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DEPARTMENT OF BUILDING TECHNOLOGY, KNUST

MPM 553
PROCUREMENT LAW
BUSINESS ORGANIZATIONS

COURSE OUTLINE
Sole Proprietorship Partnership Company Registration Lifting of veil Membership
Management of Company Dissolution of Company
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FORMATION OF COMPANY
There are 3 forms of business organizations Sole proprietorship Partnership Companies

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COMPANIES ACT, 1963 (ACT 179)


"Company" is defined by the Act as "a body corporate formed and registered under the Act. Generally, a company is any association of a number of people for a common purpose, usually to carry on a business for gain. In this sense, the term "company" may include a partnership.

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Type of Registered Companies


S.9 of the Companies Act, an incorporated company may be either 1. limited by shares or simply a limited liability company, or a company having the liability of its members limited to the amount, if any, or unpaid on the shares held by them;

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2. company limited by guarantee,


a company having the liability of its members limited to such amount as the members may respectively undertake to contribute to the assets of the company in the event of its being wound up, may not be formed with the object of carrying on business for the purpose of making profit

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normally created for charitable or other purposes and not for profit, shall not be registered with shares and shall not create or issue shares.

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3. unlimited company.

a company not having any limit on the liability or its members,

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Private and Public Companies


A company of each of the above types may be either a private company or a public company: Private Company Restricts the right to transfer its shares, if any; Less than 50 shares and debenture holders as members Prohibits any invitation to the public to acquire any shares or debentures of the company.

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Disadvantages of Private Companies


Membership: cannot expand its size and consequently its source of capital. Transfer of shares: its shares less marketable and therefore less valuable than those of a public company. Prohibition on Invitation: deprives it of a valuable source of capital.
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Public Company

a company, which has none of the restrictions of a private company.

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Characteristics of Limited Liability Company


1. legal personality Salomon v. Salomon (1897) AC 22. establish that upon incorporation "a company becomes an artificial person, separate, and independent from the people who formed it.

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Lord Halsbury : "Either the limited company was a separate legal entity or it was not. If it was then the business belonged to it (the company) and not to Mr. Salomon. If it was not a separate legal entity then there was nothing of which Salomon could be the agent".

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Lord MacNaghten :
"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
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2. limited liability.
a member is liable in the event of the liquidation of the company to the extent of the amount remaining unpaid on the shares held, by him, so that it is the company itself, which bears its indebtedness and liabilities.

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3. Filing of documents
Obligation to file several papers and accounts with the Registrar it is exposed to much publicity subject to much control by the Registrar.

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4. Limited
a company limited by shares the last word of the name of the company shall be "Limited.'"

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Registration and Incorporation of Company


A company may be formed by delivering to the registrar for registration, (SS 14-16)
a copy of the proposed regulations of the company stating the following:

The name of the company; NOT misleading or undesirable.

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The nature of business or businesses which the company is authorized to carry on, or
the nature of the object or objects for which it is established;

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That the company' has all the powers of a natural person, of full capacity'; and The names of the first directors of the company (see SS. 14-16)

state the number of shares with which the company is to be registered.


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Other Requirements for registration


Signed regulations by one or more subscribers in the presence of, and to be attested by at least one witness.

the subscribers shall write opposite their names, the number of shares they have taken and the cash price payable for them; it is required that each subscriber shall take at least one share.
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Incorporation
the Regulations comply with the code the objects is lawful Name is not misleading None of the subscribers to the Regulation is an infant or of unsound mind, or none of the directors is incompetent Registrar registers the regulations and certifies that the Company is Incorporated.
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Consequences of Incorporation
1. The company becomes separate, and distinct from its membership. Morkor v. Kuma 1998-1999) SCGLR 620 at p. 635 per Akuffo JSC: 2. the company shall have all the powers of a natural person of full capacity Section 24 of the Companies Act, Act 179.

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3. Separate Property: In Macaura v. Northern Assurance Upon incorporation the company's property belongs to the company and not the members (shareholders) Short v. Treasury Commissioners. (1948) 1 KB 116 at 122: shareholders are not part owners of the assets of a company. They only own shares in a company.
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4. Perpetual Existence/Succession: where a company is competently managed/it could exist for ever in perpetuity. 5. Legal Action: it may sue and be sued in its corporate name. When a wrong is done to the company, it is the company which must take steps to remedy the wrong.
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In Bank of West Africa v. Appenteng (1972) GLR 153. (service of documents on a company). 6. Limited liability: In section 9 . members are not liable for the debts of the Company

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7. Borrowing: The company can give its assets as collateral for loans. The company can also issue debentures which are loans secured by the assets of the company.

8. Transferability of Interest: this means upon incorporation shares of the members are freely transferable.
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Disadvantages of Incorporation
a. Technical formalities: b. Loss of privacy. c. Lifting the Corporate Veil the law would disregard the corporate entity and identify Members for wrong doing, Exception to legal personality
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Lifting of veil
Statutory provisions
Judicial decisions

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Statutory Provisions
Breach of the prescribed minimum members: section 8 - "Any one or more persons may form an incorporated company by complying with the provisions of this Code in respect of registration". section 38 ; after 6 months jointly and severally liable for the debts and liabilities of the company incurred during that period."
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Misdescription of the Company Trading for profit by a guaranteed company:

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Breach of the minimum number of Directors: section 180(1) "Every company incorporated after the commencement of this Code shall have at least two directors". Section 180(3) "If at any time the number of directors is less than two in breach every director and member of the company who is in default shall be liable to a fine for every day
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2 Fraud Amartey v. Social Security Bank (1987-88) GLR. where there is fraud on the part of any person related to the company the court will lift the veil.

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3. Public Policy Pamler v. Continental Co [1916] 2 AC 307. This case was during the First World War. The principle here is that enemies at war cannot transact business and the corporate veil will be lifted to see the enemy behind the veil.

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4. Interest of Justice In Morkor v Kuma (@ 632. Here Akuffo JSC listed the interest of justice as one of the factors for lifting the corporate veil. In Adams v Cape Industries, the court said the corporate veil will be lifted where it causes injustice.
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MEMBERSHIP
A citizen or non-citizen resident in Ghana can become a shareholder. external residents need the approval of the Minister of Finance before one can become a shareholder. Corporate bodies can be shareholders. A company under certain conditions can be a member of itself (when it buys treasury shares).
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There are 4 ways in which membership is created Subscribers to the regulations s 18, 30 By agreement with the company S 32 By transfer of shares from an existing member s 95 and 98 By operation of the law

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Conte v Kpeglo (1964] GLR 111. Kpeglo claimed he was allotted 10,000 shares in a company free of charge for his services to the company and the evidence he produced was the minutes book of the company and a letter from the appellant Held; not a member
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Register of Company
Section 32: Details of the register: Names and addresses of members (company registered with shares) the number of shares held by each member The amount paid or payable for the shares The date of entry in the register Date of cessation of membership.
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record should be available for 6 years before they are expunged. name, address and number of shares should be entered within 28 days in the register of members. sections 53 and 54 of the Code. within 2 months the certificate should be provided.
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certificate should state the number class of shares a definite number State the amount paid and the amount payable.

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Effect of certificate
It is prima facie evidence of any matters contained therein but not conclusive. It constitutes an estoppel against the company

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Termination of membership
Section 30(5) - 4 instances in which membership of company limited by shares terminates: transfers ALL his shares by operation of law Forfeiture for non-payment death
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In section 30 (6) membership of company limited by guarantee terminates; When a member dies When a person validly retires Where a person is excluded from membership

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Raising of Capital
2 ways Share Debenture Share capital Issued share capital Paid up shared capital Uncalled up share capital Unissued share capital 200,000.00 150,000.00 70,000.00 80,000.00 50,000.00

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Shares
2 Classes of Shares; Ordinary Shares Members who manage the company with directors entitled to attend general meeting and vote Carry no fixed rate of dividend Rate of dividend depends upon what the directors declare
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Not entitled to dividend until it is declared by directors Not paid any dividends until preference shareholders have been paid their dividends Owners of surplus profit

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Preference Shares Members who are not part of management of the company entitled to attend general meeting and vote on ; -arrears and unpaid dividends -variation of rights -removal of auditors -winding up
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Carries fixed rate of dividend classification of preference shares


Cumulative and non cummulative Redeemable and non redeemable Inconvertible and non convertible Participating and non participating

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Dividend
Payment made out of profits to members of a company Declared payable on the paid up amount of share certificate Paid only from accumulated profit s71 Directors have the sole responsibility of declaring dividend

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Prospectus
offer statement or any other document used in connection with a public offering of Securities A Statement In Lieu Of Prospectus (SILP)-s 274 This is a basic requirement for a public company which does not intend to issue shares to the public
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Debentures
A written acknowledgment of indebtedness by a company setting out the terms and conditions of the loan Debenture holders are creditors to the company May be secured by a fixed charge or a floating charge

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Fixed charge
Created on particular undertaking or asset Created over assets such as land, house, machinery or other goods Attaches to the relevant assets as soon as it is created Company seeks the consent of debenture holder in dealing with the assets eg sale
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Floating Charge
Charge over the whole or specified part of the company undertakings or assets Created over both present and future assets Assets may be dealt with without the consent of the d-holders

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Does not attach any asset until the crystallises Charge crystallises ; Upon default in payment Upon winding up
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MANAGEMENT OF COMPANY DIRECTORS Shareholders

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DIRECTORS
Definitions; s179 defines directors as persons by whatever name called who are appointed to direct the affairs of a business. Those persons who are appointed to direct and manage the business of the company

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Officers of company
Directors Management Secretary

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Appointment of Directors
Number of Directors (section 180(1)Every company shall have at least 2 directors. Politis v Plastico [No 2] [1967] GLR 24 without a written consent the appointment of a Director will be defective

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Nominated by a member consent in writing by the nominee Confirmation of nomination by Existing Directors ( if any) Elected by members

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Section 180(4) the maximum number of directors shall be fixed in accordance with the company's regulations. A private company should have between 2 and 5 Directors.

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Disqualified persons
Infants Insane Bankrupt Convicted persons (fraud or dishonesty)
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Types of Directors
First Directors

Subsequent Directors

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Duties of Directors
Directors are fiduciaries Observe utmost good faith towards the company honesty and integrity since a director is seen as trustee

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The fiduciary duties include not abusing or using information acquired to the detriment of the principal. Interested in affairs of company no conflict of duty and interest full disclosure accounting for secret profits made
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Industrial Development Consultants v Cooley (1972)


An Architect of East Midland Gas Board and a Director of IDC. Approached by Eastern Gas Board for design work in his personal capacity not on behalf of IDC

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Held Defendants profit made was to be disgorged back to IDC because it was a corporate opportunity even though it was unlikely to obtain

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Cranlength Precision Engineering Ltd v Bryant (1965)


A director of a Company was working on a swimming pool. He left the company taking plans with him and developed a swimming pool of his own based on the drawings. Company was successful in claiming for disgorgement of profit

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Types of Directors
De-facto Director Shadow Director De-jure Director Managing Director Executive Director Casual Director Substitute Director Alternate Director
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Removal of Directors
Section 184 of the Code. A director will have to vacate his office if he becomes incompetent Again where the Director fails to meet any share qualification

A director may resign without giving any reasons.


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Sections 185 and 216


Ordinary Resolution of Members Section 185 defines the procedure for removing Directors.
Common Law. Equity, rules of principal and Agent and master and servant.
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Board of Directors
All directors of a company forms BOD BOD manages the day to day activities BOD delegates to management BOD is an organ of the company
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BOD is not bound to obey the directions or instructions of members Members intervene when there is deadlock Executed actions of BOD cannot be invalidated by alteration of Regulations

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Shaw & Sons Ltd v Shaw If powers of management are vested in the directors they and they alone can exercise these powers

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General Meetings
There are two main general meetings of a company: (a) Annual General Meetings (AGM) (b) Extraordinary General Meeting (EGM)

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Majority (Internal Management) Rule


The principle of majority rule has its rule in the old English case of FOSS V. HARBOTTLE (1843) 2 Ha 461, 67 ER, 189. The rule has two aspects; 1. The court is reluctant to interfere in the internal management of the company to cure irregularities which are curable by the majority.
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2. for a wrong done to the company it is only the company which can sue.

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Protection of Minority Rights


Exceptions to the Majority rule; 1. Where an act is ultra vires the company. S 25- application to court for ultra vires act s. 217 - Prevention of oppression of the minority by the majority
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2.Where an irregularity has occurred in the doing of an act which required a specified majority. 3. An act which constitutes a fraud against the minority and the wrongdoers are in control of the company

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Cook v Deeks (1916) AC 554, PC Action was allowed to prevent the majority from committing fraud on the minority 4. An act which infringes on the personal right of a member. S 218

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Dissolution of Company
Dissolution is the cancellation of the name of the company from the register of companies Winding up the process by which a company is brought to an end

Liquidation is another term for winding up

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Private liquidation
Solvent companies decides to end its affairs Commenced by special resolution

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Official liquidation Company is ending its affairs because it is insolvent Commenced by


special resolution Petition to court

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Appointment of liquidator
Takes over from directors management of the company Sells all properties Pay off all debts Reports to registrar

When registrar is satisfied the company is then dissolved


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THANK YOU

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