Company Law 1 Notes Final

MBOWURA JOSHUA & MARTIN WANA-ANG
COMPANY LAW NOTES
FORMS OF BUSINESS ORGANISATIONS
The word company implies an association of a number of individuals for a common purpose.
The purpose may be to undertake business with the view to making profit or to undertaking other
activities of a social, educational, religious, sporting or charitable nature and not with the view to
making profit.
The association or company may be incorporated or unincorporated. An unincorporated

company has no separate existence from its members or persons operating it. It is simply a
grouping of individuals with a common purpose. An incorporated company on the other hand
has a separate existence from its members. It has a separate legal and artificial personality.
The following are the forms of business organisations:
i. Sole Proprietorship
ii. Partnership;
iii. Statutory corporations
iv. Joint Ventures
v. Voluntary Associations
Sole Proprietorship
One registers a business and carries on as the only owner bearing all the liabilities and debt, if
any, of the business venture. If the sole proprietor is carrying on business in his own personal
name then it is unnecessary to register the name. Otherwise, he has to register the name in which
he is carrying on business. A business name may be registered by either by a natural person or a
corporate body. For instance Peace FM, Okay, Hello FM, UTV are all business names by the
Despite Group of companies.
The Registration of Business Name Act 1962 (Act 151)
The procedures for registering a business name is governed by the Registration of Business
Name Act 1962 (Act 151). It only provides for the registration of the name of the business and
not the registration of the business.
Section 2 of the Registration of Business Name Act 1962 (Act 151) provides that every person
required under this Act to be registered, shall furnish to the Registrar at his office a statement in
writing in the prescribed form containing the following particulars, that is to say:
a) the business name;

b) the general nature of the business;
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c) the principal place of the business;

d) all other places at which the business is carried on;
e) where the registration to be effected is that of an individual,
(i) his present first name and surname;
(ii) his nationality and, if that nationality is not the nationality of origin, his
nationality of origin;
(iii) his usual residence and other business occupation, if any; and
(iv) whether he is under the age of twenty-one years at the date of furnishing the
statement and, if so, his date of birth;
f) where the registration to be effected is that of a company, its corporate name and
registered office;
g) the date of the commencement of the business.
Section 3—Statement to be Given by Person Registering.
The statement mentioned in section 2 of this Act shall be signed,
a) in the case of an individual, by the individual; and

b) in the case of a company, by a director or secretary thereof.
Section 6—Changes in Particulars Registered.
1) Whenever a change is made or occurs in any of the particulars registered under this Act
in respect of any person, that person shall notify the change to the Registrar in writing
signed as provided in section 3 of this Act.
2) The change shall be notified within twenty-eight days after it is made or occurs.
Section 8—Penalty for False Statements
If any statement required to be furnished under this Act contains any matter which is false in any
material particular to the knowledge of any person signing it, he shall on conviction be liable to a
fine not exceeding fifty pounds or to imprisonment for a term not exceeding six months or to
both such fine and imprisonment.
CASES
In Barclays Bank of Ghana v Lartey and Others [1978 ] GLR 282, Lartey 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 plaintiffs to whom he
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mortgaged, inter alia, his landed property with buildings thereon as security for the loan. On the
death of Lartey his administrators, the defendants herein, floated a limited liability company
called “Scarts Ltd.” to take over the assets and liabilities of the business. The plaintiffs wrote to
the defendants demanding repayment of the loan. When they failed to repay, the plaintiffs caused
to be issued against them an originating summons for an order for judicial sale of the mortgaged
property. Counsel for the defendants raised a preliminary objection on the ground that the action
against the defendants was misconceived. He argued that Lartey's business registered as Scarts
became on registration an artificial legal entity with perpetual succession and a distinct
personality from that of Lartey and that it was wrong for the plaintiffs to hold the defendants,
who were only liable for the personal debts of Lartey, liable for the indebtedness of Scarts.
Counsel further argued that it was incompetent for the plaintiffs to sue Scarts since it no longer
existed with the incorporation of Scarts Ltd. which had taken over the assets and liabilities of
Scarts.
The High Court 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. Consequently the
registered name Scarts did not acquire any legal personality distinct from Lartey who
carried on business under that name. It followed that Lartey was the mortgagor of the
mortgaged property in question and the defendants being the administrators of Lartey's estate
were the proper persons to be sued.
Wiredu J said:
"Unlike Act 179, the Registration of Business Names Act, 1962 (Act 151), was not
intended to confer any distinct legal personality on any business name registered under
it. The provisions of the Act are a clear pointer to this. Whilst the provisions of Act 179
refer to the company, those of Act 151 refer to the individuals registering their business
names. The fact that registration under Act 151 does not confer perpetual succession
on business names registered under it is borne out by section 10 (1) of the Act. Act 151
protects the exclusive use and right of the person registering the business name. It is
also clear from the provisions of Act 151 that the registrar deals solely with the person
registering the business name, and this is understandable because it is only the
"business name" which is registered and someone must be responsible for such
registration. I therefore hold in my ruling that Scarts as registered under Act 151 did not
acquire any legal personality distinct from the person of Emmanuel Kotoku Lartey who
carried on business under that name. I also reject as untenable the submission that Scarts
enjoyed a perpetual succession under Act 151".
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In Baidoo v Sam [1987-88] 2GLR 666, in 1975 the plaintiff registered a business name “Unity
Salt Industries” (U.S.I.) in accordance with the Registration of Business Name Act, 1962 (Act
151). Under that name he and one Azumah a policeman, produced salt from a plot of land that
had already been acquired from Edina Traditional Council (E.T.C.). In 1980 Azumah with the
consent of E.T.C. assigned the plot of land to the defendant. In acknowledgement of the sale
Azumah executed a transfer certificate (exhibit 2) in favour of the defendant. Subsequently the
plaintiff claiming that he was Azumah’s partner brought action against the defendant for, inter
alia, a declaration that the purported sale of U.S.I. to the defendant was null and void and for an
order setting aside exhibit 2. In support of his action he claimed that he and Azumah jointly
acquired the plot of land from E.T.C. and registered and operated U.S.I. as partners and so
Azumah alone could not sell U.S.I. to the defendant. On his application A was joined to the suit
as a co-defendant. He denied that the plaintiff was his partner. His case was that he acquired the
plot in dispute alone from E.T.C. for the production of salt and appointed the plaintiff his
supervisor. And that since he was at the time a policeman and did not want to be publicly
associated with the business he had the plaintiff register U.S.I. for him but that the plaintiff had
no interest in the business. The E.T.C. confirmed that they granted the land to only Azumah.
Although the trial judge found that Azumah and the plaintiff jointly registered U.S.I., he further
found that the plaintiff was only A’s “front man” or agent and therefore dismissed his action.
The Court of Appeal held that by the law governing corporate and unincorporated
associations or companies “Unity Salt Industry” was only the name under which the
registered proprietor, a single individual, the plaintiff, chose to trade. Having regard to the
provisions of the Registration of Business Names Act, 1962 (Act 151), such registered
business name could not be sold because it was not a chose in action like a copyright or a
patent. There was no personal right of property in a mere name so as to sell or purchase it.
Accordingly, the plaintiff's claim for a declaration that the sale of Unity Salt Industry was null
and void and of no effect was untidy and vacuous.
Partnership
Partnership is one of the avenues available for persons who wish to associate in order to carry on
business for gains. In Ghana, Partnership is governed by the Incorporated Private Partnership Act
1962 (Act 152).
Definition
According to Section 3(1) of the Incorporated Private Partnership Act 1962 (Act 152)
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“Partnership means the association of two or more individuals carrying on business

jointly for the purpose of making profits.”
According to Section 3(1) of the Incorporated Private Partnership Act, 1962 (Act 152), a
partnership consisting of more than twenty persons or of which a body corporate is a member
shall not be registered under this Act. This means that a partnership is a body corporate of
individuals between 2 and 20 with unlimited liability, who carry on business with the view to
making profit.
Partnership agreement (partnership deeds) is the most vital document for the formation of a
partnership business.
Elements of partnership
(How to determine the existence of partnership)
1. Registration: All partnerships in Ghana must be registered at the Registrar of Companies

as per section 4 of the Incorporated Private Partnership Act 1962 (Act 152). This means
that unregistered partnership is prohibited in Ghana.
2. A partnership firm shall not carry-on business without being registered under the
incorporated private partnership Act.
In Baidoo v Sam [1987-88] 2GLR 666, the Court of Appeal held that Sections 1 and 4 (1) of
the Incorporated Private Partnership Act, 1962 (Act 152) prohibited the carrying on of a
partnership business after 1 April 1963 unless the partnership had been registered under
the Act. A partnership generally meant the coming together of at least two but not more
than twenty individuals with no body corporate as a member in an association constituted
and statutorily registered under the Act for carrying on business jointly for the purpose of
making profit. On the evidence, however, the plaintiff was not a partner but rather a “front
man” or an agent of the co-defendant who was his undisclosed principal. Accordingly, their
business relationship was not unlawful.
Consequently, the courts would not enforce the terms of an unregistered partnership since that
would amount to enforcing an illegality. The case of Re SasuTwum (deceased); SasuTwum v
Twum [1976] 1 GLR 23 which directs that the partnership agreement be registered else it would
be unenforceable.
In In Re SasuTwum (deceased); SasuTwum v Twum [1976] 1 GLR 23, SasuTwum died

intestate on 4 August 1973, survived by the plaintiff, his wife, whom he married under the
Marriage Ordinance, Cap. 127 (1951 Rev.), and four sons who were at the time of the action all
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infants. Letters of administration in respect of his estate were granted jointly to the plaintiff and
the defendant, father of the deceased, who had been appointed customary successor of his
deceased son. SasuTwum in his lifetime acquired six houses, two of which were in the name of
his eldest son, Daniel Sasu-Twum. The deceased also had a shop in Accra, but this according to
the plaintiff was being run under a partnership agreement which the two of them had entered into
in September 1970. The partnership agreement was not registered as required by the
Incorporated Private Partnerships Act, 1962 (Act 152), s. 4 (1). In the course of distributing the
properties to the persons entitled to them on intestacy, the administrators ran into difficulties, and
the plaintiff took out an originating summons for a declaration by the court, inter alia, that the
partnership agreement conferred upon the plaintiff one half share interest in the partnership
business and also that the two houses acquired in the name of the eldest son of the deceased were
held on trust for the said son.
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.
The Registration of Business Names Act, 1962 (Act 151) shall not apply to a firm registered
under this Act and not struck off the register under section 49, 50 or 51.
In Levandawsky& Anor. v. Attorney General [1971] 1 GLR 38, the court per Abban J held
that where the firm or partnership does not undertake or carry-on business in Ghana, it would be
unnecessary for the firm to be registered under sec. 4 of Act 152. On this premise therefore, it is
reasonably submitted that the provisions of sec.4 of Act 152 are applicable to only partnerships
carrying on businesses in Ghana.
After the partnership has been duly registered, the Registrar shall issue a certificate to that effect,
indicating that the said firm or partnership has been duly registered and incorporated and the
certificate shall state the names of the partners and that their liability is not limited. The registrar
shall then Gazette the registration.
A certificate or copy of the certificate of registration or the Gazette shall be conclusive evidence
that the firm has been registered under this Act. See sec. 6 of Act 152
Within 28 days after the change in name of the partnership or business name, they firm shall
notify in writing to the registrar in the prescribed form the changes that have occurred. Sec. 7
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The firm after registration becomes a body corporate, and have all the rights of a natural person.
See sec..12. With the corporate body notwithstanding, the partners of the firm are liable for all
the debts and liabilities of the company should the firm go bankrupt.
PUBLICATION OF FIRM NAME
 S. 13 of Act 152
 1) Every firm shall,
 (a) carry on business only under the registered firm name, and shall paint or affix, and
keep painted or affixed, the registered firm name on the outside of every office or place
in which its business is carried on, in a conspicuous position in letters easily legible;
 (b) have the registered firm name and the present forenames or the initials thereof, and
any former forenames or surnames of all the partners in the firm accurately mentioned in
legible characters at the head of all trade circulars and business letters of the firm;
 (c) keep exhibited in a conspicuous position at the principal place of business of the firm
the firm's latest certificate of registration issued under section 6 or 7 of this Act.
2. Membership: According to Section 3(1) of the Incorporated Private Partnership Act 1962
(Act 152)
“Partnership means the association of two or more individuals carrying on business

jointly for the purpose of making profits.”
Thus a partnership must consist of more than one and not more than twenty persons.
Non-Corporate Membership: According to Section 3(1) of the Incorporated Private Partnership

Act 1962 (Act 152), a partnership consisting of more than twenty persons or of which a body
corporate is a member shall not be registered under this Act.
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4. Profit Sharing: According to Section 3(3) of the Incorporated Private Partnership Act 1962
(Act 152), the sharing of the net profits of a business is a prima facie 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 does not of itself make the servant or agent a partner; and
(b) a person is not a partner for the purposes of this Act, if it is shown that that person did not
participate in the carrying on of the business and was not authorised so to do.
5. Family ownership:According to Section 3(1) of the Incorporated Private Partnership Act

1962 (Act 152), 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.
6. Management: unlike companies (registered under Act 992) the managers of a partnership
firm are not separate from the partners.
In Akakpo v Soli [1968] GLR 276, AmissahJ.A. stated that “running a partnership business is a
matter for the partners”.
Whereas in a company, management is vested in the directors, in partnership there is no

difference between members (i.e. shareholders) and management.
7. No Limited or Dormant Partnership in Ghana:
Generally, a partnership may be ordinary or limited. In a limited partnership, the limited or

dormant or sleeping partner contributes capital and is entitled to a share of profit, but the limited
partner does not participate in the management of the partnership. Only the ordinary partners can
participate in the management of the partnership. In Ghana, however, a limited or dormant or
sleeping partnership is not recognised by law.
The following are prohibited from registering a partnership:
i. bodies corporate
ii. more than 20 persons
iii. infants
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iv. persons of unsound mind

v. persons found guilty of offences involving fraud or dishonesty within 5 years preceding.
vi. a joint venture without a firm name for one or more specific operations
The effects of registration of partnership
i. Incorporation
The partnership is incorporated upon registration. The Act requires the all partners to fill, sign
and deliver an application (form A) and deliver same together with the partnership agreement to
the Registrar for registration and there is a liability of a fine or jail term for knowingly furnishing
the Registrar with false information.
According to section 8(2) of the Incorporated Private Partnership Act 1962 (Act 152) provides
that the registration must be renewed every year and any changes to the original particulars
submitted to the Registrar must also be registered within 28 days following.
ii. Corporate Personality
Upon registration 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 in so far as the powers
can be exercised by a body corporate.Despite a change in the constitution of the partnership, the
firm shall continue to exist as a corporate body until dissolved in accordance with section 49, 50
or 51. This is provided in sec. 12 of Act 152
iii. Unlimited liability
In spite of being a body corporate, each partner is liable without limitation for the debt and
obligations of the firm, but is entitled to an indemnity from the firm and to contribution from the
partners in accordance with the rights under the partnership agreement.
Under sections 14 and 16 of the Incorporated Private Partnership Act 1962 (Act 152) the liability
of the partners is unlimited and each partner is jointly and severally liable to the firm and the
other partners for all the debts and obligations of the partnership which were incurred whiles any
of them was a partner.
Under sections 20 of the Incorporated Private Partnership Act 1962 (Act 152) Partnership assets
shall not be used to settle private debt of a partner.
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iv. Perpetual Succession
As a body corporate there is the potential for perpetual succession. Partnerships do not
automatically terminate by resignation or purported resignation or death of a partner or by
change in the legal composition of the partnership. Proper steps must be taken to wind up the
partnership like any other corporate body.Failure to renew annual registration of an incorporated
partnership does not cause the partnership to lapse. Steps must be taken to amend particulars in
accordance with section 5 of Act 152 where there is resignation or otherwise. Section 6 deals
with annual renewal and section 7 deals with the effect of failure to renew registration.
In Akakpo v Soli [1968] GLR 276,by a letter dated 18 February 1966, addressed to the manager
of their partnership firm the second defendant informed the management of his, and the third
defendant's immediate retirement as partners. The manager replied that their "application" was
under consideration. However by another letter dated 12 January 1967 the second and third
defendants withdrew their letter dated 18 February 1966. The conduct of the remaining partners
however showed that they considered the letter dated 18 February 1966 to be of no effect and
continued the partnership accordingly. A dispute later arose and the plaintiff, one of the partners,
obtained an order of the High Court directing the defendants to submit themselves to arbitration
in accordance with the partnership agreement. An arbitrator was appointed and he stated a case
to the High Court upon a submission on behalf of the first defendant that by their letter dated 18
February 1966 the second and third defendants ceased as from that date to be partners as the said
letter could not be recalled.
The court held that one of the points of difference between the English Partnership Act, 1890
(53 & 54 Vict., c. 39), and the Incorporated Private Partnerships Act, 1962 (Act 152), was
that whereas the partner in England who insisted on retiring against the will of his co-
partners must be in a position to dissolve the partnership, the latter Act was designed to
avoid this result. Section 39 (7) operated in the manner contended on behalf of the first
defendant only if a retiring partner insisted on his decision to retire despite all efforts by
the others to change his mind if they were of persuasion that he should stay. So that
whatever the views of the remaining partners and however much they wished their retiring
partner to stay, if he said that there would not, there could not be said to be agreement
among the partners that the partnership should continue as it had been. Then according to
the law, the retirement dated from the date of the notice. Upon a consideration of the whole
matter in the instant case, the equities were against the first defendant. It would be wrong to
interpret the law as she wanted it. The conduct of the partners after the letter of 18 February 1966
overwhelmingly favoured the view that that letter was treated by consent by all of them as of no
effect. That should continue to be the case.
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v. Keeping of Accounts
Section 32 of the Incorporated Private Partnership Act 1962 (Act 152) provides that:
1) Every firm shall cause to be kept proper accounts with respect to its financial position
and changes therein, and with respect to the control of, and accounting for, all property
acquired whether for resale or for use in the firm's business and in particular with respect
to,
(a) all sums of money received and expended by or on behalf of the firm and the matters
in respect of which the receipt and expenditure takes place;
(b) all sales and purchases by the firm of property, goods and services;
(c) the assets and liabilities of the firm and the interests of the partners therein.
2) Every firm shall, at intervals of not more than fifteen months, cause to be prepared,
(a) a profit and loss account giving a true and fair view of the profit or loss of the firm
for the period to which it relates; and
(b) a balance sheet giving a true and fair view of the assets and liabilities and state of
affairs of the firm and of the value of the interest of each of the partners therein as at
the end of the period to which the profit and loss account relates.
3) The Registrar may, by order published in the Gazette, prescribe the form of, or minimum
information to be given in, accounts and balance sheets to be kept and prepared in
accordance with this section and may require accounts and balance sheets to be audited
and may prescribe the qualifications of auditors.
(4) If there shall be any default in maintaining or preparing the accounts and balance
sheet required by this section each partner shall be liable to a fine not exceeding one
hundred pounds.
Statutory corporations
It is a body corporate established by statute for a specific purpose. 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. (TheophilusDonkorvAttorney-
General[Unreported,SuitNo.J1/08/2017,12/06/19])
Example:
I. Statutory Corporations Act, 1964 (Act 232)

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II. Statutory Corporations (Convention To Companies) Act, 1993 (Act 461)

III. State Transport Corporation Instrument, 1971 (L.I 681)
IV. Ghana News Agency Instrument, 1971 (L.I 680)
V. Ghana Broadcasting Corporations Act, 1968 (N.L.C.D 226)
VI. Graphic Corporation Instrument, 1971 (L.I 709)
Joint Venture
It is a business arrangement between a pool of parties who pull resources together for a specific
purpose. The joint venture becomes an entity on its own which is separate from the parties which
form them. The vital document used is the Joint Venture Agreement.
Voluntary Associations
By virtue of the provisions of the Trustees (Incorporated) Act, 1962 (Act 106), trustees of
voluntary associations and bodies established for religious, educational, literary, scientific,
sports, social or charitable purpose may be incorporated by the Minister to whom the functions
have been assigned by the president.
The trustees may apply to the Minister who may issue a certificate of registration as a corporate
body. On the issue of the said certificate, the trustee shall:
i. become a body corporate by the name described in the certificate
ii. have perpetual succession
iii. have official seal
iv. have power to sue and be sued in the name of the corporation
v. subject to the conditions and directions stated on the certificate hold and acquire land.
Underthe Trustees (Incorporated) Act, 1962 (Act 106), once the association is registered the
trustees become the body corporate. However, when the association is registered under the
Companies Act, 2019 (Act 992), the association rather becomes a body corporate which is
separate and distinct from its members.
In Ghana Muslims Representative Council v Salifu and Others [1975] 2 GLR 246, the second
plaintiffs and the defendants were all members of a voluntary association of Muslims, styled the
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Ghana Muslim Representative Council (G.M.R.C.), the first plaintiff herein. The second plaintiffs
were in accordance with the rules and constitution of the association elected to constitute the
national executive committee of the association which was formally inaugurated in August 1973.
In July 1974 the first defendant publicly declared that the national executive committee of the
G.M.R.C. had been dissolved and a new executive committee with the second to the twelfth
defendants as its officers had been constituted. The plaintiffs instituted an action against the
defendants for (a) a declaration that they were the rightful officers of the G.M.R.C. and the only
persons entitled to use the name “G.M.R.C."; (b) permanent injunction to restrain the defendants
from describing themselves as representatives of the G.M.R.C. or engaging in any financial
transaction on behalf of the association and (c) an order for the refund of all moneys collected by
the first defendant purporting to act on behalf of the association. Though the plaintiffs were suing
in their own names and in a representative capacity to enforce the rights of members of the
association they failed to endorse such capacity in their writ and statement of claim. Shortly after
filing their statement of claim the second plaintiffs brought an application for an order of interim
injunction to restrain the defendants from acting as representatives of the G.M.R.C. The defendants
did not file a defence but instead filed affidavits resisting the application on the grounds that as the
first plaintiff was not incorporated under the Trustees (Incorporation) Act, 1962 (Act 106), it had
no capacity to sue.
The Court of Appeal held that in applying the golden rule of interpretation to the construction
of Act 106 it was obvious that the object of the Act was to enable voluntary associations and
other like bodies to appoint trustees in whom the lands of the association might be vested for
the benefit of all its members. There was no provision in the whole Act which suggested,
even remotely, that the voluntary associations themselves must be incorporated. Under the
Act, the trustees might be incorporated and it was the trustees only who were constituted as
a body corporate and they became incorporated only for the purpose of holding land for the
benefit of the unincorporated association. Consequently, the non-incorporation of the
G.M.R.C. in the instant case, could not deprive the second plaintiffs of their capacity to sue in
order to enforce the rights of members of the association.
The court further held that in law a voluntary association was a sum of individuals without
any collective capacity to sue or be sued as such. But all the members might join to sue as
plaintiffs provided they had the same or some common interest in the cause or matter; for
the law was that a body of persons having a common interest in a subject-matter might,
when that interest was threatened or had been violated, be represented by one or more on
behalf of the whole group. Likewise, trustees or members of an unincorporated association
might sue or be sued where there was property vested in them without joining any of the
beneficiaries whom the trustees or members represented. These forms of action were
known as representative actions and were permissible under Order 16, r. 1, 8 or 9. In this
case the second plaintiffs had shown that they all had a common interest in the subject-matter of
the suit and they had indicated with sufficient clarity that they were seeking to enforce the rights
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of the members of the G.M.R.C. in a representative action. They were entitled in a proper form
of proceedings to vindicate or assert their rights on behalf of the G.M.R.C. whether or not the
latter was incorporated. There was no need therefore for the G.M.R.C. to sue through its trustees.
It was also held that the court would not interfere in the decision of the members of a club or
an association professing to act under their rules unless it could be shown that either the
rules were contrary to natural justice or that what had been done was contrary to the rules
or that there had been mala fides or malice in arriving at that decision. The court would
not also tolerate any change in the constitution of a voluntary association without there
being an express provision in the rules for amendments or changes, unless all the members
of the society consented. Further the court would not interfere where there was any
reasonable ground for argument as to the maintainability of the action. In this case whether
the first defendant had the power to do what he did or whether some members of the G.M.R.C.
could by a resolution reconstitute the national executive of the council depended on the true
construction of the rules of the constitution of the association. This could not be done until either
a defence had been filed or unless the court had heard evidence, for the court would not permit a
plaintiff to be driven from the judgment seat, without considering his right to be heard, except
where the cause of action was obviously and almost incontestably bad.
In Quayson and Others v The Church of Christ [1997-1998] 2 GLR 671, the plaintiff church
was founded in 1956 by one prophet JM at Cape Coast, and was first registered in 1962, as the
church of Christ Healing Power, with its Constitution, under the Trustees (Incorporation) Act,
1962 (Act 106). The constitution of the church was revised in 1984. After the coming into force
of the Religious Bodies Registration Law, 1989 (PNDCL 221), the plaintiff church applied to be
registered under the law and in response received a notification from the chairman of the National
Commission on Culture (NCC), dated 11 February 1991, issued under PNDCL 221, which
certified that the plaintiff church had authority to operate as a religious body in the Republic of
Ghana “pending registration’’. Thereafter, on account, inter alia of a leadership struggle which
raged in the church following the death of prophet JM and related problems, the defendants who
were all then members of the plaintiff church, passed a resolution on 5 December 1990 to secede
from the church. The defendants later addressed the resolution to the NCC which accepted same
by a letter which was copied to the plaintiff church. The defendants set-up a rival church named
the Church of Christ (Pentecostal) and promulgated a new Constitution which they attempted to
register. The NCC in the circumstances wrote to the plaintiff church that since the defendants had
broken away from the church, the plaintiff should recover from the defendants all properties
belonging to the mother church which the defendants had in their possession. The defendants
however refused to hand over the properties of the plaintiff church in their possession and the
matter was reported to the police. The plaintiff brought an action against the defendants, for, inter
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alia, a declaration that as the defendants broke away and formed a new religious body known as
the Church of Christ (Pentecostal) which they attempted to register with the NCC, they were no
longer members of the plaintiff church and an order that all properties, assets or documents
belonging to the plaintiff church and in the custody of the defendants prior to their resignation or
break-away were the sole bona fide properties of the plaintiff church and should be surrendered to
them immediately. In their defence, the defendants contended that the plaintiff church had not been
registered and incorporated under the laws of Ghana and consequently that it lacked the capacity
to sue. The defendants also submitted that the plaintiff church, although it had applied to be
registered, had not been issued with a certificate of approval as required under PNDCL 221 and
therefore did not have the requisite legal existence under the law.
The court held that the plaintiff church was registered under the laws of Ghana and was
clothed with capacity to bring the instant action because it was a cardinal principle of
interpretation that a new law did not affect existing or accrued rights but only looked to the
future. The principle meant that those religious bodies which had full legal personality of
their own one way or the other prior to the coming into force of the Religious Bodies
Registration Law, 1989 (PNDCL 221), would not lose them, but would continue to retain
them “pending a fresh registration’’ by the committee set up under the law to register
religious bodies. The Religious Bodies Registration Law, 1989 (PNDCL 221) clearly did not
abolish the existing religious bodies, nor did it set out to disturb their various Constitutions
and other internal arrangements; and consequently, the suspension of the Trustees
(Incorporation) Act, 1962 (Act 106) in relation to religious bodies would not take away the
rights of those bodies which had already registered under it. In the instant case, the
plaintiff church who had been registered as a corporate body under Trustees
(Incorporation) Act, 1962 (Act 106) with the consequence that trustees had perpetual
succession and power to Sue and be sued in the corporate name. Thus, before the final
certificate of approval was issued and before registration, the plaintiff church could legally
operate by virtue of the corporate existence of its trustees registered under the Trustees
(Incorporation) Act, 1962 (Act 106). The instant action could therefore have been commenced
by the trustees on its behalf and with the interim approval given under the law it could sue using
its own name. In effect, even if the fact of non-registration under the Religious Bodies
Registration Law, 1989 (PNDCL 221) could be used against the plaintiff church, yet the trustees
could be substituted for it by an amendment to enable the action proceed.
INCORPORATION OF COMPANIES IN GHANA
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What is a Company?
As to what constitutes a company has been variedly defined by different authors.Most the
definition either associate a company with profit making venture or association registered under
the Company Act.
According to Gower & Davies, Principles of Modern Company Law (9th Ed.) Sweet and
Maxwell: 2012:
“The term company implies an association of a number of people for some common object
or objects. The purpose for which people may wish to associate are multifarious, however, in
common parlance the word company is normally reserved for those associated for economic
purpose i.e. to carry on business for gains”.
This definition limit companies to profit making ventures and exclude not-for-profit
organisations.
L. S. Sealy Cases and Materials in Company Law (7th Ed.) The Bath Press, Great Britain: 2001,
defines company as:
“It is the kind of legal entity or corporate body which is brought into being by the
registration procedures laid down by the Companies Act. Its creation is evidenced by the
issue of a certificate of incorporation by the registrar of companies."
This is a good definition but also somewhat limited. This is because Companies incorporated
under the companies Act are not the only vehicle which people may use in order to associate for
gainful business. A number of companies are formed outside of the Companies Acts. A
company may also be created in the UK and other jurisdictions by Royal Charter or by a special
Act of Parliament. Very few of these companies still exist and they often fall outside of general
company law. Again companies formed under the Companies Act may be used to carry out not-
for-profit business or for purposes other than gainful.
Companies Act, 2019 (Act 992)
According to the first schedule to the companies Act, 2019 (Act 992) "company" means a body
formed and registered under this Act; "company limited by shares" and "company limited by
guarantee" have the meanings assigned to them in section 7.
Incorporated Companies
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An incorporated company is an entity which is created by law and given a legal status and
personality of its own which is separate and distinct from its owner’s and officers.
Under the common law a company is a “legal person” or “legal entity” separate from, and
capable of surviving beyond the lives of, its members.By this definition, any association that
does not have the potential of perpetual succession is not a company.
The locus classicus on the corporate personality is the English case of Salomon v Salomon &
Co. [1897] AC 22, HL, which established that upon incorporation, a company becomes a
separate legal entity, distinct from its members and capable of bearing rights and duties.
In Salomon v Salomon & Co. [1897] AC 22, HL, Mr. Salomon converted his sole proprietorship
business into a limited liability company. The company had seven members: Mr. And Mrs. Salomon
and their five children. Mr. Salomon had 20,001 shares, and Mrs. Salomon and the children had one
share each. Mr. Salomon had sold his business to the company at the inflated price of 38,782 pounds.
The company purported to pay for Mr. Salomon’s interest by the company allotting to him 20,000
shares at one pound each, making payment of 20,000 pounds. The company also issued him with
debentures of 10,000 pounds. The company then paid Mr. Salomon the balance of 8,782 pounds in
cash. Thus the company owed him 10,000 pounds since he was a debenture holder secured by a
charge on the company’s assets in his favour. Mr. Salomon and two of his sons were appointed
directors. Mr. Salomon was also the managing director of the company. Later on, however the
company faced difficulties and the company had to be wound up a year later. The value of the
company’s assets as realized was 6,000 pounds; but the company owed 7,733 pounds to unsecured
creditors and 10,000 to Mr. Salomon whose debt was secured as a debenture holder. If Salomon was
paid off for his debentures, the unsecured creditors would receive nothing, since the company’s debts
exceeded its assets. The creditors, quite naturally, sought to impugn Salomon’s apparent right to
receive payment. They argued that although incorporated, the company was a mere sham; it never
had an independent existence and was in fact Mr. Salomon under a different name. They also argued
that the business still remained Mr. Salomon’s and that the company merely carried on business as
Mr. Salomon’s agent and consequently, Mr. Salomon as principal, owed the company as agent, the
duty to indemnify it (the company) against the liabilities incurred by it in the course of the agency.
The case went before a trial judge and later on to the Court of appeal and the House of Lords. The
House of Lords unanimously rejected these arguments of the creditors. Lord Halsbury said:
“I must pause here to point out that the statute enacts nothing as to the extent or degree of
interest which may be held by each of the seven or as to the proportion of influence possessed by
one or the majority of the shareholders over the others. One share is enough.
Still less is it possible to contend that the motive of becoming shareholders or of making them
shareholders is a field of enquiry which the statute itself recognizes as legitimate. If they are
shareholders, they are shareholders for all purposes; and even if the statute was silent as to the
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recognition of trusts, I should be prepared to hold that if six of them were the cestuis que trust
for the seventh, whatever might be their rights inter se, the statute would have made them
shareholders to all intents and purposes with their respective rights and liabilities, and, dealing
with them in their relation to the company, the only relation which I believe the law would
sanction would be that they were corporators of the body corporate”.
Lord Halsbury at page 31 of the case: He said: “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”.
He also said it is impossible to say that there is a company and at the same time that it is not.
Lord Macnaghtenat page 51: “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”.
In Morkor v Kuma (East Coast Fisheries) [1998-1999] SCGLR 620,the appellant was a
director, shareholder and the chief executive of East Coast Fisheries, the first defendant
company, and the respondent was an agent of Sea Food of Faroe Island (FSF). On 22 May ) 990
the respondent on behalf of FSF entered into a sale agreement with the company for the supply
of 400 metric tons of frozen fish valued at $180,000. The appellant and SQ, another director,
witnessed the execution of the contract by the company. In accordance with the agreement, the
company paid a deposit to the respondent and SQ guaranteed the payment of the balance by the
company by 30 September 1990. When the company failed to pay the balance of the purchase
price on the due date, the respondent sued the company, the appellant and one other jointly for
the sum of $188,035 plus interest. The defendant/appellant appealed to the Supreme Court
against her being sued jointly and severally with the company of which he is the chief executive,
main shareholder and director.
The Supreme Court held thatsince the proper defendant in an action on a contract was the person
who made the promise the breach of which had created the cause of action and in the instant case
the sale transaction was between the respondent and the first defendant, a limited liability
company, a corporate being with a capacity separate, independent and distinct from those
constituting it or employed by it, yet the appellant had been sued jointly with the first defendant
for the only reason that she was the chief executive, main shareholder and a director of the
company, she would be a proper party to the suit only if a specific person?1 liability were
established against her or the veil of incorporation could be lifted to make her acts synonymous
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with those of the first defendant, or vice versa. But the veil of incorporation could be lifted only
in circumstances where in the light of the evidence the dictates of justice, public policy or the
Companies Code, 1963 (Act 179) so required. Although it was impossible to formulate an
exhaustive list of those circumstances, on the authorities, they included situations where it could
'De shown that the company had been established to further fraudulent activities or to avoid
contractual liability. From the record there was no evidence against the appellant that would
prima facie attach any personal liability to her to render her jointly liable with the company
under the agreement. Furthermore, the allegations of fraudulent trading had been made by the
respondent in circumstances that had denied the appellant the opportunity to respond to those
allegations. Thus in the absence of other factors driving the case. such as fraud, improper
business conduct, deliberate attempts at evasion of legal obligations, or other devises or wilful
misdeeds on the part of the appellant, the majority of the Court of Appeal erred in lifting the veil
of incorporation upon those allegations and finding the appellant personally liable for the first
defendant's debts and a proper person to be sued with the first defendant for the recovery of the
debt owed the respondent by the first defendant.
At 632 Sophia Akuffo JSC gave the Ghanaian position affirming Salomon v Salomon as
applicable in Ghana. Sophia Akuffo, JSC said:
“Save as otherwise restricted by its Regulations, a company, after its registration, has
all the powers of a natural person of full capacity to pursue its authorised business. In
this capacity a company is a corporate being, which, within the bounds of the
Companies Act, 1963 (Act 179) and Regulations of the company May do everything
that a natural person might do. In its own name it can sue and be sued and it can owe
and be owed legal liabilities. A company is, thus, a legal entity with a capacity separate,
independent and distinct from the persons constituting it or employed by it. From the
time the House of Lords clarified this cardinal principle more than a century ago in the
celebrated case of Salomon v Salomon & Co [1897] AC 22, it has, subject to certain
exceptions, remained the same in all common law countries and is the foundation on
which our Companies Act is grounded.”
Formation of a Company in Ghana
The law that governs the incorporation of companies in Ghana is the Companies Act, 2019 (Act
992).
Section 4 of the Companies Act, 2019 (Act 992) makes provisions for companies formed for
specialized purposes. It provides that this Act does not abrogate or affect legislation relating to
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companies carrying on the business of banking, insurance or any other business which is subject
to special regulation.
Section 2 of the BanksandSpecializedDepositTakingInstitutionsAct,2016(Act930) provides

that:
1) This Act shall be read together with the Companies Act, 1963 (Act 179) and shall not
except as otherwise provided in this Act derogate from the provisions of that Act.
2) Where there is a conflict or inconsistency between the Companies Act, 1963 (Act 179)
and this Act, this Act shall prevail.
The Right to Form Companies in Ghana
Section 6 of the Companies Act, 2019 (Act 992) provides that one or more persons may form an
incorporated company under this Act. It therefore means that the minimum number of persons
that may form a company in Ghana is one. The section does not however indicate the maximum
number of persons that may form a company in Ghana.
The word person as used in section 6 of Act 992 needs to be understood as not referring to only
natural persons but also legal entities like companies, corporations, partnerships and other
entities that have legal personality. Thus a corporation can form a company.
Another issue relating to the use of the word person in section 6 of Act 992 has to do with the
fact that a person may be a Ghanaian or a foreigner. It is also important to note that the laws of
Ghana generally do not prohibit foreigners from conducting business in Ghana. In addition, the
Companies Act, 2019 (Act 992) does not expressly prohibit foreigners from forming companies
in Ghana. Therefore in the absence of any express prohibition of foreigners from forming
companies in Ghana, it can be said that foreigners have the right to form companies in Ghana to
carry out the business which the law permits them to undertake in Ghana.
It is however important to note that there a certain business which foreigners are prohibited from
undertaking in Ghana unless they meet certain conditions. It seems therefore that a foreigner
cannot form a company in Ghana if the purpose is to carry on a business which the law prohibits
him or her from undertaking.
Section 6 of the Companies Act, 2019 (Act 992) must be read together with Section 12 of the
Companies Act, 2019 (Act 992). Section 12 of the Companies Act, 2019 (Act 992) provides that
Subject to this Act, a person of the age of eighteen years and above may apply for the
incorporation of a company under this Act. Thus, a person whether Ghanaian or foreigner who is
below eighteen years cannot form a company in Ghana.
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Process involved in forming a company in Ghana
Section 13 of the Companies Act, 2019 (Act 992) provides that:
1. An application for incorporation shall be made in the prescribed form and delivered to the
Registrar.
2. The application shall include
(a) the name of the company as required by section 21;
(b) an indication of the type of proposed company;
(c) the nature of the proposed business in the case of a company registered with an
object;
(d) 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;
(e) the electronic mail address and website of the company, if available;
(f) the following particulars of each subscriber:
(i) the date and place of birth;
(ii) the present full name and any former name;
(iii) the residential, occupational, postal and electronic mail addresses and
telephone contact; and
(iv) the nationality;
(g) the following particulars of each proposed director of the proposed company:
(i) the present full name and any former name;
(ii) the particulars of any business occupation and other directorships held by the
director as provided by section 215; and
(iii) the residential, occupational, postal and electronic mail addresses and telephone
contact;
(h) a statutory declaration by each proposed director of the proposed company indicating
that within the preceding five years, that proposed director has not been
(i) charged with or convicted of a criminal offence involving fraud or
dishonesty;
(ii) charged with or convicted of a criminal offence relating to the promotion,
incorporation or management of a company; or
(iii)declared insolvent or if that proposed director has been insolvent, the date of
the insolvency and the particulars of that company;
(i) the consent of each proposed director;
(j) the following particulars of the proposed Company Secretary of the proposed
company:
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(ii) the usual postal, occupational and electronic mail address;
(iii) the residential address in the case of an individual; and
(iv) the business occupation as provided by section 215;
(k) the following particulars of the proposed auditor of the proposed company:
(ii) the postal and electronic mail addresses and telephone number;
(iii) the residential address in the case of an individual; and
(iv) the consent of the auditor;
(l) the following particulars of each subscriber for a proposed company with shares:
(i) the full name and any former or other name;
(ii) the date and place of birth;
(iii) the telephone number;
(iv) the nationality and proof of identity;
(v) the residential, postal or email address, if any;
(vi) place of work and position held;
(m) the following particulars in respect of each beneficial owner of the proposed
company:
(i) the full name and any former or other name;
(ii) the date and place of birth;
(iii) the telephone number;
(iv) the nationality, national identity number, passport number or other
appropriate identification and proof of identity;
(v) the residential, postal or email address, if any;
(vi) place of work and position held;
(vii) the nature of the interest including the details of the legal, financial, security,
debenture or informal arrangement giving rise to the beneficial ownership;
and
(viii) confirmation as to whether the beneficial owner is a politically exposed
person;
(n) the following details in the case of a company that has shares:
(i) the amount of proposed seated capital, as defined in section 68;
(ii) the number of authorised shares of the company for each class; and
(o) in the case of a proposed company limited by guarantee the specified amount up to
which the member undertakes to contribute to the assets of the company, in the
event of the company being wound up while that person is a member or within a
stipulated period after ceasing to be a member, for payment of the costs, charges and
expenses of winding up, and the adjustments of the rights amongst members.
3. The application shall be signed by the subscriber or each subscriber if more than one, for
shares of the company by writing opposite the name of the subscriber, the number of
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shares the subscriber takes and the cash price payable for the shares and the subscriber
shall take at least one share.
4. The provisions of subsection (3) shall apply to an application for incorporation of a
company that proposes to register a constitution.
5. The application for incorporation may be effected by (a) the delivery of the completed
application form as required by subsection (2); or (b) the delivery of the completed
application form as required by subsection (2) accompanied with a proposed constitution.
6. Without limiting the provisions of subsection (2), the applicant shall furnish the Registrar
with appropriate evidence of the identity and place of residence of the applicant at the
time of the delivery of the completed application form for incorporation.
Error or Omission in Document
Section 17 of the Companies Act, 2019 (Act 992) provides that Where there is an error or
omission in a document containing particulars delivered to the Registrar under section 13, the
company and every signatory of the document is without limiting section 346, liable to pay to the
Registrar an administrative penalty of one hundred and fifty penalty units.
Incorporation under section 14
Section 14 of the Companies Act, 2019 (Act 992) provides that
1) Where the Registrar is satisfied that the application for incorporation of a company
complies with this Act, the Registrar shall after payment of the prescribed fee, certify
under the seal of the Registrar that the company is incorporated and in the case of a
limited liability company, that the liability of the members is limited.
2) From the date of incorporation, the company becomes a body corporate by the name
contained in the application for incorporation and, subject to section 13, is capable of
performing the functions of an incorporated company.
Certificate of incorporation under section 15
Section 15 of the Companies Act, 2019 (Act 992) provides that the certificate of incorporation,
or a copy of that certificate, certified as correct by the Registrar, is conclusive evidence that the
company has been duly incorporated under this Act and proceedings shall not be brought in a
Court to cancel or annul the incorporation.
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In Dupaul Wood Treatment Ltd v Asare [2005-2006] SCGLR 667
Sophia Akuffo, JSC said:
“By virtue of section 14of the Code [now Act], a company comes into existence when its
Regulations are delivered to the Registrar of Companies and he enters same into the
register. It is the act of registration that incorporates the company, such incorporation
being evidenced by the Registrar’s certificate of incorporation.”
Section 16 of the Companies Act, 2019 (Act 992) provides that Section 15 does not preclude
the institution of proceedings to wind up the company in accordance with section 274.
Grounds for refusal of registration by the Registrar of Companies
The Registrar may refuse to register the company if in his opinion any of the following persist.
These are:
a) the Constitution of the company do not comply with the provisions of Act 992,
b) the objects for which the company is being formed or the business which it is to carry on
or any of them are unlawful. In the English case of R v Registrar of Companies, ex-
parte Attorney General [1991] BCLC 476, a prostitute was advised by her accountant
to run her business as a company. She formed and registered Lindi St. Claire (Personal
Service) Ltd. the main object was ‘to carry on the business of prostitution’. The Attorney
General sought an order of certiorari to quash the incorporation and registration of the
company.The court held that the conclusiveness of the registrar’s certificate of
incorporation did not bind the Crown and therefore the Attorney General was authorised
to bring the proceedings. The company’s objects were illegal and the company was struck
off the register as it had not been formed for a ‘lawful purpose’ within the English
Companies Act.
In R v Registrar of Joint Stock Companies, ex-parte More [1931] 2 KB 197, the
registrar refused to register a company whose objects were to sell , in England, tickets for
an Irish lottery. The promoters sought an order of mandamus ordering the registrar to
register the company.The court held that the objects were unlawful and the registrar was
entitled to refuse to register such a company.
c) any of the subscribers to the Constitution of the company is an infant or of unsound mind,
or
d) any of the directors, named in the Constitution of the company is under section 173,
incompetent to be appointed a director.
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PROMOTERS AND PRE-INCORPORATION TRANSACTIONS
PROMOTERS
Section 10(1) of the Companies Act, 2019 (Act 992) defines a promoter as a person who is or
has been engaged or interested in the formation of a company is a promoter of that company.
Thus Promoters are persons who conceive the notion or are engaged or interested in the
formation of a company. Nevertheless, a promoter has been defined in Twycross v. Grant
(1877) 2 CPD 469.
In that case, the defendant formed a company to purchase certain concession to build railways.
The plaintiff purchased shares in the company on the basis of representations in the prospectus
issued by the defendant. The company subsequently collapsed. The plaintiff then sued the
defendant for recovery of the money he paid for the shares in the company. He argued that the
prospectus issued by the defendant advertising the sale of the shares did not disclose certain
contracts. One of such contracts had been entered into between the defendant and another
company under which that other company paid a specified sum of money to the defendant and
took over the contract to build the railway.
Cockburn J defined a promoter as “one who undertakes to form a company with reference to a
given project and to see to it going, and who takes the necessary steps to accomplish that
purpose”.
In Whaley Bridge Calico Printing Co v Green (1860), the term promoter was defined as ‘ a
term not of law but of business, usefully summing up in a single word a number of business
operations, familiar to the commercial world, by which a company is generally brought into
existence”.
In Emma Silver Mining Co v. Lewis & Sons (1879) 4 CPD 396, a firm of brokers arranged
with the owner of a mine to assist him to sell the mine to a company which he was seeking to
form. The mine owner agreed and engaged the firm to act as the brokers of the company which
was to be formed. He then promised to pay the firm a specified sum of money for its assistance.
The payment was intended to get the firm, which knew that the mine was of doubtful character,
not to disclose the doubts surrounding the mine to any person wishing to purchase shares in the
company. The company was duly formed and the mine was sold by the owner to it. Shares in the
newly formed company were then issued to the general public for purchase. The prospectus that
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advertised the sale of the shares named the firm as willing to answer all questions about the
mine. The firm did answer all enquiries about the mine but kept silent about the doubts
surrounding it. The mine owner then transferred his shares in the company to the firm which
later sold the shares and kept the proceeds.
The court held that the firm was a promoter of the company. The court explained that the word
promoter has no definite meaning, but used in connection with companies, a promoter involves
the idea of getting up and starting a company and also the idea of some duty imposed on by or
arising from the position which the promoter assumes towards the company.
However, under Section 10(2) of the Companies Act, 2019 (Act 992), a person acting in a
professional capacity for persons engaged in procuring the formation of a company is not a
promoter of that company.
For instance, in RE: Great Wheal Poolgooth Ltd (1883) 53 LJ CH 42, the Court said inter alia
that a solicitor who drafts the Memorandum and Articles of Association in line with the
promoter’s instructions and the accountant who values the assets of a business to be purchased
are only giving expert or professional assistance to the promoters and will be paid for their
services; they are not promoters.
Thus, if the services of a lawyer are for instance employed in the formation of a company the
lawyer by virtue of the legal service provided does not become a promoter of the company.
However, if the lawyer goes beyond his professional capacity of a lawyer and goes ahead to
convince people to invest in the company for which he receives wages then he can properly be
described as a promoter and he cannot be placed within the proviso of Section 10(2) of the
Companies Act, 2019 (Act 992).
In Kumi v. New World Investment Ltd [2003-2005] 1 GLR 203, The plaintiff's case was that
its Managing director sought advice on the setting up of a Savings and Loans Company from the
Chief Executive Officer of the defendant Company. The CEO of the defendant company advised
that it would be more efficient to acquire a full banking license than a savings and loans license
if the assets of a liquidated bank, Bank for Housing Construction (BHC) could be acquired. As a
result of this advice, the plaintiff advanced money to purchase some of the assets of the BHC.
After the acquisition, the plaintiff noticed a lack of commitment on the part of some of the
potential shareholders so he decided not to pursue the banking idea any longer but to go back to
his original Savings and Loans Company. When the plaintiff decided to back out of the banking
project the defendant wrote to promise to refund the money spent on purchasing the items to
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him. He never honoured his promise to do so. The plaintiff sought to recover the assets
purchased with his money from the defendants.
Ansah JA said:
“As a matter of law, the term 'promoter' is defined in section 12 (1) of the companies
Code, Act 179 to cover any person who is or has been engaged or interested in the
formation of a company. It is a very wide definition. Persons who act in their
professional capacity for others who are engaged in forming the company are excluded.
Cockburn C.J. vividly described a promoter in Twycross v. Grant as 'one who undertakes
to form a company with reference to a give n project and set it going and who takes the
necessary steps to accomplish that purpose'. 'Persons who give instructions for the
preparation and registration for the memorandum or articles of association are
promoters. So, too, are persons who obtain the directors, issue a prospectus, negotiate
underwriting contracts for the purchase of property by the company or procure capital'
see Charles worth and Cain: Company Law, 10th Edition at page 84. Who a promoter is,
is largely a question of fact to be resolved from the totality of the evidence on the
record. One thing that was clear was that the plaintiff went to seek the defendant‘s
professional assistance on some projects he wanted to set up. It was in his professional
capacity as a management consultant that the defendant offered some advice based on
the plaintiff‘s business plan. At the highest the defendant coordinated their activities and
brought them together to form the bank. The defendant on the facts acted in his
professional capacity as a management consultant. In the true meaning of Section 12 of
the Company's Code he is not a promoter. "
The Relationship between the promoter and the company he promotes
According to Section 10 of the Companies Act, 2019 (Act 992), a fiduciary relationship exist
between a promoter and the company that he/she forms. This relationship continues until the
formation of the company is complete (on the issuance of a certificate of incorporation) and its
working capital has been issued.
In Bristol & West Building Society v Mothew [1998] Ch 1, Millet LJ stated at page 16 that:
“The expression ‘fiduciary duty’ is properly confined to those duties which are peculiar
to fiduciaries and the breach of which attracts legal consequences differing from those
consequent upon the breach of other duties. Unless the expression is so limited it is lacking
in practical utility. In this sense it is obvious that not every breach of a duty by a fiduciary
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is a breach of a fiduciary duty… It is similarly inappropriate to apply the expression to the

obligation of a trustee or other fiduciary to use proper skill and care in the discharge of his
duties… 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. A fiduciary must act in good faith; 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.… Breach of fiduciary obligation, therefore, connotes disloyalty or infidelity.
Mere incompetence is not enough.’’
Millett LJ endorsed the comment of Ipp J in Permanent Building Society v Wheeler (1994) 14
ACSR 109 at page157 that:
“It is essential to bear in mind that the existence of a fiduciary relationship does not mean
that every duty owed by a fiduciary to the beneficiary is a fiduciary duty. In particular, a
trustee’s duty to exercise reasonable care, though equitable is not specifically a fiduciary
duty’’.
Thus a fiduciary relationship is one in which a person undertakes or is deemed to undertake to

act in the interest of another person.
DUTIES OF A PROMOTER
1. Section 10(3)(a) of the Companies Act, 2019 (Act 992) provides that the promoter shall,
until the formation of a company is complete and the working capital of the company has
been raised, stand in a fiduciary relationship to the company.
In Erlanger v New Sombrero phosphate Co. (1878) 3 App. Cas 1218, a lease acquired by
promoters for £55,000 was resold to the company for £110,000 with the approval of the board.
Shares were offered to the public by a prospectus which did not disclose the promoter’s profit.
The original board of directors was later replaced by others who sued on behalf of the company
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to rescind the purchase on the ground that the promoters had failed to make proper disclosure.
The promoter’s argued that the directors who approved the purchase had been aware of the profit
in re-sale. The court held that the contract should be rescinded since there had been no
disclosure to an independent board of directors.
Per Lord Cairns LC
“Promoters have in their hand the creation and moulding of the company; they have the
power of defining how and when and in what shape, and under what supervision it shall
start to exist and begin trading. It is not that the owner of the property may not promote
and form a joint stock company, and then sell his property to it, but if he does he is bound
to take care that he sells it to the company through the medium of a board of directors who
can and do exercise an independent and intelligent judgment on the transaction and who
are not left under the belief that the property belongs, not to the promoter, but to some
other person.”
2. Duty to Act in good faith
Section 10(3)(b) of the Companies Act, 2019 (Act 992) provides that the promoter shall, until the
formation of a company is complete and the working capital of the company has been raised,
observe utmost good faith towards the company in a transaction with the company or on behalf
of the company.
The fiduciary relationship that exist between promoters and the companies they form give rise to
a duty to act in good faith. Good faith means sincerely, honesty and fairness, devoid of malice or
ill will, devised in order to defraud the company. This duty is imposed on the promoters for the
benefit of the company. The duty requires a promoter who acts either on behalf of the company
or towards the company to do so in good faith.
Section 10(3)(c) of the Companies Act, 2019 (Act 992) provides that the promoter shall, until the
formation of a company is complete and the working capital of the company has been raised,
compensate the company for any loss suffered by the company by reason of the failure of the
promoter to observe utmost good faith.
3. The duty to account
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Section 10(4) of the Companies Act, 2019 (Act 992) provides that a promoter that acquires
property or information in circumstances in which it was the duty of the promoter as a fiduciary
to acquire the property or information on behalf of the company, shall account to the company
for the property or information and for the profit which the promoter may have made from the
use of that property or information.
A promoter is legally prohibited from personally benefiting from any use of such property,
information or profit unless after making full disclosure of it to the company, he/she obtains the
consent of the company to keep it for his/her personal use and benefit. The disclosure may be
made to the board of directors of the company, the members of the company or to all the
members of the company acting unanimously.
A promoter who fails to declare and account to the company for any property, information or
profit acquired on behalf of the company but keeps it for his/her personal use without the consent
of the company commits a breach of his/her fiduciary duty to account. The sanction for this that,
the company is entitled to recover the property and profit from the promoter, and in the case of
information the company is entitled to restrain the promoter from using it for his/her personal
benefit. If the company suffers any loss as a result of the failure of the promoter to account to it
as required, the company will be entitled to sue the promoter for the damages to compensate for
the loss.
In Gluckstein v Barnes (1900) AC 240, a syndicate bought property intending to sell it to a

company they were forming they nominally bought it for 140,000 pounds but actually got it at a
discount so that it cost them 120,000 pounds. They then sold it to the newly formed company of
which they had become directors, for 180,000. A prospectus issuing to the public disclosed a
profit of 40,000 pounds but not the 20,000 discount. The company later failed and the liquidator
claimed repayment of 20,000. The House of Lords upheld the liquidator’s claim.
The court dismissed the appeal by holding that the appellant and indeed all the other members of
the syndicate were not entitled to keep the secret profits they made.
Per Earl of Halsbury L.C:
“I decline to discuss the question of disclosure to the company. It is too absurd to suggest
that a disclosure to the parties to this transaction is a disclosure to the company of which
these directors were the proper guardians and trustees”. “I do not discuss either the sum
sued for, or why Gluckstein (appellant) alone is sued. The whole sum has been obtained
by a very gross fraud and all who were parties to it are responsible to make good what
they have obtained and withheld from the shareholders”.
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The case of Gluckstein v Barnes (1900) AC 240 suggests that even disclosure in a prospectus
must be complete which must be made either to an entirely independent board or to the existing
and potential members as a whole. Complete disclosure in the prospectus or articles will be
sufficient.
In Attorney-General of Hong Kong v Reid [1994] 1 All ER 1, the respondent (Reid) was once
the acting Director of Public Prosecutions in Hong Kong. He owed fiduciary duties to the Crown
as a Public Prosecutor. In the course of his career, he breached his fiduciary duties which he
owed as a servant of the Crown and accepted bribes as an inducement to obstruct the prosecution
of certain criminals. He was later on arrested and convicted. He had acquired assets which he
could not have acquired without proceeds from bribes. He was ordered to pay an amount of
money equivalent to the value of assets he had acquired to the Crown. This he failed to do. The
Attorney-General for Hong Kong registered caveats on behalf of the Hong Kong government
against the title to three properties in New Zealand registered in the name of the respondent, his
wife and his solicitor which were alleged to have been bought with bribes. The Attorney-General
claimed that the three properties, the value of which had increased since their purchase, were
held on a constructive trust in favour of the Crown. The respondent claimed that the Crown had
no equitable interest in the properties. The judge held that the Crown as Caveator could not as a
matter of law establish an arguable case that it had a proprietary interest in the three properties.
On appeal by the Attorney-General, the CA of New Zealand upheld the judge’s decision on the
grounds that as between principal and fiduciary the receipt of a bribe by the fiduciary only gave
rise to the relationship of creditor and debtor and not trustee and cesti que trust as the principal
had no proprietary interest in the bribe or money or investments representing it. The Attorney-
General appealed to the Privy Council.
The Court held that when a fiduciary accepted a bribe as an inducement to betray his trust he
held the bribe in trust for the person to whom he owed the duty as fiduciary; and if property
representing the bribe increased in value, the fiduciary was not entitled to retain any surplus in
excess of the initial value of the bribe because he was not allowed by any means to make a profit
out of a breach of duty. A bribe was a secret benefit which the fiduciary derived from trust
property or obtained from knowledge which he acquired in the course of acting as a fiduciary
and he was accountable under a constructive trust for that secret benefit to the person to whom
the fiduciary duty was owed as soon as the bribe was received, whether in cash or in kind, under
the equitable principle that equity considered as done that which ought to have been done. If
property representing the bribe increased in value or if a cash bribe was invested advantageously
the false fiduciary was accountable not only for the original amount or value of the bribe but also
for the increased value of the property representing the bribe since otherwise he would receive a
benefit from his breach of duty. Accordingly, the three properties so far as they represented
bribes accepted by the respondent were held in trust for the Crown, which was entitled to have
the caveats renewed.
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Lord Templeman: “A bribe is a gift accepted by a fiduciary as an inducement to him to betray

his trust”
4. The duty to disclose personal interest in transaction
Section 10(5) of the Companies Act, 2019 (Act 992) provides that a transaction between a
promoter and the company may be rescinded by the company unless, after full disclosure of the
material facts known to the promoter, the transaction has been entered into or ratified on behalf
of the company:
(a) by the board of directors of the company, if all the directors of the company are
independent of the promoter;
(b) by all the members of the company; or
(c) by the company at a general meeting at which neither the promoter nor the holders of the
shares in which the promoter is beneficially interested have voted on the resolution to
enter into or ratify that transaction.
Full disclosure means that the promoter must state all material facts known about the subject
matter to the board of directors, all members or general meeting, as the case may be. A fact is
material if a reasonable person may be swayed one way or the other in his or her decision by
knowledge of it. If there is no full disclosure, of all material facts, the fact that the contract was
entered into or ratified by the board of directors, all members or general meeting, as the case may
be, is inconsequential.
The disclosure may be made to the Board of directors of the company. In that case, the Board
must be an independent Board of directors. This means that all the members of the Board of
directors must not in any way under the direction, control and influence of the promoters. The
directors must be persons who are capable of exercising an independent and impartial judgment
in deciding on behalf of the company whether to undertake the transaction in question with the
promoter or not, and if they decide to undertake the transaction must ensure that the terms are
favorable to the company.
The disclosure may be made to the members of the company in General Meeting or to all the
members of the company whether at General Meeting or not. Where the disclosure is made to the
company in General Meeting, the law requires that if the promoters are members of the
company, they should not vote on the resolution to decide whether to approve or disapprove the
proposed contract.
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Also, any member who holds shares in which the interested promoters have a beneficial interest
must not participate in voting on the resolution. The disclosure may also be made to all the
members, whether in General Meeting or not, whose decision on the matter must be unanimous
in order to be valid. Where the transaction is to be financed with money raised from the general
public through the issue of shares, the disclosure must be made in the prospectus that advertises
the sale, and must have all the material facts of the transaction as known to the promoter.
A promoter who does not make any such disclosure commits a breach of his fiduciary duty and
the company is entitled to rescind the transaction or sue for damages. Alternatively, the company
may choose ratify the transaction.
In Lagunas Nitras v Lagunas Syndicate (1899) 2 Ch 392, a syndicate formed a company for
the purpose of selling to it a piece of land containing nitrate deposit. The syndicate bought the
land for £110,000 and sold it to the company for £850,000. The directors of the syndicate
prepared and signed both the memorandum and articles of association for the purpose of forming
the company. The articles of association expressly stated that the directors of the company were
the same persons as the directors of the syndicate. The directors of the syndicate were also the
only members of the company at the time the company took the decision to purchase the land.
The money to finance the purchase of the land was raised from the general public through the
issue of shares. The prospectus that advertised the sale of the shares was prepared by the
directors of the company who were also directors of the syndicate. The contract between the
company and the syndicate was also prepared by the same people. Two years after the sale of the
land to the company, some shareholders who thought the sale of the land was at an overvalue and
that there were misrepresentations in both the prospectus and the contract decided to institute
legal action against the syndicate and the directors of the company for the rescission of the
contract and damages for misrepresentation.
The court held that the directors of the company who took the decision to purchase the land from
the syndicate were the same persons as the directors and members of the syndicate. The directors
could not therefore be said to be independent of the members of the syndicate who were the
promoters of the company. There was full disclosure of the fact that the first directors of the
company were the same as its promoters. There was also disclosure of the fact that the land that
the syndicate as promoters, sold to the company belonged to the syndicate. The price at which
the syndicate bought the land and the price at which it was sold to the company were also
disclosed to the members of the company who happened to be the directors of the company and
the members of the syndicate. The sale of the land was thus proper since all the material facts
known to the promoters were disclosed to the company.
In In Re Leeds v Hanley Theatre (1902) 2 Ch 807, the promoters purchased the subject matter
of the litigation with the intention of selling it to the company when formed. Subsequently the
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promoters transferred it to their trustee who later transferred it to a trustee of the intended
company. There was no disclosure that the trustee was acting in the interest of the promoters. At
page 831 of the report Sterling LJ said:
“it was their duty as such promoters dealing with and proposing that the company which
they were promoting should acquire property belonging to themselves, to provide the
company with an Executive who shall both be aware that the property which they had
been asked to buy is the property of the promoters”.
In Re British Seamless Paper Box Co. Ltd [1881] 17 Ch. 467, a company was formed and
registered consisting of eight persons, seven of whom were directors and the eighth the solicitor,
for the purchase and working of a patent belonging to some of the members. The directors allotted
shares without consideration to some of their number. It was proved to the satisfaction of the court
that it was intended at that time to work the company as a private partnership, and to admit no
other members. All the members consented to what was done and it was sanctioned at a general
meeting of the company. No prospectus was issued. Rather more than a year afterwards, the
company being in need of more capital, some fresh shareholders were admitted, who alleged that
they were not informed of the manner in which the original shares had been allotted.
The court held that that no fraud had been committed since at the time when the transaction was
entered into and completed, not only did every member of the company know of the transaction
and accept it, but it was not in the mind of anybody that anyone else would become a member of
the company. If that was the intention of all parties at the time, it is impossible to say that there
was any secrecy, and there being no secrecy and everybody consenting, there could be no fraud.
Per Brett LJ:
“the kind of misfeasance charged in this case is that these directors, while assuming to
act on behalf of a company for purchasing a patent, had themselves an interest in the patent
and contrived to get an advantage for themselves, and that they intended to keep this
advantage secret from the members of the company for whom they were assuming to act.
If so, there was, no doubt, a fraud. If when parties are promoters of a company and then
become directors, and at the time when they were making a profit to themselves are
intending to act not only for the members of the company for future members and they
keep it secret, they can be made liable to account by future shareholders…but if at the
time when they entered into the transaction they really intended everybody should be made
acquainted with what was done, or if they only intended to act for themselves and for others
who knew all about the matter, that does away with all fraud, and if there is no fraud they
cannot be charged with misfeasance under the statute.”
Remedies for Breach of Promoter’s Duties
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1. Rescission of any contract made with him
The right of rescission is exercisable in accordance with normal contractual principles. For
example, the company cannot rescind if it is unable to restore to the promoter’s property, which
he has sold to it in substantially the same condition in which it was at the time when the contract
was made. In Re Cape Breton Co. (1856), it was held that where a director on behalf of a
company purchased property in which he had an interest without disclosing that interest, the
company, on discovering the fact, might rescind the contract and return the property.
2. Account of secret profit
If the contract is rescinded, the secret profit of the promoter is normally recovered as a result of
the rescission, but if a profit is made on some other transaction, this may also be recovered.
Furthermore, a secret profit may be recovered even though the company elects not to rescind.
In Gluckstein v. Barnes (1900) AC 240, a syndicate bought property intending to sell it to a

company they were forming they nominally bought it for 140,000 pounds but actually got it at a
discount so that it cost them 120,000 pounds. They then sold it to the newly formed company of
which they had become directors, for 180,000. A prospectus issuing to the public disclosed a
profit of 40,000 pounds but not the 20,000 discount. The company later failed and the liquidator
claimed repayment of 20,000. The House of Lords upheld the liquidator’s claim.
The court dismissed the appeal by holding that the appellant and indeed all the other members of
the syndicate were not entitled to keep the secret profits they made.
Per Earl of Halsbury L.C:
“I decline to discuss the question of disclosure to the company. It is too absurd to suggest
that a disclosure to the parties to this transaction is a disclosure to the company of which
these directors were the proper guardians and trustees”. “I do not discuss either the sum
sued for, or why Gluckstein (appellant) alone is sued. The whole sum has been obtained
by a very gross fraud and all who were parties to it are responsible to make good what
they have obtained and withheld from the shareholders”.
The case of Gluckstein v Barnes (1900) AC 240 suggests that even disclosure in a prospectus
must be complete which must be made either to an entirely independent board or to the existing
and potential members as a whole. Complete disclosure in the prospectus or articles will be
sufficient.
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3. Damages for breach of a fiduciary duty
The remedy of damages is appropriate for breach of any common law duty of the promoter to
exercise reasonable care and skill.
Period of Limitation
Section 10(6) of the Companies Act, 2019 (Act 992) provides that a period of limitation shall not
apply to proceedings brought by a company to enforce a right under this section.
Section 10(7) of the Companies Act, 2019 (Act 992) provides that in proceedings under
subsection (6), the Court may relieve a promoter in whole or in part and on the terms that the
Court considers fit from liability if in the circumstances, including lapse of time, the Court
considers it equitable so to do.
PRE-INCORPORATION CONTRACTS
A pre-incorporation contract is one that is made between persons other than the subject
incorporated company, in connection with the company, before incorporation. Thus any contract
made before the coming into existence of a registered company is known as a pre-incorporation
or preliminary contract. Usually, such contracts are entered into by the promoters and meant for
the company when it’s eventually formed.
Those engaged in the formation of a company (i.e. promoters) may cause transaction to be
entered into ostensibly by the company but before it has in fact been formed or incorporated.
Sometimes, the fact that the company has not been incorporated may amount to all concerned
and may even be stated in the contract; on the other hand, there may have been some
misunderstanding or even a misrepresentation about its existence. Such situations can give rise to
all forms of legal problems at common law for a “non-entity” cannot have legal rights or duties
ascribed to it.
Indeed, a company has no legal existence before it is incorporated. It is incapable of entering

into a contract itself, and equally incapable of acting through an agent. A person who purports to
make a contract on behalf of a proposed company may do so in a way which renders him
personally liable at common law.
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Common Law Position on Pre-Incorporation Contracts
At common law, a company is not bound by a contract made before it came into existence and
the company cannot ratify the contract even after its incorporation. The legal effect of a pre-
incorporation contract to a large extent will depend on the wording of the contract. The
traditional common law position on pre-incorporation contract is expressed in the following
cases:
In kelner v Baxter (1866) LR 2 CP 174, the principle was to the effect that if the promoter
signed the contract acting on behalf or for the company, the promoter will be personally liable
for the contract. Thus, at common law, the rule was that the company cannot ratify such a
contract after its formation because it was not a principal with contractual capacity when the
contract was made.
In that case, a contract was entered into by promoters for and on behalf of a proposed limited
company, Gravesend Royal Alexander Co. Ltd for supply of wine. The wine was delivered and
consumed. On Feb. 1st, 1866 the proposed directors had a meeting and purported to ratify the
purchase. The incorporation of the Company was however completed on Feb. 20th, 1866. But
the company failed before Mr. Kelner was paid. He successfully sued the promoters personally.
The court held that where a contract was signed by a promoter for and on behalf of yet to be
formed company, the promoter would be personally liable since there can be no agency without
prior existence of a principal.
Per Erle C J said:
“…where a contract is signed by one who professes to be signing ‘as agent’, but who has
no principal existing at the time, and the contract would be altogether inoperative unless
binding upon the person who signed it, he is bound thereby: and a stranger cannot by a
subsequent ratification relive him from that responsibility. When the company came
afterwards into existence it was a totally new creature, having rights and obligations by
reason of anything which might have been done before. It was once, indeed, thought that
an inchoate liability might be incurred on behalf of a proposed company, which would
become binding on it when subsequently formed: but that notion was manifestly contrary
y to the principle upon which the law of contract is founded. There must be two parties to
a contract; and the rights and obligation which it creates cannot be transferred by one
of them to a third person who is not in a condition to be bound by it at the time it was
made…the plaintiff parted with his stock upon the faith of the defendants’ engagement
that the price agreed on should be paid on the day named. It cannot be supposed that he
for a moment contemplated that the payment was to be contingent on the formation of the
company by 28 February. The paper expresses in terms of a contract to buy. And it is a
cardinal rule that no oral evidence shall be admitted to show an intention different from
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that which appears on the face of the writing. I come therefore to the conclusion that the
defendants, having no principal who was bound originally, or who could become so by a
subsequent ratification, were themselves bound, and that the oral evidence is not
admissible to contradict the written contract.”
Willis, J., said: " Could the company become liable by a mere ratification? Clearly not.
Ratification can only be by a person ascertained at the time of the act done, by a person
in existence either actually or in contemplation of law, as in the case of the assignees of
bankrupts, or administrators whose title for the protection of the estate vests by relation.
However, in Newborne v Sensolid (Great Britain) Ltd [1954] 1 QB 45, the principle was to
the effect that if the promoter signs the contract using the proposed name of the company, that
contract would be void and of no effect. At common law, to be liable under, or entitled to sue on
the purported contract of an unincorporated company, a person must have held himself out either
as agent or principal. Thus, if the promoter signed the proposed name of the company, adding his
own to authenticate it.
In that case, On the letterhead of one Leopold Newborne (London) Ltd, a contract was entered
into to sell 2000 cases of tinned ham to Sensolid Ltd. the contract was also signed “Yours
faithfully, Leopold Newborne (London) Ltd.” The promoter of the later company was Mr.
Leopold Newborne. The market fell and Sensolid refused to take delivery of the stock, arguing
that when the contract was signed, Leopold Newborne (London) Ltd was not in existence since it
was not then incorporated; and the contract herein was also one not made with Mr. Newborne
personally and so the latter could not personally enforce it. Mr. Newborne unsuccessfully sued at
the trial court and unsuccessfully appealed to the Court of Appeal.
The court held that the company could not by ratification bind itself retrospectively to a contract
made before it existed. The promoters were liable for breach of warranty of authority and must
pay.
Lord Goddard CJ:
“The company makes the contract. No doubt the company must do its physical acts, and
so forth, through the directors, but it is not the ordinary case of principal and agent. It is
a case in which the company is contracting and the company’s contract is authenticated
by the signature of one of the directors. The contract purports to be a contract by the
company; it does not purport to be a contract by Mr. Newborne. He does not purport to
be selling his goods but to be selling the company’s goods. The only person here who had
any contract here was the company, and Mr. Newborne’s signature merely confirmed the
company’s signature. The document is signed ‘Yours faithfully,
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LeoppoldNewborne(London) Ltd’, and then the signature underneath is the signature of

the person authorized to sign on behalf of the company.
“In my opinion, unfortunate though it may be, as the company was not in existence when
the contract was signed there never was a contract, and Mr. Newborne cannot come
forward and say: ‘Well, it was my contract.’ The fact is, he made a contract for a
company which did not exist. It seems to me, therefore, that the defendants can avail
themselves of the defence which they pleaded and the appeal must be dismissed.”
The common law position in England has been modified by the European Commission’s 1st
Directive on company which England has implemented via its Section 36C of English
Company’s Act, 1985 - “A contract which purports to be made by or on behalf of a company
when the company has not been formed has effect, subject to any agreement to the contrary as
one made with the person purportedly to act for the company or as agent for it, and he is
personally liable on the contract accordingly”.
The Ghanaian Position on Pre-Incorporation Contracts
1) 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 eighteen months after the formation of the
company.
2) On ratification under subsection (1), the company shall become bound by, and entitled to
the benefit of, that contract or that transaction as if the company has been in existence at
the date of that contract or other transaction and had been a party to the contract or other
transaction.
3) Before ratification by a company, the person who purported to act in the name or on
behalf of the company is, in the absence of express agreement to the contrary, personally
bound by the contract or other transaction and is entitled to the benefit of the contract or
other transaction.
The law according to the Companies Act is that once the company has been formed the company
may ratify any pre-incorporation contract that may have been formed. On ratification of the pre-
incorporation contract, the company becomes bound by the contract and entitled to any benefits
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and liabilities that arise from the contract. The company will be treated as though it were in the
time of the contract and was a party to it. If the company does not ratify the pre-incorporation
contract the promoter is personally liable. Thus unless there is an express agreement in the
contract to the contrary the promoter shall be personally liable.
A company may ratify a pre-incorporation contract. If such contract or transaction is ratified, the
company shall become bound and shall be entitled to the benefits under it. Indeed, Section 11 of
the Companies Act, 2019 (Act 992) gives the company discretion to ratify or accept any contract
or transaction which was made by the promoters before the company received its certificate of
incorporation. If the company ratifies the contract it becomes legally binding on it and is back-
dated to the date of the contract. The company after the ratification takes the benefits and
liabilities of the contract. However, persons who acted ostensibly for the company shall be
personally bound by the contract or transaction unless and until the company ratifies it. Thus if
the company refuses to ratify the contract, the promoters are to be held personally liable under
section 11(1) of the Companies Act, 2019 (Act 992).
How a Company Ratify a Pre-Incorporation Contracts
A company may ratify pre-incorporation contracts by the decision/resolution of any of its

governing organs. These organs are the Board of Directors, the members in general meeting or
all the members of the company acting unanimously. If the company does not ratify the contract,
the promoter is personally liable unless it is included in the contract otherwise.
In Panagiotopoulos v Plastico Ltd [1965] GLR 176, at the beginning of 1963, the plaintiff
agreed with Politis and Michaelides to establish a company to be called Plastico Ltd. to
manufacture plastics. In consequence of this agreement, they acquired a plot of land at Tema on
which they built a factory and installed machinery in it. The plaintiff financed the pre-
incorporation expenses and paid for the machinery which was purchased for the company. On 1
March, 1963 prior to the incorporation of the company, the plaintiff purported to sell his interest
in the venture to the company. By a contract of sale executed on that day, the plaintiff who was
described as the vendor was recorded as having sold his interest in the land, factory and
machinery for £G28, 326 6s. 11d. to Politis and Michaelides acting for themselves and as
trustees in the formation of Plastico Ltd. therein described as the purchaser. The contract also
provided that the purchase price was to be paid by installments of £G500 a month commencing
from 1 June 1963 so that the total purchase price would have been paid by 31 December, 1965.
As security for the payment of the purchase price, it was provided in the contract of sale that,
"pending the full payment therefor, the said land, factory, machinery and spares shall be
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mortgaged to the vendor." The company was incorporated on 29 May, 1963 and they entered
into possession of the land and factory which were the subject-matter of the sale. On 5
December, 1964 the company's solicitors wrote to the plaintiff's solicitors stating that the
company was beneficiaries of the agreement entered into by the promoters of the company. After
paying ten installments of the purchase price, the company defaulted.
The plaintiff therefore caused to be issued against the company a specially endorsed writ
claiming £G19, 826 6s. 11d. as the balance due on the purchase price and specific performance
of the provisions relating to the mortgage of the factory contained in the contract of sale. The
company denied that the contract of sale was binding on them on the grounds that it was
concluded before the company came into existence. At the trial counsel for the plaintiff
contended that there should be an implied contract of sale of the plaintiff's interest in the factory
between the plaintiff and the company because the company obtained the benefit of the contract
by taking possession of the land and machinery and secondly, by making payments due under the
original contract. He argued further that since the company took possession of the factory with
notice of the mortgage they were bound by it thereby entitling the plaintiff to an order for
specific performance against the company.
The High Court held that a company is not bound by a contract purporting to be entered on its
behalf by the promoters or other persons before incorporation unless the company after
incorporation enter into a new contract to the effect of the previous agreement. Such a contract
may be inferred from the acts of the company. In this case there was no evidence that the
company had since incorporation entered into a new express contract with the plaintiff to the
effect of the contract of sale. Although the actions of the company, i.e. in taking possession of
the factory and the making of installment payments of the purchase price would seem to infer
that there was a contract entered into between the company and the plaintiff on the same terms as
the contract of sale. Those acts of the company were done in the mistaken belief that the
preincorporation contract of sale was binding on the company. Consequently, no such contract
could be inferred from those acts of the company.
Per Apaloo J:
"A person who takes property with notice of an incumbrance takes subject to that
incumbrance, but he does not thereby become a party to the contract creating the
incumbrance so as to sue or be sued on the contract…. I do not doubt that Dr. Politis and
Mr. Michaelides were obliged by the sale document (exhibit B) to convey the land and
factory in question to the plaintiff by way of mortgage until the full payment of the
purchase price and that obligation is as good in equity as a mortgage. It is altogether
unclear whether any right to these properties was transferred by the aforementioned
persons to the company. What is clear is that the company are in enjoyment of the land
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and factory and whatever rights they may have, are plainly subject to the mortgage in
favour of the plaintiff. Had the reliefs now sought against the company been sought
against Dr. Politis and Mr. Michaelides, I cannot conceive that they would have anything
[p.186] like a valid answer. But the principle of law clearly enunciated by Vaughan
Williams L.J. in the Bagot case, precludes me from holding the company liable to the
plaintiff in all or any of the reliefs sought. "
InJadbranska v Oysa Ltd (1979) GLR 129, a limited liability company registered under the
law of Yugoslavia agreed with H.T., the European representative of the Oysa Ltd, to charter their
vessel to Oysa Ltd, a Ghanaian business venture not then incorporated. The agreement was
signed in Germany by brokers authorized by H.T. on behalf of the charterers; it was in the
English language. When Oysa Ltd was subsequently incorporated and the board of directors met,
H.T. was appointed chairman with authority to negotiate for loans or overdrafts. There was no
mention of intention to charter a ship and no appointment of a “European representative.” Oysa
Ltd later repudiated the charter party. H.T. subsequently left the company. JSP took the dispute
to arbitration in England where the sole arbitrator awarded damages for the repudiation of the
charter party. J.S.P then sought to enforce the award under Act 38.ss. 29 and 37 (1) but were met
with argument that the charter party was governed by English law and since Oysa Ltd was not in
existence at the time the charter party was signed and since HT had no authority to bind them, O.
Ltd were not liable. Counsel for J.S.P. argued that the law applicable was Ghana law , that by
section 13 of the Companies Code, 1963 (Act 179), ratification was possible, and that a letter
sent to J.S.P. by the managing director of Oysa Ltd. asking for a statement of account amounted
to such ratification.
It was held per AmuahSakyi J (as he then was) that the burden which lay on a claimant to prove
ratification under Act 38, s. 13 was a very heavy one. There should be a clear and unequivocal
act on the part of the company if ratification was to be inferred. Such an act might be a
resolution of the company in general meeting adopting the contract, or a resolution to the
same effect passed by the company in general meeting. A mere letter by the managing
director would be insufficient to amount to ratification unless there was evidence that he
was communicating a decision to ratify taken by the company in general meeting or by the
board of directors which had been confirmed by the company in general meeting.
PerAmuahSakyi J:
"As stated in the contract, English law applied so that the contract could not be ratified by
the company. He also said ratification must be a clear and an unequivocal act. “It seems
to me that although section 13 was enacted to obviate the hardship and inconvenience
which sometimes arises by a strict application of the English rules, the burden which lies
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on a claimant to prove ratification is a very heavy one. The case of In re Johannesburg

Hotel Co.; Ex parteZoutpansberg Prospecting Co. [1891] 1 Ch.119, C.A. may be
referred to. In that case, before the existence of the hotel company, two persons named
Tyler and Phelps executed a written contract which, upon the formation of the company,
was adopted and confirmed by the two gentlemen who really were the only active persons
in either company, but in the name of all the persons who signed the memorandum of
association. The question was whether the identity of the two gentlemen in question was
sufficient to establish the contractual assent of the prospecting company. In a judgment
in which Bowen L.J. concurred, Lord Halsbury L.C. said at p. 128:
"It may be (indeed, it certainly is so) that the companies were but nominees—puppets—
only intended to move as their manufacturers intended they should move, and had they by
resolution passed under such circumstances as to bind the company for which they were
then of pressing to act, I do not deny that the abstraction would be bound by formal acts,
however unreal might be the separate identity of each company. But persons who engage
in such transactions must at least make their puppets move in a legal manner. The
knowledge of and intention of the individual persons is nothing to the purpose. It is the
abstraction, the ideal legal personage, which is sought to be bound. Its whole nature is
artificial, and it can only be bound by such acts as it, in its abstract form, consents to be
bound by."
It seems to me that it is necessary that there be a clear and unequivocal act on the part of
the company if ratification is to be inferred. Such an act may be a resolution of the
company in general meeting adopting the contract, or a resolution to the same effect
passed by a meeting of the board of directors and confirmed by the company in general
meeting. I do not think that a letter signed by the managing director would be sufficient
unless there is evidence that he was communicating a decision to ratify taken by the
company in general meeting or by the board of directors which has been confirmed by
the company in general meeting.’
In Republic v High Court; Ex parteBrenya and Another [2001-2002] 1GLR 483, SC, the
respondent, Dolphyne, obtained judgment against one Brenya and Speedline Stevedoring Co. Ltd
(SS Co. Ltd) in the Circuit Court for ¢3 million damages for fraud and a declaration that he was a
member or shareholder and director of SS Co. Ltd. The said judgment was given in action in
which Dolphyne claimed that although he, the wife of Brenya and two others agreed to establish
SS Co. Ltd and he paid ¢15,000 for a licence to operate, Brenya, who was the secretary to the
company and charged with registering the company, fraudulently, registered only himself and his
wife as directors of SS Co. Ltd. An appeal by Brenya eventually reached the Supreme Court
which decided that the Circuit Court had no jurisdiction to determine matters concerning a
company registered under the Companies Code 1963 (Act 179) and therefore struck out the
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Circuit Court’s decision on the shareholding and the directorship but confirmed the damages
awarded to Dolphyne. Subsequently, Dolphyne issued another writ in the High Court against
Brenya, his wife and SS Co. Ltd claiming in addition to the relief previously claimed, perpetual
injunction restraining the defendants, their servants from interfering with the company and for an
order for a receiver and manager to be appointed. The wife of Brenya also sued Dolphyne and
Brenya in the High Court. The High Court dismissed the claims, and aggrieved by that decision
the applicant applied for a writ of certiorari to quash the decision of the High Court.
The Supreme Court held that under both the common law and section 13(1) and (2) of the
Companies Code 1963 (Act 179) no company could enter into a contract before he or it existed.
Thus, a contract or transaction made by a promoter on behalf of a company before its
incorporation would not bind the company on incorporation. In the instant case, the matters
Dolphyne complained of took place before the registration of Speedline Stevedoring Co. Ltd (SS
Co. Ltd) and consequently, since it was not established that the company expressly ratified the
pre-incorporation agreement to have Dolphyne as director and shareholder, the company could
not be held liable for the terms of that agreement.
ImpliedRatification
A pre-incorporation contract would be deemed to have been ratified because equity deems as
done that which ought to be done. This justifies the position that there can be an implied
ratification e.g. by conduct.
In Kumi v New World Investment Ltd [2003-2005] 1 GLR 203, Following the liquidation of
the Bank for Housing and Construction (BHC), some of the former employees of BHC formed a
trust and commissioned the defendant investment company to assist them to purchase some of
the assets of BHC to enable them operate as a bank. In pursuance of that objective the defendant
obtained the consent of the plaintiff and some other persons to invest in the project. The parties
then incorporated the Unique Access Bank Ltd (UAB) to carry out the project. Meanwhile, an
offer by the former employees to purchase some specified assets of BHC had been accepted by
the official liquidator. On the advice of the defendant, the plaintiff provided over ¢3.5 billion to
purchase those assets and at the request of the plaintiff they were vested in UAB. Subsequently,
as a result of disagreement between the plaintiff and the defendant over the composition of the
investors, the plaintiff withdrew from the project and demanded a refund of the money used in
purchasing the assets. The defendant was unable to refund the money and the plaintiff brought an
action against the defendant for inter, alia a declaration that the properties purchased with his
money belonged to him and recovery of possession of those properties.
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The court held that since on the evidence the assets of the liquidated Bank for Housing and
Construction (BHC) were purchased in the name of Unique Access Bank Ltd (UAB) with money
provided by the plaintiff prior to the formation and incorporation of the company, under section
13 of the Companies Code 1963 (Act 179) those properties could only become the
properties of the bank after the sale transaction had been ratified by the bank after its
incorporation. But on the evidence, the UAB had not passed any resolution ratifying and
thereby adopting the sale transaction and therefore could not claim those properties.
However, the offer to purchase the assets had been made by the official liquidator of the BHC to
the former employees of the BHC who had applied for them and to the knowledge of the plaintiff
there were other parties involved in the formation of the bank before he joined the project.
Besides, the plaintiff well knew that the assets he advanced the money to purchase were for the
banking project. In the circumstances, if the plaintiff were to take the assets the banking project
would collapse. But since that was not the intention for which he joined the project, a signed
application of the law would law would produce an injustice to the other partners of the plaintiff.
Accordingly, in order to mitigate the effect of the law, the principle of equity that equity
would deem as done that which ought to have been done would be applied and the
company would be deemed to have ratified the sale transaction. Accordingly, the assets had
become those of Unique Access Bank Ltd (UAB). The plaintiff was entitled to a refund by
the defendant of the whole amount he advanced for the acquisition of the assets. Since he
made no claim for a refund of the money, the court would suomuto amend the writ and include a
refund for the money and interest at the prevailing bank rate from the date he gave the money to
the date of payment.
Can the traditional doctrine of privity of contract as modified by Section 5 of the Contract,
1960 (Act 25) remove the obstacle to allowing a company to enforce a pre-incorporation
contract?
The Ghanaian position on pre-incorporation contract seems to be the direction that English have
drifted towards.
In Phonogram Ltd v Lane [1981] 3 I ALL ER 182, a group of pop artists intended to set up a
Company, Fragile Management Ltd but its performance will be under the name Cheap Mean and
Nasty. Lane negotiated and obtained a loan of 6,000 pounds on behalf of the yet to be formed
company. The company was never formed and the group never performed. Subsequently, Lane
was sued for the payment of the loan. It was that Lane was personally liable since he purported
to contract on behalf of a company not yet formed. How he expressed his signature was
immaterial. The Court of Appeal held that the fact that Lane had signed “for and on behalf of”
FM Ltd made no difference to his personal liability.
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At the Court of Appeal, Lord Denning, upon reviewing the English Common law including
Kelener v. Baxter and Newborne v. Sensolid, as well as the inroads made by section 9(2) of
the European Communities Act, 1972 concluded thus:
“If there was any express agreement that the man who was signing was not to be liable,
the section would not apply. But, unless there is a clear exclusion of personal liability, s.
9(2) should be given its full effect. It means that in all cases such as the present, where a
person purports to contract on behalf of a company not yet formed, then however he
expresses his signature, he himself is personally liable on the contract.”
TYPES OF COMPANIES
Section 7(1) of the Companies Act, 2019 (Act 992) provides that an incorporated company may
be:
a. a company limited by shares;

b. a company limited by guarantee;
c. an unlimited company; or
d. an external company.
I. Companies Limited by Shares
Section 7(2)(a) of the Companies Act, 2019 (Act 992) provides that 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.
Thus if a shareholder has fully paid up for the shares issued to him he cannot be called upon to
make any further payments in respect of shares held. However, if he has not fully paid up, he
may be called upon to make payment on an agreed date or in the event of distress or winding up.
A company limited by shares is a company that is formed to carry on business for the purpose of
making profit for its members. This means that the members of a company limited by shares are
to distribute profit generated from the business of the company among themselves. The portion
of a company’s profit that is legally distributed among its members is called dividend. When a
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company limited by shares winds up, its members are entitled to distribute the company’s net
assets among themselves. A company limited by shares is therefore a profit oriented company.
Another feature of a company limited by shares is that the personal liability of the members of
the company for the debts and liabilities incurred by the company, when the company is unable
to pay those debts and settle the liabilities, is limited to the amount unpaid on shares the
members hold in the company.
II. Companies Limited by Guarantee
Section 7(2)(b) of the Companies Act, 2019 (Act 992) provides that 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.
Thus members pledge funds not necessarily as a working capital, but as contribution to meeting
any shortfall in meeting the creditor’s requirement should the company have to wound up.
Section 7(8) of the Companies Act, 2019 (Act 992) provides that a company limited by
guarantee shall not for the purposes of incorporation be registered with shares and shall not
create or issue shares.
guarantee shall not be incorporated with the object of carrying on business for the purpose of
making profits other than making profits for the furtherance of its objects.
This means that members of a company limited by guarantee are not entitled to distribute the
profit generated by the company. They are also not entitled to distribute the net assets of the
company when the company wounds up.
Section 8(2) of the Companies Act, 2019 (Act 992) provides that 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.
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In spite of the above, it does not mean that companies limited by guarantee are prohibited from
making profit from their activities. They are permitted to make profits from their activities
except that such profit must not be distributed among their members but must be invested in the
activities of the company. When the company winds up, its net assets must be applied to some
charitable purpose or otherwise transferred to another non-profit company with similar objects.
Under Section 8(3) of the Companies Act, 2019 (Act 992), the total liability of the members of a
company limited by guarantee to contribute to the assets of the company in the event of the
company being wound up shall not at any time be less than the amount of money specified in the
application required for incorporation.
Section 8(4) of the Companies Act, 2019 (Act 992) provides that where in breach of subsection
(3), the total liability of the members of a company limited by guarantee is at any time, less than
the amount specified in the application required for incorporation, every director and member of
the company who is cognisant of the breach is liable to pay to the Registrar an administrative
penalty of five hundred penalty units.
III. Unlimited Liability Companies
Section 7(2)(c) of the Companies Act, 2019 (Act 992) provides that an unlimited company is a
company which does not have a limit on the liability of its members.
Thus where a company incurs debts and liabilities and is unable to settle them, the creditors are
entitled to pursue the members of the company to recover the debts. This is because members of
an unlimited liability company are personally liable without limit for the debts and liabilities of
the company. Every unlimited liability company is a profit oriented company and therefore,
normally formed to carry on business for the purpose of making profit for the members. Section
7(3) of the Companies Act, 2019 (Act 992) provides that a company limited by shares and an
unlimited company shall for the purposes of incorporation be registered with shares.
IV. External Companies
Section 7(2)(d) of the Companies Act, 2019 (Act 992) provides that an external company is a
company as defined in section 329.
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Section 329 (2) of the Companies Act, 2019 (Act 992) provides that an external company is a
body corporate formed outside the Republic which, has an established place of business in the
country.
Section 329 (3) of the Companies Act, 2019 (Act 992) provides that 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, 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.
Section 329 (4) of the Companies Act, 2019 (Act 992) provides that for the purposes of
subsection (3),
(a) a body corporate docs not have an established place of business in the Republic merely
because the body corporate carries on business dealings in the Republic through a
genuine broker or general commission agent acting in the ordinary course of business as a
broker or general commission agent; or
(b) the fact that a body corporate has a subsidiary which is incorporated, resident, or
carrying on business in the Republic, whether through an established place of business or
otherwise, does not of itself constitute the place of business of that subsidiary, an
established place of business of that body corporate.
The established place of business must be real and direct. Example, the fact that car
manufacturing companies such as Benz, Nissan, Kia, Toyota, etc. have dealers in Ghana do not
make them external companies in the light of the Act. On the other hand foreign companies such
as Coca-Cola, Barclays Bank, Stanbic Bank, etc. have real and direct presence in Ghana and
hence qualify as external companies
Mechanisms to Protect Native against External Companies
The Act has put in place certain mechanisms to ensure that the public is reasonably and
adequately protected from unscrupulous who may want to operate through the vehicle of external
companies.
For instance, section 333 requires the external company to deliver a number of documents and
information including their Regulations, nature of business, address of its principal office in
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country of origin and Ghana, etc. to the Registrar of companies within one month of
establishment in Ghana.
Section 332 requires persons named or appointed as local managers to be competent in

accordance with section 182 (the section governing the appointment of directors of local
companies). Also the section makes acts of the local manager binding on the external company
except where the person dealing with him knows that he does not possess the requisite authority.
Section 321 requires the Registrar to be noticed of any alteration in the documents and
information originally delivered, within 28 days, 1 month and 2 months respectively depending
on what is being altered.
PRIVATE AND PUBLIC COMPANIES
Section 7(4) of the Companies Act, 2019 (Act 992) provides that a company of a type specified
in subsection (l), may be a private company or a public company.
V. Private Companies
Section 7(5) of the Companies Act, 2019 (Act 992) provides that a private company, other than a
company limited by guarantee, is a company which by virtue of its constitution:
(a) restricts the right to transfer the shares of the company, if any,
(b) limits the total number of the members and debenture holders to fifty, not including
(i) persons who are genuinely in the employment of the company, and
(ii) persons who, having been formerly in the employment of the company, were
while in that employment, and have continued after the determination of that
employment to be members or debenture holders of the company;
(c) prohibits the company from making an invitation to the public to acquire shares or
debentures of the company; and
(d) prohibits the company from making an invitation to the public to deposit money for fixed
periods or payable at call, whether bearing or not bearing interest.
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Features of Private Company
i. Restriction on the right to Transfer Shares
The Constitution of a private company restricts the right for the company to transfer its shares.
Restriction does not necessarily mean prohibition. There are two ways by which the restriction
on transfer of shares operates:
(a) The Constitution of a private company may require that an existing member who wishes
to dispose of his shares should first offer to sell those shares to the existing members or
the company itself. If the existing members decline the offer, he may then offer to
dispose of them to an outsider. This is called in company law parlance, the right of pre-
emption or right of first refusal. Thus, the members of a company whose Constitution
provides for the right of the right of pre-emption or right of first refusal cannot dispose of
their shares in the company to an outsider without first complying with the requirement
of first refusal contained in the company’s Constitution.
(b) Another form of restricting a member’s right to transfer his shares in a company is for the
Constitution of the company to provide that the registration by the company of the
transfer of shares by its members to outsiders be subject to the approval of the directors
of the company. This means that even where members are free to dispose of their shares
to an outsider, the recognition of such transfer by the company is subject to the discretion
of the directors of the company. The rule is that a transfer of shares by the existing
members of a company has to be registered by the company in order for the transfer to
bind the company. The legal effect of the non-registration of a share transfer is that the
transferor, so far as the company is concerned remains the holder of the shares in
question.
ii. Restriction or Ceiling on membership
The Constitution of a private company limits membership and debenture holders to not more
than 50. The Companies Act, 2019 (Act 992) however, does not include current or previous
employees who have shares or debenture which was acquired in the course of their employment
in computing the number of members. This means that in the actual fact membership could be
more than 50. What matters here is that to be a private company, the constitution must give a
ceiling for membership. Though a public company can have less than 50 member, a private
company cannot stay private with more than 50 members.
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iii. Prohibition Public invitation for Shares or Debenture Acquisition
Companies may mobilize or raise capital to execute their business either form the general public
or through private arrangement by issuing shares or debenture. Private companies are prohibited
by law from raising capital from the general public either by issuing shares or debentures. Thus,
private companies cannot list on the Ghana Stock Exchange. The Stock Exchange is a market
for the public trading of shares and other securities. The purchase and sale of the shares of a
private company are conducted through private arrangements. There is, therefore, no readily
available market for the trading of the shares of private companies.
iv. Prohibition on taking deposits from the general public
Private companies are prohibited from inviting the general public to deposit money with them for
interest. This prohibition is meant to protect the public. The unique private nature of private
companies makes it inappropriate for them to invite the members of the public to keep deposit
with them. This is because the management of such companies is conducted in a closed manner
and with very little formalities. In addition, the activities of such companies are not subject to
such rigorous constitutions and the publicity as that public companies. This means that banks and
financial institutions cannot operate as private companies. Members are acquired to make their
own private arrangement for funds.
VI. Public Companies
Section 7(7) of the Companies Act, 2019 (Act 992) provides that a company which is not a
private company is a public company except a company limited by guarantee which has a
membership of fifty or less.
In effect a public company is “a company whose Constitution do not restrict the transfer of
shares, number of its membership and do not prohibit public invitation for the acquisition of its
shares and debenture as well as taking of deposits from the public.”
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CONSEQUENCES OF INCORPORATION
A number of legal consequences arise from the incorporation of a company. The consequences
distinguish an incorporated company from an unincorporated business entity.
1. Separate legal personality
One consequence of the incorporation of a company is that it acquires a legal status and
personality of its own, separate and distinct from its members and officers. It has a separate legal
existence in its own right. As a legal person, it has legal rights and obligations attributed to it. It
can act as an independent legal person by its name, the same way that natural beings do. The law
ascribes an artificial legal personality to the company which is distinct from its member its
member. The company can sue and be sued in its own name. The rights and liabilities of the
corporation belongs to it alone and as a general rule cannot be enforced by or against its
directors, agents or its members personally.
The locus classicus on the corporate personality is the English case of Salomon v Salomon &
Co. [1897] AC 22, HL, which established that upon incorporation, a company becomes a
separate legal entity, distinct from its members and capable of bearing rights and duties.
In Salomon v Salomon & Co. [1897] AC 22, HL, Mr. Salomon converted his sole proprietorship
business into a limited liability company. The company had seven members: Mr. And Mrs. Salomon
and their five children. Mr. Salomon had 20,001 shares, and Mrs. Salomon and the children had one
share each. Mr. Salomon had sold his business to the company at the inflated price of 38,782 pounds.
The company purported to pay for Mr. Salomon’s interest by the company allotting to him 20,000
shares at one pound each, making payment of 20,000 pounds. The company also issued him with
debentures of 10,000 pounds. The company then paid Mr. Salomon the balance of 8,782 pounds in
cash. Thus the company owed him 10,000 pounds since he was a debenture holder secured by a
charge on the company’s assets in his favour. Mr. Salomon and two of his sons were appointed
directors. Mr. Salomon was also the managing director of the company. Later on, however the
company faced difficulties and the company had to be wound up a year later. The value of the
company’s assets as realized was 6,000 pounds; but the company owed 7,733 pounds to unsecured
creditors and 10,000 to Mr. Salomon whose debt was secured as a debenture holder. If Salomon was
paid off for his debentures, the unsecured creditors would receive nothing, since the company’s debts
exceeded its assets. The creditors, quite naturally, sought to impugn Salomon’s apparent right to
receive payment. They argued that although incorporated, the company was a mere sham; it never
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had an independent existence and was in fact Mr. Salomon under a different name. They also argued
that the business still remained Mr. Salomon’s and that the company merely carried on business as
Mr. Salomon’s agent and consequently, Mr. Salomon as principal, owed the company as agent, the
duty to indemnify it (the company) against the liabilities incurred by it in the course of the agency.
The case went before a trial judge and later on to the Court of appeal and the House of Lords. The
House of Lords unanimously rejected these arguments of the creditors. Lord Halsbury said:
“I must pause here to point out that the statute enacts nothing as to the extent or degree of
interest which may be held by each of the seven or as to the proportion of influence possessed by
one or the majority of the shareholders over the others. One share is enough.
Still less is it possible to contend that the motive of becoming shareholders or of making them
shareholders is a field of enquiry which the statute itself recognizes as legitimate. If they are
shareholders, they are shareholders for all purposes; and even if the statute was silent as to the
recognition of trusts, I should be prepared to hold that if six of them were the cestuis que trust
for the seventh, whatever might be their rights inter se, the statute would have made them
shareholders to all intents and purposes with their respective rights and liabilities, and, dealing
with them in their relation to the company, the only relation which I believe the law would
sanction would be that they were corporators of the body corporate”.
Lord Halsbury at page 31 of the case: He said: “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”.
He also said it is impossible to say that there is a company and at the same time that it is not.
Lord Macnaghtenat page 51: “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”.
In In Morkor v Kuma (East Coast Fisheries) [1998-1999] SCGLR 620,the appellant was a
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main shareholder and director. The Supreme Court agreed with her under the circumstances.
2. Perpetual succession
Upon incorporation, the company enjoys perpetual succession or continuity of legal existence.
This means that, on incorporation, the company continues to exist in law even when its members
or officers die or cease to be associated with it. The only lawful processes by which the legal
existence of the company may terminate are winding up, liquidation and dissolution.
However according to section 41 of the Companies Act, 2019 (Act 992) 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.
In addition, section 171(1) of the Companies Act, 2019 (Act 992) provides that a company
incorporated after the commencement of this Act shall have at least two directors, one of these
directors being ordinarily resident in Ghana.
Section 171(2) of the Companies Act, 2019 (Act 992) provides that if at any time the number of
directors is less than two in contravention of subsection (1), and the company continues to carry
on business for more than four weeks after that time, the company, the director and each member
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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.
Thus, while as a matter of law, the non-existence of a member or an officer of a company does
not affect the continuous legal existence of the company as an entity, if that non-existence
reduces the number of members or directors of the company below the statutory minimum
number, the company cannot carry on business.
3. Capacity to sue and be sued
A company, as a legal being, can sue in its name and be sued in its name. A company is sued
when it breaches its legal obligations, these obligations may result from a contract 1, tort2 or
statute. A company can also sue for the purpose of acts of the company simply because the
person being sued is a member or an officer of the company. In the same vein, it will be legally
wrong for a member of a company or its officer to sue another person in his or her name rather
the name of the company simply because he or she is a member of the company or its officer.
It is however, important to note that because a company is not a real being, and for that reason
cannot act by itself, it is natural beings that act for it. When these persons act for the company, it
is the company that acts. Any liability or obligations incurred by them while acting for the
company is attributable to the company. likewise any right acquired by them while acting for the
company is for the company.
In Owusu v R.N. Thorne Ltd (1966) GLR 90, the plaintiff-applicant sued the first defendant, a
limited liability company and the second defendant, its agent. By an ex parte application he
obtained an absconding warrant against one R.N.T. who, together with his wife were the only
directors of the first defendant company, on the grounds that they had closed the company
offices and sold their property and that R.N.T. was going on leave and was not likely to return to
1
The company’s contractual rights and duties are not those of its members The concept of limited liability relevant
here – See Re Southard & Co Ltd [1979] 1 WLR 1198.
2
The company’s rights and liabilities in tort are not those of its members Foss v Harbottle (1843) 2 Hare 461 (the
proper plaintiff rule). Williams v Natural Life Health Foods [1998] 1WLR 830 (House of Lords view on
policy). Compare with Standard Chartered Bank v Pakistan National Shipping Corp [2002]. BCC 846
(fraud).
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Ghana. He therefore prayed for an order that R.N.T. be ordered to furnish personally bail for
appearance under Order 35, r. 2. The court held that the company existed apart from the directors
and members. R.N.T. was not sued personally and he was therefore not a defendant within the
meaning of Order 35, r. 2 for the court to go into the question of security.
Justice Mensa Boison dismissing the application stated that:
“What the court has to determine in this motion is whether R. N. Thorne personally or the
company is the first defendant in this case. The theory of legal personality of
corporations has its own practical problems but it is clear that a limited company or
corporation has legal existence apart from the directors and members, and it is in a few
recognised exceptions that the law lifts the "corporate veil," as it has been put, and looks
to the directors and members personally…… It may well be and undoubtedly is true that
R. N. Thorne and his wife are the only directors of the company but the company exists
apart from the directors and the members. To hold that the directors are personally the
first defendant in this case will be defeating the doctrine of the separate existence of a
limited liability company. The action is not against R. N. Thorne personally.”
In Bank of West Africa v. Appenteng (1972) 1 GLR 153, the plaintiffs were the only
shareholders in a trading company. As a result of financial advice given negligently by the first
defendants, the company lost heavy sums of money and was subsequently wound up. The
plaintiffs, alleging that as shareholders they have lost "their business interests and yearly profits
and dividends" sued the first defendants and two of their agents in negligence, claiming
damages, special damages and general damages. 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. In any case she was estopped from bringing this action as a similar
unsuccessful suit had been brought against the appellants by other shareholders of the same
company in respect of the same subject-matter of which the second respondent was aware but
did nothing.
4. Capacity to acquire and own property
On incorporation, a company acquires the legal capacity to acquire and own property in its name.
Such property belongs to it and form parts of its assets to be used for the purpose of carrying on
its business activities. A company’s property does not therefore belong to the members of the
company or its officers. Consequently, the members of the company cannot use the property of
the company for their personal use without lawful permission from the company. to do so can
amount to stealing or misappropriation of company assets.
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In Macaura v Northern Assurance Co [1925] AC 619, MrMacaura was the owner of the
Killymoon estate in Tyrone County. He agreed to sell to the Irish Canadian Saw Mills Ltd, all
the timber, both felled and standing on the estate in return for the entire issued share capital of
the company to be held by himself and his nominees. Later on, a policy insuring the timber was
taken out in the name of MrMacaura and soon thereafter, fire destroyed the timber on the estate.
MrMacaura then sought to claim under the policy he had taken out. The Insurance Company
contended that he had no insurable interest in the timber as the timber belonged to the company
and not to MrMacaura. The House of Lords agreeing with the Insurance Company found that the
timber belonged to the company and that MrMacaura, even though he owned all the shares in the
company, had no insurable interest in the property of the company.
Lord Wrenbury stated very aptly that a member “even if he holds all the shares, he is not the
corporation and neither he nor any creditor of the company has any property legal or
equitable in the assets of the corporation”.
In Majdoub& Co. Ltd. v. Bartholomew & Co. Ltd. [1962] 1 GLR 122, the defendants took
action against a partnership, Fattal and Majdoub& Company, for an amount being balance of
accounts. Whilst the action was pending the partnership was dissolved. A limited liability
company, the plaintiffs herein, was formed to take over the business, assets and liabilities of the
partnership. Mr. A. R. Majdoub who was a partner in the firm became the managing director of
the company. The solicitor of the company wrote to the defendants that the company had agreed
“to pay all the just liabilities due by Fattal and Majdoub& Company to your company at
Kumasi" and that in due course an application would be made to the court "for a substitution of
their name for that of Fattal and Majdoub& Company in respect of any pending actions in any
such courts". No such application was made, and the defendants entered judgment against the
firm for the amount claimed, with costs. In execution of the judgment, the defendants caused the
store formerly belonging to the firm and now belonging to the plaintiffs to be attached. The
plaintiffs instituted the instant action for damages for unlawful attachment.
The court held that having been duly incorporated as a company, the plaintiffs had the right to
acquire and own property in its name. it was therefore wrong in law for the judgment creditors
to seek to sell the property that once belonged to the partnership but which later was acquired by
the company.
The assets acquired by a company or in its name belong to the company and not to its members
or officers. Property acquired by or in the name of a company is to be used to carry out the
activities of the company and not for the personal use of its members or officers.
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In Kumi v. New World Investment Ltd [2003-2005] 1 GLR 203, the court stated that:
“It is a consequence of incorporation that the property of the association is distinguished

from that of its members. That which is private property is different form that which
belongs to the company or vice versa. The members have no propriety rights to the
company’s property except as to their shares.’’
In Sanyo Electric Trading Co v. Quarcoopome [2001-2002] 2 GLR 198, the defendant

company, a foreign company incorporated in Japan, and the Government of Ghana were joint
owners of the shares in the Ghana Sanyo Co Ltd. The plaintiff brought an action against the
defendant company, for inter alia, damages for breach of an oral contract under which he had
rendered services as director of Ghana Sanyo Co Ltd since 1970 but for which he had not been
paid agreed remuneration. Subsequently, he brought an application for an interest in Ghana
Sanyo Co Ltd pending the final determination of his action. Conditional appearance to the writ
and applied for the plaintiff’s action to be dismissed on the ground that it only owned shares in
Ghana Sanyo Co Ltd and since it was neither requested nor carried on business in Ghana, the
writ served on it without the leave of the court was incompetent and therefore the court had no
jurisdiction over the case.
The court held that although a shareholder owned a cluster of rights in a company whose
shares he had subscribed to his ownership of the shares did not constitute part ownership
of the assets of the company. The assets of an incorporated company were wholly owned by
the company which is a separate legal entity entirely different and disparate from its
shareholders. Accordingly, in the instant case, the defendant’s rights as a shareholder in Ghana
Sanyo Co Ltd were limited to its right to vote, attend meetings and receive dividends and did not
make it part owner of the assets of Ghana Sanyo Co Ltd. accordingly the defendant did not carry
on business in the country through Ghana Sanyo Co Ltd.
5. Capacity to enter into legal relations
On incorporation, a company acquires the legal capacity to enter into legal relations including
contracts in its name. in this regard, a company can enter into contracts even with its members or
officers. Rights acquired or obligations assumed under any legal relations to which the company
is a party are personal to the company and its members or officers.
In Lee v Lee Air Framing Ltd [1961] AC 12, the appellant was the widow of the deceased who
had been the governing director and majority shareholder in the respondent company. The
deceased had absolute control of the affairs of the company. Being a skilled pilot, the deceased
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entered into a contract of employment with the defendant company to pilot the aircraft which
was used in spraying crops. The company was one that specialized in spraying crops for
customers. The deceased met his death following a crash he suffered while piloting the aircraft.
The widow claimed compensation for his death from the company under the Australian
Workmen compensations Act on the basis that her husband was a worker of the company. The
company denied this and the matter went to the court of Appeal after the court of first instance
denied the claim of the widow. The widow appealed to the Privy Council.
It was held that a company may make a valid and effective contract with one of its members as
the company is distinct and separate from its members. Therefore it was possible for a person
(Mr. Lee) to be at the same time wholly in control of a company as its principal shareholder and
sole director whilst at the same time be an employee of that company. Mr Lee therefore wore
three hats as far as the company was concerned. First, he was the vast majority shareholder;
second, he was the sole governing director for life and finally he was an employee of the
company.
The Privy Council held, emphasizing that the company and Mr Lee were distinct legal entities
and therefore capable of entering into legal relations with one another. As such they had entered
into a contractual relationship for him to be employed as the chief pilot of the company. They
found that he could in his role of governing director give himself orders as chief pilot. It was
therefore a master and servant relationship and as such he fitted the definition of ‘worker’ under
the Act. The widow was therefore entitled to compensation.
According to the Privy Council:
“There appears to be no greater difficulty in holding that a man acting in one capacity can
give ordered to himself in another capacity than there is in holding that a man acting in
one capacity can make a contract with himself in another capacity. ... The right to control
existed even though it would be for deceased in his capacity as agent for the company to
decide what orders to give. The right to control existed in the company, an application of
the principles of Salomon’s case demonstrates that the company was distinct from the
deceased.”
In Morkor v Kuma (East Coast Fisheries) [1998-1999] SCGLR 620, the court held that the
Chief Executive officer could not be sued in respect of a contract entered into by the company
even though she was a member and officer of the company. The company had a separate legal
existence and was thus personally responsible for its debts and other obligations.
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6. Capacity to borrow and create charges over corporate assets
A company has the legal capacity to borrow in its name. This capacity enables the company to
raise capital to carry out its business activities when its members are not in a position to provide
such capital. The capacity of a company to borrow is enhanced by its ability to provide credible
security for the payment of debts. One of the methods by which companies provide security for
the payment of debts owed by them is to create a charge over their assets. A charge is simply an
arrangement by which a company uses its assets as security for the payment of its debts and
liabilities. The legal capacity of a company to acquire and own assets in its name distinct from
the assets of its owners enhances its creditworthiness as such, assets can always be used to secure
debts created by it.
7. Taxable unit
A consequence of incorporation is that the company becomes a taxable unit separate and distinct
from its members and officers. Thus, a company pays corporate tax on its earnings. Its members
pay tax on dividends they receive as their share of the company’s profit. The company’s officers
pay tax on their earnings as well.
8. Transferability of Shares
Shares represent a bundle of interests and rights to the shareholder and those rights and interests
can be transferred to other persons. Transfer of shares can add to liquidity. The ease with which
one can sell his shares makes the shares (company) more attractive. Transfer of shares may be
restricted in some cases with respect to public companies. With respect to private companies,
restrictions must be contained the companies regulations.
THE VEIL OF INCORPORATION
From the juristic point of view, once incorporated, a company becomes a legal person distinct
and separate from its members [Salomon v. Salomon and Co. Ltd. (1897) A.C 22]. This
principle may be referred to as the ‘Veil of incorporation’. The courts in general consider
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themselves bound by this principle. The effect of this Principle is that once incorporated, there is
a fictional or figurative veil between the company and its members.
In Morkor v Kuma (East Coast Fisheries) [1998-1999] SCGLR 620,the appellant was a
main shareholder and director. The Supreme Court agreed with her under the circumstances.
In Appenteng& others v Bank of West Africa Ltd & others, the plaintiffs were the only
shareholders in a trading company, Mpotimma Ltd. As a result of financial advice given
negligently by the first defendants, the company lost heavy sums of money amounting to £G47,
000 and was subsequently wound up. The plaintiffs, alleging that as shareholders they have lost
"their business interests and yearly profits and dividends" sued the first defendants and two of
their agents in negligence, claiming, as damages, the £G47, 000 as special damages, and £G100,
000 general damages. The question here was whether the plaintiffs fell within the exceptions to
permit them to sue. It was held that a company is a distinct personality, having an existence
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separate from its shareholders. The shareholders cannot sue in respect of a wrong done to the
company, unless it can be shown that the wrong is against the individual rights of the
shareholdersas distinct from the corporate rights of the company. In this case the loss of
£G47, 000 is a loss to the company not to the shareholders, and the plaintiffs have no cause of
action. At page 201 Ollenu J (as he then was) posited that:
“In law the company is a separate legal personality quite distinct from its members; the
members are not even collectively the company….the company is not an agent of its
members…….but the directors of the company are agents of the company: Re Faure
Electric Accumulators Co [18880 40 Ch. D141……they are however, not agents of the
shareholders: Gramophone & Typewriter Ltd v Stanley [1908] 2 KB 89 @106Therefore
in the transaction with the directors, the only person who in law could be a neighbour
entitled to a duty of care from the defendants is that legal entity, Mpotimma Ltd., and not
the members thereof or any of them.. ”
Lifting/piercing the Corporate Veil
Though the Salomon principle (i.e the company has a corporate personality which is distinct
from its members), is to a large extent, strictly adhered to by the Courts. However, in a number
of exceptional circumstances, the Court will pierce the corporate veil or will ignore the corporate
veil to reach the person(s) behind the veil or to reveal the true form and character of the
concerned company.
The rationale behind this is to prevent the corporate form from being misused or abused. In those
circumstances in which the Court feels that the corporate form is being misused it will rip
through the corporate veil and expose its true character and nature disregarding the Salomon
principleas laid down by the House of Lords.
Thus, the law, in those exceptional circumstance, ignores the separate legal personality status and
ascribe liability to various individuals or corporate bodies related to it. When this happens the
corporate veil is said to have been lifted.
In effect, the veil of incorporation is lifted or pierced when the law permits individuals and
related companies (such as subsidiaries, parent companies, etc.) of a subject company to be held
responsible, whether jointly with the subject company, for acts done by or in the name of the
subject company.
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In Littlewoods Mail Order Stores Ltd v. Inland Revenue Commissioners[1969] 1WLR

1241, Denning observed as follows:
“The doctrine laid down in Salomon v. Salomon and Salomon Co. Ltd, has to be
watched very carefully. It has often been supposed to cast a veil over the personality of a
limited liability company through which the Courts cannot see. But, that is not true. The
Courts can and often do draw aside the veil. They can and often do, pull off the mask.
They look to see what really lies behind".
This is also confirmed by Sophia Akuffo JSC in Morkor v Kuma (East Coast Fisheries)
[1998-1999] SCGLR 620 at page 632 when she said:
“The corporate barrier between the company and the persons who constitute it or run it
may be breached only under certain circumstances. These circumstances may be
generally characterised as those situations where, in the light of the evidence, the
dictates of justice, public policy or the Companies Act itself so requires. It is impossible
to formulate an exhaustive list of the circumstances that will justify a lifting of the
corporate veil. However, the authorities indicate that such circumstances include where
it is shown that the company was established to further fraudulent activities or to avoid
contractual liability”
In Akoto v Akoto [2011] 1 SCGLR 533, the Appellant and the Respondent were married in
Ghana by custom in July 1974. In 1976 they converted their marriage into a monogamous
marriage under ordinance in Cambridge England. They lived together in England and acquired
immovable properties there. They also acquired immovable properties in Ghana. The husband
set up limited liability companies in Ghana and invested moneys acquired from the properties in
Ghana in the said companies. And without the knowledge of the wife, the husband used the
property jointly acquired with the wife in London to take loans which he deliberately refused to
service and thereby allowed the properties to be re-possessed by lending financial institutions. In
1977, the husband filed a petition in Ghana for the dissolution of the marriage. The wife also
cross-petitioned and claimed, inter alia, for a declaration that she was a joint owner of the
immovable properties both in Ghana and in England. The trial High Court ordered that certain
properties registered in Ghana in the name of a limited liability company of which the wife was
neither a shareholder nor a director be transferred to the wife. The husband’s appeal to the Court
of Appeal was dismissed. The husband appealed to the Supreme Court.
The Supreme Court held that a corporation or a limited liability company would be looked
upon as a legal entity as a general rule but when the notion of legal entity is used to defeat
public convenience, justify wrong, protect fraud, or defend crime, the law will regard the
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corporation as an association of persons. In the instant case, there was no doubt from the
evidence that in respect of the properties owned jointly by the couple, the Appellant (the
husband) stood in a fiduciary relationship with the Respondent (the wife). What the
Appellant did amounted to converting the joint properties in Ghana, into money and
putting the money into his companies for the operation of the companies and for his
exclusive benefit. In the circumstances the trial High Court had been precluded by any principle
of law or equity from ordering that certain properties registered in the name of one or the other of
the companies be given to the Respondent.
In Worldwide Shipping and Agencies (GH) Ltd v Darko [2001-2002] 2 GLR 488,C.A,
Brobbey J.A (as he then was, his other brethren concurring), quoted with approval the views of
Sanborn J in United States v Milwaukee Refrigeration Transit Co, 142 Fed 247 at 255
(quoted in Pennington’s Company Law (3rd ed), p.51 reflecting the position of the American
courts as follows:
“… A corporation will be looked upon as a legal entity as a general rule … but when the
notion of legal entity is used to defeat public convenience, justify wrong, protect fraud, or
defend crime, the law will regard the corporation as an association of persons.”
How to lift the veil of incorporation
Broadly speaking, there are two types of provisions for the lifting of the Corporate Veil, namely:
a. Judicial Provisions i.e. by common law and
b. Statutory Provisions.
Piercing/lifting the veil under statutory provisions can also be considered under the two headings
of:
a. Lifting the veil under Companies Act, 2019 (Act 992), and
b. Lifting the veil under other statutes.
Lifting the veil by judicial provisions/by Court/ Common Law
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Generally, the Courts seek to observe the rule established by Salomon’s case.However, on
exceptional occasions the courts are prepared to lift the veil either by applying the statutes
already discussed or through common law.
Almost all the modern analyses of the general principle have taken as their starting point the
brief and obiter but influential statement of Lord Keith of Kinkel in Woolfson v Strathclyde
Regional Council 1978 SC(HL) 90. This was an appeal from Scotland in which the House of
Lords declined to allow the principal shareholder of a company to recover compensation for the
compulsory purchase of a property which the company occupied. The case was decided on its
facts, but at p 96, Lord Keith, delivering the leading speech, observed that “it is appropriate to
pierce the corporate veil only where special circumstances exist indicating that it is a mere
facade concealing the true facts.”
In that case, A compulsory purchase order made in 1966 by Glasgow Corporation, the respondents’
predecessors as highway authority in that city, provided for the acquisition of certain shop premises
in St George’s Road, the date of entry being 29 January 1968. Nos. 57 and 59-61 St George’s Road
were owned by the first-named appellant Solomon Woolfson (“Woolfson”) and Not. 53-55 were
owned by the second-named appellant Solfred Holdings Ltd. (“Solfred”), the shares in which al
all material times were held as to two-thirds by Woolfson and as to the remaining one-third by his
wife. The whole of the shop premises was occupied by a company called M. & L. Campbell
(Glasgow) Limited (“Campbell”) and used by it for the purpose of its business as costumiers
specialising in wedding garments. The issued share capital of Campbell was 1,000 shares, of which
999 were held by Woolfson and one by his wife. Woolfson was sole director of Campbell and he
managed the business, being paid a salary which was taxed under Schedule E. His wife also worked
for Campbell and provided valuable expertise. Campbell was throughout shown in the valuation
roll as occupier of the shop premises, but its occupation was not regulated by lease or any other
kind of formal arrangement. Draft leases were at one time prepared, bill they were never put into
operation. From 1952 until 1963, when Schedule A taxation was abolished, payments by way of
rent for Nos. 59-61 51 George’s Road were credited to Woolfson in Campbell’s books. No rent
was ever paid or credited in respect of No. 57 St George’s Road. From 1962 till 1968 Campbell
paid rent to Solfred in respect of Nos. 53-55 St George’s Road. Various financial arrangements
were entered into between Woolfson and Campbell, but it is unnecessary to go into the details of
these. There can be no doubt, and it is not now disputed by the appellants, that Campbell was
throughout the occupier of the shop premises and that the business carried on there was that of
Campbell.
The court held the appellants were not entitled to compensation as no special circumstances existed
which warranted the lifting of the veil.
In Trustor AB v Smallbone (No 2) [2001] 1 WLR 1177, Sir Andrew Morritt V-C reviewed
many of the same authorities. Mr Smallbone, the former managing director of Trustor, had
improperly procured large amounts of its money to be paid out of its account to a company called
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Introcom Ltd, incorporated in Gibraltar. Introcom was owned and controlled by a Liechtenstein
trust of which Mr Smallbone was a beneficiary. Its directors acted on his instructions. At an earlier
stage of the litigation, Trustor had obtained summary judgment on some of its claims against
Introcom, on the footing that the payments were unauthorised and a breach of Mr Smallbone’s
duty as managing director, that the company was “simply a vehicle Mr Smallbone used for
receiving money from Trustor”, and that his knowledge could be imputed to the company. The
Vice-Chancellor was dealing with a subsequent application by Trustor for summary judgment
against Mr Smallbone himself. It was accepted that there was an arguable defence to the claims
against him for damages or compensation for breach of his duties as a director of Trustor.
Accordingly the sole basis of the application was that he was liable to account as a constructive
trustee on the footing of knowing receipt. This depended on the proposition that he was to be
identified with Introcom and so treated as having received the money himself. It was submitted
that the authorities justified piercing the corporate veil in three, possibly overlapping, cases: (i)
where the company was a “facade or sham”; (ii) where the company was involved in some form
of impropriety; and (iii) where it was necessary to do so in the interests of justice. In each of
these cases, the right of the court to pierce the corporate veil was said to be subject to there being
no third party interests engaged, such as unconnected minority shareholders or creditors.
In Prest v. Petrodel Resources Ltd, [2013] UKSC 34, the case arose out of the matrimonial court
of England where Prest who was married to Michael sued since 1993 filed for divorce proceedings
against the husband. Mrs. Prest obtained a nisi decree for the divorce and for an order as the share
of the proceeds of the marriage. A dispute however arose as to whether the the proceeds of Petrodel
Resources Ltd, which were companies and subsidiaries owned by Mr. Micheal could attached for
the purposes of sharing same. The trial judge ordered that some of the proceeds of Company to be
given to Mrs. Prest, the Companies dissatisfied with the said ruling appealed to the court of appeal
and the appeal was allowed, Mrs Prest appealed was thus made to the Supreme Court.
Lord SUMPTION in reviewing the authorities on lifting the corporate veil underscored thus:
The difficulty is to identify what is a relevant wrongdoing. References to a “facade” or “sham”

beg too many questions to provide a satisfactory answer. It seems to me that two distinct
principles lie behind these protean terms, and that much confusion has been caused by failing
to distinguish between them. They can conveniently be called the concealment principle and the
evasion principle. The concealment principle is legally banal and does not involve piercing the
corporate veil at all. It is that the interposition of a company or perhaps several companies so
as to conceal the identity of the real actors will not deter the courts from identifying them,
assuming that their identity is legally relevant. In these cases the court is not disregarding the
“facade”, but only looking behind it to discover the facts which the corporate structure is
concealing. The evasion principle is different. It is that the court may disregard the corporate
veil if there is a legal right against the person in control of it which exists independently of the
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company’s involvement, and a company is interposed so that the separate legal personality of
the company will defeat the right or frustrate its enforcement. Many cases will fall into both
categories, but in some circumstances the difference between them may be critical. This may be
illustrated by reference to those cases in which the court has been thought, rightly or wrongly,
to have pierced the corporate veil.
Lady Hale on her part delivered at para 92 thus: I am not sure whether it is possible to classify
all of the cases in which the courts have been or should be prepared to disregard the separate
legal personality of a company neatly into cases of either concealment or evasion. They may
simply be examples of the principle that the individuals who operate limited companies should
not be allowed to take unconscionable advantage of the people with whom they do business. But
what the cases do have in common is that the separate legal personality is being disregarded in
order to obtain a remedy against someone other than the company in respect of a liability which
would otherwise be that of the company alone (if it existed at all). In the converse case, where it
is sought to convert the personal liability of the owner or controller into a liability of the
company, it is usually more appropriate to rely upon the concepts of agency and of the “directing
mind”.
The court held that the companies in question were merely held in trust for and on behalf of Mr.
Micheal and thus concealed the true facts as to who the real owners was. Accordingly, the court
looked behind the corporate veil to see who the real owners were and to discover the true facts.
The appealed was thus allowed.
In Morkor v. Kuma (East Coast Fisheries Case)[1998-1999] SCGLR 620, Akuffo JSC
reviewed some of the leading cases on lifting the veil. This case had to do with whether the
corporate veil should be lifted in order to make a CEO of a company personally liable.Her
Ladyship, in an attempt to state some of the grounds under which the court at common law
would lift the veil, stated that
“[W]here there is any other proven factor driving the case, such as fraud, improper
business conduct, deliberate attempts at evasion of legal obligations, or other devices or
wilful misdeeds on the part of the appellant, which would have justified lifting the veil in
order to reach the appellant for redress?”
From the authorities so far, the Courts will lift the corporate if the following situation occur:
i. If the court is satisfied that the company is the alter ego of a particular person
ii. Improper business conduct
iii. Wilful misdeeds
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iv. To avoid fraud
v. To avoid a scheme to evade contractual obligations
vi. Negotiating an agreement on one’s own behalf
vii. Securing an immediate personal benefit from a corporate transaction
viii. To avoid trading with the enemy
ix. To treat a group of associated companies as one and not several.
1) Fraud or improper conduct
The Courts have been more than prepared to pierce the corporate veil when it feels that fraud is
or could be perpetrated behind the veil. The Courts will not allow the Salomon principle to be
used as an engine of fraud.
The principle was stated in its most absolute form by Denning LJ in a famous dictum in
Lazarus Estates Ltd v Beasley [1956] 1 QB 702, 712:
“No court in this land will allow a person to keep an advantage which he has obtained by fraud.
No judgment of a court, no order of a Minister, can be allowed to stand if it has been obtained
by fraud. Fraud unravels everything. The court is careful not to find fraud unless it is distinctly
pleaded and proved; but once it is proved, it vitiates judgments, contracts and all transactions
whatsoever…”
In Jones v Lipman [1962] 1 All ER, [1962] 1 WLR 832, the defendant had contracted to sell
his house to the plaintiff. Later, however, he changed his mind and sought to avoid completion of
the agreement by conveying the house to a company that had always been under his complete
control. The plaintiff brought an action for an order of specific performance against either the
defendant or the company. Russell J at 836 found that the company was “a device and a sham, a
mask which [the defendant] holds before his face in an attempt to avoid recognition by the
eye of equity.”
InAmartey v. Social Security Bank (1987-88) GLR,the plaintiff was the chairman and
managing director of a limited liability company. The company borrowed some money from the
defendant (respondent) bank. The loan was secured by the managing director mortgaging one of
his houses to the bank. The loan was also guaranteed by the managing director and a friend of
his. Upon notice of repayment, (in his capacity as the managing director of the company) the
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plaintiff failed to comply with the repayment order and the bank applied for a judicial sale of the
mortgaged property. After the sale the bank realized that the amount was not enough to pay off
the amount owed by the plaintiff. The bank therefore obtained the court’s permission to attach
the plaintiff’s other two houses to sell to recover the balance outstanding. The houses were thus
sold and the plaintiff appealed to the Court of Appeal for a nullification of the sale of his
immovable properties on the basis that he had not been properly notified in his capacity as
mortgagor of the property.
The court held per Ampiah J.A (as he then was) that it was an undisputable fact that the
plaintiff, as mortgagor, was also the chairman and managing director of the company. The court
also found that he had received the letter and replied to it. The court held that it was improper for
the director to feign ignorance of the notice simply because it was sent to him in his capacity as
the managing director (even though he was the mortgagor) and that such conduct amounted to
fraud for which the corporate veil would be lifted. Thus, the mortgaged property along with the
others that were subsequently sold was held to have been properly sold.
In Tafa& Co. (Ghana) v Tafa& Co. Ltd [1977] 1 GLR 422, the plaintiff company sued for
commissions due to them for promoting the business of the defendants, a foreign company,
doing business in Ghana, by their president-director, who held himself out as being a substitute
for the defendant company and had complete control over the company. The writ of summons
was served on the president-director; he was also arrested on an absconding warrant and ordered
by the trial court to give bail for his appearance with three sureties. The defendant company
entered appearance under protest and filed the instant application to dismiss the plaintiffs' claim
on the grounds, inter alia, that (a) the writ had been issued in the name of a wrong person, i.e. a
non-existent company and (b) the bail for appearance exacted from the president-director of the
defendant company was invalid because the action was not against the president-director
personally but against the defendant company, a limited liability company¬, a legal person,
distinct from the president-director.
The court held that in the case of an artificial person such as the defendant company, a foreign
company, the fact that it has been carrying on business in the country, gave the court jurisdiction
over it. And since the president-director of the defendant-company had been carrying on business
in the country on behalf of the company, it being under his complete control, service of the writ
of summons on him within the jurisdiction was proper. Consequently, the bail for appearance
exacted from him by the issue of the absconding warrant was valid.
In In Re Bugle Press Ltd [1961] I CH 270, the plaintiff was the minority shareholder of a
company. The defendants were the majority shareholders of the company. They held between them
90% of the shares of the company. Under a provision in the English Companies Act, 1948, a
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transferee company upon the approval of the majority shareholders and directors could make an
offer to buy all the shares of the transferor company. If that offer was accepted by the majority of
shareholders in the transferor company, the dissenting minority shareholder could be compelled to
sell his shares to the transferee company upon being given reasonable notice by the transferor
company. In this case it turned out that the majority shareholders in the transferor company
incorporated a new company which was the transferee company with themselves as the majority
shareholders and directors. They then sought to buy all the shares of the transferor company of
which they were the majority shareholders. Of course this was agreed to by the transferor company
since they were the majority shareholders. The minority shareholder however resisted this. Notice
was given the minority shareholder of their intention to compulsorily acquire his shares by the
transferee company. The minority shareholder applied to the court of first instance which found
that the section of the Act would not apply because the majority shareholders were the same people
who were also the people behind the transferee company. Again the court of first instance held
that the onus was on the defendants to prove that the offer given to the minority shareholder was
fair. The defendants appealed to the court of appeal.
The Court of Appeal held that the minority shareholder could not have his shares expropriated by
the transferee company. The reason for this judgment was because the same people were behind
the transferee company and the court felt that the transferee company was “nothing but a little hut
built around the two majority shareholders” for the purpose of expropriating the shares of the
minority shareholder (respondent in the court of appeal). They held that the section would only
apply where the transferee company was in fact as well as substance different from the transferor
company. In other words, the court lifted the corporate veil and found that the same people were
behind the transferor company and the transferee company. In this case the section would not apply
and the minority shareholder could not have his shares expropriated.
In Re Darby, Darby and another both had several convictions for fraud (undischarged bankrupt).
In order to evade detection they formed a company and they were the only two directors, outside
England. This company then promoted a company in England. Company failed and an action
was brought against Darby and another and they argued that they did not promote the company
but that it was the company they formed that promoted the company in issue. Darby and his
colleague were perpetrating a fraud. The fraud was that what they did through the corporation
they did themselves and represented it to have been done by a corporation of some standing and
position, or at any rate a corporation which was more than and different from themselves.
In Ord v. Belhaven (MR), the properties of a subsidiary company were transferred to the parent
company as a result of corporate restructuring. After the transfer the subsidiary company ceased
trading. Before the transfer, the plaintiff had sued and the plaintiff brought an action that the
parent company be substituted for the subsidiary so that judgment could be enforced. On appeal
the court held that in the absence of any impropriety, sham or concealment in the restructuring of
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a group of companies it would be wrong to lift the corporate veil in order to make the parent
company liable instead of the subsidiary company itself, if it is part of normal business
transaction.
In Yukong Line Ltd of Korea v. Rendsburg Investment of Liberia [1998] 2 BCLC 485, The
sole shareholder of the defendant company, had caused the defendant company Rendsbury to
transfer most of its funds to another of his companies so that it would not in a position to meet
any award of damages that might be made against it. The judge refused to lift the veil because
he thought there were other ways to recover the funds. The court also followed the reasoning in
Adams v. Cape Industries that the corporate veil will not be lifted merely to meet the ends of
justice.
2) To avoid trading with the enemy
The courts may go behind the veil in order to determine whether a company is to be
characterised as an ‘enemy’ in time of war. A company may assume an enemy character when
persons in de facto control of its affairs are residents in an enemy country. In such a case, the
Court may examine the character of persons in real control of the company, and declare the
company to be an enemy company.
In Daimler Co. Ltd v. Continental Tyre And Rubber Co. (Great Britain) Ltd [1916] 2 AC
307 (HL),the respondent company was incorporated in England. However, all of its shares were
held by German residents, except for one share held by the secretary who resided in England.
Furthermore, all of its directors were German residents. This was during the First World War.
The issue was whether the respondent could sue and recover a debt from the appellant in
England. The House of Lords held in the negative. It stated that the company, like a natural
British national, could assume an ‘enemy character’, which it in fact did, given the circumstances
of the case
The applicability of this case in modern times, or at least in Ghana, is quite doubtful. This
observation is made based on the fact that the Companies Act, 2019 (Act 992), does not
discriminate against companies on grounds of whether or not they are incorporated in countries
with whom Ghana has international enemy or friendly relations (see the provisions of Chapter V
of the Companies Act, 2019 (Act 992), on external companies). Therefore, the issue of enemy
or friendly trading does not even arise in the first place.
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3) Single economic entity
The veil of incorporation may sometimes be allowed to be lifted to allow a group of associated
companies to be treated as one and not several separate entities. The fundamental principle is that
each company in a group of companies is a separate legal entity possessed of separate legal
rights and liabilities.
Accordingly, in a group of companies the parent company is separate from the subsidiaries, and
rights and liabilities are held separately.
In the case of D.H.N. Food products Ltd. V. Tower Hamlets London Borough Council
[1976] 3 All ER 462 (CA), DHN ran a wholesale cash and carry grocery business from premises
owned by its wholly-owned subsidiary company called Bronze. Bronze had the same directors
as DHN but it carried on no business. Its only asset was a freehold property which DHN
occupied as a licensee. A second wholly-owned subsidiary owned vehicles used by DHN in its
business but it too carried on no operations of its own. The council in 1970 compulsorily
acquired the premises and as a result Dandy to close down its business. Substantial
compensation for disturbance could be claimed by DHN only if it had an interest in the land
greater than a mere licensee.
The Court of Appeal reversing the decision of the Land Tribunal, held that the group of
companies should be treated as a single economic entity, and that in consequence, compensation
for disturbance should be paid. In effect DHN was treated as if it had owned the land itself.
Lord Denning has remarked that:
“These subsidiaries are bound hand and foot to the parent company and must do just
what the parent company says… this group is virtually the same as a partnership in such
all the three companies are partners. They should not be treated separately so as to be
defeated on a technical point.We know that in many respects a group of companies are
treated together for the purpose of accounts, balance sheet, and profit and loss
accounts.’’
In this case, Lord Denning pierced the veil in order to treat the constituent companies of DHN as
one so that the claim of the company would not be defeated on what he termed a “technical
point”.
Contrast with the case of Woolfenson v. Strathclide Regional Council.
The argument of the ‘group enterprises’ activists is simply that a corporate group which seeks
the advantages of limited liability must also be ready to accept the corresponding responsibilities
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incidental to such a corporate form. Otherwise, some corporate groups may hide behind the
advantages of limited liability to the disadvantage of their creditors. Worst still, there could be
arrangements such that parent companies may not be readily distinguishable from their
subsidiaries.
In this regard, Anglo-Saxon courts have mostly pierced the corporate veil on the ground of group
enterprises where there exists a sufficient degree of common ownership and common enterprise.
In Bluecorp Pty Ltd v. ANZ Executors and Trustee Co Ltd. [1995]18 ACSR 566, the Lord
Justices identified the main reasons under which Anglo- Saxon courts would be prompted to
pierce the corporate veil on this ground. The court stated that: “The inter-relationship of the
corporate entities here, the obvious influence of the control extending from the top of the
corporate structure and the extent to which the companies were thought to be participating in a
common enterprise with mutual advantages perceived in the various steps taken and plans
implemented, all influence the overall picture.”3
But, English courts hesitate to pierce the corporate veil where the outcome would be absurd, and
generally, whether or not the courts will pierce the corporate veil depends on such factors as the
nature of shareholding and control of the company; where there is a legislation, the effect of the
underlying purpose of the statute and also the particular facts of the case.
In Adam v. Cape Industries [1991] 1 All E.R. 929, Cape was an English parent company with
a number of subsidiaries. The main business was the mining and marketing of asbestos and the
business was done mainly in SA. One of the subsidiaries was based in the US. 1976 - a class
action was brought against the subsidiary and the parent company in the US for damages in
respect of injuries suffered as a result of exposure to asbestos. Default judgment obtained against
parent and subsidiary and an attempt was made to enforce the judgment against the parent
company in England. Issue arose whether the subsidiaries were the agents of the parent
company.
The Court of Appeal in England held that the subsidiary had their own business and therefore the
subsidiaries did not act as agent of the group. Thus the parent company was not liable. However
court took the opportunity to review the cases on agency and other theories relating to parent and
subsidiary.
Again in Re Polly Peck International plc (in administration) [1996]2 All ELR 433 at 447
Robert Walker J said:
3
See Forji, The Veil Doctrine In Company Law
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“….I was referred to quite a lot of authority touching on what is sometimes called lifting
(or piercing) the corporate veil. That is a vivid but imprecise metaphor which has possible
application in several different contexts, some far removed from this case. The most
relevant, it seems to me, is where corporate personality is (in the words of Lord Keith
inWoolfson v Straithclyde Regional Council 1978 SLT 159 at 161) used as ‘a mere
façade concealing the true facts.’
4) Agency
Where a company is acting as agent for its shareholder, the shareholders will be liable for the
acts of the company. It is a question of fact in each case whether the company is acting as an
agent for its shareholders. There may be an express agreement to this effect or an agreement may
be implied from the circumstances of each particular case. Depending on the circumstances, the
court may lift the veil and hold that a company is in fact an agent of another entity.
Anglo-Saxon courts have not hesitated in piercing the corporate veil in agency situations, and the
reason is simple. It is because of the doctrine of corporate personality, which operates to separate
a company from its shareholders. Therefore, a company does not exist to be used as an agent for
its shareholders and whenever this principle is breached, the veil will be lifted.
In Re F.G. Films Ltd [1953] 1 All ER 615 (ChD), An American Company financed the
production of a film in India in the name of a British company. The president of the American
company held 90 per cent of the capital of the British company. The Board of trade of Great
Britain refused to register the film as a British film. The Chancery Division held that a British
firm’s participation in a filmmaking was “practically negligible” since it had acted “merely as the
nominee and agent for” an American firm.
In Gramophone and Typewriter Co. Ltd. v. Stanley, all the shares in a German company were
owned by the appellant company which was resident for tax purposes in England. The
unremitted profits were taxable in England if only it could be shown that the profits were the
profits and gains of a business carried on by the English company.
Per Buckley LJ: the issue was whether the business in Germany is carried on by the appellant
company (and if it was then the profits could be taxed) or not. In order to show that the German
company’s business was run by the appellant company, it had to be shown that the German
company is a fiction, a sham and that in reality the English company and not the German
company is carrying out the business or if the German company was a reality, that it was an
agent of the English company. No evidence was given to support the first proposition.
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On the second proposition (agency) it was argued that since the appellant company holds all the
shares in the German company, the German company was its agent. This doesn’t on its own
establish a principal-agent relationship. The possession of all shares in not evidence of agency. If
during year under review had held no shares for the first six months and held all the shares in the
last month, or even parted with some of the shares, it cannot seriously be suggested that each
time one person becomes the holder of all the shares an agency is formed which dies again when
he parts with some of them.
It was also argued that since the English company owned all the shares it could control the
German company so that the German company must do all the English company directs. This is
a misapprehension. It has been decided that a numerical majority at a general meeting of the
company cannot impose its will upon the directors when they have entrusted with control of the
company’s affairs. The directors are not servants to obey directions given by shareholders as
individuals: they are not agents appointed by and bound to serve the shareholders as their
principals. They are persons appointed and by regulation entrusted with the control of the
business and if so entrusted they can be dispossessed from that control only by statutory majority
which can alter the regulations. Even if the shareholders have it in their power to remove
directors this must be done by special resolution but this does not answer the question at hand.
In Smith Stone And Knight Ltd V. Birmingham Corporation [1939] 4 ALLER 116, A
company acquired a partnership and registered it as a company. They continued to run the
acquired (business) company as a subsidiary company. The parent company held all the shares in
the subsidiary except five which the directors of the company held in their own names on trust
for the parent company. The profits of the new (subsidiary) company were treated as profits of
the parent company. The parent company appointed the persons who conducted the business of
the subsidiary and were in effective and constant control. The defendant- corporation
compulsorily acquired the premises upon which the business of the subsidiary company was
carried on and the parent company claimed compensation in respect of removal and disturbance.
The respondents contended that the proper claimants were the subsidiary company, that being a
separate legal entity.
The court held that Possession by a separate legal entity was not conclusive on the question of
the right to claim, and as the subsidiary company was not operating on its own behalf but on
behalf of the parent company, the parent company was the party entitled to claim compensation.
Atkinson J:
“Salient factors that determine whether a subsidiary is carrying on the business of the
parent company;
i. Were the profits of the subsidiary those of the parent company?
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ii. Were the managers of the subsidiary appointed by the parent company?
iii.Was the parent company the head and brains of the subsidiary company?
iv. Did the parent company govern the adventure?
v. Were the profits made by the subsidiary company made by the skill and direction
of the parent company?
vi. Was the parent company in effective control of the subsidiary company? ’’
In Kuni v State Gold Mining Corporation & Another (1978) 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 or not 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. Besides the Mining Regulations, made the working of a mine the
responsibility of the manager who in this case was appointed by the State Gold Mining Corporation
and was also responsible for the safety and proper discipline of the men employed above and below
ground
The court 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 was the agent of the State Gold Mining
Corporation and carried on its business.
Sarkodee J took the six factors of Lord Atkinson into consideration when deciding the matter. He
stated them as follows:
“In this regard I think all the circumstances must be taken into account the following
being particularly relevant:
(1) Are the profits treated as those of the parent company?
(2) Are the persons conducting the business appointed by the parent company?
(3) Is the parent company the head and brain of the enterprise?
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(4) Does the parent company govern the business and decide what should be done and
what capital should be employed?
(5) Are the profits made by its skill and direction?
(6) Is the parent company in effectual control? ’’
It was concluded that Prestea as the subsidiary carried on business as an agent for SGMC. It was
also held that a person causing something to be done the doing of which casts on him a duty,
cannot escape from the responsibility attaching to him of seeing that duty performed by
delegating it to another. Thus it SGMC was liable for the injuries of the plaintiff.
5) Trusts
In The Abbey, Malvern Wells Ltd. v. Ministry of Local Government and Planning[1951]
Ch. 728, the members of an ordinary limited liability company formed to run a school had taken
steps to convert it into a non-profit making charity. An application to the defendant by the
company for a certificate that its land was exempt from development charge provisions because
it was held on charitable trusts was refused, whereupon the company applied to the court for a
declaration that they were entitled to it. Under these circumstances, Danckwerts J. lifted theveil
saying that he was entitled, and indeed bound, to look at the constitution of the company to see
who in fact was in control, and found that it was the trustees.
This case is a unique application of the veil doctrine and in fact represents a considerable
departure from the normal application of established principle. This assertion is made on the
ground that in our study of company law, we have learned that members have no proprietary
interest in the assets of a company4. But this case, in effect, holds that a company may be
regarded as holding its property on charitable trusts if all its shares are so held and its governing
body is trustees notwithstanding the established rule that a company does not hold its property on
trust for its members. However, it is admitted that if so authorized by its Constitution, a company
may act as a trustee and that the beneficiaries may in fact be the same as its members. However,
the proposition that a company holds its property on trust for its members is unlikely to be
successfully argued presently. Indeed, attempts to rely on trust in favor of veil piercing have not
been successful5.
4
See Macaura v. Northern Insurance [1925] A.C. 619 H.L.
5
see Gower, Modern Company Law, 3rd ed., pages 205 to 206, where he deals with this point admirably.
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6) Company avoiding legal obligations
The veil of incorporation may also be lifted to prevent the deliberate evasion of a contractual
obligation. Where the use of an incorporated company is being made to avoid legal obligations,
the Court may disregard the legal personality of the company and proceed on the assumption as
if no company existed.
In Gilford Motor Company Ltd v. Horne [1933] 1 Ch. 935, Mr. Horne was an ex-employee of
The Gilford motor company and his employment contract provided that he could not solicit the
customers of the company. In order to defeat this, he incorporated a limited company in his
wife's name and solicited the customers of the company. The company brought an action against
him. The Court of appeal was of the view that "the company was formed as a device, a
stratagem, in order to mask the effective carrying on of business of Mr. Horne" in this case it was
clear that the main purpose of incorporating the new company was to perpetrate fraud.
The Court of Appeal held that the company was formed as a device, a mere shamin order to
mask the effective carrying on the business of Mr. Horne. In this case, it was clear that the main
purpose of incorporating the new company was to perpetuate fraud. Thus court regarded it as a
mere sham to cloak his wrongdoings.
In Creasy v Breachwood [1993] BCLC , Mr Creasey was dismissed from his post of general
manager at Breachwood Welwyn Ltd. He claimed that this constituted wrongful dismissal, in
breach of his employment contract. However, before he could claim, Breachwood Welwyn Ltd
ceased trading, and all assets were moved to Breachwood Motors Ltd, which continued the
business. Other creditors were paid off, but no money was left for Mr Creasey's claim, which
was not defended and held successful in an order for £53,835 against Breachwood Welwyn Ltd.
Mr Creasey applied for enforcement of the judgment against Breachwood Motors Ltd and was
successful. Breachwood Motors Ltd appealed.
Mr Richard Southwell lifted the corporate veil to enforce Mr Creasey's wrongful dismissal
claim. He held that the directors of Breachwood Motors Ltd, who had also been directors of
Breachwood Welwyn Ltd, had themselves deliberately ignored the separate legal personality of
the companies by transferring assets between the companies without regard to their duties as
directors and shareholders.
7) Public interests
The Courts may lift the veil to protect public policy and prevent transactions contrary to public
policy. The Courts will rely on this ground when lifting the veil is the most ‘just’ result, but there
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are no specific grounds for lifting the veil. Thus, where there is a conflict with public policy, the
Courts ignore the form and take into account the substance.
Lifting the veil of incorporation pursuant to the Companies Act, 2019 (Act 992)
The Companies Act, 2019 (Act 992)permits the veil to be lifted under the following
circumstance
NB: the list is not exhaustive.
a) Companies ceasing to have members
According to section 41 of the Companies Act, 2019 (Act 992) 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.
In effect the directors are required to ensure that at least there will be one member in order to
avoid being personally liable for the company’s debt.
b) Reduction in the number of Directors
Section 171(1) of the Companies Act, 2019 (Act 992) provides that a company incorporated after
the commencement of this Act shall have at least two directors, one of these directors being
ordinarily resident in Ghana.
Section 171(2) of the Companies Act, 2019 (Act 992) provides that if at any time the number of
directors is less than two in contravention of subsection (1), 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.
Under Section 171(3) of the Companies Act, 2019 (Act 992) 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.
Under Section 171(4) of the Companies Act, 2019 (Act 992) the number of directors may be
fixed by, or in accordance with, the constitution of the company.
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c) Failure to Publish of name of company
Section 125(1) of the Companies Act, 2019 (Act 992) provides that:
1) A company shall,
a) paint or affix, and keep painted or affixed, the name of the company on the outside of the
registered office and of every office or place in which the business of the company is
carried on, in a conspicuous position in letters that are easily legible;
b) where the company has a common seal, have the name of the company engraved in
legible characters on the seal; and
c) have the name of the company accurately mentioned in legible characters at the head of
the business letter, invoices, receipts, notices, or any other publication of the company
and in the negotiable instruments or orders for money, goods or services purporting to be
signed or endorsed by or on behalf of the company.
Under Section 125(2) of the Companies Act, 2019 (Act 992), where a company defaults in
complying with subsection (1), the company and each officer of the company that is in default is
liable to pay to the Registrar, an administrative penalty of two hundred and fifty penalty units.
d) Use of improper seal
Section 125(3) of the Companies Act, 2019 (Act 992) provides that where an officer of the
company or a person purporting to act on behalf of the company uses or authorises the use of a
seal purporting to be a seal of the company on which the name is not engraved as required by
subsection (1), that officer commits an offence and is liable on summary conviction to a fine of
not less than one hundred and twenty- five penalty units and not more than two hundred and fifty
penalty units.
e) Misdescription
Section 125(4) of the Companies Act, 2019 (Act 992) provides that where an officer of the
company or any other person signs or endorses or authorises the signing or endorsement on
behalf of the company of a negotiable instrument or order for money, goods or services in which
the name of the company is not accurately mentioned in accordance with paragraph (c) of
subsection (1), that officer or person is personally liable to discharge the obligation thereby
incurred unless the obligation is duly discharged by the company or otherwise, but without
limiting a right of indemnity which that person may have against the company or any other
person.
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In Atkin & CO v Wardle [1989] 61 LT 23, The English Companies Act of 1862 had a
provision that every limited company under the Act shall have its name mentioned in legible
characters in all BILLS of Exchange purporting to be signed by or on behalf of the company. It
also provided for the personal liability for any officer of the company who signs on behalf of the
company any such bill of exchange which did not meet the requirements of the Act. A bill of
exchange was drawn by the plaintiffs and made payable to order and addressed to the “Salt
Water Baths Company Ltd, South Shields” which was in fact registered as the “South Shields
Salt Water Baths Company Ltd” which had no power to accept Bills of Exchange. The Bill was
however accepted by the defendants who were officers of the Company and endorsed the
company’s name as “South Shields Salt Water Baths Company”. They omitted the words “LTD”
from the title of the company
The Court held that the two variations from the proper designation of the company were
sufficient to bring the defendants under the provisions of the Act which made them personally
liable.
In Cowries Finance Ltd. v. Pako Bay Seafood Ltd, the defendant obtained a loan of ¢15 million
from the plaintiff, a financial nonbanking institution then operating under the name of Akaba &
Associates. Under the terms of the loan agreement, the loan was to be repaid within 30 days at an
interest rate of eight per cent for the period. The defendant, however, failed to pay the principal
and the interest after several demands. While the loan remained unpaid, the Bank of Ghana revised
its interest rates and the plaintiff notified the defendant accordingly. After post-dated cheques
issued by the defendant to settle the debt had been dishonoured, the plaintiff which had then
changed its name to Cowries Finance Ltd brought action before the High Court, Accra against the
defendant for, inter alia, the accumulated debt. The company had changed its name and the
company passed a special resolution, signed by the Registrar to change its name. After this the
company continued to use letterheads bearing its former name.
The court held that since the plaintiff exhibited a certified copy of the special resolution duly signed
by the registrar that was sufficient evidence of the registrar's approval of the change of the
plaintiff's name from Akaba & Associates to Cowries Finance Ltd. In any case, since the plaintiff
had complied with the statutory provisions in changing its name, the mere fact that it failed to
effect the change on its letter head ,would not negate the fact that there had been due compliance
with the law. In any case, since the defendant had been made aware of the change well before the
issuance of the writ, he could not be heard to complain about it.
f) Trading for profit by a company limited by guaranteed
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guarantee shall not be incorporated with the object of carrying on business for the purpose of
making profits other than making profits for the furtherance of its objects.
Section 8(2) of the Companies Act, 2019 (Act 992) provides that 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.
Lifting the veil of incorporation by other legislations
In Dimbleby& Sons Ltd. v National Union of Journalists [1984] 1 All ER 751,the Trades
Union caused its members to withdraw their labour from the plaintiff, so preventing the plaintiff
from performing a contract with a firm of printers. The conduct was aimed, primarily, not at the
plaintiff but at the printers, with whom the union was in dispute. The plaintiff’s claim for an
injunction was upheld. At page 758, Lord Diplock, whilst not wholly excluding the possibility
that a contrary construction might sometimes be justified, said:
“The corporate veil in the case of companies incorporated under the Companies Act is
drawn by statute and it can be pierced by some other statute if such other statute so
provides; but, in view of its raison d’ệtre and its constant recognition by the courts since
Salomon v A Salomon & Co Ltd, one would expect that any parliamentary intention to
pierce the corporate veil would be expressed in clear and unequivocal language.”
Fraudulent Trading
Section 26 of the Bodies Corporate (Official Liquidations) Act 1963, (Act 180) provides that if
in the course of the official winding up of a company it appears that any business of the company
has been carried on with intent to defraud the creditors of the company or creditors of any other
person or for any fraudulent purpose, the Court may, on the application of the liquidator or of
any creditor, member or contributory of the company, if it thinks fit so to do, declare that the
persons who were knowingly parties to the carrying on of the business in the manner aforesaid
shall be personally responsible, without any limitation of liability, for all or any of the debts or
other liabilities of the company as the Court may direct.
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In R v Grantham [1984] 1 QB 675 CA, sections 332 of the English Companies Act of 1948 had
provisions which cast personal liability on persons who carry out the business of a company with
intent to defraud creditors of the company. The appellant, who was a consultant in charge of a
company’s administration and sole authorized signatory of its cheques, was tried with others on a
count of fraudulent trading and convicted. He appealed against the conviction to the Court of
Appeal. The court held that he took part in running a business which ordered potatoes
continually from a supplier when they knew that there was no hope of the supplier being paid.
The appeal was dismissed.
In In Re Partick& Lyon Ltd [1933] 1 Ch 786, the English Companies Act had certain
provisions similar to that of section 26 of the Bodies Corporate (Official Liquidations) Act 1963,
(Act 180) of Ghana. The applicants were creditors of the company which was in liquidation. The
first respondent was a director of the company from the time of incorporation. The company
never made a trading profit. The first respondent had debentures by which a floating charge had
been created for him. Later on the company in that same year was wound up and the appellant
sought to challenge the first respondent’s right to be paid for his debentures as well as to make
the first respondent liable for all the debts and liabilities of the company. He argued that the first
respondent had taken part in the running of a business with intent to defraud creditors and that he
had kept the company alive until he could be repaid his money owed to him (the first respondent)
by the company.
The Court rejected the applicant’s claim and held that in the companies Act, the liability was for
actual dishonesty. Again the court held that a company is insolvent only when it is unable to pay
its debts as they become due. Again the court held that it was not proven that the company was
carrying on business to defraud creditors.
Other legislations
Ghana Investment Promotion Centre Act, 2013 (Act 865, GIPC Act)
Banks and Specialized Deposit Taking Institutions Act, 2016 (Act 930)
NB: the list is not exhaustive
Effects of lifting the veil
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When the veil is lifted, the separate legal status is disregarded and certain consequences follow.
These include:
i. Civil liabilities for individuals i.e. shareholders, directors, officers, etc.
ii. Penal liabilities for individuals by way of fine
iii. Tax liability ascribed to others; and or
iv. Nullifying or disregarding the transactions apparently entered into by the company.
CONSTITUTION OF A COMPANY
According to the first schedule to the companies Act, 2019 (Act 992) "constitution" includes a
registered constitution of a company duly delivered in accordance with section 23; and the
constitution of a company as specified in the Second, Third and Fourth Schedules.
The constitution of a company is thus a document that contains the detail rules which regulate
matters of the internal, administrative and management matters of the company. The
constitutions of a company are initially drawn up by the promoters of the company. however,
subsequent to the formation of the company through a special resolution can alter the content of
the constitution. Thus the constitution is a key document to be submitted as part of the
incorporation process.
In Dupaul Wood Treatment Ltd v Asare [2005-2006] SCGLR 667
“By virtue of section 14of the Code [now Act], a company comes into existence when its
Regulations are delivered to the Registrar of Companies and he enters same into the
register. It is the act of registration that incorporates the company, such incorporation
being evidenced by the Registrar’s certificate of incorporation.”
Option to have a registered constitution
1) A company has the option to have a registered constitution.
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2) Where a company opts to have a registered constitution, the document that represents the
constitution shall be
(a) signed by one or more subscribers or the Company Secretary, and
(b) delivered to the Registrar by the subscriber or an authorised representative before
incorporation; or
(c) delivered to the Registrar by the Company Secretary, director or an authorised
representative after incorporation.
Legal effects of the constitution on the company
According to section 29 of the Companies Act, 2019 (Act 992), the registered constitution of a
company has the following effects
a. Contract under Seal
Section 29(1) of the Companies Act, 2019 (Act 992) provides that Subject to this Act, the
constitution bas the effect of a contract under seal:
(a) between the company and each member or officer; and

(b) between the members or officers themselves by which they agree to observe and
perform the functions contained in the constitution as amended from time to time, in so
far as they relate to the company, the members or the officers.
A contract under seal is a contract that is written, signed, witnessed, sealed and delivered. Such a
contract is binding because of its formality. That is, the fact that it is written, signed, witnessed,
sealed and delivered. In the context of section 29 of the Companies Act, 2019 (Act 992), the idea
is that the constitution when registered are like a contract which has been written, signed,
witnessed and sealed by the parties to it, and the parties in this case are the company, its
members and officers.
A contract under seal does not require consideration from the other party before it becomes
binding. It also binds all present and subsequent future members of the company since it is a
creature of statute. Again, one difference between a contract underseal and ordinary contracts is
that a contract a contract under seal is not cannot have its terms freely changed by an agreement
between the parties as pertains in the ordinary form contracts. For there to be an alteration or
amendment of its terms, it must comply with the provisions of the Companies Act, specifically,
Act 992, to have the effect of law. See section 30 of Act 992.
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By stating that the registration of the constitution of accompany have the effect of a contract
under seal, section 29 of the Companies Act, 2019 (Act 992) is, in effect saying that, each of the
parties to the contract, created by the registration of the constitution and by that undertaken to be
bound by the constitution. By section 28 of the Companies Act, 2019 (Act 992) the constitution
of a company shall be signed by one or more subscribers in the presence of a witness, who shall
attest to the signing.
In Adehyeman Gardens Ltd v Assibey [2003-2004] 2 SCGLR 1016; [2003-2005] 1GLR 391,
SC, the appellants, the respondent and a third person incorporated a company as a limited
liability company with one million shares of no par value. All of them subscribed to the
regulations of the company. The second appellant subscribed to 600,000 shares valued at
¢600,000.00, and the respondent and the third person subscribed to 200,000 shares valued at
¢200,000.00 respectively. The three subscribers and one other person were the first directors of
the company. Following differences between the appellants and the respondent over the running
of the company, the solicitors of the company wrote to inform the respondent that since he had
not paid up for his shares he was only a ‘nominal shareholder’ of the Company and was given
fourteen days within which to pay for the shares or else they would be offered to someone else.
Subsequently, the appellants wrote to inform the respondent that based on the company’s audited
report the net value of the company was ¢237,051,291.00 and therefore in order to become a
fully-fledged shareholder of his 200,000 shares which represented 20% of the net value of the
assets of the company, he had to pay ¢47,410,258.20. The appellants also filed at the Companies
Registry a form of Notification of Change of Directors and the of appointment of 5 new
Directors. Dissatisfied with those developments, the respondent brought an action against the
second appellant for, inter alia, a declaration that he was a fully paid-up member or shareholder
of the Limited Liability Company and holds 20% of the total shares of the said company.
The Supreme Court held that the issue of a share certificates was not a precondition to
membership in a company. Section 53 of the Companies Code, 1963 (Act 179), requires every
company to deliver a share certificate to the registered holder, within two months of the issue
of shares or registration of transfer of shares. That was the company’s obligation, and, by
virtue of 53(3) of the Companies Code, 1963 (Act 179), the company, and any defaulting
officer of the company, is liable to a penalty in the event of any non-compliance. Accordingly,
the fact that the respondent had not been issued with a share certificate cannot be a valid
ground for challenging his membership of the Company since a share certificate was not
material to that persons legal status as a member and shareholder. In any case, under section
54 of the Companies Code, 1963 (Act 179), a share certificate served as ‘prima facie evidence
of the title to the shares of the person named therein’. Accordingly, other evidence might be
adduced by a person claiming to be a shareholder to establish his shareholding. Accordingly, in
the instant case,by the combined effect of sections 21 and 30 of the Companies Code, 1963
(Act 179), the respondent’s subscription to the Regulations of the company served as
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evidence of his membership and a shareholder of the company, because the Regulations had,
inter alia, the effect of a contract under seal between the company and its members, the
company and its officers, the members and the officers of the company, the members of the
company inter se and the officers of the company inter se. Accordingly, as a subscriber, the
respondent’s shareholding, as well as the consideration payable by him therefore, is contractual.
Accordingly, he did not need to be issued with a certificate for his membership to take legal effect.
She proceeded at page 398-399 thus: Section 21 of Act 179 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 Act 179. 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. As a subscriber, therefore, the respondent’s shareholding, as
well as the consideration payable by him therefor, is contractual. He does not need to be issued
with a certificate for his membership to take legal effect.
At common law, the memorandum and articles of association upon registration creates a contract
between the members in their personal capacity as members and the company. Hickman v.
Kent [1915] 1 Ch 881., the articles of association, specifically, sec. 49 provided that all disputes
between the members of the company and the company was to be resolved by way of an
arbitration. The plaintiff, who was a member sued the defendant company at the court on the
grounds that the company failed to register his sheet in the published flock book, which failure
exposed him to the threat of dismissal.
The Court per Astbury J held thus: the articles prevented Mr Hickman: there was a contract. He
was bound. The predecessor to the Companies Act 2006 section 33 creates a contract, which
affects members in their capacity as members, though not in a special or personal capacity (e.g.
as director). As a member, Mr Hickman was bound to comply with the company procedure for
arbitrating disputes and could not resort to court.
Also, at common law, the articles of association does not create a contract between the company
and a member acting in another capacity, or a member and another member acting in another
capacity.
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Accordingly, in Eley v. Positive Life Assurance [1876] 1 Ex D. 88 C.A., Article 118 of the
constitution of Positive Government Ltd stated ‘Mr William Eley of 27 New Broad Street, City of
London, shall be the solicitor to the company…’. Eley in fact drafted the articles. But then the
company never employed him as its solicitor. No resolution was passed by directors of the
company nor any instrument bearing the seal of the company issued to appoint Mr. Eley as solicitor
of the company. He was a member, but he brought an action to enforce the articles in his capacity
as a solicitor.
The Exchequer Division held the articles did not create any contract between Eley and the
company.
The court held that the articles of association did not create any contract between Mr. Eley as a
solicitor and the company. As such, he was only capable of suing as a member of the company in
his capacity. Lord Cains observed that this case was first rested on the 118th Article. Articles of
association, as is well known, follow the memorandum, which states the objects of the company,
while the articles state the arrangement between the members. They are an agreement inter
socios, and in that view, if the introductory words are applied to Art. 118, it becomes a covenant
between the parties to it that they will employ the plaintiff. Now, so far as that is concerned, it is
reg inter alios acta, the plaintiff is no party to it. No doubt he thought that by inserting it he was
making his employment safe as against the company; but his relying on that view of the law does
not alter the legal effect of the articles. This article is either a stipulation which would bind the
members, or else a mandate to the directors. In either case it is a matter between the directors
and shareholders, and not between them and the plaintiff.
However, the articles of association creates a binding contract between the members of the
company in their capacity as members. In Rayfields v. Hands [1958] 2 All ER 194, Mr Rayfield
sued the directors of Field Davis Ltd to buy his shares. Article 11 of the company’s constitution
said ‘Every member who intends to transfer shares shall inform the directors who will take the
said shares equally between them at a fair value.’ The directors were refusing to follow this rule,
and Mr Rayfield sought an injunction.
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Vaisey J granted the injunction and held the article imposed an obligation on the directors, not as
officers, but also in their capacity as members. He referred to Re Leicester Club and County
Racecourse Co where Pearson J referred to directors as ‘working members of the company’ and
that ‘they are doing their work in the capacity of members, and working members of the company’.
He referred to the privity decisions of Denning LJ in Smith and Snipes Hall Farm Ltd v River
Douglas Catchment Board and Drive Yourself Hire Co (London) Ltd v Strutt and also Carlill v
Carbolic and The Satanita to say that the company did not need to be joined to the action to bring
it, even though a members create a contractual relation with the company.
It is however worthy of note that terms cannot be implied into the constitution, which on a
construction of the document, does not give credence to that implication, nor can terms be
implied by extrinsic evidence based on the surrounding circumstances. As such, in Bratton
Seymour Service Co. Ltd v. Oxborough [1992] BCC 471. C.A, there was an appeal from the
county court to the Court of appeal, on the grounds that a term should be implied into the articles
of association of the plaintiff company, to allow the defendant shareholder to make certain
contributions to clear certain expenses incurred by the company.
Lord Steyn LJ held that the court cannot imply terms into contracts of this nature merely to give
business efficacy to the terms of the contract. However, if such implication arises from a
reasonable construction of the provision, then a term may be implied.
This case is a good discussion of the other features of the statutory contract that makes it different
from ordinary contract that we are familiar with. For example, Lord justice Dillon in the CoA
stated: The articles of association of the company differ very considerably from a normal contract,
it is thus a consequence as was held in the court of Scot v Scot (1940), that the court has no
jurisdiction to rectify the articles of association of a company. Even if those articles do not accord
what is proved to have been the current intention of the signatories of the articles at the moment
of signature. So, what is clear principle from this case is that unlike ordinary contracts, this contract
cannot be rectified by the court. Even though there is enough evidence that this contract does not
reflect the intention of the parties at the moment of entering into that contract.
It is also noted that the articles of association are not subject to vitiating factors as was delivered
in the Bratton Seymour case.
b. Power to Appoint or remove by Non-members
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Section 29(2) of the Companies Act, 2019 (Act 992) provides that where the constitution
empowers a person to appoint or remove a director or any other officer of the company, chat
power is enforceable by that person although that person is not a member or officer of the
company.
According to the case of Woodlands Ltd. v Logan [1948] NZR 230, this power to appoint or
disappoint is conferred on debenture holders and their trustees who are not members of the
company.
This is an example of a contract conferring a benefit on a person not being a party to the contract.
This provision is meant to protect the interest of creditors who for the purpose of protecting their
interest will normally require that they be given the right to appoint a director to the board of
directors as a way of ensuring that the affairs of the company are managed in the way that do not
prejudice their interest.
c. Representative Capacity
Section 29(3) of the Companies Act, 2019 (Act 992) provides that in an action by a member or
an officer to enforce an obligation owed under the constitution to that member or officer and any
other member or officer, that member or officer shall, if any other member or officer is affected
by the alleged breach of the obligation, sue in a representative capacity on behalf of that member
or officer and all other members or officers who may be affected other than any who are
defendants and the provisions of section 205 shall apply
Section 205is the provision on representative actions. Section 205 of the Companies Act, 2019
(Act 992) provides that where, under a section of this Act, it is provided that if legal proceedings
are instituted by a person, that person shall sue in a representative capacity on behalf of the
person and any other member of a class:
(a) that person may commence proceedings in that representative capacity without obtaining
the consent and approval of any other member of the class represented and, subject to
paragraph (b) of this section, that person shall have the sole conduce of the action and
any other member of the class shall not be regarded as a party to the proceedings or
liable for the costs of the proceedings
(b) a member of the class represented may at any time before final judgment apply to the
Court for leave co be made a party to the proceedings whether as co-plaintiff or other-
wise and the Court may grant leave on the terms regarding the conduct of the action or
otherwise that it considers fit; and if the leave is granted the applicant shall become a
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party to the proceedings and liable accordingly to have an order for costs made against
that applicant;
(c) a judgment given in the action shall bind and inure to the benefit of the members of the
class represented, whether or not they have intervened in the proceedings in accordance
with paragraph (b) of this section;
(d) the proceedings shall not be dismissed, settled or compromised without the leave of the
Court which may order that notice of the proposed dismissal, settlement or compromise
shall be given to the members of the class represented and any other persons;
(e) the proceedings under this section shall be supplemented by the provisions of section
200; and
(f) this section shall not affect the validity of an agreement between the members of the
class represented, relating to contribution towards the costs of the party or parties suing
in a representative capacity.
This provision is to prevent multiplicity of suits. (Rita Abban v. Christian Mothers Association,
Anna Mensah, Ernestina Adom and DamiaenZaato Suit no. GJ1417/2019)
Legal Effect of on a company with a registered constitution
1) Where a private company has delivered to the Registrar its document intended to be the
registered constitution, the rights, powers, duties and obligations of the company, the
Board, each director and each shareholder of the company shall have effect as provided
in the Second Schedule, unless they are restricted, limited or modified by the registered
constitution.
2) Where a public company has duly delivered the registered constitution of the company,
the rights, powers, duties and obligations of the company, the Board, each director and
each shareholder of the company shall have effect as provided in the Third Schedule,
unless they are restricted, limited or modified by the registered constitution of the
company duly delivered in accordance with this Act.
3) Where a company limited by guarantee has duly delivered the registered constitution of
the company, the rights, powers, duties and obligations of the company, the Board, each
director and each shareholder of the company shall have effect as provided in the
Fourth Schedule, unless they are restricted, limited or modified by the registered
constitution of the company duly delivered in accordance with this Ac
Legal Effect of on a company without a registered constitution

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1) Where a private company does not have a registered constitution, the rights, powers,
duties and obligations of the company, the Board, each director and each shareholder of
the company shall be as provided in the Second Schedule and be deemed accordingly to
be the constitution of that company, unless they are restricted, limited or modified by a
registered constitution of the company duly delivered after incorporation in accordance
with this Act.
2) Where a public company does not have a registered constitution, the rights, powers,
duties and obligations of the company, the Board, each director and each shareholder of
the company shall be as provided in the Third Schedule, and be deemed accordingly to be
the constitution of that company, unless they are restricted, limited or modified by the
registered constitution of the company duly delivered after incorporation in accordance
with this Act.
3) Where a company limited by guarantee does not have a registered constitution, the rights,
powers, duties and obligations of the company, the Board, each director and each
member of the company shall be as provided in the Fourth Schedule and be deemed
accordingly to be the constitution of that company, unless they are restricted, limited or
modified by the registered constitution of the company duly delivered after incorporation
in accordance with this Act.
Content of a registered constitution
The content of the constitution of a company simply refers to the things that the constitution
contains or should contain. Those who form or bring the company into being (promoters) are the
persons who generally determine the content of the constitution. However, section 26 of the
Companies Act, 2019 (Act 992) specifies certain particulars that every company’s constitution
must have. These particulars constitute what may be called the minimum content of the
constitution. In addition to the minimum content, those forming the company (promoters) are
free to add other particulars that they may deem necessary.
Subsequent to its formation, a company’s member has the authority under the Companies Act,
2019 (Act 992) to alter the content of the constitution of the company from time to time. Thus,
before the formation of a company it is the promoters who determine the content of the
constitution. However, after the formation it is the members of the company that have the
authority to determine the content of the constitution.
According to section 26 of the Companies Act, 2019 (Act 992), the constitution of a company
shall contain the following information:
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1) Where at incorporation, a company opts to have a registered constitution, the registered

constitution of that company shall state,
(a) the name of the company, with the last words of the name as required by
subsection (l) of section 21.
Under section 21(1) of the Companies Act, 2019 (Act 992), the last words of the name of a
(i) private company limited by shares shall be "Limited Company" or the abbreviation
"LTD";
(ii) public company limited by shares shall be "Public Limited Company" or the
abbreviation "PLC";
(iii)company limited by guarantee shall be "Limited by Guarantee" or the abbreviation
"LBG"; and
(iv) private company unlimited by shares shall be "Private Unlimited Company" or the
abbreviation 'PRUC'
(v) public company unlimited by shares shall be "Public Unlimited Company" or the
abbreviation "PUC
(b) the names of the first directors of the company; and

(c) that the powers of the directors are limited in accordance with section 189.
2) Where a company has been incorporated in accordance with this Act and subsequently
opts to have a registered constitution, it
(a) may state the nature of the business in that constitution which the company is
authorised to carry on, or if the company is not formed for the purpose of
carrying on a business, the nature of the objects for which the company is
incorporated; and
(b) shall deliver to the Registrar
(i) the constitution, and
(ii) a special resolution of the company to indicate the intention to have the
registered constitution.
3) In the case of a company having shares, the registered constitution shall also state the
number of shares with which the company is to be registered.
4) A registered constitution may contain any other lawful provisions relating to the structure
and administration of the company.
5) In the case of a company that does not have a registered constitution, the company shall
be deemed to have as part of the constitution under section 25 the matters with respect to
the
(a) name of the company,
(b) names of its first directors,
(c) number of shares with which the company is registered, and
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(d) number of shares subscribed by each shareholder on the incorporation of the company
and the consideration to be respectively paid for those shares as are respectively
stated in the application for incorporation under section 13.
The items listed under section 26 of the Companies Act, 2019 (Act 992) for the registration of
the company are very important in order for the Registrar to accept and register the Constitution
and any omission will render the Constitution fundamentally defective and impossible to
register.The contents of the Constitution is said to be the necessary elements for incorporation to
occur and once duly registered become the incontrovertible historical facts of the company.
In Dupaul Wood Treatment Ltd v Asare [2005-2006] SCGLR 667, In August 1978, the
second appellant subscribed the Regulations of a limited liability company. The said company
was registered at companies’ registry as Dupaul Wood Treatment (Ghana) Ltd.By the act of the
second appellant and the respondent subscribing to the Regulations of the company, they both
became shareholders and members of the company, each holding 50% of the issued share capital.
Sometime later the parties disagreed on the extent of their shareholding in the company and on
the question whether or not the respondent was still a member of the company. Consequently,
the respondent sued in the High Court by originating motion under of the Companies Code 1963
(Act 179) for the declaration, inter alia, that the respondent is a shareholder and member of the
Company and holds 50% of its issued share capital and the affairs of the company were being
conducted and the powers of the directors were being exercised in a manner oppressive to the
respondent or in the disregard of his legitimate as a shareholder of the company. On appeal to the
Supreme Court, it was the case of the company that when the respondent falls out with the
company the Regulations of the company were changed and he no longer was a subscriber of the
company.
The Supreme Court held that even if the new regulations had been duly registered under section
14 of the Companies Code 1963 (Act 179) it was doubtful whether they could lawfully have re-
written history by substituting a new set of original subscribers to the company’s Regulations, as
they sought to do.
Date-Bah JSC in that case succinctly stated that the regulations of a company or any alteration
to the regulations of a company is void and ineffective unless registered with the registrar of
companies. The burden of prove lays on the party alleging that the regulations have been duly
altered to lea sufficient evidence to establish the fact of registration. In effect, a company upon
alteration of its constitution must comply with the provisions of Act 992 and must thus proceed
to the registrar of companies to have the said constitution registered. Where the company fails to
have the constitution registered, then the document becomes ineffective and becomes only a
contract between the persons who signed same.
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It was also held didactically that the company cannot rely on the presumption of regularity in
official duty as provided in section 37 of the evidence Act to argue that the constitution was
deemed as registered. Failure to register render the alteration or amendment void and as such, it
cannot be cured even by acquiescence of the members of the company to act. Acquiescence
cannot over right a statutory requirement. As Lord Denning observed in the case, of Mocfoy v.
United Africa Company Ltd [1961] 3 WLR 1405, …If an act is void, then it is in law a nullity.
It is not only bad, but incurably bad. There is no need for an order of the court to set it aside.
It is automatically null and void without more ado, though it is sometimes convenient to have
the court declare it to be so. And every proceeding which is founded on it is also bad and
incurably bad. You cannot put something on nothing and expect it to stay there. It will
collapse.’
“The Regulations of a company incorporated in Ghana must have certain prescribed

form and contents as well as recommended provisions and may be changed in a
prescribed manner. In the genesis of a company with shares incorporated under the Code
[now Act], there are three significant characteristics that, in my view, may be likened to
the genetic markers (DNA).These are the names of the first directors of the company, the
number of shares of no par value with which the company is to be registered and thes
signature and names of the subscribers of the Regulations (as well as the number of
shares each is taking and the amount of consideration payable in cash in respect of such
shares) duly attested by at least one witness. These are pieces of information that must
appear in the Regulations in order to be registrable’’.
“…The very fact that the company has been registered necessarily means that, as at the
date in the certificate of incorporation, it has these essential makers: (a) a certain
number of named persons are its first director; (b) a certain number of shares of no par
value of which (i) some or all have been issued to the named subscriber or subscribers to
the Regulations in specified proportion(s) and (ii) the said subscriber has undertaken to
pay certain amount in cash or in kind ( as may have been previously agreed in writing).
These are incontrovertible facts which should be irreplaceable because they are sine qua
non to the formation of a Ghanaian company limited by shares. The very fact that a
company has been registered means that as at the date stated on its certificate of
incorporation it has these essential markers. These go to the very nature of the company
at birth and cannot be altered by the registration of a new set of regulations. Section 22
does not enable a company to rewrite these fundamental aspects of its history.’’
Form of a registered constitution
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1) An unlimited company may have a registered constitution and the form of the
constitution shall be in accordance with the form set out in the
(a) Second Schedule, if a private company unlimited by shares, or
(b) Third Schedule, if a public company unlimited by shares, or as near to those
with the necessary modifications, but with a statement that the liability of the
members is unlimited.
2) The registered constitution of a company may adopt any of the provisions of the
appropriate Schedule and subject to subsection (3), in so far as the constitution does not
exclude or modify those provisions they shall, so far as applicable, be part of the
registered constitution of the company.
3) The registered constitution of every company shall contain the matters set out in
(a) subsection (1) of section 26, and
(b) paragraphs
(i) 3 and 12 of the Second Schedule in the case of a private company,
Paragraph 3 of the Second Schedule to the Companies Act, 2019 (Act 992) provides that the
liability of the members of the company is limited’
Paragraph 12 of the Second Schedule to the Companies Act, 2019 (Act 992) provides that a call
is made at the time when the resolution of the directors authorising the call is passed and may be
required to be paid by instalments.
(ii) l and 2 of the Third Schedule in the case of a public company, and
Paragraph 1 of the Third Scheduleto the Companies Act, 2019 (Act 992) provides that Pursuant
to section 18 of this Act, a company, in furtherance of its authorised businesses, has the powers
of a natural person of full capacity.
Paragraph 2 of the Third Scheduleto the Companies Act, 2019 (Act 992) provides that the
powers of the board of directors are limited in accordance with section 195 of this Act.
(iii)1, 4, 5, 6 and 7 of the Fourth Schedule in the case of a company

limited by guarantee.
Paragraph 1 of the Fourth Schedule to the Companies Act, 2019 (Act 992) provides that the
income and property of the Society shall be applied solely towards the promotion of the objects
of the Society and a portion of the income or property shall not be paid or transferred, directly or
indirectly, by way of dividend, bonus or profit to a person who is a member of the Society or of
its Council, but
a) the constitution shall neither prevent the payment in good faith, of reasonable and proper
remuneration to an officer of the Society, to a member of the Society in return for any
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services actually rendered to the Society, nor shall it prevent the payment of interest at a
yearly rate not exceeding the Ninety-One Day treasury bill rate for each hundred on
money lent, or reasonable and proper rent for premises let to the Society;
b) a member of the Council of the Society shall not be appointed to a salaried office of the
Society or office of the Society paid by fees;
c) a remuneration or other benefit in money or moneys' worth shall not be given by the
Society to a member of the Council except in repayment of out-of-pocket expenses and
interest at the rate mentioned in paragraph (a) on money lent or reasonable and proper
rent for premises let to the Society.
powers of the Council are limited in accordance with sections 189 and 195 of this Act.
liability of the members is limited.
Paragraph 6 of the Fourth Schedule to the Companies Act, 2019 (Act 992) provides that each
member of the Society undertakes to contribute to the assets of the Society in the event of the
Society being wound up while that person is a member or within one year after that person
ceases to be a member, for payment of the debts and liabilities of the Society and of the costs of
winding up, the amount that may be required not exceeding five thousand cedis.
Paragraph 7 of the Fourth Schedule to the Companies Act, 2019 (Act 992) provides that if upon
the winding up or dissolution of the Society, there remains after the discharge of its debts and
liabilities a property of the Society, the property shall not be distributed among the members but
shall be transferred to any other company limited by guarantee having objects similar to the
objects of the Society or applied to a charitable object, the other company or charity to be
determined by ordinary resolution of the members in general meeting before the dissolution of
the Society.
Adoption, alteration, amendment and revocation of constitution
Section 30of the Companies Act, 2019 (Act 992) provides that:
(l) The shareholders or members of a company may, by special resolution
(a) adopt a registered constitution where a company does not have a registered constitution; or
(b) alter or revoke the constitution of the company subject to this Act.
(2) For the purposes of subsection ( l) (b),
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(a) the name of the company shall not be altered except with the consent of the Registrar in
accordance with section 21;
(b) the number of the shares of the company may be altered in accordance with sections 9, 59 to
65, 78 to 82, 219, or 239 but not otherwise;
(c) the businesses for which the company is incorporated to carry on or, if the company is not
formed for the purpose of carrying on a business, the objects for which the company is
incorporated may be amended in accordance with section 15 or 239 but not otherwise where the
business or object is indicated at incorporation;
(e) if at any time the shares of the company are divided into different classes, the rights attached
to a class may be amended in accordance with section 50 or 239 but not otherwise; (
f) the constitution may restrict or exclude the power of the company to amend all or any of the
provisions of the constitution or to add to the provisions of the constitution, or may impose
conditions for the amendment of the constitution, in which event the constitution shall not be
(j) an amendment may be restrained or revoked by the Court in accordance with section 218 or
219.
Exceptions
(d) an amendment shall not be made which shall conflict with an order of the Court made under
section 219
amended except in accordance with the provisions of the constitution or section 239;
(g) the constitution as amended shall be in accordance with this Act and shall contain the
requirements under section 26;
(h) except in accordance with section 239, a member of the company is not bound by an
amendment made in the constitution after the date on which that person became a member,
where the amendment
(i) requires that member to take more shares than the number held by that member on the date on
which the amendment is made,
(ii) in any way increases the liability of that member as at that date to pay money to the
company, or
(iii) increases or imposes restrictions on the right to transfer the shares held by that member at
the date of the amendment, unless that member agrees in writing, before or after the amendment
is made, to be bound by the amendment;
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(I) an amendment shall not be made which would have the effect of converting an unlimited
company into a limited company or a company limited by guarantee into a company limited by
shares
The court has enormous powers when it comes to alteration of the company’s regulations. In Allen
v. Gold Reefs of West Africa Ltd [1990] 1 Ch 656(CA),
Article 29 of the company’s articles of association gave it ‘a first and paramount lien’ for debts o
wing by a memberto the company ‘upon all shares (not being fully paid) held by such member’.
The company altered this article bydeleting the words ‘not being fully paid’. Only one sharehold
er, Zuccani (who had died insolvent), was affected bythis alteration: he had had fully paid shares
allotted to him when the company was formed, and had later acquiredother shares, that were not
fully paid, on which calls were overdue. His executors challenged the company’s rightto claim a
lien on his fully paid shares pursuant to the altered article. Kekewich J held that the company co
uld notenforce its lien. The Court of Appeal reversed this decision, and upheld the alteration. It
was held that the court has jurisdiction to disregard an alteration as invalid unless it is made
for the benefit of the company as a whole.
The general test the court looks at is whether the alteration is going to further the direction of the
company.
In Greenhalgh v. Ardene Cinemas Ltd [1951] Ch 286, the articles of the defendant company
provided that existing members should have the pre-emptive rights if a member wished to sell
his shares. The managing director had negotiated with Sheckman, an outsider, for the sale to
Sheckman of a controlling interest in the company. The managing director had procured the
passing of a special resolution to give effect to this agreement. In effect this agreement negated
the pre-emptive rights of the existing members. The plaintiff claimed a declaration that the
resolution were invalid as a fraud on the minority. The Court of Appeal refused the declaration.
The court held that the special resolution having been bona fide passed, it was not an objection to
it that, by lifting the ban in the original articles on sales to persons who were not members of the
company, the right on a sale to tender for the majority holding of shares would be lost to minority
shareholders, and that accordingly the special resolution could not be impeached. Here the court
took notice of the fact that the price at which the outsider was buying the share was same to that
of which the minority would have bought it. It was seen to be for the benefit of the company as a
whole. It was held that the resolution was merely a relaxation of the stringent rules and it had been
bona fide passed and could not be impeached.
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In Dafen Tinplate Co. v. Llanelly Steel Co. Ltd (1920) 2 Ch 124, the plaintiff company, which
was an original shareholder of the defendant company and party to an agreement that they would
not buy steel from any other company but the defendant one subsequently withdrew its custom
and transferred it to a new rival steel company which the plaintiff company had been
instrumental in forming. Being unable to acquire the plaintiff company’s shares by agreement,
the defendant company passed the resolutions in question with the object of acquiring the
plaintiff company’s shares and of protecting the defendant company against conduct on the part
of its shareholders detrimental to the interests of the company. The defendant company, not
having power under its original articles of association to acquire compulsorily the shares of
members, passed special resolutions altering its articles and introducing a power enabling the
majority of the shareholders to determine that the shares of any member ( other than a certain
named company) should be offered for sale by the directors to such person or persons (whether a
member or members or not) as they should think fit at the fair value to be fixed from time to time
at stated intervals by the directors.
The court held that the resolution in conferring an unrestricted and unlimited power on the
majority of the shareholders to expropriate any shareholder they might think proper at their will
and pleasure, went much further than was necessary for the protection of the company from the
conduct of shareholders detrimental to the company’s interests, and that the power thereby
conferred could not be bona fide or genuinely for the benefit of the company as a whole and was
not such a power as could be assumed by the majority. That in the alteration of the original
articles by the introduction of a power of expropriation the exception of one particular member
from the operation of the power, whereby a privilege was conferred upon the excepted member
over other members of his class, was invalid.
The above cases of should be contrasted with the case of Sidebottom v. Kershaw, Leese and
Co Ltd [1920] 1 Ch 154, the defendant company had altered its articles by introducing a
provision which gave the directors power to buy out, at a fair price, the shareholding of any
member who competed with the company’s business/ the plaintiffs, who were minority
shareholders and who carried on a competing business, unsuccessfully challenged the validity of
the alteration. The court held that that the company had power under section 13 of the
Companies (consolidation) Act, 1908 , to introduce into its altered articles anything that might
have been included in its original articles, provided that the alteration was made bona fide for the
benefit of the company as a whole. A power to expel a shareholder by buying him out was valid
in the case of original articles, and could therefore be included in altered articles, subject to the
same limitation and that on the evidence, the resolution was passed bona fide for the benefit of
the company as a whole, and was therefore valid, and enforceable by the majority against the
minority.
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Also in Shuttleworth v Cox Bros & Co (Maidenhead) Ltd [1927] 2 KB 9, the articles of
association of a company provided that the plaintiff and four others should be the first directors
of the company, and that they should be permanent directors, and that each of them should be
entitled to hold office so long as he should live unless he should become disqualified from any
one of six specified events. Owing to irregularities in the accounts furnished by the plaintiff of
sums received by him on the company’s account an extraordinary general meeting of the
company was held and a special resolution was passed that the articles should be altered by
adding a seventh even disqualifying a director, namely a request in writing by all his co-directors
that he should resign his office. Such a request was subsequently made to the plaintiff. There
was no evidence of bad faith on the part of the shareholders. In an action by the plaintiff for
breach of an alleged contract contained in the original articles that he should be a permanent
director, and for a declaration that he was still a director of the company,
It was held that the contract if any between the plaintiff and the company contained in the
articles in their original form was subject to the statutory power of alteration and that if the
alteration was bona fide for the benefit of the company it was valid and there was no breach of
that contract; there was no ground for saying that the alteration could not reasonably be
considered for the benefit of the company; therefore, there being no evidence of bad faith, there
was no ground for questioning the decision of the shareholders that the alteration was for the
benefit of the company; and consequently, the plaintiff was not entitled to the relief claimed.
It should be noted that a company cannot escape liability for breach of contract if the alteration
of the constitution occasions a breach of contract.
Can such a company be injunct from changing its regulations? No. The only remedy is to
sue for breach of contract and claim damages.
In Southern Foundries v. Shirlaw [1940] AC 702, Shirlaw was appointed director of Southern
Foundries for a fixed term of ten years. Southern Foundries was taken over by another company
who altered the pre-existing articles of association empowering two directors and a secretary to
remove a director, irrespective of the terms of his contract. Shirlaw was sacked prior to the
expiration of the fixed term, and he brought a claim to recover damages for breach of contract. It
was held that it was an implied term of the agreement that Southern Foundries should not remove
the respondent from his position as a director during the term of years for which he was
appointed managing director; that his wrongful removal was the act of Southern Foundries
because it required two acts and not only one for its accomplishment and that in respect of the
breach of the agreement the respondent was entitled to the damages awarded.
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Since the Constitution of a company operates as a contract between the members the court can
step in and interpret the terms and rectify the mistakes like any other contract document. See
Scott v. Frank Ltd [1940] CH pg. 794; Folks Group v. Alexander [2002] 2 BLC 254
CORPORATE ACTIVITY AND LEGAL LIABILITY
THE CONCEPT OF CORPORATE ATTRIBUTION
A company is an artificial legal entity. A fictional creation of the law, and thus, does not have
flesh and blood, but can only act through natural persons who may steer and direct the
company’s affairs in that regard.
In the case of Morkor v. Kuma, [1999-2000] SCGLR 620, wherein Sophia Akuffo held that
a company being an artificial legal entity, can only act through human beings with the mind
and hands to carry out the business of the company.
Also, in the case of Lenard’s Carriage Co. v. Asiatic Petroleum Ltd Viscount Haldane explained
the "directing mind" principle of corporate liability:
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...a corporation is an abstraction. It has no mind of its own any more than it has a body of its
own; its active and directing will must consequently be sought in the person of somebody who
for some purposes may be called an agent, but who is really the directing mind and will of the
corporation, the very ego and centre of the personality of the corporation. .... It must be upon
the true construction of that section in such a case as the present one that the fault or privity is
the fault or privity of somebody who is not merely a servant or agent for whom the company is
liable upon the footing respondeat superior, but somebody for whom the company is liable
because his action is the very action of the company itself. It is not enough that the fault should
be the fault of a servant in order to exonerate the owner, the fault must also be one which is not
the fault of the owner, or a fault to which the owner is privy; and I take the view that when
anybody sets up that section to excuse himself from the normal consequences of the maxim
respondeat superior the burden lies upon him to do so.
Pursuant to section 144(1) of Act 992, the company may act through its members in a general
meeting, through the board of directors or through its officers or agents appointed by or under the
authority derived from the members in a general meeting or the board of directors.
The members of the company may also act by a unanimous agreement of the members of the
company either by an informal agreement or a written resolution.
A cursory reading of this provision suggests that the for an act to be regarded as the action of the
company, it must be executed by:
1. The members of the company acting in a general meeting

2. The Board of directors of the company
3. The officers of the company appointed by or under the authority of the members acting in
a general meeting
4. The agents of the company appointed by or under the authority of the members acting in a
general meeting.
Subsection 144(2) provides that the power of the members of the company to act or the board of
directors shall be provided by the constitution of the company.
1. Actions of the Members of the Company Acting in a General Meeting
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The members of the company acting in a general meeting can take a decision to bind the company.
The meeting may either be an annual general meeting or an extraordinary meeting. The said
decision may also be taken by a unanimous shareholder’s agreement either formally or informally.
As was seen in the case of Dhalomal v. Puplumpu, Asafo Adjei v. Agyeikum
POWER OF BOARD OF DIRECTORS TO ACT FOR THE COMPANY
The business of the company is managed by the board of directors of the company who may
exercises such powers as may not by Act 992 or the company’s constitution be provided for this
can be seen from section 144(3) of Act 992. In performing this function, the board of directors are
not bound to the directions and instructions of the members of the company acting in a general
meeting. Any decision thereby taking by them, shall not affect the powers of the directors in the
performance of the business of the company provided they act within their powers. This is provided
in section 144(4) of Act 992.
Therefore, in the case of Scott v. Scott [1943] All ER 582, a company's shareholders passed a
resolution at a general meeting that certain payments in respect of dividends should be
made to preference shareholders. It was held that the resolution was invalid as an attempt
by the shareholders to usurp the directors' powers of control.
Also, in John Shaw v. Peter Shaw and John Shaw, Peter, John and Percy Shaw had a company
together. They had an argument over owing the company money, and the result was a settlement.
Peter and John would resign as governing directors, promised they would not take part in financial
affairs, and independent directors would be appointed and given control over the company's
financial affairs. When the independent directors required John and Peter to pay money to the
company, John and Peter refused. The independent directors resolved to bring a claim against
them. Just before the hearing, an extraordinary general meeting was called, where as the majority
shareholders Peter and John procured a resolution to discontinue the litigation. The company, and
Percy, contended the resolution was ineffective.
At first instance Du Parcq J disregarded the resolution and gave judgment for the company.
John appealed.
Greer LJ said the following.
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I am therefore of opinion that the learned judge was right in refusing to dismiss the action
on the plea that it was commenced without the authority of the plaintiff company. I think
the judge was also right in refusing to give effect to the resolution of the meeting of the
shareholders requiring the chairman to instruct the company's solicitors not to proceed
further with the action. A company is an entity distinct alike from its shareholders and its
directors. Some of its powers may, according to its articles, be exercised by directors,
certain other powers may be reserved for the shareholders in general meeting. If powers
of management are vested in the directors, they and they alone can exercise these powers.
The only way in which the general body of the shareholders can control the exercise of
the powers vested by the articles in the directors is by altering their articles, or, if
opportunity arises under the articles, by refusing to re-elect the directors of whose actions
they disapprove. They cannot themselves usurp the powers which by the articles are vested
in the directors any more than the directors can usurp the powers vested by the articles in
the general body of shareholders. The law on this subject is, I think, accurately stated in
Buckley on Companies as the effect of the decisions there mentioned: see 11th ed., p. 723.
For these reasons I am of opinion that the Court ought not to dismiss the action on the
ground that it was instituted and carried on without the authority of the plaintiff company.
Same was espoused in the case of Ernest v. Nicholls [1857] 6 HL Cas 401,419., wherein
Lord Wensleydale observed that the members of a company can only act through their
directors, and the act of the individual shareholder has no effect whatsoever on the
company at large.
It is to be noted that in the exercise of the powers of the directors, an amendment of the
constitution of the company shall not thereby affect any decision of the board which would
otherwise have been valid but for the amendment. Thus, section 144(6) provides that (6)
An amendment of the constitution of a company shall not invalidate a prior act of the
board of directors which would have been valid if that amendment had not been made.
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Also, it is to be noted that one board member cannot make a decision to bind the company
unless ratified by the rest of the board in question. This however subject to sec. 146 of Act
992 which provides that
Delegation to committees and managing directors
146. Except otherwise provided in the constitution of a company, the
board of directors may:
(a) exercise their powers through committees consisting of a member or members of the
board as the board of directors think fit, and
(b) from time to time appoint one or more of the members of the board to the office of
managing director and may delegate all or any of the powers of the board of directors to
that managing director.
However, there are certain situations where the members of the company may in certain
situations exercise the powers of the directors even though it is provided that those powers
are to be exercised by the directors of the company.
As such, section 144(5) provides thus:
(5) Subject to section 145, the members in general meeting may
(a) act in a matter if the members of the board of directors are
disqualified or are unable to act by reason of a deadlock on
the board or otherwise;
(b) institute legal proceedings in the name of and on behalf of
the company if the board of directors’ refuse or neglect to do so;
(c) ratify or confirm an action taken by the board of directors;
or
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(d) make recommendations to the board of directors regarding an action to be taken by

the board.
It must be noted however that for a company to sue to enforce its rights, the decision to sue must
be made by persons with the authority to conduct such a suit as may be provided by the
constitution of the company. A member can thus, not unilaterally institute an action without
recourse to the other members of the company.
Actions of the Organs of the company as being that of the company Itself
Acts of the company
147. (1) An act of the members in general meeting, of the board of directors, or of a managing
director while carrying on in the usual way the business of the company, is the act of the company;
and accordingly, the company is criminally and civilly liable for that act to the same extent as if
the company were a natural person.
(2) For the purposes of subsection (1),
(a) the company does not incur civil liability to a person if that person had actual knowledge at the
time of the transaction in question that the general meeting, board of directors, or managing
director, did not have the power to act in the matter or had acted in an irregular manner or if, having
regard to the position with, or relationship to, the company, that person ought to have known of
the absence of the power or of the irregularity; or
(b) if in fact a business is being carried on by the company, the company shall not escape liability
for acts undertaken in connection with that business merely because, the business in question was
not among the businesses authorised by the constitution of the company.
In essence, since as a separate legal entity is a fictional creation of the law, it is considered as
having some lifeblood through which it acts, this lifeblood constitutes the head and brain of the
company. The company must act through its organs, and any actions by the organs of the company
is considered as the act of the company. According to Prof. Gower, the organs of the company are
its members, board of directors and the managing director of the company.
Again, the actions of the organs must be done or carried out in the usual way of business of the
company. This automatically means that no single organ can carry out any business as that of the
company if it is not in the usual way of business of the company. What amounts to usual course
of business is to be determined by the type of company involved and the officer in question.
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It is essential to state that the actors of the company do not act on behalf of the company, but they
act as the company itself. If that is the case, a company can be held civilly liable for its liabilities
and criminally liable too.
In Tesco Supermarkets Co Lt v. Nattrass [1971] 2 All ER 127., The appellants, a nationally

known public company, owned several hundred supermarkets. At one of these supermarkets they
displayed a large advertisement stating that Radiant washing powder was being sold at 2s 11d a
packet instead of the normal price of 3s 11d. When such offers were made it was the
appellants’ practice to remove from the store all stock at the normal price. One evening an assistant
discovered that none of the reduced-price packets of Radiant washing powder remained on display.
She therefore put out on display packets marked at the normal price of 3s 11d. She did not report
this to C, the manager of the store. The advertisement, however, remained in the window. C did
not himself check the stock of Radiant washing powder, but there was an entry in his weights and
measures book for the following day stating: ‘All special offers OK’. On that day a customer,
having seen the advertisement, tried to find a packet at the reduced price but failed to do so. On
being informed that there were no packets in stock for sale at 2s 11d, he took an ordinary packet
and was charged the higher price. An information was preferred against the appellants that they
had given an indication by means of the poster that the goods were offered at a price less than that
at which they were in fact offered, contrary to s 11(2)a of the Trade Descriptions Act 1968. At the
hearing the justices found, inter alia, that the appellants exercised all due diligence in devising a
proper system for the operation of the store and by securing as far as was reasonably practicable
that it was fully implemented; and that the appellants had established that the commission of the
offence was due to the act or default of C by his failure to see that the appellants’ policy was
correctly carried out and/or to correct the error of the staff under him. The appellants contended
that they had a defence to the charge under s 24(1)b of the 1968 Act in that the commission of the
offence was due to the act or default of another person and that they had taken all reasonable
precautions and exercised all due diligence to avoid the commission of the offence by themselves
or any person under their control. The appellants’ conviction was upheld by the Divisional Court
on the ground that, although C was ‘another person’ within the meaning of s 24(1)(a), the
requirement in s 24(1)(b) that the accused must take all reasonable precautions and exercise all
due diligence meant not only the accused but also all his servants acting in a managerial or
supervisory capacity. On appeal to the House of Lords,
Lord Reid rendered himself didactically thus: I must start by considering the nature of the
personality which by a fiction the law attributes to a corporation. A living person has a mind
which can have knowledge or intention or be negligent and he has hands to carry out his
intentions. A corporation has none of these; it must act through living persons, though not
always one or the same person. Then the person who acts is not speaking or acting for the
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company. He is acting as the company and his mind which directs his acts is the mind of the
company. There is no question of the company being vicariously liable. He is not acting as a
servant, representative, agent or delegate. He is an embodiment of the company or, one could
say, he hears and speaks through the persona of the company, within his appropriate sphere,
and his mind is the mind of the company. If it is a guilty mind then that guilt is the guilt of the
company. It must be a question of law whether, once the facts have been ascertained, a person
in doing particular things is to be regarded as the company or merely as the company’s servant
or agent. In that case any liability of the company can only be a statutory or vicarious liability
He continued further thus: I think that is right for this reason. Normally the board of directors,
the managing director and perhaps other superior officers of a company carry out the functions
of management and speak and act as the company. Their subordinates do not. They carry out
orders from above and it can make no difference that they are given some measure of discretion.
But the board of directors may delegate some part of their functions of management giving to
their delegate full discretion to act independently of instructions from them. I see no difficulty
in holding that they have thereby put such a delegate in their place so that within the scope of
the delegation he can act as the company. It may not always be easy to draw the line but there
are cases in which the line must be drawn. Lennard’s case was one of them.
Lord Morris also delivered himself thus: Within the scheme of the Act now being considered an
indication is given (which need not necessarily be an all-embracing indication) of those who
may personify ‘the directing mind and will’ of the company. The question in the present case
becomes a question whether the appellants as a company took all reasonable precautions and
exercised all due diligence. The justices so found and so held. The justices found and held
that ‘they’ (ie the company) had satisfied the provisions of s 24(1)(b). The reason why the
Divisional Court felt that they could not accept that finding was that they considered that the
company had delegated its duty to the manager of the shop. The manager was, they thought a
person to whom the appellants had delegated in respect of that particular shop their duty to take
all reasonable precautions and exercise all due diligence to avoid the commission of an offence.
Though the justices were satisfied that the company had set up an efficient system there had
been ‘a failure by someone to whom the duty of carrying out the system was delegated properly
to carry out that function’.
My Lords, with respect I do not think that there was any feature of delegation in the present
case. The company had its responsibilities in regard to taking all reasonable precautions and
exercising all due diligence. The careful and effective discharge of those responsibilities
required the directing mind and will of the company. A system had to be created which could
rationally be said to be so designed that the commission of offences would be avoided. There
was no delegation of the duty of taking precautions and exercising diligence. There was no such
delegation to the manager of a particular store. He did not function as the directing mind or
will of the company. His duties as the manager of one store did not involve managing the
company.
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Lord Diplock also observed that: My Lords, a corporation incorporated under the Companies Act
1948 owes its corporate personality and its powers to its constitution, the memorandum and articles
of association. The obvious and the only place to look, to discover by what natural persons its
powers are exercisable, is in its constitution. The articles of association, if they follow Table A,
provide that the business of the company shall be managed by the directors and that they
may ‘exercise all such powers of the company’ as are not required by the Act to be exercised in
general meeting. Table A also vests in the directors the right to entrust and confer on a managing
director any of the powers of the company which are exercisable by them. So it may also be
necessary to ascertain whether the directors have taken any action under this provision or any other
similar provision providing for the co-ordinate exercise of the powers of the company by executive
directors or by committees of directors and other persons, such as are frequently included in the
articles of association of companies in which the regulations contained in Table A are modified or
excluded in whole or in part.
In my view, therefore, the question: what natural persons are to be treated in law as being the
company for the purpose of acts done in the course of its business, including the taking of
precautions and the exercise of due diligence to avoid the commission of a criminal offence, is
to be found by identifying those natural persons who by the memorandum and articles of
association or as a result of action taken by the directors, or by the company in general meeting
pursuant to the articles, are entrusted with the exercise of the powers of the company. This test
is in conformity with the classic statement of Viscount Haldane LC in Lennard’s Carrying Co
Ltd v Asiatic Petroleum Co Ltd. The relevant statute in that case, although not a criminal statute,
was in pari materia, for it provided for a defence to a civil liability which excluded the concept,
the vicarious liability, of a principal for the physical acts and state of mind of his agent.
In the case of Bolton Engineering v. Graham and sons Ltd, Lord Denning delivered himself thus:
A company may in many ways be likened to a human body. It has a brain and nerve centre
which controls what it does. It also has hands which hold the tools and act in accordance with
directions from the centre. Some of the people in the company are mere servants and agents
who are nothing more than hands to do the work and cannot be said to represent the mind or
will. Others are directors and managers who represent the directing mind and will of the
company, and control what it does. The state of mind of these managers is the state of mind of
the company and is treated by the law as such.’
In that case the directors of the company only met once a year; they left the management of the
business to others, and it was the intention of those managers which was imputed to the
company. I think that was right. There have been attempts to apply Denning LJ’s words to all
servants of a company whose work is brain work, or who exercise some managerial discretion
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under the direction of superior officers of the company. I do not think that Denning LJ intended
to refer to them. He only referred to those who ‘represent the directing mind and will of the
company, and control what it does’.
In the Ghanaian case of Oxyair and Darko v. Wood [2005–2006] SCGLR 1057, Prof Ocran
Delivered himself thus: There is no question that the corporation as an incorporeal body, can,
in the words of Professor Lewis Solomon, “act only through the agency of flesh and blood
human beings.”[Solomon et.al. Corporations Law and Policy 4th ed. p. 349 West Publishing,
1998]. Professor Gower has also remarked that “a company as an artificial legal entity must of
necessity act through the medium of its human officers or agents…” “But,” he adds, “not every
act by them will necessarily bind the company even though they may be regarded as its organs.”
[Gower, Modern Company Law, 4th Edition, 1979, p. 181]. Indeed, the real risk that errant and
fast-talking officers and directors of a company pose for their principals have long been
recognised and dealt with in general agency and corporate law for centuries, and in our own
Code. Thus, Gower goes on to emphasize that “…the mere fact that someone purporting to act
on behalf of the company might have been given authority to do so cannot impose liability on
the company---the soi-disant agent may be a complete impostor…” [Gower, supra p.184 ] {the
French term soi-disant roughly translated as self-proclaimed agent}.
He proceeded thus: My Lords, I am aware that on the organic theory of corporate structure,
certain human agencies of the company might be viewed not merely as agents, but as the
company itself. These are situations, largely in the area of corporate criminal responsibility,
where ordinary principles of agency and vicarious liability have been considered inadequate to
deal with the potential liabilities of a company as an artificial legal person. Thus Gower has
noted that “in relation to the internal operations of a company, the general meeting, the board
of directors and even a managing director have, in effect, come to be treated as organs of the
company rather than as merely its agents.’’ However, even the adherents of this theory have
acknowledged that limitations exist on the ambit of the doctrine. Thus it has been stated that it
is not the act or knowledge of every agent or servant of the company which will be attributed to
the company, but “only of those whom the company has made its ‘responsible officers’ for the
action in question”. [See Gower, supra, p. 209]. In Tesco Supermarkets Ltd. V. Nattrass [1972
A.C. 153, H.L.] Lord Reid said in the House of Lords that “…A board of directors can delegate
part of their functions of management so as to make their delegate an embodiment of the
company within the sphere of delegation. But here the board never delegated any part of their
functions….” The limitation placed on the organic theory of corporate responsibility makes
immense sense, for otherwise the financial fortunes of any company would always be at the
mercy of brash and footloose managing directors.
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It is however noted that for the act of any of the organs of the company to be treated as that of the
company, there must be established that the act or decision taken was done in the usual way of the
business of the company as the case may be. Therefore, where the act carried out was not done in
the usual way of business of the company, then the said act would not be regarded as an act of the
company. Usual course of business in this sense connotes activities which are ordinarily
undertaken by the company for the purposes of furthering its business objects.
However, the fact that the act the organs of the company is carrying is beyond its stated objects
does not invalidate their actions as those of the company where it is established the actions were
taken in connection with the company’s business. This is provided in section 147(b)
Accordingly, Prof Ocran in the Oxyair Ltd case held thus: I now return to s. 139 of our
Companies Code. Basing myself on the analogy with the interpretations given to the Uniform
Partnership Act in the US, and on the “ordinary course of business” rule in corporate law, I
apply a two-step analysis to the conception of agency embodied in the Code. First, under s. 139,
the party seeking to enforce the acts of an individual director, the entire board of directors, or
the managing director as acts of the company must prove that those actors were carrying on in
the usual way the business of the company. If this is proved, that ends the inquiry on corporate
responsibility, unless the other party to the transaction had actual knowledge of lack of
authority, or he ought to have known of such absence of authority in view of his relationship to
the Company. Second, when the plaintiff’s case does not fit under s. 139, we move to s. 140(1),
which requires the proof of an express, implied, or apparent authority. If none of these forms
of authority can be proved, the acts in question are not deemed to be act of the company. The
only other basis upon which the company can be held accountable would be the organic theory
of corporate structures, which, as already indicated, does have severe limitations.
Again, where a person is an acting director of the a company, his actions bind the company, as
those of the company even though he may be the only acting director of the company, the binding
nature of his acts.
Therefore, in Bousiako v. Ghana Cocoa Marketing Board [1982-83] GLR 824., Under two
separate agreements with the Cocoa Marketing Board, the defendants, hereafter called the C.M.B.,
the first plaintiffs, Bousiako Ltd., and the second plaintiffs, K Ltd. (hereafter called the plaintiffs)
were to carry out a number of road and building construction jobs. A clause in each agreement
allowed the plaintiffs to claim "fluctuation" or "ex-gratia" payments for increases in government
wages that would affect their workmen on those jobs and also for increases in the market price of
any [p.825] materials or goods. Following increases between 1979 and 1980, the plaintiffs wrote
to the CMB to demand such payment. Dr. Erbynn (E), a member of the CMB's three-man Interim
Management Committee (IMC) who was also the chairman of its Central Tender Board (CTB)
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wrote a letter dated 17 June 1981 on behalf of the CMB and copied to the chairman and the other
member of the IMC and addressed to the plaintiffs advising them that their accounts had been
credited with two separate amounts of ¢2,255,306 and ¢3,242,790.10 respectively, representing
ex-gratia awards arising from the effect of inflation on the original contract prices.
The letter also informed the plaintiffs that a cheque would be issued to them in their joint name
and that of their bankers. On 22 July 1981, however, a second letter came from Alhaji Bawumia
(B), chairman of the IMC which sought to withdraw the earlier letter written by E, stating that all
ex-gratia awards were being suspended pending the completion of further investigations into the
matter. In the meantime, relying on the earlier letter, the plaintiffs had secured bank overdraft
facilities. As their bankers pressed for the settlement of the overdrafts and the accrued interests,
the plaintiffs also demanded from the CMB, payment of the fluctuation or ex-gratia awards as
earlier communicated to them. Consequently, the CMB wrote another letter dated 18 November
1982, asking for the bank statements on the overdraft facilities obtained by the plaintiffs. These
were supplied but the CMB failed to make any payment.
Consequently, the plaintiffs sued for the ex-gratia awards and bank interests thereon at the
prevailing bank rates from 17 June 1981 up to date of judgment. In opposing the claim, the
defendants contended that the letter written by E was without authority and was therefore null and
void because the CTB of which E was the chairman was only an advisory body whose
recommendations such as those on the ex-gratia awards were subject to the approval of the chief
executive. Besides, since the letter from the chairman of the IMC sought to repudiate the letter
dated 17 June 1981, the plaintiffs could not have secured bank overdraft facilities on the strength
of that letter.
The court speaking through Osei Hwere J. held in the following words, The effect of the provisions
of sections 139 and 140 of Act 179 is to protect third parties against the unfair operation of the
ultra vires doctrine. In so far as there has been an express authorisation to act it is not difficult
to hold a company liable for the acts of such officer. Section 137 of Act 179, for instance,
expressly provides for the division of powers between its members in a general meeting on the
one hand and its board of directors. These two bodies may also [p.842] expressly act through
their appointed officers or agents. Section 138 also permits the delegation of the powers of the
board of directors to committees and managing directors. It is when we come to consider who
those officers are who have the implied authority to act on behalf of the company that the
problem of ascertainment arises. In this connection reference has frequently been made to the
judgment of Denning L.J. (as he then was) in H.L. Bolton (Engineering) Co. Ltd. v. T.J.
Graham and Sons Ltd.[1957] 1 Q.B. 159, C.A.
In West African Express Ltd v. Craig [1963] 2 GLR 231-234 In 1957, the plaintiff, a married
woman, was employed by the defendant company whose head office was in Accra as a manageress
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of their Kumasi travel agency. There was no properly drawn up contract of employment. However,
the plaintiff was to have for her services 50 per cent. of the commission income earned by the
establishment after deduction of expenses. By October 1959 she had received nothing by way of
remuneration. Meanwhile she was offered employment by another travel agency. She therefore
wrote to her employers threatening to terminate her employment with them and to close down the
Kumasi office unless she was offered a new and more satisfactory agreement. As a result of this
threat, the general manager of the company who was acting as the managing director in the absence
on leave of the substantive holder of the post, entered into a new agreement with the plaintiff. The
question for the determination of the trial court was whether the acting managing director had the
authority to enter into the agreement. The court held that he had the authority to do so. The
defendant appealed to the Supreme Court against the ruling.
The court held that the general manager acting for the time being as the managing director had
authority to enter into the agreement. As a pro tem acting managing director he had a general
authority to act in the best interest of the company to prevent part of the company's business from
being closed down.
EXCEPTIONS TO FIXING A COMPANY WITH CIVIL AND CRIMINAL LIABILITY
Subsection 2 of section 147 provides that (2) For the purposes of subsection (1), (a) the company
does not incur civil liability to a person if that person had actual knowledge at the time of the
transaction in question that the general meeting, board of directors, or managing director, did not
have the power to act in the matter or had acted in an irregular manner or if, having regard to the
position with, or relationship to, the company, that person ought to have known of the absence of
the power or of the irregularity.
From this, two exceptions can be deduced.
1. Where the third party dealing with the company had actual knowledge of the irregularity
2. Where by virtue of his relationship or position to the company he ought to have known of
the irregularity or that someone did not have the power to act.
Actual Knowledge of the third Party
Where a third party dealing with the company has actual knowledge of the fact that the person
acting or purporting to be acting for the company did in fact not have the power to so act, the
actions of that said person cannot be regarded as that of the company as provided in section 147(2).
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In Oxyair and Darko v. Wood, Date- Bah JSC held that where it could be proved that the
plaintiffs had actual knowledge that the transaction was restricted the company would be liable.
Constructive Knowledge
A third party who in his dealing with the company ought to know about an irregularity between
the company and the third party, he is thereby precluded from enforcing the transaction because
the law presumes that he is aware of the said irregularity. In such a situation, the third would be
incapable of enforcing any transaction entered into with the company. This inference may be made
on the facts and circumstances of the transaction and also based on the third party’s position or
relationship with the company.
Where the third party has knowledge and still proceeds to act or benefit from the transaction, he
becomes a constructive trustee to the company as was espoused by Brown-Wilkinson in the case
of Rolled Steel Products v. British Steel Corporation.
The classic statement on constructive notice was in the case of Zamora No. 2 per Lord Summer,
wherein he stated that There are two senses in which a man is said not to know something
because he does not want to know it. A thing may be troublesome to learn, and the knowledge
of it, when acquired, may be uninteresting or distasteful. To refuse to know any more about the
subject or anything at all is then a wilful but a real ignorance. On the other hand, a man is said
not to know because he does not want to know, where the substance of the thing is borne in
upon his mind with a conviction that full details or precise proofs may be dangerous, because
they may embarrass his denials or compromise his protests. In such a case he flatters himself
that where ignorance is safe, 'tis folly to be wise, but there he is wrong, for he has been put upon
notice and his further ignorance, even though actual and complete, is a mere affectation and
disguise."
In the case of Northside Development Pty v. Registrar General and ors. Mason C.J held thus:
However, there is no reason why a third party should be entitled to rely on the formal validity of
the instrument and to assume that the seal has been regularly affixed if the very nature of the
transaction is such as to put him upon inquiry. If the nature of the transaction is such as to
excite a reasonable apprehension that the transaction is entered into for purposes apparently
unrelated to the company's business, it will put the person dealing with the company upon
inquiry. It is one thing to assume that the..
In Chellaram and Sons v.Halabi, [1963] 1 GLR 214 SC. A limited company being heavily
indebted to several people had insufficient funds to pay the salaries of its staff, including the
plaintiff, who alleged that she was at the material time an assistant store manager. The plaintiff’s
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husband was the managing director of the said company and the plaintiff had herself previously
been a director.
In July 1958 an action for debt was commenced against the company and in September 1958
having obtained judgment, the judgment-creditors attached the company's store. The plaintiff
then claimed that the said store and all the goods in it were her property, that they had been
conveyed to her by a deed executed on the 18th August, 1958, by the managing director of the
company, and that she paid consideration of £G1,160 10s. being made up of £G440 arrears of
salary due to her from the company and £G720 10s. cash. There were no witnesses to the
execution of this deed which was signed only by the plaintiff and her husband and there was no
clear evidence that the plaintiff was ever in possession of the store. However, in her statement of
claim, the plaintiff averred that she was an employee of the company until the 31st July,
1958. She thus had notice of the civil action against the company.
In the High Court, Scott J. observe
d that all the circumstances surrounding the transaction were "highly suspicious." He however
concluded that it had been "clearly established that judgment-creditors did issue writs of fi. fa. on
other properties of the defendant-company to satisfy their judgment and it has not been rebutted
that the value of these properties is in excess of the amount awarded to the judgment-creditors"
and therefore, "having regard to these particular facts, on the evidence adduced, I cannot hold
that the agreement was a fraudulent or fictitious one." The judgment-creditors appealed.
The supreme Court held that the plaintiff was in a position to know that there was no meeting
of the board of directors of the company at which the managing director was empowered to sell
the company's goods to her; therefore since she had notice of an irregularity in the internal
management of the company in connection with her dealings with it, she could not shelter
behind the rule in Royal British Bank v. Turquand (1856) 6 El. & Bl. 327; 119 E.R. 474; Morris
v. Kanssen [1946] A.C. 459, H.L. and Howard v. Patent Ivory Co. (1888) 38 Ch.D. 156 cited.
Crabbe JSC in the said case held that in this case the plaintiff occupied such a position of
responsibility in the debtor-company at the time of the civil action that she cannot pretend to be
unaware either of the impossibility of securing a quorum at the alleged meeting of the 22nd
May, 1958, or that no resolution was passed at such a meeting. The evidence of her husband
was that, "At the time this action was pending my wife was an employee of the company. She
was assistant manager there. I was served with writ on the 18th July, 1958. I entered
appearance on the 23rd July, 1958. This store was sold when action was pending."
I have no doubt on the evidence that the plaintiff knew or was in a position to know that there
was no meeting by the board of directors at which Halabi was empowered to sell the company's
goods to her.
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ACTS BY OFFICERS AND AGENTS OF THE COMPANY
As noted above, the company may act through designated corporate officers and agents.
An officer as defined by the First Schedule of act 992 refers to any director, secretary or employee
of that body corporate and receiver and manager of a part of the undertaking of that body corporate,
appointed under a power contained in an instrument and a liquidator of a company appointed in a
members’ voluntary winding up but does not include a receiver or manager appointed by the Court
or a liquidator appointed under the provisions of the Insolvency and Corporate Restructuring Act
2020 (Act 1015).
An act of the officer or an agent of a company is not the act of the company unless the company
acting through its board of directors, managing director or members at general meeting has
expressly or impliedly authorized that officer or agent to so act or the company has represented
the officer or agent as having the authority to act.
Section 148 of Act 992 provides that 48. (1) Except as provided in section 147, the acts of an
officer or
agent of a company are not acts of the company, unless,
(a) the company, acting through the members in general meeting, the board of directors, or
managing director, has expressly or impliedly authorised that officer or agent to act
in the matter; or
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(b) the company, acting under paragraph (a) has represented to the officer or agent as having the
authority of the company to act in the matter, in which event the company is civilly liable to a
person who has entered into the transaction in reliance on that representation, unless that person
had actual knowledge that the officer or agent did not have the authority, or unless, having regard
to the position with, or relationship to, the company, that person ought to have known of the
absence of authority.
(2) The authority of an officer or agent of the company may
be conferred before action is taken by that officer or agent or by subsequent ratification.
(3) The knowledge of action by that officer or agent and acquiescence in that action by
(a) the members for the time being entitled to attend general meetings of the company,
(b) the directors for the time being, or
(c) the managing director for the time being, is equivalent to ratification by the members in
general meeting, by the
board of directors, or by the managing director.
(4) This section does not derogate from the vicarious liability of a company for the acts of the
employees while acting within the scope of their employment.
However, the company will not be civilly liable where the third party had actual knowledge that
the officer or agent did not have authority to act or that having regard to the position with or
relationship to the company, the third party ought to have known of the absence of authority.
Freeman v Buckhurst Park Properties (Mangal) Ltd [1964] 2 QB 480 @ 506, Lord Diplock
rendered himself thus: the judge was right and the company was bound to pay Freeman and
Lockyer for their architecture work.[1] He noted that if actual authority is conferred by the board
without a formal resolution, this renders the board liable for a fine.[2] If a person has no actual
authority to act on a company's behalf, then a contract can still be enforced if an agent had authority
to enter contracts of a different but similar kind, the person granting that authority itself had
authority, the contracting party was induced by these representations to enter the agreement and
the company had the capacity to act.[3] All those conditions were fulfilled on the facts, because
(1) the board knew about Kapoor’s general activities and permitted him to engage in these kinds
of activities; such conduct represented his authority to contract for these kinds of things (2) the
articles conferred full power to the board (3) Freeman and Lockyer were induced to contract by
these ‘representations’ and (4) the company had capacity.
An "actual" authority is a legal relationship between principal and agent created by a consensual
agreement to which they alone are parties. Its scope is to be ascertained by applying ordinary
principles of construction of contracts, including any proper implications from the express words
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used, the usages of the trade, or the course of business between the parties. To this agreement the
contractor is a stranger; he may be totally ignorant of the existence of any authority on the part of
the agent. Nevertheless, if the agent does enter into a contract pursuant to the "actual" authority, it
does create contractual rights and liabilities between the principal and the contractor. It may be
that this rule relating to "undisclosed principals," which is peculiar to English law, can be
rationalized as avoiding circuity of action, for the principal could in equity compel the agent to
lend his name in an action to enforce the contract against the contractor, and would at common
law be liable to indemnify the agent in respect of the performance of the obligations assumed by
the agent under the contract.
An "apparent" or "ostensible" authority, on the other hand, is a legal relationship between the
principal and the contractor created by a representation, made by the principal to the contractor,
intended to be and in fact acted upon by the contractor, that the agent has authority to enter on
behalf of the principal into a contract of a kind within the scope of the "apparent" authority, so as
to render the principal liable to perform any obligations imposed upon him by such contract. To
the relationship so created the agent is a stranger. He need not be (although he generally is) aware
of the existence of the representation but he must not purport to make the agreement as principal
himself. The representation, when acted upon by the contractor by entering into a contract with
the agent, operates as an estoppel, preventing the principal from asserting that he is not bound by
the contract. It is irrelevant whether the agent had actual authority to enter into the contract.
In ordinary business dealings the contractor at the time of entering into the contract can in the
nature of things hardly ever rely on the "actual" authority of the agent. His information as to the
authority must be derived either from the principal or from the agent or from both, for they alone
know what the agent's actual authority is. All that the contractor can know is what they tell him,
which may or may not be true. In the ultimate analysis he relies either upon the representation of
the principal, that is, apparent authority, or upon the representation of the agent, that is, warranty
of authority.
In the Ghanaian case of Boohene Foods Ltd v. National Saving and Credit Bank and Anor.
[1992] 1 GLR 175, The second defendant-company offered to buy rice from the plaintiffs by
presenting a post-dated cheque in payment thereof. The plaintiffs declined to sell the rice against
that post-dated cheque. The second defendant subsequently presented the same cheque, exhibit A,
dated 25 October 1987 but with the [p.176] indorsement "payment guaranteed" written at the back
and bearing the signature and official stamp of the accountant of the Tema branch of the first
defendant bank. On the basis of that guarantee, the cheque was accepted by the plaintiffs and the
rice valued at ¢5 million was supplied to the second defendant. When the cheque was presented
for payment the first defendant-bank dishonoured it. The plaintiffs therefore sued the first
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defendants for, inter alia, the recovery of the value of the rice together with interest from the date
it became due up to the date of judgment. The first defendants repudiated liability on the grounds
that (i) the guarantee did not conform to the format (exhibit 5) in which guarantees were ordinarily
given by the first defendant bank; (ii) the accountant as a B signatory had no mandate to commit
the bank to the tune of ¢5 million; (iii) since the accountant knew that he had no mandate to commit
the bank up to ¢5 million and furthermore his action was not in accordance with the written
instructions of the bank, what he did was unauthorised and fraudulent and could therefore not bind
the bank; and (iv) since the plaintiffs had notice, actual or constructive, of the irregularity of the
mandate, the bank could not be bound. The judge found, inter alia, that (a) no notice had been
given to customers about the bank's own peculiar form of guarantees which they furnish to their
customers; and (b) the accountant had been held out conspicuously by the first defendants as one
of their signatories and a high ranking officer with authority to deal with members of the public
on all banking matters on their behalf.
The court held that it was a well-established presumption in the common law that an outsider
dealing with a company was entitled to presume that its internal regulations had been complied
with. That presumption had been given a statutory backing in the Companies Code, 1963 (Act
179), s.142(b). The presumption was rebutted by proof of the giving of express or constructive
notice by the company. In the instant case, since there was no express or constructive notice of
the extent of the authority of the accountant to commit the bank, the customer was entitled to
assume that all was in order and that the guarantee was proper. Royal British Bank v. Turquard
(1856) 119 E.R. 886 and Freeman & Lockyer v. Buckhurst Park Properties (Mangal) Ltd. [1964]
2 Q.B. 480, C.A. cited.
On the facts and evidence so far led in the case, I find that no notice whatsoever, be it express
or constructive, was given by the bank to its customers that the branch accountant had a limit
in his dealings with the [p.187] business of the bank or that the manager had to be contacted in
transactions beyond certain amounts. The law permits the customer to proceed, in the absence
of notice, that the internal regulations of the company have been complied with. I hold the view
that the bank held out the accountant as an officer with authority to act on behalf of the bank. If
the accountant exceeded his limit, or mandate, or acted fraudulently, or without authority as he
did in the instant case, he still acted on behalf of the first defendant-bank. Logically, it is only
fair to hold, as I do hold, that the bank which placed him where he was working in the bank as
the bank's branch accountant should bear responsibility for the actions of its own employees. I
certainly would have held otherwise if there were evidence that notice—even constructive or
implied notice—was given to the customer by the bank. In the absence of such notice, the bank
cannot escape liability for the actions of its employees on grounds of mistake, fraud or express
prohibition.
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The company is also vicariously liable for all the actions of its employees as was carried out in the
usual way of business of the company. Where the act that was done was in the employees course
of employment or it was an unauthorized mode of doing an authorized act or an act incidental
thereto, the company would be liable.
Therefore, in the Boohene Case, the judge after reviewing the English case held as follows: To my
mind the best criteria for determining vicarious liability was enumerated by Diplock J. was) in the
case of Hilton v. Thomas Burton (Rhodes) Ltd. [1961] 1 All E.R. 74 at 77 when he said: "Was he
(the employee) doing something that he was employed to do?" I have no doubt that on the facts of
the instant case, the accountant was clearly doing something he was employed to do. It is not
enough to say that the employers had expressly forbidden the employee from doing that job. As
was stated in Street on Tort (2nd ed.), at p. 441:
"If that were so, any employer could disclaim liability for the acts of its workers by merely saying
that it will not be liable for the acts of its servant. That would be grossly undesirable, if not
irresponsible on the part of employers."
If an employer like the first defendants employs a person like the accountant herein and the
accountant would not obey the instructions of the employer but the employer retains the services
of the employee and puts him forward ostensibly and conspicuously as having authority to act for
the employer, why should a third party without notice be damnified for dealing with that
employee?
In Lloyd v. Grace Smith & Co. [1912] A.C. 716, H.L. a firm of solicitors was held bound by the
fraudulent act of its managing clerk, who by fraudulent misrepresentation, induced the firm's
client, Mrs. Lloyd, to transfer to him a mortgage which he proceeded to sell and converted the sale
proceeds.
In that case, the House of Lords held that so long as a servant acts within the scope of the
employment entrusted to him, his employer is vicariously liable for all frauds committed by that
servant, whether for the benefit of the employer or for his own benefit. Applying that authority to
the instant case, it is obvious that the fact that the accountant acted fraudulently or that the first
defendant-bank did not profit by the fraud of his accountant, cannot absolve them from vicarious
liability for the accountant's actions. I do not see any good reason why the employer who
represented to the world that that employee has his authority to act for that employer should escape
liability.
Same principle was stated in the case of Iddrisi v. Attorney General [2001-2002] 1 GLR 208.
The employer would however not be liable where the emplohyee was on a frolic of his own as was
stated in the case of Edwuziwa v. Attorney General [1982-83] GLR 228.
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PRESUMPTION OF REGULARITY/ INTERNAL MANAGEMENT RULE
The general rule is that third parties are not required to ascertain whether all the procedures of
the company have been complied with or if all powers exercised by officers are exercisable.
Unless where they have information to the contrary, persons dealing with a company may
assume that the officers, agent, servant, etc., of the company have complied with conditions or
procedural requirements of the Constitution of a company. This means that third parties are not
required to find out before they deal with a company or its officers or agents, if the company’s
constitutions have been complied with. Third parties are entitled to presume that the company, its
members and officers in dealing with them have complied with the company’s constitution.
Therefore the third party may hold the company liable or bound for transactions, unless where
they know that there has been non-compliance. This is known as the ‘Rule in Turquand’s case’
or ‘the Indoor Management Rule’ from the case of Royal British Bank v Turquand (1856)
6 E&B 327.
In Royal British Bank v Turquand (1856) 6 E&B 327, Mr. Turquand was the official manager
(liquidator) of the insolvent Cameron's Coalbrook Steam, Coal and Swansea and Loughor
Railway Company. It was incorporated under the Joint Stock Companies Act 1844. The
company had given a bond for £2,000 to the Royal British Bank, which secured the company's
drawings on its current account. The bond was under the company's seal, signed by two directors
and the secretary. When the company was sued, it alleged that under its registered deed of
settlement (the articles of association), directors only had power to borrow up to an amount
authorised by a company resolution. A resolution had been passed but not specifying how much
the directors could borrow.
It held that people transacting or dealing with a company in good faith are entitled to assume that
internal company rules have been properly complied with, even if they are not and are not bound
to enquire whether acts of internal management have been complied with. The court thus held
that the bank need not prove that the company had passed a resolution at a general meeting
authorizing the directors to borrow funds from it. The bank indeed did have constructive
knowledge of the contents of the company’s Articles of Association, but there was nothing in the
articles that prohibited the directors from borrowing on behalf of the company.
Jervis CJ said:
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“We may now take for granted that the dealings with these companies are not like
dealings with other partnerships, and that the parties dealing with them are bound to
read the statute and the deed of statement.But they are not bound to do more.And the
party here, on reading the deed of settlement, would find, not a prohibition from
borrowing, but a permission to do so on certain conditions.Finding thatthe authority
might be made complete by a resolution, he would have a right to infer the fact of a
resolution authorising that which on the face of the document appeared to be legitimately
done.’’
Thus, a person dealing with a company is entitled to assume, in the absence of circumstances
putting him on inquiry, that there has been due compliance with all matters of internal
management and procedure required by the articles.The rule in Turquand's case was endorsed
by the House of Lords in Mahony v East Holyford Mining Co [1875] LR 7 HL 869.
In that case, the company's bank had received what purported to be a formal copy of a resolution
of the board authorising the payment of cheques signed by any two of three named "directors"
and countersigned by the named "secretary." The copy was itself signed by the secretary. The
bank paid cheques accordingly, but the whole company was a bubble and on its liquidation the
liquidator sought to recover the amounts paid out by the bank. On investigation it proved that
neither the directors nor the secretary had ever been formally appointed and no formal company
or directors' meetings had ever been held. The House of Lords took the opinion of the judges and
upheld their unanimous conclusion that the liquidator could not recover.Lord Hatherly phrased
the law thus:
“When there are persons conducting the affairs of the company in a manner which
appears to be perfectly consonant with the articles of association, those so dealing with
them externally are not to be affected by irregularities which may take place in the
internal management of the company.”
It must be noted that The Rule in Turquand’s case does not apply to insiders. The presumption
of regularity cannot be relied upon by persons who by virtue of their position in the company
know or ought to know whether or not the company’s internal regulations have been complied
with.
STATUTORY APPROVAL OF RULE IN TURQUAND’S CASE
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Section 150(1) of the Companies Act, 2019 (Act 992) provides that a person having dealings
with a company or with any other person who derives title under the company is entitled to
assume that,
(a) the company has been duly incorporated under this Act;
(b) a person described in the particulars filed with the Registrar pursuant to sections 13 and
216 as a director, managing director or Company Secretary of the company, or
represented by the company, acting through the members in general meeting, board of
directors, or managing director, as an officer or agent of the company, has been duly
appointed and has authority to exercise the powers and perform the duties customarily
exercised or performed by a director, managing director, or Company Secretary of a
company carrying on business of the type carried on by the company or customarily
exercised or performed by an officer or agent of the type concerned;
(c) the Company Secretary, and any other officer or agent of the company having authority
to issue documents or certified copies of documents on behalf of the company has
authority to warrant the genuineness of the documents or the accuracy of the copies so
issued; or
(d) a document has been duly authenticated by the company if it
(i) bears what purports to be the seal of the company attested by what purports to be
the signatures of two persons who, in accordance with paragraph (b), can be
assumed to be a director and the Company Secretary of the company; or
(ii) is certified by what purports to be the signatures of two directors and the
Company Secretary of the company and the company and those deriving title
under the document are estopped from denying the truth of that assumption.
In Barclays Bank (D.C.O.) Ltd. v. Perseverance Transport Services Ltd[1961] GLR 665, in
1953, the defendant-company, a limited liability company, sought a loan from the plaintiff-bank.
The bank asked it to produce its authority to borrow. Accordingly, one of its officers produced to
the bank what purports to be a resolution of its directors at a meeting held on the 15th December,
1953. It purports to have been signed by the chairman of the board of directors and the secretary.
It had the seal of the company affixed to it. Relying on this document the bank advanced to the
company various sums of money. In 1954, the bank asked for security for the repayment of the
various sums of money lent. The company executed in favour of the bank a memorandum
whereby it created an equitable charge over certain of its properties. In July, 1955, the company
informed the bank that it had arranged with the Industrial Development Corporation (I.D.C.) to
pay on its behalf the outstanding debt in exchange for a transfer to the said I.D.C. of the security
in the hands of the bank. The bank agreed to this arrangement, but in September, 1956, the I.D.C.
refused to make the payment. It was contended on the defendant-company's behalf that the
borrowing was ultra vires the company y and the loan irrecoverable because there is no evidence
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that it was sanctioned by a general meeting of the shareholders in compliance with the
requirements of regulation 65 of Table A of the Companies Ordinance, Cap. 193 (1951 Rev.).
The court held that by the rule in Royal British Bank v. Turquand, the bank was entitled to
assume that the resolution produced to it was a resolution of the general meeting of the company
empowering it to borrow. The bank did not have to go behind that resolution investigate the
internal workings of the company and to check up whether a general meeting was held or not
Apaloo JA (as he then was) said:
“In my opinion, in so far as the defendant-company sought to say that the meeting of the
15th December, 1953, was not a meeting of the general company, the rule in
Turquand'scase furnishes a complete answer. The defendant-company knew or ought to
be deemed to know that it could not borrow beyond its issued capital without the sanction
of a general meeting of its shareholders. It produced to the plaintiff-bank exhibit A as
authority for borrowing such excess. In my judgment, the plaintiff-bank were entitled to
assume that such a meeting was in fact held.’’
In Boohene Foods v. National Savings and Credit Bank [1992] 1 GLR 175, the second
defendant-company offered to buy rice from the plaintiffs by presenting a post-dated cheque in
payment thereof. The plaintiffs declined to sell the rice against that post-dated cheque. The
second defendant subsequently presented the same cheque, but with indorsement "payment
guaranteed" written at the back and bearing the signature and official stamp of the accountant of
the Tema branch of the first defendant bank. On the basis of that guarantee, the cheque was
accepted by the plaintiffs and the rice valued at ¢5 million was supplied to the second defendant.
When the cheque was presented for payment the first defendant-bank dishonoured it. The
plaintiffs therefore sued the first defendants for, inter alia, the recovery of the value of the rice
together with interest from the date it became due up to the date of judgment. The first
defendants repudiated liability on the grounds since the plaintiffs had notice, actual or
constructive, of the irregularity of the mandate, the bank could not be bound.
The court held that it was a well-established presumption in the common law that an outsider
dealing with a company was entitled to presume that its internal regulations had been complied
with. That presumption had been given a statutory backing in the Companies Code, 1963 (Act
179) under section 142(b). The presumption was rebutted by proof of the giving of express or
constructive notice by the company. In the instant case, since there was no express or
constructive notice of the extent of the authority of the accountant to commit the bank, the
customer was entitled to assume that all was in order and that the guarantee was proper.
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In Commodore v Fruit Supply (Ghana) Ltd[1977] 241, the respondent company traders in
frozen fish, entered into an oral agreement for the supply and sale (on credit basis) of all its frozen
fish to the appellant. The affairs and business of the company (including the supply of fish to the
appellant) were undertaken by its managing director and one Atto Quarshie, who even though he
was never appointed by the company as a director transacted business on behalf of the company
with the appellant as if he were a director and the chief executive of the company. The name of
Atto Quarshie also appeared on the company's letter-head as one of its directors. The company
allowed Atto Quarshie to share in its profits. Atto Quarshie therefore entrusted the sale of that fish
(allocated to him for his own benefit) to the appellant and directed that the proceeds of the sale
should be paid by the appellant into the account of his private firm. In the course of the transactions
the appellant paid various sums of money (being proceeds of sale of fish supplied by the company)
to both the managing director of the company and Atto Quarshie. At the close of business, the
trading account of the company showed a debit balance against the appellant. The company sued
for this amount and appellant also counterclaimed for ¢23,622.90 being overpayments made to the
company and alleged that apart from payments made to the managing director of the company, she
had made some payments (intended for the company) to Atto Quarshie through his private firm
and that those payments ought to be applied to her credit account with the company. The company
denied that it had business connection with Atto Quarshie or his private firm.
The Court of Appeal held that under the rule in Royal British Bank v. Turquand, persons who
entered into a contract with a company and dealt in good faith with that company, had the right
to assume that acts within the constitution and powers of that company had been duly and
properly performed. Such persons were under no duty to inquire whether acts of internal
preliminaries and management had been regularly performed.
At page 248,Lassey J.A said:
‘On the facts, the appellant as an outsider, had no knowledge of any irregularity within
the meaning and intent of sections 139 and 140 of the Companies Code, 1963 (Act 179),
so as to preclude her from relying on the rule in Royal British Bank v. Turquand... These
statutory provisions are intended, I think, to modify the rule... Their combined effect is
that if the outsider to the transaction knows or ought to know that the person held out as
director by the company is acting, irregularly, the company will not be civilly liable.’
APPLICATIONOF RULE IN TURQUAND’S CASE ON OTHER STATUTES
In City and Country Waste Ltd v Accra Metropolitan Assembly [2007-2008] SCGLR 409,
the plaintiff was a limited liability company incorporated under the laws of Ghana and carried
out the business of waste collection, disposal and management as well as landfill services, whilst
the defendant was a statutory body. The defendant engaged the plaintiff company to render waste
disposal services within the city of Accra in an agreement in December 1997, which was to last
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for seven years, with the option that both parties could renew it for a further seven years. In June,
2001, the defendant terminated the agreement. The plaintiff company, however, claimed that the
termination constituted a breach of contract and, therefore, brought the present action, claiming
inter alia, cost of services provided and damages for breach of contract. The defendant on its part
challenged the enforceability of the contract and claimed that it was executed under duress and in
breach of the Local Government Act, 1993 (Act 462) as well as other regulations of the
defendant. The defendant thus counterclaimed for, inter alia, a declaration that the agreement
was null and void. On appeal to the Supreme Court counsel for the plaintiff contended that
section 156 of the Local Government Act, 1993 (Act 462) created a presumption of regularity in
favour of persons dealing with district assemblies to the effect that all acts of the district
assemblies had been regularly done.in other words, the effect of section 156 of the Local
Government Act, 1993 (Act 462) was that any person who had been awarded a contract by the
defendant would be entitled to assume that an advice had been given by the district tender board.
The Supreme Court held that the argument of counsel for the plaintiff made in the plaintiff’s
statement of case based on section 156 of the Local Government Act, 1993 (Act 462), seeking to
rely on a rule similar to the company law rule in Turquands case (Royal British Bank v
Turquand) would be rejected because the prohibition imposed on the District Assemblies was a
statutory one, as contrasted with the internal company regulations concerned in the rule in
Turquands case. A statutory prohibition has to be complied with, even if it is unilaterally
binding on only one party to the contract. Furthermore, the statutory presumption of regularity
provided in section 156 of the Local Government Act, 1993 (Act 462) which was prayed in aid
to buttress that argument was, in its own terms, rebuttable. Thus, where, as in this case, the
evidence was clear that the statutory provisions were not complied with, the presumption of
regularity would be of no help.
EXCEPTIONS TO THE PRESUMPTION OF REGULARITY
1. Section 150(2)(a) of the Companies Act, 2019 (Act 992) provides that for the purposes of
subsection (1), a person is not entitled to make any of those assumptions if that person
had actual knowledge to the contrary or if, having regard to the position with, or
relationship to, the company, that person ought to have known the contrary.
This means that, if the person dealing with a company has act has actual knowledge that the
constitution of the company, have, in fact not been complied with then he or she will not be
entitled to assume that the constitution of the company have been complied with.
A person who in fact knows of a situation or development is said to possess actual

knowledge/express knowledge. A person, who in fact does not know of a situation or
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development but who, by virtue of her circumstance or position, should know of the situation or
development is said to possess constructive knowledge.
In B Ligget (Liverpool) Ltd v Barclays Bank [1928] 1 KB 48, the defendants negligently and
contrary to instructions paid cheques of their customers , the plaintiff company, which had been
signed by one director only. The cheques were drawn in favour of trade creditors of the company
in payment for goods supplied to the company in their business. In an action by the company for
money had and received, it was held that as the liabilities of the company had not been increased
by reason of the payment of the cheques, the defendants were protected from liability on
equitable grounds , and were entitled to stand in the place of the creditors whom they had paid.
The court however remarked that where bankers have been put upon inquiry with regard to the
appointment of a new director of a company and are guilty of negligence in not investigating the
position, they are not entitled to assume that a notice of appointment of an additional director is a
valid notice and that the director was duly appointed.
Another important exception to the rule is that a person who deals with a company and who has
notice of an irregularity in its internal management in connection with the subject-matter of his
dealings cannot take shelter behind the rule
In Chellerams& Sons (Ghana) Ltd v Harlabi[1963] 1 GLR 214 (SC), a limited company
being heavily indebted to several people had insufficient funds to pay the salaries of its staff,
including the plaintiff, who alleged that she was at the material time an assistant store manager.
The plaintiff’s husband was the managing director of the said company and the plaintiff had
herself previously been a director. In July 1958 an action for debt was commenced against the
company and in September 1958 having obtained judgment, the judgment-creditors attached the
company's store. The plaintiff then claimed that the said store and all the goods in it were her
property, that they had been conveyed to her by a deed executed on the 18th August, 1958, by
the managing director of the company, and that she paid consideration of £G1, 160 10s. being
made up of £G440 arrears of salary due to her from the company and £G720 10s. cash. There
were no witnesses to the execution of this deed which was signed only by the plaintiff and her
husband and there was no clear evidence that the plaintiff was ever in possession of the store.
However, in her statement of claim, the plaintiff averred that she was an employee of the
company until the 31st July, 1958. She thus had notice of the civil action against the company.
The Supreme Court held among others thatthe plaintiff was in a position to know that there was
no meeting of the board of directors of the company at which the managing director was
empowered to sell the company's goods to her; therefore since she had notice of an irregularity in
the internal management of the company in connection with her dealings with it, she could not
shelter behind the rule in Royal British Bank v. Turquand.
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Crabbe JSC said:
‘The rule is that persons dealing with a company are bound to read the public documents
of the company and to see that a proposed transaction is not inconsistent therewith, but
they are not bound to do more; they need not enquire into the regularity of the internal
proceedings—"the indoor management"—and may assume that all is being done
regularly. Thus where the articles give the directors power to enter into certain
transactions by resolution, an outsider like the plaintiff here, as her counsel contended,
may take it for granted that the necessary resolution has been passed.’
Third parties can only rely on the rule if they are dealing with the company in good faith and
have not been “put on inquiry”. A third party may be put on inquiry by suspicious circumstances
(in particular where the agent acting for the company clearly has a conflicting personal interest)
or by the fact the transaction is unusual or at least is an unusual one for this particular agent to
make.
In Rolled Steel Products v British Steel Corporation [1986] 1 Ch 246, the memorandum of
Rolled Steel empowered it to give guarantees. It guaranteed the obligation of an associate company
Scottish Steel Sheet (SSS) to British Steel and gave security over its property in transactions which
were in no way for its own advantage but did benefit one of its directors. All the shareholders of
Rolled Steel were aware of the irregularity of these transactions and so also was British Steel. It
was held at first instance that the knowledge of British Steel that the transactions did not further
the objects of Rolled Steel made them ultra vires and void and incapable of validation by the
shareholders’ consent.
The Court of Appeal held that the transaction was not ultra vires and void simply because a
transaction is entered for an improper purpose does not make it ultra vires. The court made a
distinction between an act which is entered into for an improper purpose (which is not beyond the
capacity of a company or void) and an act which is wholly outside a company’s objects and hence
ultra vires and void. However, in the present case, the transaction was unenforceable because the
appellant with the knowledge of the irregularity could not rely on the presumption of regularity in
the company’s internal management since the appellant knew about the lack of authority, they
could acquire no rights under the guarantee.
In Cudjoe v Conte Ltd [1964] GLR 28, the respondents were a limited liability company, the
founder and managing director of which was J. Conte who was also the sole proprietor and
principal shareholder of the Ghana Terrazo Company. On the dissolution of the latter company
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all its liabilities and assets, among which was an Albion tipper lorry, were transferred to the
respondent company. J. Conte appointed the appellant a director of the respondent company
from 24 April 1961 to 7 June 1961. The directors later appointed him managing director. As a
director of the respondent company the appellant had access to, and control of, all properties
belonging to that company. On or about 12 June 1961 the appellant removed the said lorry. He
refused to comply with the request of the other directors of the company to return it to the
company on the ground that J. Conte, by a letter to the principal licensing officer dated 2 May
1961, had transferred ownership in the vehicle to him as part payment of certain sums owed by J.
Conte to him. In an action by the respondent company for the return of the vehicle and damages
for its unlawful removal, Mrs. Jiagge J. gave judgment in favour of the company.
The Supreme Court in dismissing the claim held among others that although an innocent third
party may benefit from the disposal of property belonging to a company by a director who might
not have been properly appointed, in the instant case the appellant as a director could not acquire
that benefit.
Sarkodee-Addo JSC, after referring to a number of cases, said:
“…and although an innocent third party might benefit, in the instant case, the defendant
as a director is far from acquiring that benefit. For most purposes it is sufficient to say
that directors occupy a fiduciary position and all the powers entrusted to them are only
exercisable in this fiduciary capacity. In the result, the company's assets are impressed
with the qualities of a trust fund, so that they may be followed into the hands of an
alienee who takes with notice of their ultra vires application. Further, where the
directors make a profit as the result of their fiduciary position, they have to account to
the company for it.”
 Underwood v Bank of Liverpool [1924] 1 KB 775
Third parties with actual or constructive knowledge of an irregularity are not protected by law.
The law protects only innocent third parties who deal in good faith with the company.
In Howard v Patent Ivory Manufacturing Co. (1888) 38 Ch D 156 (Ch D), debentures were
issued by directors to directors in excess of their very limited powers to issue debentures. The
directors’ borrowing power in any event was not to exceed 1000 pounds without the authority of
a general meeting. Kay J ruled:
“Now in this case, unfortunately for the holders of these debentures, they are all
directors, and therefore the well-known authorities which make it unnecessary to see
whether the internal regulations of the company have been observed or not do not apply;
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because, of course, the directors must be taken to know that the internal requirements of
the company had not been observed in the case of these debentures. Accordingly, I am
sorry to say that I cannot treat the debentures as valid to the extent of more than 1000
pounds.”
Also, a person who because of his relationship to, or position with the company ought to have
that the constitution of the company have not been complied with is not entitled to assume that
the constitution have been complied with. Examples of such persons will be directors and other
insiders who because of their position in the company are in a position to know whether or not
the constitution of the company have been complied with. Thus, directors cannot rely on the rule,
even when only just appointed.
In Morris v. Kanseen [1946] AC 459, Lord Simonds at page 592 said:
“it is a rule designed for the protection of those who are entitled to assume just because
they cannot know that the person with whom they deal has the authority which he claims.
This is clearly shown by the fact the rule cannot be invoked if the condition is no longer
satisfied. That is, if he who would invoke it is put upon enquiry he cannot presume in
his own favour that things are rightly done if enquiry he ought to make might tell him
that they were wrongly done…it is the duty of directors, and equally of those who purport
to act as directors, to look after the affairs of the company, to see that it acts within its
powers and that its transactions are regular and orderly. To admit in their favour a
presumption that that is rightly done which they have themselves wrongly done is to
encourage ignorance and condone dereliction from duty…his duty as a director is to know;
his interest, when he invokes the rule, is to disclaim knowledge. .it was argued upon your
Lordships that the purported appointment of Morris as a director having taken place
immediately before the unauthorized allotment of shares, he has in fact no opportunity of
learning the true state of affairs. This argument has for me no weight or substantive.
Admit, as to my mind one must admit, that a director is not for the purpose of the rule in
the same position as a stranger: then it is immaterial how long he has been a director,
as it is whether he is an idle or diligent director or a robust or sick director.”
2. Section 150(2)(b) of the Companies Act, 2019 (Act 992) provides that for the purposes of
subsection (1), a person is not entitled to assume that any one or more of the directors of
the company has or have been appointed to act as a committee of the board of directors or
that an officer or agent of the company has the authority of the company by reason only
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that the constitution of the company provides that authority to act in the matter, may be
delegated to a committee or to an officer or agent.
Constructive Notice: There also existed a principle known as the principle of Constructive
notice which stated that anyone dealing with a company registered under the Companies
legislation was deemed or presumed to have notice of its public documents which are required to
be filed with the Registrar of companies.
In Re Jon Beaufort (London) Ltd (1953) 1 Ch 131, where the company’s object was to make
costumes and gowns. It decided to diversify into an ultra vires activity of manufacturing
veneered panels. It ordered fuel from a supplier but went into liquidation before it was paid for.
The order was on heeded paper which used the words ‘Veneered Panel Manufacturers’. The
liquidator argued that the fuel was used for an ultra vires purpose and did not have to be paid for.
The supplier argued that he did not know what purpose the fuel would be used for. The court
held that the supplier had actual notice from the letterhead what the fuel would be used for. He
also had constructive notice of the ultra vires purpose from the registration of the company’s
memorandum of association.
The doctrine of constructive notice was effectively abolished by Section 149 of the Companies
Act, 2019 (Act 992) of Ghana. In England it was abolished by sections 35A and 35B of
Companies Act 1985 and now section 40 Companies Act 2006.
Section 149 of the Companies Act, 2019 (Act 992) provides that except as provided in section
121, regarding particulars in the register of particulars of charges, a person shall not be deemed
to have knowledge of any particulars, documents, or the contents of documents by reason only
that those particulars or documents are registered by the Registrar or referred to in any
particulars or documents so registered.
In Oxyair Ltd & Darko v Wood [2005-2006] SCGLR 1057, the Supreme Court per Date-Bah
JSC considered the scope of the application of the rule in Turquand’s case in Ghana and
observed that the rule had been codified and amended in sections 139 to 143 of the Companies
Code 1963, (Act 179).
In that case, the first plaintiff played a leading role in shaping the course of a successful
implementation of the second defendant’s dream of establishing a viable and profitable oxygen-
manufacturing plant in Ghana. The first plaintiff and the two other plaintiffs made contributions
towards the setting up of the defendants’ oxygen production business upon an understanding,
reached with the second defendant that forty percent of the shares in the first defendant company
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would be allocated to the plaintiffs. The second defendant admitted in his pleadings that he was
the Managing-Director, Governor and Financial Controller of the first defendant. The
defendants had, however, failed to honour the agreement concluded with the plaintiffs.
The Supreme Court ruled that the managing director of the defendant (appellant) company was
in law one of the organs of the company and was able to bind the company. In terms of section
139 of the Companies Act therefore, unless the defendants (the company and its managing
director) were able to establish that the plaintiffs had actual knowledge, before the conclusion of
the oral contract, of any defect in the managing director’s authority to bind his company or that
he had acted in an irregular manner, then the company was bound.
His Lordship also pointed out that section 141 of the Companies Code 1963, (Act 179) abolishes
the pre-existing common law rule that a party dealing with a company was deemed to have
constructive knowledge of the company’s public documents filed with the Registrar of
Companies.
According to Date-Bah:
‘In this connection, it should be noted that section 141 of the Companies Code 1963
effects a change in the pre-existing common law rule. The common law rule was that a
party dealing with a company was deemed to have constructive notice of the contents of
all the companies’ public documents filed at the Companies Registry. Section 141
abolishes this rule…This provision implies that at the time that the plaintiffs entered into
their parol contract with the defendants they had no constructive notice of the contents of
the Regulations of the company. Accordingly, any restrictions on the authority of the
managing-director contained in the Regulations do not affect the validity of the contract
entered into by him, unless the plaintiffs’ actual knowledge of such restriction is
proved…Thus, an outsider, such as the plaintiffs were when they entered into the oral
agreement with the second defendant, is entitled to assume that all the internal rules of
the company have been complied with. This is what is referred to in the marginal note of
section 142 as the presumption of regularity.”
LEGALCAPACITY OF COMPANIES
The legal capacity of a company may be defined as the things that the company is entitled to do
or not to do for the purpose of carrying on its authorized business or pursuing its authorized
objects.
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1) Subject to this Act and to any other enactment, a company shall have
(a) full capacity to carry on or undertake any business or activity, do any act, or enter
into any transaction; and
(b) full rights, powers and privileges for the purposes of paragraph (a).
2) Without limiting subsection (1), and despite the provisions of any other enactment, a
company shall be capable of giving and entering into and being bound by and claiming
all rights under a deed or mortgage or other instrument.
3) The registered constitution of a company may contain a provision regarding the capacity,
rights, powers or privileges of the company if the provision restricts the capacity of the
company or those rights, powers and privilege
Section 18(3) of the Companies Act, 2019 (Act 992) should be contrasted with section 24 of
the Companies Code, 1963 (Act 179) which provides that except to the extent that a company's
Regulations otherwise provide, every company registered after the commencement of this Code
and every existing company which, pursuant to section 19 of this Code, adopts Regulations in
lieu of its memorandum and articles of association shall have, for the furtherance of its objects
and of any business carried on by it and authorised in its Regulations, all the powers of a natural
person of full capacity.
This means that under the Companies Code, 1963 (Act 179), the Regulations of a company
shall specify the things that the company can do and how it may do them and the things that it
cannot do. Where the Regulations so indicate, the company will be obliged to observe and
comply with the limitations. However under the Companies Act, 2019 (Act 992), the registered
Constitution of a company may contain this restrictions.
ULTRA VIRES DOCTRINE
Ultra vires is a Latin expression that means beyond one’s lawful authority or power. That is, it
used to describe acts undertaken beyond (ultra) the legal powers (vires) of those who have
purported to undertake them. Any purported exercise of excess powers and or conducting of
unauthorised business is considered ultra vires. The opposite or contrary expression is intra vires
which means within one’s lawful authority or power.
In the context of company law, ultra vires refers to any act by company through any of its
governing organs that is done without regard or in violation of its internal rules and Constitution.
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Thus any exercise of power or conducting of business not authorised by the Constitution of the
company is ultra vires.
The ultra vires doctrine was a rule concerned with the capacity of the company. It imposed artificial
limitations on the acts and things which a company was regarded in law as capable of doing. Thus,
the ultravires doctrine declared that the company was to be regarded as incapable of doing anything
which was not within the scope of its object clause or reasonably incidental thereto. The doctrine,
in other words, restricted the powers of the company to matters covered by its stated objects and
any act which was outside those objects was not simply beyond the authority of its directors as a
corporate organ, but beyond the capacity of the company itself and was in the eyes of the law a
nullity, having no effect whatever. It followed that not even the unanimous decision of the
shareholders could authorize or ratify such an act.
Common Law Position
At common law an act or conveyance or transfer that is ultra vires is rendered invalid and
anything not authorised, expressly or impliedly, could not be ratified or made effective even by
the unanimous agreement of the members of the company. The House of Lords confirmed that
companies formed by registration do not have full contractual capacity: their capacity is limited
to the pursuit of the objects set out in the “objects clause” in their Memorandum of Association.
In Ashbury Railway Carriage and Iron Co Ltd v Riche (1895) LR & HL 653 (HL), Ashbury
and Railway Carriage and Iron Co Ltd was incorporated to make and sell or lend railway
carriage and wagons. The company, however, entered into a contract with Riche to provide
finance for the construction of a railway in Belgium. The company later repudiated the contract.
Riche then sued the company for breach of contract. The company argued that the contract
between them and Riche was ultra vires since it was not incorporated to undertake the business
of constructing railway.
The House of Lords held that if a company pursues objects beyond the scope of the
memorandum of association, the company's actions are ultra vires and void.
Lord Cairns LC said,
“It was the intention of the legislature, not implied, but actually expressed, that the
corporations, should not enter, having regard to this memorandum of association, into a
contract of this description. The contract in my judgment could not have been ratified by
the unanimous assent of the whole corporation.”
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The effect of the court’s decision was that though the company had committed a breach of its
contract, the victim of the breach (Riche) could not sue to enforce his rights under the contract
because of the fact that the contract in question was ultra vires. The House of Lords in the
Ashbury Carriage case thus adopted a very strict meaning of the ultra vires that if the company
engaged in any business outside its object that was ultra vires and it could not be enforced or
ratified by its members.
Although the doctrine was concerned to confine the authorities of a company within its stated
objects, it necessarily had the effect of also restricting the company’s powers. The line between
objects and powers is difficult to draw. The courts did make the concession that a company
should be deemed to have implied powers to do anything reasonably incidental to its declared
objects.
Under the common law rule, acts which were incidental to the object of business, though not
stated expressly, were said not to be ultra vires. Thus even though , strictly speaking, an act ,
transaction or conveyance is ultra vires if it is not specifically authorised, the objects and powers
clauses or enabling legislation are liberally interpreted to include matters that are reasonably
incidental to or consequential upon those objectives and powers.
In Attorney-General v Great Eastern Railway Co (1880) 5 App. Cas 473 (HL), the
respondent company was incorporated by statute to acquire the undertakings of two existing
railway companies and to construct and run certain other railways. An injunction was brought to
try to restrain this, saying that such a contract was not explicitly provided for in any of the Acts
incorporating the companies. The issue arose as to whether the company was empowered by its
enabling statute to hire out locomotives and rolling stock to another railway company operating
in the same area.
The court held that the contract was not ultra vires, but was warranted by the Acts. Powers
conferred by statute are taken to include, by implication, a right to take any steps which are
reasonably necessary to achieve the statutory purpose: ‘whatever may fairly be regarded as
incidental to, or consequential upon, those things which the Legislature has authorised, ought
not (unless expressly prohibited) to be held, by judicial construction, to be ultra vires.’
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Lord Selborne LC said: ‘The doctrine of ultra vires ‘ought to be reasonably, and not
unreasonably, understood and applied, and that whatever may fairly be regarded as incidental
to, or consequential upon, those things which the Legislature has authorized, ought not (unless
expressly prohibited) to be held, by judicial construction, to be ultra vires.’
Lord Blackburn: ‘where there is an Act of Parliament creating a corporation for a particular
purpose, and giving it powers for that particular purpose, what it does not expressly or impliedly
authorize is to be taken to be prohibited . . those things which are incident to, and may
reasonably and properly be done under the main purpose, though they may not be literally
within it, would not be prohibited.’
The principle in Great Eastern Railway was confirmed by the Ghanaian Court of Appeal in
Bank of West Africa Ltd v Appenteng [1972] 1 GLR 153, CA.Thus the Court supported the
“proposition that anything which may be regarded as incidental to or consequential upon the
main object specified in the Regulations of the company may, unless expressly forbidden, be
regarded as intra vires”.
Per SIRIBOE J.S.C. “Where the articles of association, memorandum or regulations of a

company confer a power or impose a duty on the company to do any act or thing, the company
may, in such a case do anything which is necessary to enable the act to be done or is incidental
or consequent upon performing the act unless such act is expressly forbidden by the said articles,
memorandum or regulations.”
In Rolled Steel Products v British Steel Corporation [1986] 1 Ch 246, the memorandum of
Rolled Steel empowered it to give guarantees. Rolled Steel Products Ltd gave security to guarantee
the debts of a company called Scottish Steel Sheet Ltd. to British Steel Corporation. This was a
purpose that did not benefit Rolled Steel Products Ltd. All the shareholders of Rolled Steel were
aware of the irregularity of these transactions and so also was British Steel. It was held at first
instance that the knowledge of British Steel that the transactions did not further the objects of
Rolled Steel made them ultra vires and void and incapable of validation by the shareholders’
consent.
The Court of Appeal held that the transaction was not ultra vires and void simply because a
transaction is entered for an improper purpose does not make it ultra vires. The court made a
distinction between an act which is entered into for an improper purpose (which is not beyond the
capacity of a company or void) and an act which is wholly outside a company’s objects and hence
ultra vires and void. However, in the present case, the transaction was unenforceable because the
appellant with the knowledge of the irregularity could not rely on the presumption of regularity in
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the company’s internal management since the appellant knew about the lack of authority, they
could acquire no rights under the guarantee.
Per Browne-Wilkinson LJ: Much confusion has arisen out of the use of ultra vires in different
senses and contexts. Because the literal transaction of the word is “beyond the powers” there are
many cases in which the words have been applied to transactions which although within the
capacity of the company are carried out otherwise that through the correct exercise of the powers
of the company by its officers. The use of the phrase ultra vires should be restricted to those
cases where the transaction is beyond the capacity of the company and therefore wholly void.”
He proceeded to state thus: the critical distinction is, therefore, between acts done in excess of
the capacity of the company on the one hand and acts done in excess or abuse of the powers of
the company on the other. If the transaction is beyond the capacity of the company it is in any
event a nullity and wholly void: whether or not the third party had notice of the invalidity,
property transferred or money paid under such a transaction will be recoverable from the third
party. If, on the other hand, the transaction (although in excess or abuse of powers) is within
the capacity of the company, the position of the third party depends upon whether or not he had
notice that the transaction was in excess or abuse of the powers of the company. As between the
shareholders and the directors, for most purposes it makes no practical difference whether the
transaction is beyond the capacity of the company or merely in excess or abuse of its power: in
either event the shareholders will be able to restrain the carrying out of the transaction or hold
liable those who have carried it out. Only if the question of ratification by all the shareholders
arises will it be material to consider whether the transaction is beyond the capacity of the
company since it is established that, although all the shareholders can ratify a transaction within
the company's capacity, they cannot ratify a transaction falling outside its objects.
In this judgment I therefore use the words "ultra vires" as covering only those transactions
which the company has no capacity to carry out, i.e., those things the company cannot do at all
as opposed to those things it cannot properly do.
Some powers, such as the power to borrow, may be construed restrictively by the court as
incidental powers, even though declared by the memorandum to be objects.
In Re Introductions Ltd [1970] Ch 199, the court had to consider the validity of certain
debentures guaranteed by a company as security for a loan. This was not a loan taken by the
company itself. Under the company’s regulations it had power to borrow and grant security over
its assets but this was not an independent object of the company.
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Per Lord Harman: “The borrowing is not an end in itself and must be for some purpose of the
company. The power to borrow was not expressed in the regulations to be exercisable only
for the purposes of the company, but those words necessarily had to be implied.”
In Re Jon Beaufort (London) Ltd (1953) 1 Ch 131, where the company’s object was to make
costumiers and gowns. It decided to diversify into an ultra vires activity of manufacturing
veneered panels. It ordered fuel from a supplier but went into liquidation before it was paid for.
The order was on heeded paper which used the words ‘Veneered Panel Manufacturers’. The
liquidator argued that the fuel was used for an ultra vires purpose and did not have to be paid for.
The supplier argued that he did not know what purpose the fuel would be used for. The court
held that the supplier had actual notice from the letterhead what the fuel would be used for. He
also had constructive notice of the ultra vires purpose from the registration of the company’s
memorandum of association.
In terms of the use of Omnibus phrases or clauses in the company’s regulations, look at the cases
of Cotman v. Brougham [1918] AC 514; Bell House v City Wall [1966] 2 AER 674
THE GHANAIAN POSITION
Section 19(1) of the Companies Act, 2019 (Act 992) provides that where the registered
constitution of a company sets out the nature of business or objects of the company, there is
deemed to be a restriction in the registered constitution on the business or activities in which the
company may engage, unless the registered constitution expressly provides otherwise.
Section 19(2) of the Companies Act, 2019 (Act 992) provides that where the registered
constitution of a company provides for any restriction on the business or activities in which the
company may engage
(a) the capacity and powers of the company shall not be affected by that restriction; and
(b) an act of the company, a contract or other obligation entered into by the company and a
transfer of property to or by the company shall not be invalid by reason only of the fact
that it was done in contravention of that restriction. (3) Subsection (1) shall not affect the
application of the provisions
This means that under the Companies Act, 2019 (Act 992), a company may be incorporated
without an object clause. This implies that for such a company the doctrine of ultra vires
becomes completely irrelevant. The Companies Act, 2019 (Act 992) has abolished the doctrine
of ultra vires.
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This should be contrasted with section 25(1) of the Companies Code, 1963 (Act 179) which
provides that “A company shall not carry on a business not authorised by its Regulations and
shall not exceed the powers conferred on it by its Regulations or this Act.” Section 25 of the
Companies Code, 1963 (Act 179) which although abolished the worst aspects of the ultra vires,
in fact retained the ultra vires rule in restricted form.
Section 19(3) of the Companies Act, 2019 (Act 992) provides that subsection (1) shall not affect
the application of the provisions of subsection (5) and sections 200, 219 and 275.
Unlike its common law counterpart, section 19(4) of the Companies Act, 2019 (Act 992)
provides that states that“Despite subsection (1), an act of a company and a conveyance or
transfer of property to, or by, a company is not invalid by reason of the fact that the act,
conveyance or transfer was not done or made for the furtherance of any of the authorised
businesses or that the company was otherwise exceeding its objects or powers.”
In other words the acts of the company or conveyance or transfer of property to or by a company
is not invalid because the act or conveyance is ultra vires. The directors may by approval through
ordinary resolution exceed the powers for a different purpose if they believe doing so is in the
best interest of the company. Also, if a third party without notice and for value, benefits from an
ultra vires transaction, the benefit to him may still stand. Despite the apparent validity of ultra
vires transactions, the Courts on application by an aggrieved person may prevent or remedy ultra
vires.
Section 19(5) of the Companies Act, 2019 (Act 992) provides that on the application of
(a) a member of the company, or

(b) the holder of a debenture secured by a floating charge over all or any of the property of
the company or by the trustee for the holders of those debentures,
the Court may prohibit, by injunction, the doing of an act or the conveyance or transfer
of a property in breach of subsection (1).
Section 19(6) of the Companies Act, 2019 (Act 992) provides that where the transactions sought
to be prohibited in proceedings under subsection (5) are being, or are to be, performed or made
in accordance with a contract to which the company is a party, the Court may,
(a) if the Court considers it equitable and if all the parties to the contract are parties to the
proceedings, set aside and prohibit the performance of the contract, and
(b) allow for the payment of compensation to the company or to the other parties to the
contract for the loss or damage sustained by the company or the other parties by reason of
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the setting aside or prohibition of the performance of the contract, but not compensation
for loss of anticipated profits to be derived from the performance of the contract.
Section 19(7) of the Companies Act, 2019 (Act 992) provides that the capacity of the company
to do an act shall not be affected by the fact that the act is not, or would not be, in the best
interests of a company.
Attention of objects or business
1) Where applicable, a company may change the business for which the company was
incorporated to carry on, or in the case of a company not formed for the purpose of
carrying on a business, the objects of the company by special resolution.
2) Within twenty-eight days of the passing of the special resolution under subsection (1),
notice of the resolution shall be given in the prescribed form to the holders of the
debentures secured by a floating charge over any of the property of the company and to
the trustees for the debenture holders.
3) Where a company defaults in giving a notice as required by this section, the company and
every officer of that company that is in default is liable to pay to the Registrar an
administrative penalty of fifty penalty units
Names of companies
Section 21(1) – (2) of the Companies Act, 2019 (Act 992) provides that
1) The last words of the name of a

(a) private company limited by shares shall be "Limited Company" or the
abbreviation "LTD";
(b) public company limited by shares shall be "Public Limited Company" or the
abbreviation "PLC";
(c) company limited by guarantee shall be "Limited by Guarantee" or the
abbreviation "LBG"; and
(d) private company unlimited by shares shall be "Private Unlimited Company" or
the abbreviation 'PRUC'
(e) public company unlimited by shares shall be "Public Unlimited Company" or the
abbreviation "PUC".
2) A company shall not be registered by a name which, in the opinion of the Registrar, is
misleading or undesirable.
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 Exxon Corporation v Exxon Insurance Consultants International Ltd [1981] 2 ALL

ER 495
ORGANS OF CORPORATE POWER
The law confers on a company all the powers of a natural person of full capacity. This means
that for the purpose of carrying on its authorized business or pursuing its authorized objects, the
company has the same powers as a natural person of full capacity.
Organs of Corporate Power and Management
i. Principal Organs
Section 144(1) of the Companies Act, 2019 (Act 992) provides that a company shall act through
the members of the company in general meeting or the board of directors or through officers or
agents, appointed by, or under authority derived from the members in general meeting or the
board of directors.
Section 144(1) of the Companies Act, 2019 (Act 992) thus specifies the principal organs through
which a company acts. The section states that a company acts through its members in general
meeting or its board of directors. By Section 147 of the Companies Act, 2019 (Act 992), a
company may also act through its managing director.
Generally, the members of a company in general meeting and its board of directors and
managing director are its principal organs. Section 147(1) of the Companies Act, 2019 (Act
992) provides that an act of the members in general meeting, of the board of directors, or of a
managing director while carrying on in the usual way the business of the company, is the act of
the company; and accordingly, the company is criminally and civilly liable for that act to the
same extent as if the company were a natural person.
The principal organs constitute the directing mind and will of the company. Their cats are the
direct acts of the company. When they commit any legal wrong, that wrong is treated as the
wrong of the company and the company is legally liable as though it were a natural person.
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ii. Subordinate Organs
board of directors.
The officers and agents appointed by the members of the company in general meeting or the
board of directors or the Managing director are the Subordinate Organs of the company. They
are the servants of the company. Their acts are not the direct acts but the indirect acts of the
company. Their acts are attributable to the company because of the fact that they are appointed
by the company through its principal organs.
Authority to bind the Company
The general point is that the organs of a company, principal or subordinate, only have the
authority to act for the purpose of carrying on the authorized business or pursing the authorized
objects of the company. On incorporation, the law, for the purpose of enabling the company to
carry on its authorized business, confers on it all the powers of a natural being of full capacity.
The authorized business or objects of a company are specified in its constitution. It is therefore,
the company’s power to carry on its authorized business that the organs of the company are
required to exercise on its behalf.
Thus, the organs of a company can only bind the company if they act for the purpose of carrying
on the business or objects of the company in the usual way. The expression ‘in the usual way’
qualifies the manner in which the law requires organs of a company to exercise their authority in
order that they may bind the company. The expression means the proper way in which such
organs may exercise their powers.
i. Authority of the Principal Organs to bind the company
Section 147(2)(a) of the Companies Act, 2019 (Act 992) provides that for the purposes of
subsection (1), the company does not incur civil liability to a person if that person had actual
knowledge at the time of the transaction in question that the general meeting, board of directors,
or managing director, did not have the power to act in the matter or had acted in an irregular
manner or if, having regard to the position with, or relationship to, the company, that person
ought to have known of the absence of the power or of the irregularity.
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This means that the company is not bound by the act of its organs if that act is done in violation
of the Constitution of the company to the knowledge of the persons with whom the organ has
acted. Thus, in respect of those who deal with a principal organ of a company in bad faith the
law offers no protection to them. They cannot hold the company responsible.
Section 147(2)(b) of the Companies Act, 2019 (Act 992) provides that for the purposes of
subsection (1), if in fact a business is being carried on by the company, the company shall not
escape liability for acts undertaken in connection with that business merely because, the business
in question was not among the businesses authorised by the constitution of the company.
Thus, it is not only acts done in respect of business specified in the Constitution of the company
that the company may be held liable for but also acts done in respect of business actually being
undertaken by the company, even if not specified in its Constitution. If the company is to take
the benefit from carrying on a business it has not registered to carry on, it must as well take
responsibility for carrying on the business in question.
ii. Authority of the Principal Subordinate Organs to bind the company
Section 148(1) of the Companies Act, 2019 (Act 992) provides that except as provided in section
147, the acts of an officer or agent of a company are not acts of the company, unless,
a) the company, acting through the members in general meeting, the board of directors, or
managing director, has expressly or impliedly authorised that officer or agent to act in the
matter; or
b) the company, acting under paragraph (a) has represented to the officer or agent as having
the authority of the company to act in the matter, in which event the company is civilly
liable to a person who has entered into the transaction in reliance on that representation,
unless that person had actual knowledge that the officer or agent did not have the
authority, or unless, having regard to the position with, or relationship to, the company,
that person ought to have known of the absence of authority.
The authority of the subordinate organs of a company may thus be categorized as express,
implied and apparent authority.The subordinate organ has the express authority to bind the
company if any of the company’s principal organs expressly authorizes it to act. The implied
authority is the authority that is necessary for the organ to execute his express authority. It’s the
authority that is implied from the conduct of the principal organs towards the subordinate organ.
The apparent authority derives from the conduct of the principal organs towards a third party
who relies on that conduct and deals with the subordinate organ in the reasonable belief that the
subordinate organ has the authority to act on behalf of the company.
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It is, therefore, to be noted that for the act of an agent or officer of a company to be attributable
to the company any of the following conditions must exists:
a. Any of the principal organs of the company must have expressly authorized the agent or
officer to act.
b. Any of the principal organs must have impliedly authorized the agent or officer to act.
c. Any of the principal organs must have represented to a third party that an agent or officer
of the company has the authorization to act and the third party must have relied on the
representation and dealt with the agent or officer.
Where, however, a third party knows or finds himself or herself in circumstances that he or she
ought to know that an agent or officer lacks the authority to act and yet deals with him or her, the
company cannot be held responsible for the acts of the agent or officer. Therefore the authority
of the subordinate organs of a company to bind the company derives from the express, implied
and apparent acts of the company’s principal organs. On the other hand, the authority of a
company’s principal organs to bind the company depends on whether they have acted for the
purpose of carrying on the business of the company in the usual way.
Section 148(2) of the Companies Act, 2019 (Act 992) provides that the authority of an officer or
agent of the company may be conferred before action is taken by that officer or agent or by
subsequent ratification.
Section 148(3) of the Companies Act, 2019 (Act 992) provides that the knowledge of action by
that officer or agent and acquiescence in that action by
(a) the members for the time being entitled to attend general meetings of the company,
(b) the directors for the time being, or
(c) the managing director for the time being,
is equivalent to ratification by the members in general meeting, by the board of directors,
or by the managing director.
Section 148(4) of the Companies Act, 2019 (Act 992) provides that this section does not
derogate from the vicarious liability of a company for the acts of the employees while acting
within the scope of their employment.
Division of power between members in general meeting and the board of directors
The powers of the company are distributed between the members in general meeting and the
board of directors.
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Section 144(2) of the Companies Act, 2019 (Act 992) provides that subject to this Act, the
respective powers of the members in general meeting and the board of directors may be
determined by the constitution of a company.
Section 144(3) of the Companies Act, 2019 (Act 992) provides that except as otherwise provided
in the constitution of a company, the business of the company shall be managed by the board of
directors who may exercise the powers of the company that are not by this Act or the constitution
required to be exercised by the members in general meeting.
Therefore, if the Constitution vests the powers of management in the board of directors, only the
boards of directors are entitled to exercise those powers and not the members in general meeting.
The only way the members in general meeting can lawfully exercise those powers is for it to
alter the Constitution to remove the powers from the board of directors.
Section 144(4) of the Companies Act, 2019 (Act 992) provides that unless the constitution of the
company otherwise provides, the board of directors when acting within the powers conferred on
them by this Act or the constitution of the company, are not bound to comply the directions or
instructions of the members in general meeting.
This means that while acting as managers of the business of a company the board of directors are
to be independent of the members of the company in general meeting.
In John Shaw and Sons (Salford) Ltd v Shaw [1935] 2 KB 113, as part of the settlement of a
dispute concerning sums owing to the plaintiff company by Peter, John and Percy Shaw, three
brothers who were shareholders in, and directors of the plaintiff company, the articles were
altered so as to hand over all control of the financial affairs of the company and the management
of its business to three independent persons known as ‘permanent directors’. Two of the brothers,
however, later failed to accept certain other provisions of the settlement, and as a result it was
resolved at a meeting of the permanent directors that the present action should be instituted
against them. But before the hearing of the suit the shareholders held an extraordinary meeting,
at which a resolution was passed directing the board to discontinue the action forthwith. Du
parcq J disregarded the shareholder’ resolution and gave judgment for the plaintiff. The
defendant appealed.
The Court of Appeal held that the resolution was ineffective and prevented it from being used to
circumvent the company’s constitution. Shareholders cannot usurp the powers of the directors.
Shareholders can only alter the exercising of power by altering the articles of association or
constitution and trying to prevent certain directors from being appointed.
Greer LJ said:
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“A company is an entity distinct alike from its shareholders and its directors. Some of its
powers may, according to its articles, being exercised by its directors; certain powers
may be reserved for the shareholders in general meeting. If powers of management are
vested in the directors, they and they alone can exercise those powers. They only way in
which the general body of shareholders can control the exercise of the powers vested by
the articles in the directors is by altering their articles, or if opportunity arises under the
articles, by refusing to re-elect the directors of whose actions they disapprove. They
cannot themselves usurp the powers which by the articles are vested in the directors any
more than the directors can usurp the powers vested by the articles in the general body of
shareholders. ”
The relationship between the two principal organs of the company in respect of their respective
powers is further made clear in the case of Gramophone & Typewriter Ltd v Stanley [1908] 2
KB 89, where all the shares in a German company were owned by the appellant company which
was resident for tax purposes in England. The unremitted profits were taxable in England if only
it could be shown that the profits were the profits and gains of a business carried on by the
English company.
Per Buckley LJ at page 105:
“Even a resolution of a numerical majority at a general meeting cannot impose its will
upon the directors where the articles have confided to them the control of the company’s
affairs. The directors are not servants to obey instructions given by the shareholders as
individuals; they are not agents appointed by and bound to serve the shareholders as
their principals. They are persons who may by regulations be entrusted with control of
the business, and if so entrusted they can be disposed from that control by the statutory
majority which can alter the articles…”
In spite of the fact that the management of the business of a company is, generally, entrusted to
the board of directors, the Companies Act, 2019 (Act 992) under section 144(5) specifies
situations in which the members in general meeting may undertake some management functions
or exercise powers otherwise entrusted to the board of directors.
Section 144(5) of the Companies Act, 2019 (Act 992) provides that subject to section 145, the
members in general meeting may
(a) act in a matter if the members of the board of directors are disqualified or are unable to
act by reason of a deadlock on the board or otherwise;
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(b) institute legal proceedings in the name of and on behalf of the company if the board of
directors refuse or neglect to do so;
(c) ratify or confirm an action taken by the board of directors; or
(d) make recommendations to the board of directors regarding an action to be taken by the
board.
Generally, recommendations are not binding, also the board of directors may decline to
implement recommendations made to it by the members in general meeting. On the other hand,
when the board of directors accepts and implements recommendations made to it by the
members in general meeting, it is the board of directors that takes the full responsibility for the
consequences arising from the implementation of the recommendations made to it by the
members in general meeting, the board of directors run the risk of being removed from office by
the members in general meeting. There is therefore the need for the two principal organs to
collaborate by consensus to avoid unnecessary conflict between them.
Though the principal organs of governance of a company are the members in general meeting,
the board of directors and the managing director, the actual control of the company is shared
between the members in the members in general meeting and the board of directors, with
ownership rights vested in the members in general meeting while management power vested in
the board of directors.
i. The Members in General Meeting as an organ of the company
The general meeting refers to a meeting of the members of a company to discuss the business of
the company. It is not any meeting of a company that constitutes the general meeting of the
company, but a meeting to discuss matters relating to the business of the company. Thus, when
members of a company meet for purposes other than the business of the company, they do not
constitute an organ of the company. Members do not need to meet in order to constitute an organ
of the company. When members of a company act unanimously or meet informally and
unanimously take a decision or act on a matter relating to the business of the company, they
constitute an organ of the company.
Though the management of the business of a company is entrusted to the board of directors,
ultimate control of the company is vested in the members in general meeting. This is because the
members in general meeting appoints and remove the directors. Therefore, not only does the
members in general meeting determine the composition of the board of directors but also
determines the way in which business of the company is managed since the members in general
meeting can dismiss the members of the board of directors for unsatisfactory performance. The
member in general meeting also determines the remuneration of the board of directors. The
appointment, removal and remuneration of the auditors of the company are also done by the
members in general meeting.
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ii. The Board of Directors as an organ of the company
According to the first schedule to the Companies Act, 2019 (Act 992) "director" in relation to a
company, has the meaning assigned to it by section 170 and in relation to any other body
corporate means a person whose position in relation to that body corporate is one that that person
would be a director of the body corporate if that body corporate were a company;
Section 170(1) of the Companies Act, 2019 (Act 992) provides that "directors" means those
persons, by whatever name called, who are appointed to direct and administer the business of the
company.
The power to generally manage the business affairs of a company is vested in the board of
directors. The board of directors exercises its authority collectively as a body. It does so through
resolutions passed at meetings of the committees of the board. As an organ of the company, the
board of directors has authority to bind the company. The authority of the board of directors is
conferred on it by the Companies Act, 2019 (Act 992) and the Constitution of the company. The
actual exercise of the authority conferred on the board of directors by the Companies Act, 2019
(Act 992) may be restricted by shareholders agreement. Such an agreement, among other things,
normally regulates such matters as participation in the management of the business of the
company by the parties to the agreement.
In exercising the powers conferred on it by the Companies Act, 2019 (Act 992) and the
Constitution of the company, the board of directors is required to act within the scope of its
lawful authority and must not be subject to the directions and instructions of the members in
general meeting. Even though the board of directors acts collectively as a body, the Companies
Act, 2019 (Act 992) empowers the board to set up committees and delegate to them aspects of
the functions of the board to them.
Section 146 of the Companies Act, 2019 (Act 992) provides that except otherwise provided in
the constitution of a company, the board of directors may
(a) Exercise their powers through committees consisting of a member or members of the
board as the board of directors think fit, and
(b) From time to time appoint one or more of the members of the board to the office of
managing director and may delegate all or any of the powers of the board of directors to
that managing director.
Even though the board of directors has the power to set up committees and delegate to them
some or all of its functions, and to appoint executive and managing directors, the board is
ultimately responsible for the proper administration of the business of the company.
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iii. The Managing Director as an organ of the company
According to the first schedule to the Companies Act, 2019 (Act 992) "managing director"
means a director to whom has been delegated the powers of the board of directors, to direct and
administer the business of the company.
iv. Officers or agentsas an organ of the company
According to the first schedule to the Companies Act, 2019 (Act 992) "officer" in relation to a
body corporate includes any director, secretary or employee of that body corporate and a receiver
and manager of a part of the undertaking of that body corporate, appointed under a power
contained in an instrument, and a liquidator of a company appointed in a members' voluntary
winding up, but does not include a receiver, not being a manager, a receiver and manager
appointed by the Court, or a liquidator appointed under the provisions of the Bodies Corporate
(Official Liquidations) Act, 1963 (Act 180), or an auditor of a company
Major transactions
1) A company shall not enter into a major transaction unless the transaction is
(a) approved by special resolution; or
(b) contingent on approval by special resolution. According to the first schedule to
the Companies Act, 2019 (Act 992) "special resolution" has the meaning
assigned to it in paragraph 14 of the Eighth Schedule. Paragraph 14 of the Eighth
Schedule provides that a resolution is a special resolution when it is passed by not
less than three-fourths of the votes cast by the members of the company who
being entitled so to do, vote in person or, where proxies are allowed, by proxy at a
general meeting of which, notice specifying the intention to propose the resolution
as a special resolution, has been duly given.
2) For the purposes of this section,
(a) 'assets' include property of any kind whether tangible or intangible;
(b) 'major transaction' means
(i) the acquisition of, or an agreement to acquire, whether contingent or
otherwise, assets, the value of which is more than seventy-five percent of
the value of the assets of the company before the acquisition; or
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(ii) the disposition of, or an agreement to dispose of, whether contingent or

otherwise, assets of the company the value of which is more than seventy-
five percent of the value of the assets of the company before the
disposition; or
(iii) a transaction that has or is likely to have the effect of the company
acquiring rights or interests or incurring obligations or liabilities,
including contingent liabilities, the value of which is seventy-five percent
of the value of the assets of the company before the transaction; and
(c) the assets of the company as regards major transactions under paragraph (b),
include the assets of the company and that of the subsidiaries.
3) The provisions of paragraphs (a) and (b) of subsection (2) shall not affect an agreement
entered into by a company to give a charge secured over the assets of that company the
value of which is more than seventy-five percent of the assets of the company, for the
purpose of securing the repayment of money or the performance of an obligation.
4) In assessing the value of a contingent liability for the purposes of subparagraph (iii) of
paragraph (b) of subsection (2), the directors
a) shall have regard to every circumstance that the directors know, or ought to
know, affects, or may affect, the value of the contingent liability;
b) may rely on estimates of the contingent liability that are reasonable in the
circumstances; and
c) may take account of
(i) the likelihood of the contingency occurring; and
(ii) any claim the company is entitled to make and can reasonably expect to
be met to reduce or extinguish the contingent liability.
5) The provisions of this section do not apply to a major transaction entered into by a
receiver appointed pursuant to an instrument that creates a charge over the whole of or a
substantial part of the property of a company.
CRIMINAL LIABILITY
board of directors.
Section 147(1) of the Companies Act, 2019 (Act 992) provides that an act of the members in
general meeting, of the board of directors, or of a managing director while carrying on in the
usual way the business of the company, is the act of the company; and accordingly, the company
is criminally and civilly liable for that act to the same extent as if the company were a natural
person.
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Section 148(1) of the Companies Act, 2019 (Act 992) provides that except as provided in section
147, the acts of an officer or agent of a company are not acts of the company, unless,
(a) the company, acting through the members in general meeting, the board of directors, or
managing director, has expressly or impliedly authorised that officer or agent to act in the
matter; or
(b) the company, acting under paragraph (a) has represented to the officer or agent as having
the authority of the company to act in the matter, in which event the company is civilly
liable to a person who has entered into the transaction in reliance on that representation,
unless that person had actual knowledge that the officer or agent did not have the
authority, or unless, having regard to the position with, or relationship to, the company,
that person ought to have known of the absence of authority.
The company is now capable and may be prosecuted for a criminal offence and it is criminally
liable for the acts of its members, the board of directors, the managing director while carrying on
in the usual way the business of the company or an agent or officers of the company authorised
through the general meeting, the board or managing director.
In Maxwell Ltd. v Republic [1977] 1 GLR 336,Maxwell Ltd, the company, and the
government, acting by the Public Works Department, entered into a contract for the
improvement and resealing of the Accra-Aburi road. In pursuance of the contract, the company
on 14 October 1974 did some work on the road by its labourers and other workers who were
instructed by the illiterate assistant foreman of the company to stockpile four trips of gravel on
the right side of the road. The gravel could not be spread on the road before the close of work.
On the same day, about 7.30 p.m., a car being driven on the road was forced to mount the heaps
of gravel and thereby somersaulted causing serious injuries to its occupants of whom later died
from the injuries sustained. The company was therefore charged before a district magistrate with
the offence of placing or leaving an impediment on a public highway contrary to section 296 (17)
of the Criminal code, 1960 (Act 29).
On appeal against conviction, it was held that under sections 139 and 140 of the Companies
Code, 1963 (Act 179), a company was to be criminally liable for the acts of the following
persons: (a) the members in general meeting, or (b) the board of directors or (c) the managing
director while carrying on in the usual way the business of the company. In the instant case, the
acts of the assistant foreman did not qualify under any of the three heads and so prima facie the
company could not be criminally liable for his acts. The foreman as an agent or officer of the
company would have qualified in terms of section 140 of the Act if there were evidence that he
had been expressly or impliedly authorised by the company acting through its members in
general meeting, the board of directors or managing director. In any case, on the facts, a
conviction of the offence under section 296 (17) of Act 29 was wrong.
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In Tesco Supermarket v Nattrass (1972) AC 153, the defendants were a body corporate
owning supermarket stores. They were charged with an offence under the Trade Descriptions
Act. They sought to raise a defence under section 24(1) on the grounds that the commission of
the offence was due to the act or default of another person, namely the manager of the store at
which it was committed, and that they had taken all reasonable precautions and exercised all due
diligence to avoid the commission of such an offence. The manager was not a person within
section 20 carrying out functions as a director, manager, secretary or other similar officer of the
defendants, and they had properly instructed him in the operation at the store of a system for the
avoidance of offences under the Act and had provided adequate and proper supervision to him so
that the system was followed and their instructions observed.
On appeal to the House of Lords it was held that the shop manager as a subordinate manager was
not a director or senior manager in the actual control of the operations of the company and he
could also not be identified within the controlling mind and will of the company. Therefore, his
failure constituted the act or default of another person and not that of the company. The appeal
was allowed on the basis that the board never delegated any of their powers to any of the
managers and that they only set up a chain of command. This meant that the acts of the manager
could not be considered the acts of the company. Thus the manager was personally liable for the
offence which meant that the company itself was not liable.
At page 170 of the Report per Lord Reid:
“… a living person has a mind which can have knowledge or intention or be negligent
and he has hands to carry out his intentions. A corporation has none of these: it must act
through living persons, though not always one or the same person. Then the person who
acts is not speaking or acting for the company. He is acting as the company and his
mind which directs his acts is the mind of the company. There is no question of the
company being vicariously liable. He is not acting as a servant, representative, agent or
delegate. He is an embodiment of the company, or one could say, he hears and speaks
through the persona of the company, within his appropriate sphere, and his mind is the
mind of the company. If it is a guilty mind then that guilt is the guilt of the company. It
must be a question of law whether, once the facts have been ascertained, a person in
doing particular things is to be regarded as the company or merely as the company’s
servant or agent. In that case any liability of the company can only be a statutory or
vicarious liability.’’
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MEMBERSHIP OF COMPANIES
Every company must have a member. According to section 41 of the Companies Act, 2019 (Act
992) 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.
The minimum number of members that a company is required to have is one. According to
Section 7(5)(b) of the Companies Act, 2019 (Act 992), a private company, other than a company
limited by guarantee, is a company which by virtue of its constitution limits the total number of
the members and debenture holders co fifty. There is however no maximum number of members
for Public companies.
A “shareholder” denotes a person who holds or owns the shares. On the other hand, a “member”
denotes a person whose name appears on the Register of Members. For all practical purposes the
words “shareholder” and “member” are used interchangeably because in the normal course a
shareholder will also be a member and a member will also be a shareholder. But if looked at
from a closer angle, we may come across a few exceptional cases where a shareholder may not
necessarily be a member and a member may not necessarily be a shareholder.
The Companies Act, 2019 (Act 992) does not define who a member of a company is. The Act
however, specifies how a person becomes or may become a member of a company.
i. Becoming a member through Subscription
Section 33(1) of the Companies Act, 2019 (Act 992) provides that the subscribers to the
documents for the incorporation of a company are members of the company and upon
incorporation shall be entered as members in the register of members referred to in section 35.
Thus according to Section 33(1) of the Companies Act, 2019 (Act 992), the persons who
subscribe to the documents for the incorporation of a company are deemed to be the members of
that company. This refers to the original members of the Company whose names are entered in
the Constitution of the company. They are deemed to have agreed to become members and on
incorporation, the company is bound to register them as such. By signing the documents for the
incorporation of the company, the subscribers indicate their agreement to become members of
the company when it is eventually formed.
SC, the appellants, the respondent and a third person incorporated a company as a limited
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liability company with one million shares of no par value. All of them subscribed to the
regulations of the company. The second appellant subscribed to 600,000 shares valued at
¢600,000.00, and the respondent and the third person subscribed to 200,000 shares valued at
¢200,000.00 respectively. The three subscribers and one other person were the first directors of
the company. Following differences between the appellants and the respondent over the running
of the company, the solicitors of the company wrote to inform the respondent that since he had
not paid up for his shares he was only a ‘nominal shareholder’ of the Company and was given
fourteen days within which to pay for the shares or else they would be offered to someone else.
Subsequently, the appellants wrote to inform the respondent that based on the company’s audited
report the net value of the company was ¢237,051,291.00 and therefore in order to become a
fully-fledged shareholder of his 200,000 shares which represented 20% of the net value of the
assets of the company, he had to pay ¢47,410,258.20. The appellants also filed at the Companies
Registry a form of Notification of Change of Directors and the of appointment of 5 new
Directors. Dissatisfied with those developments, the respondent brought an action against the
second appellant for, inter alia, a declaration that he was a fully paid-up member or shareholder
of the Limited Liability Company and holds 20% of the total shares of the said company.
The Supreme Court held that under section 30 of the Companies Code, 1963 (Act 179) there
are two kinds of members of the 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 was, by legal
prescription and, in the absence of a valid forfeiture, was not predicated on full or partial
payment of the consideration for the 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.Consequently, since the respondent was a subscriber to the Regulations of
the company he, pursuant to section 30(1) of the Companies Code, 1963 (Act 179), became
a member of the Company right from the date of its incorporation, holding 200,000 shares
as indicated against his name in the Regulations. As a member, he also became shareholder,
pursuant to section 30(4) of the Companies Code, 1963 (Act 179), and in the circumstances, he
could lose his membership of the company under section 30(5) of the Companies Code,
1963 (Act 179) only if all his shares had been forfeited for non-payment of a validly made
calls.
In In the matter of Northern Engineering Co. Ltd and in the matter of the Companies
Code, 1963 (Act 179), section 217 and Luguterah v Northern Engineering Co. Ltd [1978]
GLR 447, Northern Engineering Co., Ltd. was incorporated under the Companies Code, 1963
(Act 179), in 1972 with 10,000 subscribed shares all of which were allotted to its four
subscribers each holding 25 per centum of the shares. On 15 June 1977, the applicant, a director
and one of the four shareholders, received by post, a letter dated 7 June and signed by the
secretary of the company summoning him to attend an extraordinary general meeting of the
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company scheduled to take place at the company's premises on 11 June. The only member of the
four members of the company who attended the meeting was the sixth respondent, the acting
managing director of the company, a holder of only 25 per centum of the shares. The meeting
was also attended by all the eight other respondents except the seventh respondent. However all
the eight respondents had, before that meeting, paid to the company, various sums of money
totalling ¢6,000 as consideration for shares in the company but none of them had his name
entered as a member in the company's register of members. The meeting, inter alia, passed a
resolution replacing the old board of directors with a new seven member board of directors. The
applicant therefore filed the instant originating motion on notice, challenging the validity of the
notice summoning him to attend the extraordinary general meeting and the proceedings of that
meeting and also for a declaration, inter alia, that the eight respondents were not members of the
company. In his defence, the sixth respondent, the acting managing director, said that the
company had in 1975, increased (by special resolution of the board of directors) the shares of the
company from 10,000 to 100,000 shares. He however admitted that no prior notice of the
alleged increase was served on the applicant.
The High Court 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 (1). 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.
Taylor J (as he then was) at page 501-502 said:
“It seems to me that having regard to the provisions of section 30 of the Code, entry in
the register is at least some prima facie evidence of the fact of membership and the extent
of shareholding. The effect of the corresponding English provision of section 30 (1) of the
Code was considered in Evans's Case (1867) 2 Ch.App. 427 and it was there held that as
a general proposition, registration ipso facto makes a subscriber automatically a member
of the company and holder of the shares for which he has signed and in my opinion the
subscriber continues to be a shareholder and a member even if the company makes
default by omitting to perform its statutory obligation of putting the subscriber's name in
the register or allotting the shares to him. It seems to me that even if the company refuses
deliberately to issue share certificates to subscribers to the regulations, the said
subscribers at least in the case of a private company are nevertheless by virtue of section
30 (1) of our Code, members and shareholders of the company.’’
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Fry L.J. in Nicol's Case (1885) 29 Ch.D. 421 at page 447, C.A, (explaining why a subscriber is a
member as soon as a company is incorporated) said that “although (the Act) makes the entry on
the register obligatory it does not appear to me that entry in the register is a condition
precedent, in the case of subscribers of the memorandum to their becoming members. In fact I
cannot see how it can possibly be so because until the company is formed no register can be
made and until there are some members the company cannot be formed.”
In other words there is a link between the formation of the company and membership. Every
subscriber must have his name in the Constitution of the company, so that the definition of a
subscriber includes the inclusion of his name in the Constitution of the company. And as soon as
the company is incorporated then the subscribers become members.
ii. Becoming a Member by Agreement
Section 33(2) of the Companies Act, 2019 (Act 992) provides that any other person who agrees
with the company to become a member of the company and whose name is entered in the
register of members is a member of the company.
This category of membership comprises of those who become members of the company after its
formation. In the case of a company that has shares, the agreement to become a member entails
agreeing to purchase shares in the company. According to Section 33(4) of the Companies Act,
2019 (Act 992) in the case of a company with shares, each member is a shareholder of the
company and shall hold at least one share and a holder of a share is a member of the company.
It is important to note that it is not the entry of the name of a person in the register of members of
the company that constitutes him or her as a member of the company. it is however, the
agreement with the company to become a member that makes a person a member of the
company. Neither is the issue of a share certificate a precondition to membership in a company.
On whether issue of shares certificate is a precondition to membership in a company and

effect of failure to deliver the share certificate to a registered holder
Section 55 of the Companies Act, 2019 (Act 992) provides for the issue of share certificate. The
said section provides that:
1) Subject to the Central Securities Depository Act, 2007 (Act 733), a company shall,
within two months after the issue of any of the shares of the company or after the
registration of the transfer of a share, deliver to the registered holder of the share, a
certificate certified by one director and the Company Secretary indicating
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(a) the number and class of shares held by that holder and the definitive numbers of
the shares,
(b) the amount of money paid on the shares and the amount remaining unpaid, and
(c) the name and address of the registered holder.
2) Where a share certificate is defaced, lost or destroyed, the company at the request of the
registered holder of the shares, shall renew the certificate on payment of a fee prescribed
by the company and on the terms as to evidence and indemnity and the payment of the
out-of-pocket expenses of company of investigating evidence that the company may
reasonably require.
3) Where a company defaults in complying with this section, the company and an officer of
the company who is in default are liable to pay to the Registrar, an administrative
penalty of fifty penalty units.
4) Where an application is made to the Court by a person entitled to have the certificate
delivered to that person, the Court may order the company to deliver the certificate and
may require the company and that officer to bear the costs of, and incidentals to the
application.
SC, the Supreme Court held that the issue of a share certificates was not a precondition to
membership in a company. Section 53 of the Companies Code, 1963 (Act 179), requires
every company to deliver a share certificate to the registered holder, within two months of
the issue of shares or registration of transfer of shares. That was the company’s obligation,
and, by virtue of 53(3) of the Companies Code, 1963 (Act 179), the company, and any
defaulting officer of the company, is liable to a penalty in the event of any non-compliance.
Accordingly, the fact that the respondent had not been issued with a share certificate
cannot be a valid ground for challenging his membership of the Company since a share
certificate was not material to that persons legal status as a member and shareholder. In
any case, under section 54 of the Companies Code, 1963 (Act 179), a share certificate
served as ‘prima facie evidence of the title to the shares of the person named therein’.
Accordingly, other evidence might be adduced by a person claiming to be a shareholder to
establish his shareholding. Accordingly, in the instant case, by the combined effect of sections
21 and 30 of the Companies Code, 1963 (Act 179), the respondent’s subscription to the
Regulations of the company served as evidence of his membership and a shareholder of the
company, because the Regulations had, inter alia, the effect of a contract under seal
between the company and its members, the company and its officers, the members and the
officers of the company, the members of the company inter se and the officers of the
company inter se. Accordingly, as a subscriber, the respondent’s shareholding, as well as the
consideration payable by him therefore, is contractual. Accordingly, he did not need to be issued
with a certificate for his membership to take legal effect.
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The effect of the share Certificate
1) Statements made in a share certificate under the common seal of the company or as
certified by two directors and the Company Secretary of the company are prima facie
evidence of the title to the shares of the person named in the certificate as the registered
holder and of the amounts of money paid and payable on the certificate.
2) Where a person changes a position to the detriment of that person in reliance in good
faith on the continued accuracy of the statements made in the certificate, the company is
estopped in favour of that person from denying the continued accuracy of those
statements and shall compensate that person for the loss suffered by that person in
reliance on those statements and which that person would not have suffered bad the
statement been or continued to be accurate.
3) Subsections (l) and (2) do not affect a right the company may have to be indemnified by
any other person.
4) The provisions of subsections (l) to (3) do not apply in the case of shares which can be
transferred through a scheme of a central depository under the Central Securities
Depository Ace, 2007 (Act 733) or any other relevant enactment.
In Serbeh-Yiadom v Stambic Bank [2003-2005] 1 GLR 86, the plaintiff and four others
incorporated Union Mortgage Bank (UMB) with 10 million shares valued at ¢10 million each.
Following differences between the plaintiff and other members of the board, an extraordinary
meeting of the board was scheduled to pass a resolution for the removal of the plaintiff as a
director of the bank. Notice of the meeting was duly served on the plaintiff who was then in
Lagos. However, when the plaintiff came down for the meeting he learnt that the meeting had
already been held. He also found from the annual returns of UMB that only 10,000 shares had
been recorded against his name. He therefore, brought an action against the company for, inter
alia, a declaration that he owned 160,000 paid up shares in the company, his purported removal
as executive director of the company was wrongful and the meeting held authorizing the increase
of the shares was fraudulent. The company in its defence however claimed that the plaintiff had
not paid any consideration for the additional 10,000 shares and he had never been appointed an
executive director of the company, and also due notice of the change of the date of the meeting
had been sent to the plaintiff and thus the meeting had been properly conducted.
The court held that under section 54(1) of the Companies Code, 1963 (Act 179), there was no
conclusive presumption that the holder of a share certificate in fact had title to the shares
indicated in the certificate or that he had indeed given value for the shares as stated in the
certificate or that he had indeed given value for the shares as stated in the certificate. Moreover,
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the provision in under section 54(2) of the Companies Code, 1963 (Act 179) estopping the
company from denying the accuracy of statements in a share certificate applied to third parties
who changed their position to their detriment relying on good faith on the accuracy of the
certificate and not the holder of the certificate who had to be deemed to know the true position.
The purpose of issuing share certificate is to offer opportunity to shareholders to transfer their
shares on the market. It is also a declaration by the company to the whole world that the person
holding the certificate is a shareholder.
iii. Becoming a Member by Transfer of Shares
Section 98(1) of the Companies Act, 2019 (Act 992) provides that except as expressly provided
in the registered constitution of a company, shares are transferable without restriction by a
written transfer in common form.
To say that shares are transferred without restriction means that a shareholder has the right to
transfer his or her shares in a company as and when he or she wishes and to whoever he or she
wishes to transfer them to, whether for free or for payment.
However, Section 98(2) of the Companies Act, 2019 (Act 992) provides that subject to section
322, the registered constitution of a company may impose restrictions on the transferability of
shares, including power for the directors to refuse to register a transfer and provisions for
compulsory acquisition or rights of first refusal in favour of other members or officers of the
company.
The right of first refusal simply has to do with the requirement that a shareholder who wishes to
transfer his or her shares in a company must first make the offer to the existing shareholders or
officers of the company or the company itself, and if they decline the offer, he or she may then
transfer the shares to an outsider.
Section 98(3) of the Companies Act, 2019 (Act 992) provides that a restriction shall not be
imposed under subsection (2) on the transferability of any shares after the shares have been
issued unless the holders of the shares consent in writing to the transfer.
Section 98(4) of the Companies Act, 2019 (Act 992) provides that despite subsection (1), a
company may refuse to register a transfer of shares to a person who is an infant or to a person
found by a court of competent jurisdiction in the Republic to be an infant or a person of unsound
mind.
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Effect/legal implication of share transfer
The transfer of shares is effected by means of a written instrument (document). The transfer may
either be for free or in return for payment. The transfer of shares may also either be in respect of
all the shares a shareholder has in the company or some of the shares. The result of a share
transfer is that the person to whom the shares are transferred (the transferee) becomes a
shareholder in the company. However, for a share transfer to have the result, it must be
registered with the company. Two documents are required for the purpose of registering a share
transfer. These two documents are the instrument of transfer and the share certificate of the
transfer. These two documents are required to be lodged with the company for registration. The
lodgment of the documents for registration may be done either by the transferor or the transferee.
The non-registration of a transfer will lead to the non-registration of the transferee company.
This means that unless the share transfer is registered with the company, the company will
continue to recognize the transferor as holder of the transferred shares in question.
On receipt of the documents for registration, the company may either proceed to register the
transfer or decline to register it. Where a company refuses to register a transfer the law requires
it, within two months after the date on which the transfer was lodged with it, to send to the
transferee and the transferor a notice of the refusal. Where the company fails to comply with this
requirement, the company and every officer of the company who is in default are liable to pay a
fine.
Re a Company [1986] ChD 391, in this case, four people (i.e. F and 3 others) set up a company.
There was the understanding that all 4 would play a major role in the company. F asked that his
wife become the shareholder and Director on his behalf. F became an employee of the company.
Subsequently F was dismissed as an employee of the company and his wife was removed as the
Director. The question was whether F had the locus standi to bring an action against the
company. This case is important because there was the understanding that F‘s wife would
eventually transfer the shares to F. However, the action was brought by F before the shares
could be transferred. It was held that F could not bring an action since he was neither registered
as a member nor a person in whose favour a proper instrument of transfer had been executed.
Hoffmann J said:
“In my judgment, the word ‘transfer’ requires at least that a proper instrument of
transfer should have been executed and transferred to the transferee or the company in
respect of the shares. It is not sufficient that there should be an agreement for the
transfer’’.
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iv. Becoming a Member by Transmission of shares by operation of law
Section 102 of the Companies Act, 2019 (Act 992) deals with the transmission of shares by
operation of law. According to Section 102 of the Companies Act, 2019 (Act 992), the
transmission of shares by operation of law occurs in a number of situations. They are as follows:
1) Section 102(1) of the Companies Act, 2019 (Act 992) provides that in the case of the
death of a shareholder or debenture holder,
(a) the survivor or survivors, where the deceased was a joint holder, and
(b) the legal personal representatives of the deceased, where the deceased was a sole holder
or last survivor of joint holders,
shall be the only persons recognised by the company as shareholders or debenture
holders.
The legal personal representative of a deceased shareholder will depend on whether the deceased
dies intestate or testate. Where the deceased dies testate, his legal personal representative will be
the executor of his will and where the deceased dies intestate, his legal personal representative
will be the administrator of his estate.
2) Another situation in which the transmission of shares by operation of law may occur is
where a shareholder becomes bankrupt or insolvent in such a case, the shareholder will
devolve on a receiver or trustee in bankruptcy.
Section 102(2) of the Companies Act, 2019 (Act 992) provides that a person on whom the
ownership of a share or debenture devolves by reason of that person being the legal personal
representative, receiver, or trustee in bankruptcy of the holder, or by operation of law may, on
the evidence being produced that the company may properly require, be registered personally as
the holder of the share or debenture or transfer the same to any other person, and the transfer
shall be as valid as if that person had been registered as a holder at the time of execution of the
transfer.
Under Section 102(3) of the Companies Act, 2019 (Act 992), the company has the right to
decline registration of a transfer under subsection (2) as it would have had in the case of a
transfer by the registered holder but does not have a right to refuse registration personally of that
person.
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Prior to registration by the Company, the legal representative of a deceased member shall be
entitled to the same dividends, interest and other advantages of membership as a fully registered
member, except that he shall not have the right to attend and vote at any meeting of the company.
Section 102(4) of the Companies Act, 2019 (Act 992) provides that a person on whom the
ownership of a share or debenture devolves by reason of that person being the legal personal
representative, receiver, or trustee in bankruptcy of the holder, or by operation of law is entitled,
before registration personally of that person or a transferee, to the same dividends, interest and
other advantages as if that person were the registered holder and, in the case of a share, to the
same rights and remedies as if that person were a member of the company, but that person is not
entitled before being registered as a member in respect of the share, to attend and vote at a
meeting of the company.
In Politis v Plastico Ltd [1967] GLR 9, the late Dr. Dimitra Politis was, before her death, the
majority shareholder in, and one of the two directors of Plastico Ltd. Following her death, her
personal representatives obtained a court order that they should be put on the company's register
of members. The order was not complied with, on the ground that although counsel for the
company was present in court when the order was given the order was not drawn up and served
on the company. The personal representatives brought an application under section 217 of the
Companies Code, 1963 (Act 179), for an order declaring certain acts of the company or of the
director surviving Dr. Dimitra Politis null and void. A preliminary objection was raised by
counsel for the company on the ground that since the personal representatives of Dr. Dimitra
Politis had not been registered as members of the company, they had no locus standi to bring the
present application.
The High Court held that the applicants had locus standi since by section 99 (3) of Act 179 a
person upon whom the ownership of a share devolved by reason of his being a legal personal
representative was prior to registration of himself or a transferee, entitled not only to the same
dividends, interest and other advantages as if he were the registered holder, but also to the same
rights and remedies as if he were a member of the company. The only exception to this almost
total assimilation was that the personal representative would not, before being registered as a
member in respect of the share, be entitled to attend and vote at meetings of the company.
Section 102(5) of the Companies Act, 2019 (Act 992) provides that for the purposes of
subsection (4), the company may at any time give notice requiring that person to elect to be
registered personally or to transfer the share or debenture, and if the notice is not complied with
within ninety days, the company may suspend payment of the dividends, interest or any other
moneys payable in respect of the share or debenture until the requirements of the notice have
been complied with.
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Section 102(6) of the Companies Act, 2019 (Act 992) provides that the provisions of subsections
(2) to (5) shall not apply to a company the shares of which can be transferred through a scheme
established under the Central Securities Depository Act, 2007 (Act 733).
The Rights of Members of a company
Members have rights and responsibilities associated with their membership. A member’s right
may be personal or collective. The personal rights of members are distinguishable from the
statutory collective rights of members, the latter of which are exercised through member’s
resolution. Personal rights are individually enjoyed, such as a member’s entitlement to attend a
general meeting and speak on an agenda for the shares held when dividends have been duly
declared for his class of shares.
The collective rights belong to members or the class of members, as a group and these are
therefore exercised on behalf of the members or class by the majority decision expressed in the
form of the resolution which carries the day.
The rights of a member of a company are as follows:
i. The right to attend meetings
1) Subject to subsection (2), and section 52, a member has the right to attend a general
meeting of the company and to speak and vote on a resolution before the meeting.
2) Despite subsection (1), a registered constitution of a company may provide that a member
is not entitled to attend and vote at a general meeting unless the calls or any other sums of
money presently payable by that member in respect of shares in the company have been
paid.
Section 52 of the Companies Act, 2019 (Act 992) deals with the suspension of voting rights of
preference shares. Section 52(1) of the Companies Act, 2019 (Act 992) provides that despite
section 34, the right of holders of preference shares to attend and vote at a general meeting of the
company may be suspended on conditions. Thus section 52 of the Companies Act, 2019 (Act
992) empowers a company through its constitution to suspend the right of certain categories of
its members to attend and vote at a meeting of the company.
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ii. The right to share in the profit of the company
Members of a company with shares (shareholders) have the right to share in the profit of the
company, if the company, while a going concern, makes profit. The right to share in the profit of
a company arises only if the company makes a profit and declares dividend. Dividend is the
portion of the profit of a company that is lawfully available for distribution among the
shareholders.
The law is that it is the directors of the company who have the authority to declare dividend. It is
when dividend is declared that a shareholder becomes entitled to his share of it. Shareholders do
not have the right to compel directors of a company to declare dividend. The Constitution of the
company may provide that only shareholders who have paid for the shares would be entitled to
dividend. Under the Companies Act, 2019 (Act 992), it seems that payment for shares is not a
condition that should be fulfilled in order to be entitled to dividends.
iii. The right to share in the distribution of the net assets of the company
Members of a company with shares have the right to share in the distribution of the net assets of
the company when it winds up. A company winds up when it ceases to carry on the business for
which it has been formed. When a company winds up, the law requires it to pay its debts and
settle its liabilities. What remains of the assets of the company after it has paid its debts and
settled its liabilities are referred to as the company’s net assets. It is the net assets that are then
shared among shareholders. The sharing of the net assets of a company is called a return of the
capital of the company to those that contributed to it.
iv. According to Section 35 of the Companies Act, 2019 (Act 992), a member of a
company is entitled to have his name and other particulars entered into the register of
members of the company which the law requires every company to keep.
v. According to Section 36 of the Companies Act, 2019 (Act 992), members of a
company have the right to inspect and even make copies of the register of members.
Liability of members of a company
A. Section 40(1) of the Companies Act, 2019 (Act 992) provides that before the winding up
of a company, a member of the company with shares is liable to contribute the balance of
the amount payable in respect of the shares held by that member in accordance with the
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terms of the agreement under which the shares were issued, or in accordance with a call
validly made by the company
According to the first schedule to the Companies Act, 2019 (Act 992), "calls" means a sum
which the company has validly resolved to call up in respect of any shares issued with an unpaid
liability and whereby the terms of issue of a share a sum becomes payable on application,
allotment or at any fixed date that sum is a call duly made and payable on the date on which by
the terms of issue the same become payable.
Thus, a call in this context means a demand made by the company on a shareholder requiring
him to honor his obligation to the company in terms of the payment for the shares held by him in
the company.
Section 40(2) of the Companies Act, 2019 (Act 992) provides that where a contribution has
become due and payable in accordance with subsection ( l ), or where, under the terms of an
agreement with the company, a member has undertaken personal liability to make future
payments in respect of shares issued to that member, the liability of the member shall continue
although the shares held by that member are subsequently transferred or forfeited but the liability
of the member shall cease if and when the company receives payment in full of all the moneys in
respect of the shares.
B. Section 40(4) of the Companies Act, 2019 (Act 992) provides that in the event of a
company being wound up, every present or past member is liable to contribute to the
assets of the company an amount sufficient for the payment of the debts and liabilities of
the company and for the costs, charges and expenses of the winding up, and for the
adjustment of the rights of the members and past members among themselves but subject
to the following qualifications:
(a) a past member is not liable to contribute if that member has ceased to be a member for a
period of not less than one year before the commencement of the winding up;
(b) a past member is not liable to contribute unless it appears to the Court that the existing
members are unable to satisfy the contributions required to be made by them in
pursuance of this section;
(c) in the case of a company limited by shares, a contribution shall not be required from a
member or past member exceeding the amount of money unpaid on the shares in respect
of which that member is liable as a present or past member;
(d) in the case of a company limited by guarantee, a contribution shall not be required from
a member or past member exceeding the amount of money undertaken to be contributed
by that member to the assets of the company in the event of the company being wound
up; or
(e) a sum of money due from the company to a member or past member, in the character of
a member, by way of dividends or otherwise shall not be set-off against the amount of
money for which that member is liable to contribute in accordance with this section, but
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that amount of money shall be taken into account for the purposes of final adjustment of
the rights of the members and former members amongst themselves.
Under Section 40(5) of the Companies Act, 2019 (Act 992), "past member" includes the estate of
a deceased member and where a person dies after becoming liable as a member or past member,
the liability is enforceable against the estate of that member.
Section 40(6) of the Companies Act, 2019 (Act 992) provides that except as otherwise provided
in this section, a member or past member of a company is not liable as a member or past member
for any of the debts and liabilities of the company. Section 40(3) of the Companies Act, 2019
(Act 992) provides that subject to subsections (1) and (2), a member or past member is not liable
to contribute to the assets of the company except in the event of the company being wound up.
According Section 40(3) of the Companies Act, 2019 (Act 992), Subject to subsections (1) and
(2), a member or past member is not liable to contribute to the assets of the company except in
the event of the company being wound up.
Termination of Membership of a company
1. Termination by Transfer of shares
According to Section 33(6) (a) of the Companies Act, 2019 (Act 992), membership of a
company with shares continues until a valid transfer of the shares held by the member is
registered by the company.
Thus, according to section 33 of the Companies Act, 2019 (Act 992), a member of a company
that has shares may terminate his membership of the company by a valid transfer of all his shares
in the company to another person. The transfer of some of the shares of members does not
terminate his membership of the company. He remains a member except that the partial transfer
only affects the extent of his shareholding in the company and perhaps his rights and liability as
a member, in addition, even if the transfer relates to all the shares held by the member in the
company in order for it to be effective.
Furthermore, the transfer of shares itself must be valid. Valid transfer of shares in this context
means a transfer that is done in accordance or in compliance with the rules governing the transfer
of shares in a company. These rules are normally contained in the Companies Act, 2019 (Act
992) and the Constitution of the company in question.
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2. Termination by Operation of law
According to Section 33(6)(b) of the Companies Act, 2019 (Act 992), membership of a company
with shares continues until the shares are transmitted by operation of law to another person, or
forfeited for non-payment of calls.
Thus, a person’s membership of a company may also be terminated when his shares in the
company are transmitted by operation of law to another person. Shares are transmitted by
operation of law when as a result of the death or insolvency or bankruptcy of a member his
shares have to devolve on another person.
3. Termination by Forfeiture
A person’s membership of a company can also be terminated when the company forfeits his
shares for his non-payment of calls. According to the first schedule to the Companies Act, 2019
(Act 992), "calls" means a sum which the company has validly resolved to call up in respect of
any shares issued with an unpaid liability and whereby the terms of issue of a share a sum
becomes payable on application, allotment or at any fixed date that sum is a call duly made and
payable on the date on which by the terms of issue the same become payable.
Calls in this context are demand notices that a company may make on those to whom it has
issued its shares but who have either not paid for them or have not finished paying.
A company cannot, however, purport to forfeit the shares of a company of a member merely
because he has not paid for them. The right to forfeit the shares of a member of the company for
non-payment for the shares must have been conferred on the company by its constitution. Thus,
without any provision in the constitution of a company authorizing the company to forfeit shares
of a member of the company for non-payment, the company cannot lawfully do so.
As Sophia Akuffo,.J.S.C. said in Adehyeman Gardens Ltd v Assibey [2003-2004] 2 SCGLR

1016 SC, at page 1027:
“By the terms of the Code, until all of his shares are forfeited for non-payment of a
validly made call (or until the occurrence of any of the other said eventualities), a
subscriber remains a fully-fledged member and shareholder of the company, even if he
has not paid a pesewa for his shares.”
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4. Termination by Retirement, Exclusion
According to Section 33(7) of the Companies Act, 2019 (Act 992), membership of a company
limited by guarantee continues until the member dies, or validly retires or is excluded from
membership.
5. Termination by Death of a member
According to Section 33(6)(c) of the Companies Act, 2019 (Act 992), membership of a company
with shares continues until the member of the company dies. Also Section 33(7) of the
Companies Act, 2019 (Act 992) provides that membership of a company limited by guarantee
continues until the member dies, or validly retires or is excluded from membership.
Thus, if a member dies, he ceases to be a member of a company. A dead person has no

membership rights in a business of the living. Death automatically terminates membership
whether or not an administrator, executor or customary successor has been appointed in respect
of the estate of the deceased person.
COMPANY MEETINGS
Meetings are the means by which members exercise their power. At common law, a corporate
body may act by a majority vote given at a meeting duly summoned. This matter was confirmed
in the case of Attorney-General v Davy (1741) 2 Atk 212 (Lord Chancellor).
In Attorney-General v Davy (1741) 2 Atk 212 (Lord Chancellor), King Edward VI by charter
incorporated twelve persons by name, to elect a chaplain for the church of Kirton, in
Lincolnshire, and by another clause three of the twelve were to choose a chaplain to officiate in
the church of Sanford, within the parish of Kirton, with the consent and approbation of the major
part of the inhabitants of Sanford.Upon a late vacancy, two of the three chose a chaplain, with
the consent of the major part of the inhabitants of Sanford, the third dissented; and the question
was whether this was a good choice.
The court stated as follows:
“It cannot be disputed that wherever a certain number are incorporated, a major part of
them may do a corporate act; so if all are summoned and part appear, a major part of
those that appear may do a corporate act, though nothing be mentioned in the charter of
the major part. This is common construction of charters, and I am of opinion that the
three are a corporation for the purpose they are appointed, and the choice too was
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confirmed, and consequently not necessary that all the three should joined; it is not
necessary that every corporate act should be under the corporate seal of the corporation,
nor did this need the corporation seal.”
What is a meeting?
The Companies Act, 2019 (Act 992),does not define a meeting. The Black’s Law Dictionary
defines meeting as:
“the gathering of people to discuss or act on matters, in which they have a common
interest; especially the convening of a deliberative assembly to transact business”
At common law, to constitute a meeting, there must, prima facie, be more than one person. This
was considered in the English case of Sharp v Dawes (1876) 2 QBD 26 (Court of Appeal).
In Sharp v Dawes (1876) 2 QBD 26, where a meeting of a tin mining company was held for the
purpose of making a call on shares. The meeting was attended by only one shareholder and a
secretary who was not a member. The call was in due course made on another shareholder,
Dawes, who refused to pay and the court had to decide whether the meeting was valid. It was
held that the meeting was a nullity and the call was invalid. Lord Coleridge CJ held that
“……. the word ‘meeting’ prima facie requires a coming together of more than one
person. It is, of course, possible to show that the word ‘meeting’ has a meaning different
from the ordinary meaning, but there is nothing here to show this to be the case. It
appears therefore to me that this call was not made at a meeting of the company within
the meaning of the Act.”
Mellish LJ said:
“in this case, no doubt, a meeting was duly summoned, but only one shareholder
attended. It is clear that, according to the ordinary use of English language, a meeting
could no more be constituted by one person than a meeting be could have been
constituted if no shareholder at all had attended. No business could be done at such a
meeting, and the call is invalid.”
Alsoin Barron v Potter [1914] 1 Ch 895,where Potter and Barron were the only two directors of
the company. Barron refused to attend board meeting to appoint additional directors. Pottertried
to hold an informal meeting, once on the platform on Paddington Station as Barron got off a
train, and again the next day when he attended the company’s office. At these ‘meetings’ Potter
proposed and voted on the appointment of additional directors and this was carried by Potter
using his casting vote. The appointments were then ratified by the general meeting. It was held
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that there was no meeting of directors as a casual meeting at the station and at the office could
not be converted into a board meeting against the will of one of the parties.The appointment of
the directors by the general meeting was valid however, because when a board is deadlocked, the
powers of management revert back to the general meeting.
But as Lord Coleridge recognised in Sharp v Dawes (1876) 2 QBD 26, the word ‘meeting’ may
in some context be required to be construed differently.
For instance, in East v Bennett Bros Ltd [1911] 1 Ch 163, where the company’s memorandum
authorised changes in the capital structure with the sanction of an extraordinary resolution of the
holders of any class affected, passed at a separate meeting of such holder, it was held sufficient
that the single holder of all the preference shares should have formally given his accent.
A similar approach is needed to resolve the problem of directors’ meeting where the company
has only one director or only one who is competent to act. This can’t happen in Ghana
Kinds of Meetings
There are two kinds of meetings, namely,
(i) general meeting (GM) and
(ii) Class meetings.
All members are eligible to attend to attend general meetings and resolutions passed at the
general meeting are binding on all members and the company. General meeting is open to all
regardless of class.
Class meeting on the other hand, are held for special classes of members such as preference
shareholders, equity shareholders, etc., only. Class meetings are usually convened to assent to
alterations to the right of the class under the Constitution and to assent amalgamation or
arrangement that affects the class.
GENERAL MEETINGS
There are two types of GMs, namely,
a. Annual General Meeting (AGM) and
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b. Extraordinary General Meeting (AGM)
ANNUAL GENERAL MEETING (AGM)
Section 157(1) of the Companies Act, 2019 (Act 992) provides that except as provided in
subsection (4), a company shall:
(a) in each year hold a general meeting as the annual general meeting of the company in
addition to any other meetings in that year, and
(b) specify the meeting as the annual general meeting in the notice calling the meeting.
Section 157(2) of the Companies Act, 2019 (Act 992) provides that not more than fifteen months
shall elapse between the date of one annual general meeting and the next. According to Section
157(3) of the Companies Act, 2019 (Act 992), if a company holds the first annual general
meeting within eighteen months of incorporation, the company is not required to hold the annual
general meeting in the year of incorporation or in the following year.
Section 157(4) of the Companies Act, 2019 (Act 992) provides that the annual general meeting
shall be held not earlier than twenty-one days after the financial statements, the consolidated
financial statements, and the reports of the directors and auditors on the financial statements of
the company have been despatched to members and debenture holders of the company in
accordance with section 128; and the financial statements, and reports shall be laid before the
annual general meeting for consideration.
The convening of the annual general meeting is mandatory. However, Section 157(5) of the
Companies Act, 2019 (Act 992) provides that if the auditors of the company and the members of
the company entitled to attend and vote at an annual general meeting agree in writing that an
annual general meeting shall be dispensed with in any year, it shall not be necessary for that
company to hold an annual general meeting that year. Thus, it is only when the auditors and
members of the company agree in writing and not otherwise, to dispense with the convening of
an annual general meeting that the company may not hold it.
Generally, it is the responsibility of the directors of a company to convene general meetings of

the company. However, if the directors fail to convene an annual general meeting, without an
agreement by the auditors and members of the company to dispense with the annual general
meeting, Section 157(6) of the Companies Act, 2019 (Act 992) provides that if the annual
general meeting is not held in accordance with subsection (5), the Registrar may, on a motion by
the Registrar or on the application of an officer or a member of the company, call, or direct the
calling of, an annual general meeting of the company, and may give the ancillary or
consequential directions that the Registrar thinks fit, including directions modifying or
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supplementing, in relation to the venue, calling, holding and conducting of that meeting, the
operation of
a. section 159,
b. paragraphs l to 3 of the Eighth Schedule,
c. paragraphs 8, 9, 12, 13 of the Eighth Schedule,
d. paragraphs 15 to 19 of the Eighth Schedule, and
e. the constitution of the company where applicable.
Section 157(7) of the Companies Act, 2019 (Act 992) provides that where a meeting held in
pursuance of subsection (6) is not held in the year in which the default in holding the annual
general meeting of the company occurred, the meeting so held shall be treated as the annual
general meeting for that year, but shall not be treated as the annual general meeting for the year
in which the meeting is held unless, at that meeting, the company resolves that it shall be so
treated.
Section 157(8) of the Companies Act, 2019 (Act 992) provides that Where a company passes a
resolution pursuant to subsection (S) or (7), a copy of the resolution shall, within twenty-eight
days of the passage of the resolution, be forwarded to the Registrar for registration.
Finally, according to Section 157(9) of the Companies Act, 2019 (Act 992), if an annual general
meeting of the company is not held in
(a) accordance with subsection (1),

(b) compliance with the directions of the Registrar under subsection (6), or
(c) compliance with subsection (4), (7) or (8) of 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 one hundred and fifty penalty units.
Ordinary Business of an Annual General Meeting (AGM)
This refers to the business that may generally or ordinarily be transacted by the annual general
meeting. Generally the notice of a meeting shall specify the place, date and hour of the meeting,
and the general nature of the business to be transacted thereat in sufficient detail to enable those
to whom it is given to decide whether to attend or not; and where the meeting is to consider a
special resolution shall set out the terms of the resolution.However, in the case of annual general
meeting, it sufficient that a notice of a meeting will invite members for a meeting at a given
place and time to conduct the ordinary business of an annual general meeting.
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Paragraph 2(a) of the Eighth Schedule to the Companies Act, 2019 (Act 992) provides that the
notice of a meeting shall specify
(i) the place, date and hour of the meeting,

(ii) the general nature of the business to be transacted at the meeting in sufficient detail
to enable those to whom the notice is given to decide whether to attend or not; and
(iii) where the meeting is to consider a special resolution, shall set out the terms of the
resolution
Paragraph 2(b) of the Eighth Schedule to the Companies Act, 2019 (Act 992) provides that in the
case of notice of an annual general meeting, a statement that the purpose is to transact the
ordinary business of an annual general meeting is a sufficient specification that the business is,
(i) to declare a dividend;

(ii) consideration of the financial statements and reports of the directors and auditors;
(iii) the election of directors in the place of those retiring;
(iv) the fixing of the remuneration of the auditors; and
(v) for the removal and election of auditors and directors.
Paragraph 2(c) of the Eighth Schedule to the Companies Act, 2019 (Act 992) provides that a
business may not be transacted at a general meeting unless notice of it has been duly given.
In Eshun v Poku [1989-90] 2 GLR 572,the plaintiffs were members of the Ghana Hoteliers
Association and members of the former national executive committee of the association. At an
annual general meeting held in May 1987 a resolution was passed to hold elections to national
offices. Even though certain documents listed under section 124 (1) of the Companies Code,
1963 (Act 179) including reports and accounts were not available for consideration, the meeting
unanimously voted to carry on with the elections at which a new national executive committee
was declared elected unopposed without the holding of a secret ballot of the members present
and voting as required by article 9 (d) of the constitution of the association. Dissatisfied with the
results of the elections the plaintiffs brought the instant action claiming, inter alia, (i) a
declaration that the annual general meeting and the elections were ultra vires as being in
violation of section 149 (2) of the Companies Code, and (ii) an injunction to restrain the
defendants from holding themselves out as national officers of the association. Counsel for the
plaintiffs therefore contended that the procedure adopted for the elections was unlawful and that
a secret ballot ought to have been held even where a candidate had been returned unopposed in
compliance with the literal meaning of article 9 (d) of the association's constitution.
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The High Court held that even though none of the directors documents, i.e. accounts and reports
specified in section 124 (1) of the Companies Code, 1963 (Act 179) were laid before the annual
general meeting (A.G.M.) and therefore not considered as required by section 149 (2), there was
nothing in the Code showing that consideration of the accounts and directors' reports was a
condition precedent to the holding of an A.G.M. or to the holding of elections. If it were the
intention of the law-makers that any A.G.M. held without the consideration of the accounts
should be negated they would have expressly said so. They would not have vested members
with the power to apply to the courts to order a meeting to make up for what was lacking as
provided in section 162 (1) of the Code. That section and section 150, which empowered
directors to call for extraordinary general meeting, all showed that the A.G.M. itself was not
invalidated because all relevant documents were not laid before it. Consequently, the resolutions
and elections held in spite of the fact that the accounts had not been considered was not null and
void. Lutterodt J said:
“The point I wish to make is that this section also, quite apart from section 150 which
empowers directors to call for extraordinary general meetings, would all show [p.579]
that an A.G.M. itself is not invalidated because all the relevant reports and documents
were not laid before it. In my view therefore, the resolutions that the elections be held in
spite of the fact that the accounts have not been considered, is not null and void. Indeed
the elections themselves are independent of any other matters to be considered at an
A.G.M. and the sole ground that the accounts were not gone into would not invalidate the
elections…. The A.G.M. no doubt affords protection to members. Indeed, no one would
deny that it is meant for their good, for this meeting gives them a glorious opportunity of
meeting the directors...”
In fact, it is normal for these matters to be taken at the annual general meeting and for
shareholders to have the opportunity to question the direction on the company’s business and
financial position. The annual general meetingno doubt affords protection to members. Indeed,
no one would deny that it is meant for their good, for this meeting gives them a glorious
opportunity of meeting the directors, and as the learned author Gower in his book The Principles
of Modern Company Law (3rd ed.) at p. 475 puts it:
". . . for it is the one occasion when they can be sure of having an opportunity of meeting
the directors and of questioning them on the accounts, on their reports, and on the
company's position and prospects . . . Most of these things could, of course, be done at an
extraordinary meeting, but the members who want to raise these matters may not be able
to insist upon the convening of an extraordinary meeting. The annual general meeting is
valuable to them because the directors must hold it whether they want to or not."
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Where the meeting is to consider a special resolution then the terms of the resolution should be
set out in the notice.Whether sufficient notice has been given of the matters to be discussed at a
meeting of shareholders is a question of fact in each case. Depending on the complexity of the
matter and its potential impact on the financial interest of shareholders, an explanatory
memorandum may be required to explain the import and consequences of the proposed
resolutions.
In Boohene v. Ghana Union Assurance,the court stated that:
“Section 31 of Act 179 protects the rights of shareholders to attend any GM and speak
and vote on any resolution before the meeting. The right to speak and vote carries with it
the right to have information for the purpose of speaking and voting. Flowing from this,
my opinion is that the general law of fiduciary obligations which includes the
requirement that directors provide sufficient information to enable shareholders to make
a reasoned decision on a proposed resolution is concretised in our section 31 of Act
179.”
In Dan Ofori v. Ghana Commercial Bank, per Irismay Brown J at page 5
“it is impossible to state with certainty what is the most appropriate and sufficient notice
in any particular case since as already stated the peculiarities of t. As general guidelines
it is essential that where interests are to affected then those persons affected must be ...”
Whether or not a notice of meeting has complied with the requirements of Paragraph 2(a) of the
Eighth Schedule to the Companies Act, 2019 (Act 992) by stating the “general nature of the
business to be transacted thereat in sufficient detail”must be determined from the particular
circumstances of each case.
In the English case of Normandy v Inde, Coope& Co Limited [1908] Ch. D. 841,the court
considered whether a notice of a general meeting had sufficiently stated the general nature of the
business to be conducted at the meeting.
In that case, Under the company’s regulations, a notice of a meeting was required to state the
“general nature of the business to be conducted.” An extraordinary general meeting of the
company was called to consider and approve new draft resolutions for the company. The notice
stated that copies of the new draft regulations are available from the company’s offices and will
be sent to any shareholder who applied for a copy. The new draft regulations contained
provisions on directors’ pensions and payments that were not specifically stated in the notice or
the circular accompanying the notice. The regulations were adopted at the meeting and
confirmed at a second general meeting. Later a shareholder brought action to contest the validity
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of the notice for the meeting and the regulations passed approving the new draft regulations. The
company argued, at page 96, that so long as the notice gave the general nature of the business to
be conducted, there was no need to condescend to particulars.
The court per Kekewich J held as follows:
“I decline to accept the test that in all cases a general intimation is enough, and that if I
say the general intimation was not enough here, therefore it cannot be enough in any
case. Every case must be looked at with regard to its particular circumstances...I do not
think the notice in this case complied with the duty to communicate the general nature of
the business; I do not think it is such a notice as to convey to the ordinary investor what
he is entitled to have conveyed to him, so that he may know whether or not he shall attend
the meeting or take other steps.’’
The Normandy Caseestablishes that the particular circumstances of each will determine what is
required to satisfy a statement of the general nature of the business to be conducted at a meeting.
Thus in certain important matters a mere statement of the business to be conducted at a meeting
on the face of the notice paper may not be enough. The directors will thus be required to provide
shareholders with more information than a simple statement of the business to be conducted to
meet the requirement set out in Paragraph 2(a) of the Eighth Schedule to the Companies Act,
2019 (Act 992)to state the “generalnature of the business to be transacted thereat in
sufficient detail.
The common law courts have consistently recognized that sometimes to satisfy the statutory
requirement to provide adequate notice of a meeting by stating the “general nature of the
business to be transacted thereat in sufficient detail” it will be the duty of the company and
its directors to provide in the notice paper or, much more conveniently, attach to the notice paper
a circular or statement explaining the basis of the proposed resolution to allow shareholders
reach an informed decision of the polices suggested by the directors of the company.
In Peel v London and North Western Railway Company [1907] 1 Ch. 52,the issue before the
court was whether the directors of a company had a duty to issue circulars with the notice of a
meeting explaining the reasons behind the resolutions proposed for the meeting. The court held,
at page 5, as follows:
“The question is not whether the directors have the right to issue these circulars, the
question is whether they have a duty – a duty which might reasonably involve the issue of
circulars...Is it to be said that the board of directors of a company...who have had to
adopt a particular policy ... have not the positive duty to inform the shareholders what
have been the reasons for the policy which has theretofore been adopted and why they
think the policy should be maintained in the future. I cannot myself understand anyone
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having a doubt as to the directors having such a duty. They are not to abstain from their
duty to give information to the shareholders of the company as they think as they think
may be desirable for them interest of the company because of the accident that a certain
number of shareholders take the view that the policy theretofore exercised by the
directors has been a wrong policy. It is their duty to give information to the
shareholders of the facts, which they think justify the policy. It is their duty to put
forward to the company those reasons, which they think justify the policy, which the
company with their assistance as managers has adopted...”
Where the resolution proposes a fundamental restructuring of the shareholding of the company
that substantially affects the rights of shareholders, it is absolutely vital that adequate information
be provided.In Bateman v New Haven Park Stud Limited[2004] NSWSC 3974 the New South
Wales Supreme Court considered the issue and held, at page 402 as follows:
“The relevant duty, briefly stated is a duty to state in the documents accompanying a
notice of a meeting all matters material to properly informed decision making by
shareholders. Comprehended by this are not only decisions as to the way in which a vote
should be cast at the meeting its self, but also decisions as to whether or not to attend the
meeting, whether or not to appoint a proxy, and, if there is a decision to appoint, as
whether the proxy should be directed concerning the manner of voting and, if so, what
the direction should be.”
To ascertain whether adequate information was provided on a proposed resolution, the test is
whether such information was been provided as would enable the reasonable commercial person
reach a reasonably informed judgment on the policies advocated by the company and its
directors.
In Western Ventures Pty Limited v Resources Equities[2004] WASC 222,where the company
proposed a resolution to adopt new regulations of the company without providing to shareholders
information on material changes to the existing regulations. Action was brought by a shareholder
to challenge the notice of the meeting for failing to disclose adequate information. The court held
Directors in stating in a notice of a meeting a proposed item of business, must give information
in fair detail as what is actually proposed to be done at the meeting ... the authorities suggest
also that there should be a statement which sufficiently is clear to enable shareholders to make a
reasonably informed judgment whether to attend the meeting and the duty reposed in the
directors is to provide not only the information which they think the member should have but
also that information ‘which would be obvious to the average commercial man in the street
that they should have.”
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EXTRAORDINARY GENERAL MEETING (EGM)
Section 158(1) of the Companies Act, 2019 (Act 992) provides that an extraordinary general
meeting may be convened by the directors whenever the directors think fit.
This means that the directors are under no obligation to convene an extraordinary general
meeting unless they think that it is necessary to do so. There is, therefore, a distinction between
annual general meetings and extraordinary general meetings in the sense that while the
convening of annual general meetings is mandatory under the Companies Act, 2019 (Act 992),
the convening of extraordinary general meetings is discretionary.
It is, thus, possible that the directors of a company may fail or refuse to convene an extraordinary
general meeting even if it is in the interest of the company to do so. They may also convene an
extraordinary general meeting only if it is in their interest to do so. Any such conduct by the
directors will undoubtedly constitute an abuse of their discretion.
Section 158(2) of the Companies Act, 2019 (Act 992) provides that if at any time there are not
within the Republic sufficient directors capable of acting to form a quorum, a director may
convene a meeting.
In In the matter ofNorthern Engineering Co. Ltd and in the matter of the Companies Code,
1963 (Act 179), section 217 and Luguterah v Northern Engineering Co. Ltd [1978] GLR
447, the High Court held that the letter dated 7 June 1977 summoning the applicant to attend the
extraordinary general meeting of the company must be presumed to have come to the notice of
the applicant on 9 June by virtue of the provisions of Act 179, s. 155—thus giving the applicant
two days' notice of the meeting. However, he was entitled to 21 days' notice by virtue of section
152 (2) of the Act and although the statutory period could be shortened, it could be so abridged
(as provided by s. 152 (4) (b)) by the agreement of the majority of the members holding not less
than 95 per centum of the company's shares entitling them to attend and vote. On the facts of the
case, the notice summoning the extraordinary general meeting and the proceedings of that
meeting were invalid.
meeting of a private company may be requisitioned in accordance with section 299 and an
extraordinary general meeting of a public company may be requisitioned in accordance with
section 324.
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Requisitioning extraordinary general meetings of a private company under section 299 of

the Companies Act, 2019 (Act 992)
1) The directors of a private company, despite a provision in the constitution of chat private
company, shall duly convene an extraordinary general meeting of the company on the
requisition of
(a) two or more members of the company or a single member holding not less
than one-tenth of the shares of the company; or
(b) in the case of a company limited by guarantee, one-tenth of the total voting
rights of the members of the company
2) The requisition shall stale the nature of the business to be transacted at the meeting and
shall be signed by the requisitionists and sent to or delivered at the registered office of the
company.
3) If the directors do not, within seven days from the date of receipt of the requisition at
the registered office of the company, proceed duly to convene a meeting for a date not
later than twenty-eight days after the receipt of the requisition, the requisitionists or
any of them may themselves convene a meeting, but a meeting so convened shall be held
within four months from that date.
4) The reasonable expenses incurred by the requisitionists by reason of the failure of the
directors to duly convene a meeting shall be repaid to the requisitionists by the company
and the sum of money so repaid shall be retained by the company out of the fees or other
remuneration of the directors who were in default.
5) For the purposes of this section, the directors have not proceeded duly to convene a
meeting if they do not, within seven days after the receipt of the requisition at the
registered office, cause notices of the meeting, to transact the business specified in the
requisition, to be given in accordance with paragraphs 1 to 3 of the Eighth Schedule.
Requisitioning extraordinary general meetings of a private company under section 324 of

the Companies Act, 2019 (Act 992)
1) The directors of a public company, despite anything in the constitution of that company,
shall on the requisition of members of the company holding not less than one-twentieth
of the shares of the company, or, in the case of a company limited by guarantee,
members of the company representing not less than one-twentieth of the total voting
rights of the members of the company, forthwith proceed duly to convene an
extraordinary general meeting of the company.
2) The requisition shall
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(a) state the nature of the business to be transacted at the meeting, and
(b) be signed by the requisitionists and sent to or deposited at the registered office of
the company.
3) The requisition may consist of several documents in the like form each signed by one or
more requisitionists.
4) If the directors do not, within twenty-eight days from the date of receipt of the
requisition at the registered office of the company, proceed duly to convene a meeting for
a date not later than twenty-eight days after the receipt, the requisitionists, or any of
them, may themselves convene a meeting but a meeting so convened shall not be held
after the expiration of four months from that date.
5) The reasonable expenses incurred by the requisitionists by reason of the failure of the
directors duly to convene a meeting shall be repaid to the requisitionists by the company,
and the sum of money so repaid shall be retained by the company out of the fees or other
remuneration of any of the directors who were in default.
(6) For the purposes of this section, the directors have not proceeded duly to convene a meeting
if they do not, within twenty-eight days of the receipt of the requisition at the registered
office, give notices of the meeting to transact the business specified in the requisition in
accordance with paragraphs l to 3 of the Eighth Schedule.
In PNC Telecom PLC v Thomas [2003] BCC 202, some members requisitioned the directors to
call a meeting however the requisition order came by way of a fax message. The company went
to court for a relief that the requisition has not been done in accordance with law in that it should
have been in writing and should have been handed to the company at its registered office. The
court disagreed and referred to the company’s communication Act (English legislation) which
made it possible for processes to be served via electronic means. It went on to say that fax had
been used as a means of communication for a very long time. The court therefore held that by
sending it via fax, it occasioned no harm.
The Right to Attend General Meetings
Paragraph 7(a) of the Eighth Schedule to the Companies Act, 2019 (Act 992) provides that
despite a provision in the registered constitution of a company to the contrary, the following
persons are entitled to attend a general meeting of the company:
(i) each member of the company;

(ii) each director of the company;
(iii) the Company Secretary; and
(iv) each auditor for the time being of the company.
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Paragraph 7(b) of the Eighth Schedule to the Companies Act, 2019 (Act 992) provides that for
the purposes of subparagraph (a),
(i) if the constitution of a company so provides, a member is not entitled to attend unless
the calls or other sums of money presently payable by that member in respect of
shares in the company have been paid; and
(ii) a member who is a holder of preference shares only is not entitled to attend if the
right to do so is validly suspended in accordance with section 52.
Paragraph 7(c) of the Eighth Schedule to the Companies Act, 2019 (Act 992) provides that
subparagraph (b) does not preclude any other person from attending a general meeting with the
permission of the chairperson of the meeting.
The conduct of General Meetings
Section 159 of the Companies Act, 2019 (Act 992) provides that unless the constitution of a
company otherwise provides, the general meetings shall be held in the Republic.
This means that if the constitution of the company suggests other venues in addition to Ghana,
then meetings may be held outside Ghana. It is important to note that foreigners have the right to
form companies and do business in Ghana.
Secondly, the Companies Act, 2019 (Act 992), does not expressly, require that members of a
company must reside in Ghana. In fact, there may be no need for any such requirements since
members of company, unless they are at the same time directors, are not in charge of the day-to-
day administration of the company. It is, therefore, possible that all or some of the members of a
company may reside abroad. In that case, and depending on the circumstances, it may be
relatively easier and cheaper or more convenient to have meetings of the members of a company
held outside of Ghana.
In any case, there is no real benefit to gain if the rule were that meetings of members of a
company must be strictly held in Ghana. Perhaps it is against the background of this reality and
other factors that the Companies Act, 2019 (Act 992) permits companies, through their
respective constitutions, to allow meetings of their members to be held outside Ghana. This will
encourage foreigners, who may not wish to reside in Ghana or always travel to Ghana just for
meetings, to incorporate entities in Ghana.
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Notice of General Meetings
Paragraph 1 of the Eighth Schedule to the Companies Act, 2019 (Act 992) provides that:
(a) Meetings, other than adjourned meetings, shall be convened by notice in writing to the
persons who are, under subparagraph (f), entitled to receive notice of general meetings.
(b) Subject to subparagraphs (c) and (d), at least twenty-one days notice, or in the case of a
special resolution under section 2 of the Bodies Corporate (Official Liquidations) Act,
1963 (Act 180), seven days notice exclusive of the day on which the notice is served, but
inclusive of the day for which notice is given, shall be given.
(c) The registered constitution of a company may provide for a period of notice longer, but
not shorter, than that specified in subparagraph (b).
(d) A meeting of a company shall, although it is called by shorter notice than that specified in
subparagraph (b), or in the registered constitution of the company, be deemed to have
been duly called if it is so agreed,
(i) in the case of a meeting called as the annual general meeting, by the members
entitled to attend and vote at that meeting, and
(ii) in the case of any other meeting, by a majority in number of the members having
a right to attend and vote at the meeting, which is a majority holding not less than
ninety-five percent of the shares giving a right to attend and vote at the meeting
or, in the case of a company limited by guarantee, by a ninety-five percent
majority in number of the members.
(e) Where the members are entitled to vote only on some resolutions to be moved at the
meeting and not on others, those members shall be taken into account for the purposes of
subparagraph (d) in respect of the former resolutions, and not in respect of the latter.
(f) The persons entitled to receive notice of general meetings, are,
(i) member;
(ii) person on whom the ownership of a share devolves by reason of that person
being a legal personal representative, receiver or a trustee in bankruptcy of a
member;
(iii) director of the company; and
(iv) auditor for the time being of the company.
Service of notice of General Meetings
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(a) Notice may be given by the company to a member or director personally, or by

(i) sending it through the post addressed to the member or director at the registered
address of the member or director, or
(ii) leaving it for the member or director with a person apparently over the age of
sixteen years at that address, or
(iii) sending it to the member or director through electronic means.
(b) Notice may be given to the joint holders of a share by giving the notice to the joint holder
named first in the register of members in respect of the share.
(c) Notice may be given to a person on whom ownership of a share has devolved by reason
of that person being a legal personal representative, receiver or trustee in bankruptcy of a
member personally, or
(i) by sending the notice through the post addressed to that person by name, or
(ii) by the title of representatives of the deceased or receiver or trustee of the
bankrupt, or
(iii) by any like description, at the address supplied for the purpose by that person, or
(iv) by leaving the notice for that person with a person apparently over the age of
sixteen years at that address, or,
(v) until that address has been supplied, by giving the notice in a manner in which the
same might have been given if the death, receivership or bankruptcy had not
occurred.
(d) Where a notice is sent by post, service is effected by properly addressing, pre-paying, and
posting a letter containing the notice and is considered to have been effected at the
expiration of forty-eight hours after the letter containing the notice is posted.
(e) The letter need not be registered but where it is sent to an address outside Ghana the letter
shall be despatched by air mail.
Failure to give notice of General Meetings
Paragraph 2(c) of the Eighth Schedule to the Companies Act, 2019 (Act 992) provides that a
business may not be transacted at a general meeting unless notice of it has been duly given.
It means, therefore, that any resolution passed at a meeting in respect of a matter of which no
notices given will be invalidated. Generally, the purpose of giving notice of General Meetings of
a company is to provide sufficient information to those who are entitled to attend and vote at
meetings.
Paragraph 4 of the Eighth Schedule to the Companies Act, 2019 (Act 992) provides that the
accidental omission to give notice of a meeting to, or the non- receipt of notice of a meeting by, a
person entitled to receive notice shall not invalidate the proceedings at that meeting.
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This means that a meeting of a company and anything done at that meeting cannot be invalidated
merely because of the accidental omission to give notice to a person who is entitled to the notice.
It also means that the meeting and anything done at the meeting will not be invalid simply
because a member of the company does not receive notice of the meeting.
447, the High Court held that even though by virtue of section 156 of Act 179, accidental
omission to give notice of a meeting or non-receipt of a notice, apparently duly sent, would
not invalidate the proceedings of that meeting, the section was inapplicable where notice was
deliberately withheld from a member entitled to notice as in the instant case where the applicant
had no notice of the alleged special resolution increasing the shares of the company.
Per Taylor J held that:
“I am aware that by virtue of section 156 of the Code, accidental omission to give notice
of a meeting or non-receipt of a notice, apparently duly sent, does not invalidate a
meeting. This provision, however, is clearly inapplicable where notice is deliberately
withheld as in this case from a member entitled to notice: see Musselwhite v. C. H.
Musselwhite & Son Ltd. [1962] Ch. 964.”
In Musselwhite v. C. H. Musselwhite & Son Ltd. [1962] Ch. 964, the company purported to
hold its annual general meeting but no notice of the meeting was given to the plaintiffs. In
proceedings for a declaration that the meeting was a nullity for want of such notice it was
contended that the plaintiffs as unpaid vendors under a specifically enforceable contract to sell
their shares to the individual defendants would have been bound to vote as the latter requested,
so that any question whether notice had been given to them was academic.
It was held that that the omission to give notice of the meeting of December 30, 1958, to the
plaintiffs prima facie invalidated the meeting, and that an omission arising from an error was not
accidental, so that article 43 of Table A did not operate to prevent the omission from invalidating
the meeting which was, therefore, a nullity
Who May Convene/Call a General Meeting?
A general meeting can be convened by directors, members through requisition, the Registrar of
companies and the court.
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a. Directors
Ordinarily, all meetings in the company are called by the directors either by themselves or upon
the requisition of the members. By convention it is the directors who fix the date for Annual
general meetings; and by virtue of section 158(1) of the Companies Act, 2019 (Act 992), they
may convene extraordinary general meeting whenever they think fit.
447, the High Court held that under Act 179, section 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.
Per Taylor J held that:
“It is I think clear from this provision that only the directors of the company are entitled
to convene an extraordinary general meeting. A shareholder qua shareholder without
any prior requisitioning of the directors in terms of section 271 of the Code, has no
statutory right to convene an extraordinary general meeting. All that a shareholder as a
member can do is to prevail on the directors by requisition to convene one and it is only
after failure to secure one that the member may then convene one in accordance with the
provisions of section 271 (3) of the Code. In this particular case the meeting was
convened by the secretary apparently on his own without any directive from the directors.
It seems to me very essential that secretaries of companies should be alive to the nature
of their duties and responsibilities.”
Section 158(2) of the Companies Act, 2019 (Act 992) provides that if at any time there are not
within the Republic sufficient directors capable of acting to form a quorum, a director may
convene a meeting.
b. Members through Requisition
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Members may also requisition the directors for the directors to convene an extraordinary general
meeting. However, slightly different rules apply depending on whether it is a private or public
company. Private companies are guided by section 299 while public companies are guided by
section 324 of the Companies Act, 2019 (Act 992).
meeting of a private company may be requisitioned in accordance with section 299 and an
extraordinary general meeting of a public company may be requisitioned in accordance with
section 324.
c. The Power of Registrar to Call a meeting
Section 157(6) of the Companies Act, 2019 (Act 992) provides that if the annual general meeting
is not held in accordance with subsection (5), the Registrar may, on a motion by the Registrar or
on the application of an officer or a member of the company, call, or direct the calling of, an
annual general meeting of the company, and may give the ancillary or consequential directions
that the Registrar thinks fit, including directions modifying or supplementing, in relation to the
venue, calling, holding and conducting of that meeting, the operation of
a. section 159,
b. paragraphs l to 3 of the Eighth Schedule,
c. paragraphs 8, 9, 12, 13 of the Eighth Schedule,
d. paragraphs 15 to 19 of the Eighth Schedule, and
e. the constitution of the company where applicable.
d. Power of Court to Order Meeting
1) If for a good reason it is impracticable to call a meeting of a company in a manner in

which meetings of that company may be called, or to conduct the meeting of the
company in the manner prescribed by the constitution of the company, the Court may
on the application of a director, a member of the company or the Registrar order a
meeting of the company to be called, held and conducted in the manner that the Court
considers fit.
2) Where that order is made, the Court may give any ancillary or consequential directions
that the court considers expedient.
3) A meeting called, held and conducted in accordance with the order is, for the purpose of
this Act, a meeting of the company duly called, held and conducted.
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The objective of this section is to give the court a wide discretion to determine whether or not it
has become impracticable to call a meeting of the company in the normal
way.Whether or not it has indeed become impracticable will be determined by the facts of e
ach case.
In Adryx Mining and Metals Ltd v Ashanti Goldfields (1999-2000) 2 GLR 758, the
respondent, the Ashanti Goldfields company (AGC) was incorporated under the Companies
Code 1963, (Act 179) in 1974 and became a public company limited by shares in 1994, when it
went public internationally. The stated capital of AGC which carried on business as a gold
exploration development and mining company was 200,000,000 ordinary shares of no par value.
The applicant invoked the jurisdiction of the High Court under the Companies Code 1963, Act
179 for an order for convening an extraordinary general meeting of the Respondent Company for
the purpose of passing ordinary resolutions for the election of a new Board of Directors and the
removal of the existing one. The application was brought under section 162 of the Companies
Code 1963, (Act 179).
The High Court held that on a true construction of section 162(1) of the Companies Code 1963,
(Act 179), a member qua member of a company could apply for the order to convene a meeting,
there were clearly no qualifications attached to the membership. In the circumstances the
respondents’ contention that for an applicant to come to Court for relief under section 162(1) of
the Companies Code 1963, (Act 179), he had to be qualified in terms of Section 271 of the
Companies Code 1963, (Act 179), to call or requisition an extraordinary general meeting was
untenable. A qualification of thatnature if it was intended would have been added to the text
simply by words such as "subject to the qualification contained in Section 271 a member
may apply to the Court".
The High Court further held that in line with the holding above that a member need not be
qualified to call or requisition an extraordinary general meeting under Section 271 of the
Companies Code 1963, (Act 179), before applying for an order under section 162 of the
Companies Code 1963, (Act 179), the word "impracticable" used in section 162 of the
Companies Code 1963, (Act 179) did not need to be given a restrictive meaning, limited only to
and associated with a failure to convene an EGM but was rather to be interpreted liberally to give
effect to its natural meaning. Impracticable means incapable of being done. Thus whether or not
it was "impracticable" to call a meeting within the meaning of section 162 of the Companies
Code 1963, (Act 179) was practical matter which had to be tested according to the circumstances
of a particular case.
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Where it is proper for the court to exercise its discretion to call a meeting?
i. Where, as a practical matter, the conduct of members prevent meetings from being he
ld in the usual way.
In Re British Union for the Abolition of Vivisection [1995] 2 BCLC 1, an application was
made to the court for a meeting to be called for the amendment of the company’s Regulations to
introduce voting by proxy and postal ballot because meetings of the company were ending in
violence and threatening a breach of the peace.The court held that it was a proper case to
exercise its jurisdiction to call a meeting since the conduct of the radical minority had rendered it
impracticable for meetings for meetings of the company to be conduct in the manner.
ii. Where members are using quorum provisions to abuse the statutory rights of the majo
rity.
In such case the court distinguishes between such cases and where there is a class right and case
where there is an intended equality of power.
In Re El Sombrero Ltd [1958] 3 All ER 1, the plaintiff held 90% of the shares of a company.
The company had 3 shareholders. The quorum for meetings for the company was 2. The 2 other
shareholders refused to come to meetings rendering them inquorate because the plaintiff intended
to remove them as directors. The Plaintiff applied to the court that it has become impracticable to
hold a meeting of the company and therefore the court should order a meeting at which the
quorum should be one. The court held that it was proper case to exercise its discretion because
failing to do would have denied the applicant of his statutory right to remove the directors and
appoint new ones. In the courts view, on the facts of the case, if the failed to exercise its
discretion to call a meeting, then it would be depriving the majority shareholder of his statutory
right to exercise his voting rights at a general meeting of the company.
Where it is not proper for the court to exercise its direction
i. Where a quorum provision has been included in the Regulations or a Shareholders

Agreement as a class right
In Harman v BML Group Ltd [1994] 2 BCLC 674, [1994] 1 WLR 893,Shareholders of one
class sought an order under section 371 which would have had the effect of overriding the class
rights of another shareholder. The meeting was proposed to remove two directors who did not
have the protection of a shareholder’s agreement. It was held that the Court does not have a
power under section 371 (Companies Act 1985) to order a company meeting to be held for one
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class of shareholders over another class. It was entirely novel to seek to use the machinery of
convening a meeting under the section to override class rights. It was not right to invoke the
section to override class rights attached to a class of shares which had been deliberately imposed
for the protection of the holders of those shares although they were a minority.
Shareholder’s not allowed to apply s371 to meet in absence of group.
In the judgment of Dillon LJ on page 677 of the report, the Learned Judge expressed views as
follows:
"There are statutory antecedents going back to the Companies Act 1862. The wording of
the Section is wide. The sort of circumstances in which it was commonly invoked so far as
my experience goes up until 1958, were where for instance a company with a large
number of shareholders or members had failed to comply with provisions of the articles
as to the retirement of directors by rotation and thus by the operation of the rule in Re
Consolidated Nickel Mines Ltd. [1914] 1 Ch. 883 suddenly found, contrary to its belief
that it had no directors and it was necessary to have directors appointed. Other
circumstances would be where the company share register and records of its members
had been destroyed by wartime bombing or in a fire, a meeting was necessary to
resurrect membership of the company and carry out the necessary formalities until that
could be done. Equally there could be a case where, under the articles, notices of
meetings had to be given to overseas shareholders and there were hostilities in foreign
parts which prevented that being done and that could have prevented meetings being
validly convened. So other directions could be given by the Court".
ii. Where there is equality of shareholding coupled with requirement that both
shareholders should be present at a meeting for the meeting to be quorated.
In Ross v Telford [1998] 1 BCLC 82, it was held that the provision of the section cannot be
used to break a deadlock between two equal shareholders where the company’s own constitution
contains no provision to cope with such situations.
Procedure at Meetings
a. Quorum
Quorum refers to the minimum number of persons who must be present for a meeting to validly
commence and proceed. Paragraph 8 of the Eighth Schedule to the Companies Act, 2019 (Act
992) provides that:
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a. Subject to subparagraph (b), a business shall not be transacted at a general

meeting unless a quorum of members is present at the time when the meeting
commences, but where a quorum is present, the meeting may validly proceed with
that business despite that a quorum is not present throughout.
b. In dealing with a quorum under subparagraph (a), where members present are
entitled to vote only on some resolutions and not on others, those members shall
be counted towards a quorum in respect of the former resolutions but not in
respect of the latte
c. Unless otherwise provided in the constitution of a company, quorum is
constituted,
(i) if the company has only one member, by that member being present in
person or, where proxies are allowed, by proxy;
(ii) in any other case, by two members present in person or, where proxies are
allowed, by proxy, or one member so present holding shares representing
more than fifty per cent of the total voting rights of the members having a
right to vote at the meeting
d. Unless otherwise provided in the constitution of the company, if a quorum is not
present within half an hour after the time appointed for the meeting, the meeting if
convened on the requisition of members in accordance with sections 299 and 324
of this Act, shall be dissolved, and in any other case, shall stand adjourned to the
same day, in the next week, at the same time and place or to any other day, place
and time that the directors may determine.
e. If at the adjourned meeting a quorum is not present within half an hour after the
time appointed, the member or members present shall constitute a quorum.
f. Where the meeting is adjourned to the same day, place and time in the following
week, notice is not required to be given, otherwise notice of the adjourned
meeting shall be published in at least one daily newspaper circulating in the
district in which the registered office of the company is situated.
In Sharp v Dawes (1876) 2 QBD 26, where a meeting of a tin mining company was held for the
purpose of making a call on shares. The meeting was attended by only one shareholder and a
secretary who was not a member. The call was in due course made on another shareholder,
Dawes, who refused to pay and the court had to decide whether the meeting was valid. It was
held that the meeting was a nullity and the call was invalid.
Lord Coleridge CJ held that
“……. the word ‘meeting’ prima facie requires a coming together of more than one
person. It is, of course, possible to show that the word ‘meeting’ has a meaning different
from the ordinary meaning, but there is nothing here to show this to be the case. It
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appears therefore to me that this call was not made at a meeting of the company within
the meaning of the Act.”
Mellish LJ said:
“in this case, no doubt, a meeting was duly summoned, but only one shareholder
attended. It is clear that, according to the ordinary use of English language, a meeting
could no more be constituted by one person than a meeting be could have been
constituted if no shareholder at all had attended. No business could be done at such a
meeting, and the call is invalid.”
b. Proxies
(a) A member of a company entitled to attend and vote at a meeting of the company is
entitled to appoint another person, whether a member of the company or not, as a proxy
to attend and vote on behalf of that member, and the proxy shall have the same rights as
the member to speak at the meeting.
(b) Unless the registered constitution of the company otherwise provides, subparagraph (a)
shall not apply in the case of a company limited by guarantee.
(c) The instrument appointing the proxy shall be in writing signed personally by the
appointor or the agent of the appointor duly authorised in writing or, if the appointer is a
body corporate, under the seal of the body corporate or signed personally by an officer or
agent duly authorised.
(d) An instrument appointing a proxy shall be in the form prescribed in the Second and Third
Schedules, or in the form that the registered constitution of a company provides, but
despite a provision in the constitution of the company, an instrument in the form
prescribed in the Third Schedule shall be sufficient.
(e) Unless the registered constitution of the company otherwise provides, the instrument
appointing a proxy and the power of attorney or other authority under which the
instrument is signed or a notarised copy of that power or authority, shall be deposited
with the designated receiving officer
(i) by electronic mail;
(ii) personally at the registered office of the company, or at any other place within the
Republic as specified in the notice convening the meeting; or
(iii) by any other means approved by the company, not less than forty-eight hours
before the time for holding the meeting or adjourned meeting, or not later than
twenty-one days before the meeting or in the case of a poll, not less than twenty-
four hours before the time appointed for the taking of the poll and in default, the
instrument of proxy shall not be treated as valid.
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(f) A provision contained in the registered constitution of a company is void in so far as 1t

would have the effect of requiring the documents referred to in the constitution to be
deposited more than forty-eight hours before the time for holding the meeting or
adjourned meeting or, in the case of a poll, more than twenty-four hours before the time
appointed for taking the poll.
(g) Where instruments of proxy have been deposited in accordance with subparagraph (e), a
person entitled, in the right of that person, or as proxy for another member or members,
or partly in one way and partly in another, to more than ten per cent of the total voting
rights of the members entitled to vote at the meeting, shall be entitled, at any time during
business hours before the conclusion of the meeting, or the taking of the poll, but subject
to any reasonable restrictions that the company may impose, to inspect the deposited
instruments of proxy and the original or notarised copy of powers of attorney or other
authority under which the instruments are signed.
(h) The appointment of a proxy shall be terminated by the death or insanity of the appointor
or by the revocation of the proxy or the authority under which the proxy was executed,
and the personal attendance of a member at the meeting or the later appointment of
another proxy in respect of the same share shall be deemed to be a revocation.
(i) A vote taken in accordance with the terms of an instrument of proxy may be treated by
the company as valid despite the termination or revocation of the appointment, so long as
a notice in writing of the termination, or revocation, or of the events causing same has not
been received by the company at the registered office or other place appointed for the
deposit of instruments of proxy, before the commencement of the meeting or adjourned
meeting or more than twenty-four hours before a poll.
(j) If, for the purpose of a meeting of a company, invitations to appoint as proxy a person, or
a number of persons specified in the invitations are issued at the expense of the company,
then,
(i) the invitations shall be sent to the members entitled to attend and vote at the
meeting;
(ii) the invitations shall be accompanied by forms for the appointment of a proxy
which shall entitle the members to direct the proxy to vote either for or against
each resolution;
(iii) where instruments of proxy are duly completed and returned in accordance with
the instructions in the invitation and are not revoked then, the chairperson of the
meeting shall demand a poll after a vote by show of hands, unless the result on the
show of hands is in accordance with the directions given in the instruments of
proxy and on a poll, the votes of the members concerned shall be deemed to be
cast in accordance with the directions, in the instruments of proxy despite the
absence, abstention, or purported vote of the proxy to the contrary.
(k) Where a member, not having been invited so to do, requests the company to issue that
member with a form of appointment of proxy or a list of persons willing to act as proxy,
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the company may issue the form or list to that member without doing so to the other
members entitled to attend and vote, but the form or list shall be available on request in
writing to that member and any forms of appointment so issued shall comply with
subsubparagraph (ii) of subparagraph (j) and shall be deemed to be an instrument of
proxy to which sub-subparagraph (iii) of sub-paragraph (j) applies.
c. Chairperson of meetings
(a) Unless otherwise provided in the registered constitution of a company, the chairperson of
the board of directors shall preside as chairperson at a general meeting of the company.
(b) If the board does not have a chairperson or, if the chairperson is not present within fifteen
minutes after the time appointed for holding the meeting or is unwilling to act, the
directors present shall elect one of their number to be chairperson of the meeting.
(c) lf a director is not present or willing to act, the members present shall choose one of their
number to be chairperson of the meeting
d. Adjournments of meetings
(a) The chairperson may, with the consent of the meeting at which a quorum is present, and
shall if so directed by an ordinary resolution passed at the meeting, adjourn the meeting
from time to time and from place to place, but a business shall not be transacted at an
adjourned meeting other than the business left unfinished at the meeting from which the
adjournment took place and an additional business of which due notice shall be given as
in the case of an original meeting.
(b) Where a meeting is adjourned for thirty days or more, notice of the adjourned meeting
shall be given as in the case of an original meeting.
(c) Subject to this section, and unless the registered constitution of a company otherwise
provides, it is not necessary to give notice of the adjournment of a meeting at which a
quorum was present, or of the business to be transacted at the adjournment.
e. Resolutions
Resolutions are binding decisions taken at meetings of a company.
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Types of Resolutions
i. Ordinary Resolutions
According to Paragraph 14(a) of the Eighth Schedule to the Companies Act, 2019 (Act 992), a
resolution is an ordinary resolution when it is passed by a simple majority of votes cast by the
members of the company who, being entitled so to do, vote in person or, where proxies are
allowed, by proxy at a general meeting.
Normally ordinary resolutions are passed to implement routine business matters of the company
such as approval of dividends, consideration of the remuneration of directors and conditions, the
appointment and removal of directors among others.
ii. Special Resolutions
According to Paragraph 14(b) of the Eighth Schedule to the Companies Act, 2019 (Act 992), a
resolution is a special resolution when it is passed by not less than three-fourths of the votes cast
by the members of the company who being entitled so to do, vote in person or, where proxies are
allowed, by proxy at a general meeting of which, notice specifying the intention to propose the
resolution as a special resolution, has been duly given.
Special resolutions are passed to implement decisions that are fundamental such as the alteration
of the name of the company, the business of the company, the winding up of the company, the
merger of the company, and the amalgamation of the company among others.
Special resolutions cannot be passed at a meeting of the company unless notice specifying the
intention to propose the resolution as a special resolution has been duly given.
In Baillie v. Oriental Telephone, at page 515 the court stated that:
“... special resolutions obtained by means of a notice which did not substantially put the
shareholders in the position to know what they were voting about cannot be supported,
and in so far as these special resolutions were passed on the faith and footing of such a
notice the defendants cannot act upon them.”
There can be no passing of a special resolution unless adequate details have been sent to
members in the notice at the meeting for which the special resolution will be passed. Directors
have a statutory duty to provide as much details as possible for shareholders first to decide
whether or not to attend meetings and having attended meetings to make informed decisions.
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iii. WrittenResolutions
1. Except as provided in subsection (5), a resolution in writing signed by all the members
for the rime being entitled to attend and vote on the resolution at a general meeting, or
being bodies corporate by the duly authorised representatives of the bodies corporate, is
as valid and effective, for the purposes of this Act as if the resolution had been passed at
the general meeting of the company duly convened and held.
2. Subsection (1) applies where the company has only one member entitled to vote.
3. A resolution described as a "special resolution" is a special resolution within the meaning
of this Act.
4. A resolution is passed on the date on which the resolution was signed by the last member
to sign, and where the resolution states a date as being the date of the signature by a
member, that statement is sufficient evidence that the resolution was signed by that
member on that date.
5. Subsections (1) and (4) do not apply to a resolution to remove an auditor, which can be
passed only at a general meeting in accordance with section 141, or to remove a director,
which can be passed only at a general meeting in accordance with section 176
f. Procedure on voting at meetings
a. Unless the registered constitution of a company otherwise provides, a resolution

put to vote at a meeting shall be decided on a show of hands unless a poll is,
before or on the declaration of the result of the show of hands, demanded by
(i) the chairperson,
(ii) at least three members present in person or by proxy, or
(iii) a member or the members present in person or by proxy and representing
not less than one-twentieth of the total voting rights of the members
having the right to attend and vote on the resolution.
b. A provision contained in the registered constitution of a company regarding
voting procedure is void in so far as it would have the effect,
(i) of excluding the right to demand a poll on a question ocher than the
election of the chairperson or the adjournment of the meeting; or
(ii) of making ineffective demands for a poll on a question which is made by
the persons specified in subparagraph (a) (i), (ii) or (iii).
c. The demand for a poll may be withdrawn.
d. On a show of hands, each member who is personally present and entitled to vote
and each proxy for a member entitled to vote shall have one vote.
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e. Unless a poll is effectively demanded, a declaration by the chairperson that a

resolution has, on a show of hands been carried, or carried unanimously, or by a
particular majority, or lost, and an entry to that effect in the book containing the
minutes of the meeting is conclusive evidence of the fact without proof of the
number or proportion of votes recorded in favour of or against the resolution.
f. If a poll is effectively demanded, it shall be taken at the time and in the manner
that the chairperson directs.
g. In place of directing that a poll shall be taken of those members present in person
or by proxy at the poll, the chairperson may direct that voting shall be by postal
ballot of the members entitled to attend and vote on the resolution.
h. For the purposes of subparagraph (g), ballot papers shall be served on the
members entitled to attend and vote on the resolution in the same manner as
notice of the meeting is required to be given to them, and the members may cast
their votes by personally completing the ballot papers or by having the ballot
papers completed by their proxies whose instrument of appointment has been
deposited, in accordance with subparagraph (e) of paragraph 9, not less than
twenty-four hours before the time appointed for the closing of the ballot.
i. Despite subparagraph (f) of this paragraph, a postal ballot in accordance with
subparagraphs (g) and (h) shall be directed by the chairperson if,
(i) the constitution of the company so provides, or
(ii) on, or after the chairperson has directed a poll, an ordinary resolution in
favour of a postal ballot under this subparagraph is moved at the meeting
and passed on a show of hands.
j. A postal ballot in accordance with subparagraphs (g) and (h) of this paragraph
shall be deemed to be a poll.
k. Except as otherwise provided in the registered constitution of a company, on a
poll each member entitled to vote shall have one vote for each share held by the
member and each member of a company limited by guarantee shall have one vote.
l. On a poll a member entitled to more than one vote, or a proxy representing more
than one member or a member entitled to more than one vote, need not, in voting,
use all the votes or cast all the votes the member uses in the same way.
m. Unless the registered constitution of the company otherwise provides, in the case
of an equality of votes, whether on a show of hands or a poll, the chairperson of
the meeting at which the show of hands takes place or at which the poll is
demanded is entitled to a second or casting vote.
Acting without a meeting
Even though members of a company constitute an organ of the company when they meet to
discuss matters relating to the business of the company, it is possible that, without meeting,
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members of a company may yet act as an organ of the company so as to bind it by their actions.
For this to be the case, however, all the members must act unanimously on the matter. Thus, a
unanimous decision by all members of a company outside of a meeting is as valid an act as if it
were taken at a meeting. Any decision so taken may be written or oral.
In Asafu-Adjaye v Agyekum (1984-86) 1 GLR 382, the respondent in this case was an
executive director of an engineering company. He was also a shareholder holding 500 shares in
the company. The appellants were the managing director of the company and the other directors
of the company. Later on the managing director and the other directors who were also
shareholders agreed to increase the amount of shares they held respectively so the managing
director became the majority shareholder. The respondent’s shares were also increased. The
respondent had a quarrel with the managing director over his performance at one of the weija
water works that the company was working on. The managing director called for a general
meeting which complied with the 35 days notice in which notice he stated as being the business
of the meeting a resolution to remove the respondent as an executive director of the company.
The respondent then promptly brought an action under sections 217 and 218 of the Companies
Code Act 179 for an injunction on the proposed meeting as well as for an order declaring that the
affairs of the company were being conducted in a manner oppressive to him. He also made
allegations of impropriety against the other directors. The respondent also sought to challenge
the increase in the shares held by the managind director and other directors on the basis that no
formal resolution was passed at a general meeting authorizing the increase in shares. However
this was not proven. At the time the respondent brought the action he had incorporated another
company which was competing with the business of the company in which he was a director.
The Court of Appeal of appeal held that although Act 179 contained many provisions
empowering or requiring certain matters to be effected or authorised by the passing in general
meeting of a particular resolution, it was established that all the shareholders acting together
could do anything intra vires the company, even though the Code specified a particular
procedure by which the thing might or was to be done. Thus it was perfectly within the power of
the members of the company to agree orally to issue shares without any resolution as in section
41 of the Code or alter the number of shares without any resolution to alter the company's
regulations as prescribed in section 57 of the Code.
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SHAREHOLDERS AGREEMENT
A shareholders’ agreement is an arrangement among the shareholders of a company. It contains

provisions regarding the operation of the company and the relationship between its shareholders.
A shareholders’ agreement is also known as a stockholders’ agreement. It protects both the
corporate entity and the shareholders’ investment in that entity.
A shareholders agreement is a unanimous decision by shareholders of a company with the right to

vote at a general meeting, regarding the administration and management of the company and taking
certain decisions in relation to the company. A shareholders agreement must be unanimous. It must
be an agreement done with the consent and concurrence of shareholders of a company who are
entitled to attend at a general meeting with a right to vote. The decision so taken is binding on the
company notwithstanding that no resolution has been passé to that effect.
Also, the agreement or the decision so taken is binding notwithstanding that it contravenes a
provision of the Company’s registered constitution.
The shareholders agreement can be used to sidestep procedures of the company as the case may
be which would still be valid. Therefore, in Salomon v. Salomon and Co. Lord Darvey held thus:
the company is bound in a matter intra vires by the unanimous agreement of its members.
The Unanimity Principle
The principle of shareholders agreement or unanimity principle was stated in absolute terms in the
case of In Re Duomatic Ltd. [1969] 2 Ch. 365.
In that case, the articles of Duomatic Ltd prescribed that director’s remuneration had to be
approved by the members. The company was formed in 1960 , with Elvins, Hanly and Mr. East as
directors of the Company. Due to the bad manner in which Hanly performed his duties, Elvins and
Mr. East decided to remove Hanly as director. However, he threatened that he will sue the company
should he be removed. Elvins and Mr. East therefore paid an amount of 4000euros to leave the
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company. He left the company, but transferred his shares to Elvins. Mr Elvins was a director of
the company and held the majority of the ordinary shares. Directors received salaries every year
without prior authorisation and then, at a general meeting, members had to approve it. In the
precedent year, Mr Elvins received a salary without any approval by the general meeting. The
Liquidators sought the repayment of the monies paid to Elvins and Hanly as salraries on the
grounds that no resolution was ever passed at a general meeting.
Issue: Did Mr Elvins act dishonestly and breached his fiduciary duties?
Held: Buckley J held that Mr Elvins did not act dishonestly. He had acted reasonably and ought
fairly to be relieved of liability to repay the agreed final year’s salary. However, judge held that
Mr Elvins was liable for another breach of duty: Mr Elvins and a co-director wished to dismiss a
third director, Mr Hanly, with whom they had a disagreement. Mr Hanly said that he was going to
sue the company and Mr Elvins, in order for Mr Hanly to not sue the company, offered him
severance payment of £4000. This was illegal because as Buckley J argued, Mr Elvins should not
have agreed to this payment without seeking legal advice to discover whether Mr Hanly actually
had any claim against the company. Since he had not sought legal advice, Mr Hanly had not acted
reasonably and ought not to be excused.
Buckley J explained Further thus:
I proceed upon the basis that where it can be shown that all shareholders who have a right to
attend and vote at a general meeting of the company assent to some matter which a general
meeting of the company could carry into effect, that assent is as binding as a resolution in
general meeting would be.
The broad principle has never been seriously questioned by the courts since. In EIC Services Ltd
v Phipps [2003] EWHC 1507 Neuberger J stated:
The essence of the Duomatic principle, as I see it, is that, where the articles of a company
require a course to be approved by a group of shareholders at a general meeting, that
requirement can be avoided if all members of the group, being aware of the relevant facts, either
give their approval to that course, or so conduct themselves as to make it inequitable for them
to deny that they have given their approval. Whether the approval is given in advance or after
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the event, whether it is characterised as agreement, ratification, waiver, or estoppel, and whether
members of the group give their consent in different ways at different times, does not matter.
Also, in Parker and Cooper v. Reading [1926] Ch 975, in an action by the company to challenge
the appointement of a receiver, it was argued that the resolution for the appointment was invalid
because there was no quorum and one of the directors present was interested in the taking out of a
debenture and ought not to have voted on the resolution. The defence argued that these facts had
been made known to the shareholders who had subsequently ratified it. The court held that where
the transaction is intra vires and honest, and especially if it is for the benefit of the company, it
cannot be upset if the assent of all the corporators is given to it.
Thus, the principle of law is that, if all the individual incorporators or members in fact assent to a
transaction intr vires the company, though ultra-vires the board, it is not necessary that they should
hold a general meeting in one room to express that assent simultaneously.
It is even worthy of note that the shareholders agreement of a company has the force of a special
resolution.
Accordingly, in the case of Asafo-Adjaye and ors. V. Agyekum [1984–86] 1 GLR 382–399.
In this case, the Respondent instituted an application at the High Court pursuant to section n 201
of the Companies Code, 1960 (Act 179), to restrain the company from going ahead to hold a
meeting which was purposely for the dismissal of the respondent as director. The Respondent and
the first and third appellants were the first shareholders and directors of the Company, Asakum
Engineering and Construction. They each had equal shares of 500. Respondent alleged that the
shares were later indiscriminately increased by which the first appellant held 11,000 shares, the
respondent 3,000 and the third appellant, 1,000 shares, by which time the respondent was then the
chief executive director of the company in charge of the Weija Irrigation Project Contract, and the
first appellant in charge of the Weija Waterworks contract.
The gist of the respondent's complaints adumbrated in his supporting affidavit is that (a) the
company had held only one meeting since its inception; (b) the company's affairs were not run on
business lines; (c) the annual returns were filed up to 1979; (d) the first appellant, without the
respondent's knowledge nor proper resolution of the board, increased his shareholdings to 11,000
contrary to their original verbal agreement that shareholdings should be equal between the
founding shareholders; (e) the first and third appellants attempted to transfer him from the project
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COMPANY LAW NOTES
he was handling to make him redundant [p.388] and to make way for them to get hold of the funds
of the contract when he brought the irregularities to their notice; (f) the first appellant diverted the
company's funds, materials and resources to build his private house estimated at ¢6 million whilst
the company’s indebtedness stood at over ¢4 million and £1million sterling; (g) the sixth appellant,
the accountant, siphoned funds estimated at ¢1.5 million to build his private house; (h) the sixth
appellant embezzled £10,000 sterling of the company's money; (j) the managing director (i.e. the
first appellant) abandoned the Water Development Projects; and (k) the managing director's
inaction enabled the sixth appellants to bolt away from Ghana without the company's funds being
retrieved.
The appellants denied these averments. The trial judge however gave judgement for the respondent
whereupon the appellants appealed to the Court of Appeal.
Ose Hwere J.A, in delivering on the requirements for variations in shares opined thus:
increased verbally but his plaint is that they should be increased equally among the founding
shareholders.
Although Act 179 contain many provisions empowering or requiring certain matters to be
effected or authorised by the passing in general meeting of a particular resolution, it is
established that all the shareholders acting together can do anything intra vires the company,
even though the Code specifies a particular procedure by which the thing, may or is to be
done. This principle was stated by Lord Davey in Salomon v. Salomon & Co. [1897] A.C. 22 at
57 when he said that "the company is bound in a matter intra vires by the unanimous agreement
of its members." Accordingly it has been decided: (a) that it is sufficient for all the members
informally to ratify an act of the directors without a meeting: Parker and Cooper Ltd. v. Reading
[1926] Ch. 975; (b) that it is necessary only that all the members entitled to vote should give
their assent: Re Duomatic Ltd. [1969] 2 Ch. 365; and (c) that the articles of association may be
altered by such an agreement of the shareholders, notwithstanding the provisions in section 10
of the Companies Act, 1948 that the alteration may be made by special resolution: Cane v. Jones
[1981] 1 All E.R. 533.
He further noted that: Thus it was perfectly within the power of the members of the company to
agree orally to issue shares without any resolution as in section 41 of the Code or alter the
number of shares without any resolution to alter the company's regulations as prescribed in
section 57 of Act 179. The only debatable issue before the trial court was as to whether or not
there was an agreement to allot those particular shares. This, like other matters, was left at
large by the absence of any oral evidence to support the claim in the respective affidavits. It was
therefore wrong for the learned judge, by a sweep of the pen, to proscribe the disputed shares
when the true position and ownership of the shareholding had not been debated at his forum.
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COMPANY LAW NOTES
In Cane v. Jones [1981] 1All ER 533.
In that case, the articles of association of a company provided that the chairman of the company
shall have a casting vote at each directors and shareholders’ meeting. In 1967, the defendants and
some two others decided that the chairman should no longer have a casting vote. The question was
whether the said unanimous agreement could override the articles of association.
The court held that the agreement once was made by a unanimous decision of the shareholders
was binding on the company in so far as it was intra vires the powers of the company
notwithstanding that same was in violation of the articles of association of the consapany.
Also, in Dhalomal v. Puplampu and ors. [1984-86] 1 GLR 341., OSei Hwere J.A once again
stated the law thus:
Decisions on the Companies Acts afford fertile examples of waiver of statutory requirements. It
is now firmly established that all the shareholders acting together can do anything intra vires
the company, even though the Acts specify a particular procedure by which the thing may, or is
to be done. This principle was stated by Lord Davey in Salomon v Salomon [1897] AC 22 at 57,
where he said that “the company is bound in a matter intra vires by the unanimous agreement
of its members.” It has been decided: (a) that where the directors are all the shareholders, a
board resolution passed with all the directors present is effective to bind the company,
notwithstanding that what is done is beyond the powers of the directors: Re Express Engineering
Works Ltd [1920] 1 Ch 466, (b) that it is sufficient for all the members informally to ratify an
act of the directors without a meeting: Parker & Cooper Ltd v Reading [1926] Ch 975; (c) that
it is necessary only that all the members entitled to vote should give their assent: Re Duomatic
Ltd [1969] 2 Ch 365; and (d) that the articles of association may be altered by such an agreement
of the shareholders, notwithstanding the provision in section 10 of the 1948 Act that the
alteration may be made by special resolution: Cane v Jones [1980] 1 WLR 1451.
FORM IN WHICH A MEMBER MAY EXPRESS HIS CONSENT
A shareholder may bind himself or herself to the unanimous agreement of all shareholders of the
company by his or her express acceptance or concurrence (through oral acceptance, signature or
written acceptance) or by conduct. Accordingly, in the case of EIC Services v. Phibbs Ltd. supra
Neuberger J stated:
The essence of the Duomatic principle, as I see it, is that, where the articles of a company require
a course to be approved by a group of shareholders at a general meeting, that requirement can be
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COMPANY LAW NOTES
avoided if all members of the group, being aware of the relevant facts, either give their approval
to that course, or so conduct themselves as to make it inequitable for them to deny that they have
given their approval. Whether the approval is given in advance or after the event, whether it is
characterised as agreement, ratification, waiver, or estoppel, and whether members of the group
give their consent in different ways at different times, does not matter.
However, for a shareholder’s conduct to constitute a valid assent, it must be overt. A mere internal
decision or silence on the part of the shareholder unaccompanied by an outward manifestation or
acquiescence will not constitute a valid assent. Consequently, Newey J in Rolfe v. Rolfe refused
to include a mere internal decision on the part of a member as constituting assent. In that case, he
indicated that there must be some positive overt acts which are suggestive that the member of the
company was so assenting. He stated that there must be some material from which an observer
copuld discern or could infer assent. Accordingly, the obejective test would be employed in so
making a determination.
In that same case, the learned judge stated that a where a members of a company holds shares
jointly, an assent by one of the member without the consent or assent of the other does not
constitute assent. In other words, where a member holds shares of a company and others as a
trustee, his assent is not thereby taken as
It is immaterial that consent is given simultaneously or at different times by the shareholders of

the company: EIC Services Ltd supra.
SPECIAL APPLICATION OF THE UNANIMITY PRINCIPLE
In circumstances in which all members are directors of the company, they can take decision at
directors’ meeting binding them in their capacity as members. In Dhalomal v Puplampu and
Others [1984–86] 1 GLR 341, Osei–Hwere JA held inter alia that ‘where the directors are all the
shareholders, a board resolution passed with all the directors present is effective to bind the
company notwithstanding that what is done is beyond the powers of the directors’.
Thus, a decision or resolution by the directors of a company at a board meeting binds the company
if all the directors are also all the shareholders of the company, notwithstanding that the said
resolution may be in excess of the powers conferred on the directors.
In Re Express Engineering Works Ltd [1920] 1 Ch 466. All 5 shareholders of a company

approved issue of debentures; according to articles, this had to be done at general meeting.
Company went insolvent, liquidator alleged issue of debenture was invalid as it had not been done
at general meeting. Held:
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COMPANY LAW NOTES
· Statute was for protection of shareholders.
· Thus given all 5 shareholders had unanimously decided to waive procedure in statute, issue
of debenture valid.
WAIVING STATUTORY REQUIRMENTS BY A UNANIMOUS SHAREHOLDERS

AGREEMENT
Sometimes, the Companies Act will dictate how certain matters relating to the company must be
effected. For instance, under section 30 of the Companies Act, the company can amend or alter its
constitution by passing a special resolution at a general meeting. Similarly, under section 144 of
the Companies Act, the company may act through its members in general meeting but before the
meeting could be held, it is a procedural requirement that notice of the meeting be sent to the
designated persons and the contents of the meeting be stated in the notice of the meeting.
Ordinarily, these statutory requirements are so compelling that the company must always comply
with them or its acts done contrarily be declared as an irregularity. This is because it is trite learning
that, where a law has expressly dictated or restricted the means/procedure by which certain acts or
transactions could be done, that act or transaction must be carried out in strict compliance with the
dictated or restricted means or procedure. This was succinctly underscored by Date-Bah JSC in
Dupaul Wood Treatment Services v. Asare., See Yeboah v. J.H Mensah, Edusei no.2 v.
Attorney General; Tularley v. Ababio.
In the context of company law, statutory requirements could be waived by a unanimous

agreement of the members of the company. Accordingly, Osei Hwere J.A in Dhalomal v
Puplampu and Others [1984–86] 1 GLR 341 (CA) noted as follows:
‘…Statutory provisions can be waived by shareholders’ agreement if (a) they have been enacted
solely for the benefit of the persons or class persons waiving them: Kok Hong v Leong Cheong
Kweng Mines Ltd [1964] AC 993 @ 1016 (PC); (b) they are procedural (and not substantive
provisions); the statute does not expressly prohibit waiver; and (d) the waiver is contrary to public
policy’ (emphasis added).
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COMPANY LAW NOTES
Exceptions to the Waiver of Statutory Requirements
Even though the Companies Act allows the shareholders of a company to unanimously sidestep
the requirement of a statutory provision in arriving at a decision on a particular matter, a statutory
requirement cannot be waived by the unanimous agreement of shareholders if:
1. A waiver of that statutory provision is expressly prohibited or against public policy;
2. It is of the kind that attracts sanctions or penalty when breached;
3. It concerns the removal of directors of a company under section 176 of the

Companies Act which requires the resolution for the removal to be passed at a
general meeting.
TYPES OF SHAREHOLDERS AGREEMENT
Shareholders’ Agreement comes in two forms: Formal, and Informal shareholders’ agreement.
A shareholders’ agreement is formal when members of a company unanimously assent to a formal

written agreement. Where all shareholders of a company assent to a formal written agreement, it
is deemed as a meeting of the company and thus binds all the members and the company. If any
decision is made based on formal shareholders’ agreement, it is considered as an act of the
company having a binding effect: Euro Brokers Holdings Ltd v Monecor (London) Ltd [2003]
EWCA Civ 105 (CA); In Re Timber and Transport Kumasi–Krusevac Co Ltd Zastava v Bonsu
and Another [1981] GLR 256 (HC).
In Euro Brokers Holding Ltd v. Monecor (London) Ltd [2003] EWCA Civ 105. In that case
clause 11 of the company’s shareholders agreement contained the requirements of the future
funding requirements of the company. The requirement was that such funding would be provided
by the shareholders of the company, and that if further funding was required to meet capital
adequacy requirements, the board of company should issue a notice to that effect. And that if a
shareholder failed to meet the call, the other shareholder would be entitled to provide all the
funding and require the declining shareholder to surrender or sell his shareholding in the company.
The plaintiff a sharehpolder of that company claimed specific performance of that provision on
the grounds that the defendant, another shareholder,failed to meet the call as agreed when notice
was issued in an email sent by the finance director to the defendant requiring additional capital.
The trial judge granted the specific performance whereupon the defendant appealed, but same was
dismissed. The court held that the Duomatic Principle was applicable in the circumstances, since
the said decision was taken uninanimously by the shareholders of the company.
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COMPANY LAW NOTES
The court further noted that where the shareholders have unanimously agreed not to comply with
strict compliance with formal procedures, it did not matter whether the procedures were stipulated
for in the articles of association or in the shareholders agreement.
Same Position was espoused in the case of In Re Timber and Transport Kumasi-Krusevec
co.Ltd Zastava v. Bonsu.
A written resolution is a formal unanimous agreement of all shareholders in the company. It is a

resolution signed by all the shareholders of the company at different respective places, instead of
signing same at a general meeting. The law is that such a resolution is binding on the company as
either an ordinary resolution or special resolution, except with respect to the provisions of section
141 and 176 as regards the removal of directors and auditors.
If the decision taken in the formal agreement contradicts the company’s registered constitution,
that agreement is deemed to have amended the constitution: Asafu–Adjaye v Agyekum [1984–86]
1 GLR 382–399.
A common form of formal shareholders’ agreement is written resolutions under section 163 of the
Companies Act. Section 163(1) of Act 992 is to the effect that except as to the provisions for
removal of auditors or directors as prescribed by section 141 and 176 respectively, a resolution in
writing signed by all the members for the time being entitled to attend and vote on such resolution
at a general meeting, or being bodies corporate by their duly authorized representatives, and if the
company has only one such member by the member is valid and effective for all purposes as if
same had been passed at a general meeting of the company duly convened and held.
INFORMAL SHAREHOLDERS AGREEMENT
A shareholders’ agreement is informal when members of a company unanimously assent to a

decision or concur on a matter without any formal written agreement or a general meeting. In Re
Duomatic Ltd [1969] 2 ChD 365 @ 373, Buckley J said this concerning informal shareholders’
agreement:
‘…where it can be shown that all shareholders who have a right to attend and vote at a general
meeting of the company assent to some matter which a general meeting of the company could
carry into effect, that assent is as binding as a resolution in general meeting would be’.
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COMPANY LAW NOTES
Similarly, in the cases of Asafu–Adjaye v Agyekum [1984–86] 1 GLR 382–399 and Dhalomal v
Puplampu and Others [1984–86] 1 GLR 341, Osei–Hwere JA, as he then was, said that:
‘…it is sufficient for all members of a company to informally ratify an act or transaction of the
company without a meeting and it is only necessary that only all the members entitled to attend
and vote at a meeting should give their consent or assent…’
See also Canes v Jones and others [1981] 1 All ER 533 (ChD).
STATUTORY PROVISIONS OF ACT 992 AS REGARDS SHAREHOLDERS

AGREEMENT
Unanimous agreement by shareholders
301. (1) Where all shareholders of a private company agree to or concur in any action which has
been taken or is to be taken by the company
(a) the taking of that action is deemed to be validly authorised by the company despite any
provision in the registered constitution of the company; and
(b) the provisions in any of the constitutions referred to in the Second, Third and Fourth Schedules
shall not apply in relation to that action.
(2) Without limiting the matters which may be agreed to or concurred in under subsection (1), that
subsection shall apply where all the shareholders of a private company agree to or concur in (a)
the issue of shares by the company;
(b) the making of a distribution by the company;
(c) the repurchase or redemption of shares in the company;
(d) the giving of financial assistance by a company for the purpose of, or in connection with, the
purchase of shares in the company;
(e) the payment of remuneration to a director, or the granting of a loan co a director or a member
or the conferral of any other benefit on a director or member;
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COMPANY LAW NOTES
(!) the making of a contract between an interested director or a member and the company;
(g) the entry into a major transaction; or
(h) the ratification after the event of any action which could have been authorised under this
section.
CLASS SHARES
First it must be recognized that, where the law uses “all shareholders or members”, it must not be
construed to mean that all shareholders or members should assent to the subject matter in respect
of which the agreement is made. “All Shareholders” means that (a) all equity and preferential
shareholders; (b) all equity shareholders only or a section of them; or (c) all preferential
shareholders or a section of them in the particular circumstances.
Shareholders’ agreement could exist between a class of shareholders or a section of that class of
shareholders of the company. However, that class of shareholders or the section of it must
unanimously agree (without any reservations) on the matter in respect of which the agreement is
being made.
A member of a class of shareholders who unequivocally withholds his or her consent to a

shareholders’ agreement shall not be bound by the agreement and accordingly cannot also claim
any right, benefit or privilege under the agreement. Again, the agreement cannot bind the company
and any other class of shareholders: Russell v Northern Bank Development Corporation Ltd and
others [1992] 1 WLR 588 (HL).
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COMPANY LAW NOTES
Thus, class shareholders’ agreement can only affect the rights of the members of that class of
shareholders who are parties to the agreement and not the entire membership of the company
ADVANTAGES OF SHAREHOLDERS AGREEMENT
1. There is flexibility especially where the registered constitution of the company is limited.
2. It protects the rights and interests of minorities since most company law remedies are
discretionary, a member who has only a minority shareholding may have no standing to
take a complaint to the court.
3. It can regulate special relationships not governed by the constitution, e.g. commercial and
technical matters.
4. It can be used to create specific classes of shareholders and the rights attached to those
classes: Harman v BML [1994] 1 WLR 893
5. It may be used to impose strict obligations and procedures on the exit of shareholders
from the company and the admission of new members. It may equally be used to
prevent involuntary transfer of shares so that only a certain category of individuals
will be accepted as shareholders.
6. It ensures confidentiality since such an agreement is not a public document.
LIMITATIONS OF SHAREHOLDERS AGREEMENT
1. Where the informal shareholders’ agreement is oral, it is difficult to prove (See Asafu–
Adjaye v Agyekum supra).
2. The unanimous agreement cannot be used to bind the company or shareholders not party
to the agreement as was held in Russell v Northern Bank Development Corporation Ltd
and others [1992] 1 WLR 588 (HL).
3. Once there is an express prohibition in a statute not to waive a provision in the statute, the
principle is ineffective.
4. In waiving statutory requirements, the principle is applicable where the procedure being
waived have been enacted for the benefit of those persons or class of persons waiving them
and thus cannot affect interest of other classes of shareholders.
Page 211 of 211

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MBOWURA JOSHUA & MARTIN WANA-ANG

COMPANY LAW NOTES

FORMS OF BUSINESS ORGANISATIONS

The association or company may be incorporated or unincorporated. An unincorporated

The following are the forms of business organisations:

The Registration of Business Name Act 1962 (Act 151)

a) the business name;

c) the principal place of the business;

Section 3—Statement to be Given by Person Registering.

The statement mentioned in section 2 of this Act shall be signed,

a) in the case of an individual, by the individual; and

Section 6—Changes in Particulars Registered.

Section 8—Penalty for False Statements

“Partnership means the association of two or more individuals carrying on business

1. Registration: All partnerships in Ghana must be registered at the Registrar of Companies

In In Re SasuTwum (deceased); SasuTwum v Twum [1976] 1 GLR 23, SasuTwum died

PUBLICATION OF FIRM NAME

 1) Every firm shall,

“Partnership means the association of two or more individuals carrying on business

Non-Corporate Membership: According to Section 3(1) of the Incorporated Private Partnership

(a) the remuneration of a servant or agent of a person engaged in business by a share of

5. Family ownership:According to Section 3(1) of the Incorporated Private Partnership Act

Whereas in a company, management is vested in the directors, in partnership there is no

7. No Limited or Dormant Partnership in Ghana:

Generally, a partnership may be ordinary or limited. In a limited partnership, the limited or

The following are prohibited from registering a partnership:

iv. persons of unsound mind

The effects of registration of partnership

ii. Corporate Personality

iii. Unlimited liability

iv. Perpetual Succession

It is a body corporate established by statute for a specific purpose. Upon establishment a

I. Statutory Corporations Act, 1964 (Act 232)

II. Statutory Corporations (Convention To Companies) Act, 1993 (Act 461)

i. become a body corporate by the name described in the certificate

ii. have perpetual succession

iii. have official seal

INCORPORATION OF COMPANIES IN GHANA

Companies Act, 2019 (Act 992)

Formation of a Company in Ghana

Section 2 of the BanksandSpecializedDepositTakingInstitutionsAct,2016(Act930) provides

The Right to Form Companies in Ghana

Process involved in forming a company in Ghana

Section 13 of the Companies Act, 2019 (Act 992) provides that:

(i) the present full name and any former name;

Error or Omission in Document

Incorporation under section 14

Section 14 of the Companies Act, 2019 (Act 992) provides that

Certificate of incorporation under section 15

In Dupaul Wood Treatment Ltd v Asare [2005-2006] SCGLR 667

Sophia Akuffo, JSC said:

Grounds for refusal of registration by the Registrar of Companies

PROMOTERS AND PRE-INCORPORATION TRANSACTIONS

The Relationship between the promoter and the company he promotes

is a breach of a fiduciary duty… It is similarly inappropriate to apply the expression to the

Thus a fiduciary relationship is one in which a person undertakes or is deemed to undertake to

Per Lord Cairns LC

2. Duty to Act in good faith

3. The duty to account

In Gluckstein v Barnes (1900) AC 240, a syndicate bought property intending to sell it to a

Per Earl of Halsbury L.C:

Lord Templeman: “A bribe is a gift accepted by a fiduciary as an inducement to him to betray

4. The duty to disclose personal interest in transaction