profit and loss account,
balance sheet, any group accounts, the director’s report and the
auditor’s report on these financial statements. One primary purpose of
the AGM is to enable the company’s profit and loss accounts and report
of directors etc. to be presented to members. The ordinary business of
an AGM are;
(a) Declaring a dividend
(b) The consideration of the accounts, balance sheets and director and
auditors report
(c) The election of directors
(d) The appointment and remuneration of the auditors.

(2) Extraordinary General Meeting (section 158)– An extraordinary general

meeting (EGM) is any meeting other than an AGM. EGMs are usually
called by the directors whenever they think fit although members under
 specified circumstances may requisition such a meeting. An
extraordinary general meeting of a private company may be requisitioned
in accordance with section 299 of Act 992 and an extraordinary general
meeting of a public company may be requisitioned in accordance with
section 324 of Act 992.

(3) Class meeting- This refers to the meeting of a particular class of

shareholders, i.e. those who hold a type of share which provides them
certain rights. (i.e. preference shares)-Section 164 of Act 992.

WHO MAY CONVENE GENERAL MEETINGS?

1. Directors. It is a mandatory requirement for directors to convene general
meetings. In Asafu-Adjaye and Others v Agyekum [1984-86] 1 382
GLR it was held that “Apart from the mandatory requirement to call an
annual general meeting, the power to call general meetings was a
fiduciary discretion vested in directors of a company or in any member
who requisitioned it. Where directors had properly called for a meeting of
the shareholders, it would be contrary to the principles on which the court
acted in controlling persons in the exercise of fiduciary powers to make at
the instance of a member (or some only of the members) of the company an
order directing the directors not to exercise their discretion in calling the
meeting.”
2. Members-when the directors fail to convene general meetings despite
duly filed and appropriate requisition. In Luguterah v Northern
Engineering Co., Ltd. [1978] GLR 477 notice of extraordinary general
meeting was issued by the secretary without authorization by directors
and it held that, “under Act 179, s. 271, the only persons entitled to
convene an extraordinary general meeting were the directors. A
shareholder qua shareholder without any prior requisitioning of the
directors in terms of section 271, had no statutory right to convene such a
meeting. All that a shareholder as a member could do was to prevail on
the directors by requisition to convene one and it was only after failure to
 secure one that the member might then convene one in accordance with the
provision of section 271 (3) of Act 179. In the instant case, the meeting
convened by the secretary of the company apparently on his own without
any directive from the directors of the company was invalid…”
3. The Registrar-Section 157(6) of Act 992: The Registrar may, of his own
motion or on the application of any officer or member of the company,
call, or direct the calling of, an annual general meeting of the company,
and may give such ancillary or consequential directions as he thinks fit.
4. The Court (section 162 of Act 992)-if for any reason it is impracticable to
call a meeting of a company in any manner in which meetings of that
company may be called, or to conduct the meeting of the company in the
manner prescribed by the Regulations of the Act, the Court may, on the
application of any director or member of the company, or of the
Registrar, may order a meeting of the company to be called, held and
conducted in such manner as the court thinks fit; and where any such
order is made may give such ancillary or consequential directions as it
thinks expedient. e.g. in Re El Sombrero 1958 3 AER 1 ES had three
shareholders: one owned 90% of the shares, and the other two held 5%
each. The minority shareholders were the directors of the company. The
company was mismanaged and the majority shareholder wished to
remove the two directors by ordinary resolution with special notice. The
Companies regulation required a quorum of 2 shareholders. He called a
number of EGMs to achieve this; however, the minority shareholders
refused to attend. The held that it would exercise its discretion I favor of
the majority shareholder to allow him exercise his majority shareholder
right by removing the minority shareholders at meeting where only one
shareholder would be present.

It must be noted that the court will not intervene under section 162
where doing so would override class right. In Harman v BML Group. In
this case, the shares of the company were divided into A and B class and
a provision there was a provision that a meeting of the company would
 not have quorum unless a member from the B class was present. It was
held that a court should not intervene to permit a meeting to be
summoned which will have the effect of overriding a class right. Dilton
L.J said, ” It is not right to invoke section 371(section 162 of Ghana code)
to override class rights attached to a class which have been deliberately
imposed [in this case by the shareholders’ agreement] for the protection of
the holders of those shares although are a minority. Class rights have to
be respected and the right of the holder of B shares to be present in the
quorum as a class right for his protection is not to be overridden.”

The court will also not intervene where there is equality of voting right. In
Ross v Telford 1998 1 BCLC 82, here two shareholders held 50% each
one shareholder wanted to appoint a third person as a director. The
other one would not attend meetings so one shareholder went to court
that he be allowed to have a meeting and appoint a third director. It was
held that the court would not allow for him to have a meeting by himself
and appoint another director because there was equality of voting rights.
Thus where there is deadlock and equality of voting rights, the only
remedy is to wind up the company.

TYPES OF RESOLUTIONS
At meetings of the company, decisions are arrived at by passing resolutions.
There are two main types of resolutions. These are ordinary resolution and
special resolution.

Ordinary Resolution – This requires a simple majority of those present and

voting. Thus, members who do not attend or appoint a proxy, or who do not
vote, are disregarded.

Special Resolution - This requires a majority of not less than three-quarters

but in all circumstances the notice inviting members must state that a
resolution proposed is to be passed as a special resolution.
 MAJORITY RULE AND MINORITY PROTECTION (THE RULE IN FOSS V
HARBOTTLE)
As mentioned at the introductory stage of this module, the day-to-day
operation of a company’s business is left in the hands of its directors and
managers with shareholders having no direct input into business decisions. At
meetings of the company, the individual shareholder wish is subject to the
wishes of the majority as expressed in the passing of resolution. What then is
the remedy available to such a shareholder or the minority shareholders where
they disagree with the action of the majority or the company? The principle
established in Foss v Harbottle is that where a wrong has been committed
against the company, it was for the company acting through the majority to
decide to institute proceedings. The facts of the case is that the minority
shareholders brought an action against the company’s directors alleging that
the directors had defrauded the company in various ways including selling land
to the company at an exorbitant price. The action failed on the basis that the
wrong was committed against the company and therefore the action should
have been brought by the company itself. In the courts view, since the board of
directors of the company was in existence, it was the board who should have
resolved to bring the action and not the individual members. The rule in Foss v
Harbotle was affirmed in the Ghanaian case of Bank of West Africa Ltd. v
Appenteng and Another [1972] 1 GLR 153 where it was held that, “as a
general rule, a shareholder cannot sue for a wrong done to a company or to
recover money as damages to it, unless the action is taken by the company itself.
The second respondent could therefore not bring an action of negligence against
the appellants for the alleged negligent advice given to the company…”

The rule, seeks to achieve the following elements.

1. The courts are reluctant to interfere in the internal affairs of the company to
cure irregularities, which can be cured by ordinary resolution.
2. Where wrong is done to the company, it is only the company which can sue
(proper plaintiff rule)

In the Ghanaian case of Pinamang v Abrokwa the court affirmed the Harbottle
principle and observed that courts must not enquire into matters of internal
management or at the instance of a shareholder interfere with transactions
which though prima facie regular and detrimental to the company are capable
of being rectified by an ordinary resolution of the company in a general
meeting. The significance of this common law rule has been whittled away
significantly for the following reasons

1. Under section 218 of the Act- a member of the company can bring an
action to challenge any illegality or irregularity whether or not these are
curable by ordinary resolution.
2. Where the act complained of by the individual member is an ultra
vires act-section 19 of Act 992.
3. Where the majority are acting in a manner that amounts to fraud on
the minority a Fraud as used here is not used in the context of criminal
fraud or deceit, it embraces a case where a member may bring an action
against the company in respect of any act, transaction or resolution
which is not consistent with the provisions of the code or the company’s
regulations.
 CORPORATE FINANCE
Assume for a moment, that the company is now in existence, how does it
finance its businesses. Under this section which deals with corporate finance,
an attempt will be made to examine issues of finance as they relate to company
law. Shares and debentures are instruments by which companies may raise
funds. We shall start by understanding what shares are, the types of shares,
how shares are issued etc. The issue whether after raising capital from
shareholders, the company is free to spend that money will also be examined
under this topic Capital Maintenance. Finally, debentures would also be
discussed.

THE NATURE OF SHARES/ WHAT ARE SHARES

We understood from our study of registration of the company that a limited
liability company must be registered with shares. It means that the original
members (subscribers) and subsequent members must hold shares in the
company (Shareholders). A share is defined by the first schedule of Act 992 as
follows ‘Shares’ mean the interests of members of a body corporate who are
entitled to share in the capital or income of the body corporate. The shares of
any member in a company shall be personal estate not be in the nature of real
estate or immovable property. Since a shareholder does not own or have any
legal interest in any specific asset or property of the company and since a
shareholder can only enforce his legal claims against a company by Court
action, a share is a chose in action as opposed to a chose in possession.

Issue of shares
One of the reasons why a company may issue shares is to raise ‘equity’ to
finance its business. The number of shares that can be issued by the company
is limited to the number of authorized shares of the company as set out in the
constitution. If the company wants to issue more shares than the authorized
shares of the company, it has to amend the constitution to increase the
authorized shares of the company. A company’s authorized share is total
number of shares that the company is permitted by its constitution to issue.

Types of Shares
There are two main types of shares that a company may issue-preference
shares and equity shares (section 51). These shares have different values and
different rights attached to them. The company may issue one or different
classes of preference and equity shares. A preference share is a share, by
whatever name designated in the constitution, which does not entitle its holder
to any right to participate beyond a specified amount in any distribution
whether by means of a dividend or on redemption in winding up. Any other
share whatever name it is called by the regulations, which is not preference
share, is an equity share. Equity shares are sometimes called common shares
or ordinary shares.

Ordinary shares
These are shares are sometimes referred to as “equity’ in the company. They
carry the greatest risk but they provide the greatest returns/earnings. Holders
of these shares have the right to vote at every general meeting of the company
although that right may be restricted by the companies constitution in respect
of shares with unpaid liability.

Preference shares
These shares involve less risk than ordinary shares. They have priority over
ordinary shares in two respect; dividends and repayment. They carry a fixed
rate of dividend which has to be paid before any payment can be made to
ordinary shareholders. Such rights are cumulative unless otherwise provided.
This means that a failure to pay dividend in any in any one year has to paid in
subsequent years. Preference shares may be cumulate or non-cumulative,
convertible or non-convertible and redeemable or non-redeemable.

Payment for shares-section 45 of Act 992

Three propositions generally apply to the issue of shares
 a. Issued shares require corresponding consideration
b. The valuable consideration has to be paid or payable to the company.
c. The payment invariably has to be in cash. `
Valuable consideration, simply put, is what one gives to the shares. Valuable
consideration may be in cash or kind. In case of cash payment the company
shall actually have received cash for the shares at the time of or subsequent to
the agreement to issue the shares. Transferring property or rendering services
to the company in exchange for shares are considered to be valuable
consideration in kind not cash.

Prohibited transactions in shares

Prohibited transactions are of two types: totally prohibited and partially
transactions in shares. Section 56(1) of the Act prohibits various transactions
in shares but in several subsequent sections the Acts makes exceptions to
some of the prohibited transactions. The transactions with no exceptions are
the totally prohibited transaction while those with exceptions are partially
prohibited transaction.
Section 58 of the Act provides;
A company shall not,
a. alter the number of its shares or the amount of money remaining payable
on those shares
b. release a shareholder or former shareholder from a liability on the shares
c. provide financial assistance, directly or indirectly, for the subscription or
purchase of the shares of the company or the shares of its holding
company; or
d. acquire, by way of purchase or otherwise, any of its issued shares or any
shares of its holding company
There are two totally prohibited transactions in shares. These are that
1. A company shall not alter the amount remaining payable on its shares;
and
2. A company shall not release any shareholder or former shareholder from
any liability on the shares.
The following are partially prohibited transactions in shares
1. Altering the number of a company’s shares.
2. Providing financial assistance, directly or indirectly, for the subscription
or purchase of a company’s shares or the shares of its holding company.
3. The Company acquiring, by way of purchase or otherwise, any of its its
issued shares or any shares of its holding company.

DIVIDEND
Generally, whichever kind of share a person may hold, he or she expects
earnings on his investment. These earrings may be either by way of capital
appreciation or dividend. A dividend is a proportion of the distributed profits of
the company paid to members. It may be a fixed annual percentage, as in the
case of preference shares, or it may vary according to the prosperity of the
company as in the case of ordinary shares, but since it is payable only out of
the distributed profits, it follows that if no profits are made, or if none are
distributed, no dividend will be declared.

A shareholder cannot insist on the company declaring a dividend, for this is a

matter which is at the discretion of the directors. It is the directors who control
the management and the financial policy of the company and it is they who
control the amount of dividend to be paid. This power of directors to
recommend dividends was admitted in the Ghanaian case of Dupaul Wood
Treatment v Asare 2005-2006 SCGLR 667 where the Supreme Court held
that there was no obligation to declare dividend and that the Board of Directors
of a company is entitled to exercise its discretion freely as to whether to declare
dividend or accumulate profits within the business for reinvestment.

Capitalization issue and preemptive rights issue

There are times during the life of a company when the company has profits
which instead of paying out in the form of dividend are distributed to the
shareholders proportionately as shares. In other words, capitalization issue
occurs where the company does not distribute its profit by way of dividend but
retains them and uses them to pay for new shares. These members thus
receive fully paid shares which have been paid for out of the profits kept by the
company. A capitalization issue must not be confused with rights issue which
arises when the company wishes to raise more capital and having effected the
necessary alteration to its constitution may proceed to issue new shares. These
shares are first offered to existing members on favourable terms, in proportion
to their existing shareholding-this is called preemptive rights of members.

What do we consider to be the share capital/stated Capital?

Capital is word of many meaning but in company law it is used in a restricted
sense. It connotes the value of the assets contributed to the company by those
who subscribe for its shares. Thus, the value of what the company receives
from investors in exchange for its shares constitutes its capital. The following
would constitute the share capital of a company. Share capital is referred to in
Ghanaian Company laws as stated capital.
A company’s stated capital is the total paid-up value (cash and kind) of a
company’s issued shares. Issued shares are the total number of shares which
have actually been given out (or issued) by the company.

Share Certificates (Section 55 And 56)

Under sections 55 and 56 of Act 992 every Company shall within 2 months
after the issue of shares or registration of transfer deliver to the certificate
holder a certificate under the common seal of the company. The certificate
should state the number and class of shares and each certificate should have a
definite number. It also should state the amount paid and the amount payable.
The statements contained in the share certificate are prima facie evidence of
the title of the person named in the certificate. In Adehyeman Gardens v
Assibey 2003-2004 SCGLR 1016 it was held that “under section 54 of the Act,
the function of a share certificate is to serve as prima facie evidence of the title to
the shares of the person named therein and that the issue of a share certificates
is not a precondition to membership in a company… This means that other
evidence may be adduced by a person claiming to be a shareholder to establish
his shareholding.”

Under the Central Securities Depository Act 2007 Act 733, public companies
are allowed to amend their regulations to remove the obligation to issue share
certificates. In these companies, the evidence of shareholding is recorded in a
computerised format in a depository system. Companies that are listed on the
Ghana stock exchange do not issue share certificate. The shareholding of
members are evidenced by computerised entries held in the Ghana Securities
depository.

DEBENTURES
Apart from shares, companies raise long term funds mainly through the issue
of debentures. But whereas shares constitute equity, in that shareholders have
an ownership interest in the company, debentures create debt: the company is
indebted to debenture holders. A debenture is a “written acknowledgement of
indebtedness by a company setting out the terms and conditions of the loan.”
In order to secure a loan, the lender may require the company to provide a
security over which a charge is created over. There are two main types of
charges and they are;

Fixed charge
In this case, a specific asset of the company is made subject to a charge in
order to secure the loan. The company cannot thereafter dispose of the
property without the consent of the debenture holder(s). If the company fails to
honour its commitments, then the debenture holders can sell the assets to
recover the money owed. The asset most commonly subject to fixed charge is
land.

Floating charge
A floating charge is an equitable charge over the whole or a specified part of the
undertaking and assets of the company both present and future.

Debentures form part of a company’s loan capital. There are various types of
debentures;
1. A perpetual debenture-is one which is not redeemable by a company.
2. A redeemable debenture is one which the company may redeem.
3. A convertible debenture is one that, in lieu of redemption or repayment
may at the option of the holder or the company be converted into shares
in the company upon such terms as are stated in the debentures.
4. A non-convertible debenture is one that cannot be converted into shares.
5. A naked debenture is one that creates no charge over the company’s
property to secure the loan. By a charge is meant an encumbrance-the
collateral or security for the loan. In cases where the company borrows
money from a lender and in other to give security to the lender that the
company will pay back it gives physical custody of vehicle or the transfer
of property which upon default by the company the right to posses, sell
or appoint a receiver etc. arises the company has created a charge. A
secured debenture creates a charge.

There are two types of secured debentures: debentures secured by a fixed

charge and those secured by a floating charge. A debenture secured by a
fixed charge is a loan to the company for which specific property of the
company, such as land, a building, a vehicle or plant etc. is used as security
to ensure repayment of the loan. On the other hand, in the case of
debentures secured by floating charge, the general assets or undertaking of
the company and nothing in particular is used to secure the repayment of
the loan. Crystallization refers to the events which trigger a floating chare to
become fixed and enforceable. As Edusei J said in George Cohen (WA) Ltd.
Comet Construction Co. Ltd, “Crystallization takes place, among others
when a receiver is appointed and in such circumstances the company, and
in this case, the judgment debtors, cannot deal with the property comprised
in the security without the consent of the debenture holder” The Act defines
floating charge and crystallization as follows; “A floating charge is an
equitable charge over the whole or a specified part of the company's
undertaking and assets both present and future, so however that the charge
 shall not preclude the company from dealing with such assets until,
a. the security becomes enforceable and the holder thereof, pursuant to
a power in that behalf in the debenture or the deed securing the
same, appoints a receiver or manager or enters into possession of
such assets; or
b. the Court appoints a receiver or manager of such assets on the
application of the holder; or
c. the company goes into liquidation.
On the happening of any of such events the charge shall be deemed to
crystallize and to become a fixed equitable charge on such of the company's
assets as are subject to the charge.

CORPORATE DISSOLUTION

In the beginning of this subject, we understood that the company is an

artificial legal entity which enjoys perpetual succession. The company
continues to live despite the demise of its incorporators. But just as it is
brought into being by act of man, it is also brought to an end by the act of
man. Incorporation is the process of ‘bringing the company into being’ and
liquidation is the process of company ceasing to be in existence. Under this
topic, we shall find out how the ‘life’ of the company is brought to an end. It is
worth noting that both solvent and insolvent companies may be liquidated.
Insolvent companies are bodies’ corporate whose liabilities exceed its assets or
that it is unable to pay its debts as they fall due. On the contrary, solvent
companies are those that are able to pay their debts as they fall due. Whereas
the Companies Act, Act 992 governs the liquidation of solvent companies which
are referred to as private or voluntary liquidations, official liquidation is
governed by another legislation called the Corporate Insolvency and
Restructuring Act, 2020 (Act 1015). Thus winding up may be undertaken by
either: Note for a detailed discussion on the processes of liquation see sections
274-289 of the Companies Act and the Corporate Insolvency and Restructuring
Act, 2020 (Act 1015).