COMPANY AND PARTNERSHIP LAW

BBBA 306 (ADMIN 3)

ANSWER ALL QUESTIONS

50 Minutes
1. Which of the following is not a key distinction between a partnership and a
company?
a. The law under which each of them is registered
b. A company may have more than 20 members
c. A partnership must necessarily have, at least, two members
d. The existence of a fiduciary obligation
2. One of these is not a type of company under Act 992.
a. An internal company
b. A company limited by shares
c. A company limited by guarantee
d. An unlimited company
3. Upon incorporation, a company attains all these save one.
a. Perpetual existence
b. Artificial legal person status
c. Intent to make profit
d. Separate property
4.
5. The case of Salomon v. Salomon (1897) AC 22 basically espouses one of the
following principles associated with an incorporated company.
a. The incorporated company is capable of enjoying perpetual
succession.
b. The incorporated company acquires and maintains separate property.
c. An incorporated company may be a company limited by shares or
guarantee.
d. The incorporated company is a separate legal entity distinct from its
members.
6. Technically speaking, there is no doctrine of ultra vires under Act 992.
a. This statement cannot be true.
b. This statement is largely true.
7. One of these is a conclusive proof of incorporation of a company or
partnership firm.
a. Certificate of incorporation
b. Constitution of a company or partnership agreement
c. Commencement certificate
d. Gazetting
8. The consent by members for amendment of a partnership agreement may
be …
 a. express
b. implied
c. express or implied
d. unilateral
9. The case of In Re Sasu Twum (Decd); Sasu-Twum v. Twum [1976] 1 GLR 23
espouses which principle?
a. Rights under a partnership agreement can be accessed whether or
not the agreement is registered.
b. For rights under a partnership agreement to be accessed, the
agreement has to be registered.
c. A partnership agreement must necessarily be in writing.
d. A partnership agreement need not be registered.
10. Upon the incorporation of a partnership firm, it
assumes ……………………………………… distinct from the partners.
a. a full-fledged business status
b. a separate legal personality status
c. business control
d. a personal relationship
11. Partner A enters into a transaction in the name of S & O Ventures. What kind
of relationship can, basically, be said to have been created between Partner A
and S & O Ventures?
a. A business relationship
b. A fiduciary relationship
c. A partnership relationship
d. An agency relationship
12. Comfort, Asiedu, Ruby, and 19 other friends of theirs have decided to come
together to form a partnership. Which of the following statements is true?
a. Their partnership is likely to be very strong since they bring on board
different expertise and a lot of resources.
b. Distribution of profits may create problems due to their large number.
c. It may be very difficult for them to draft a partnership agreement because
such many people may disagree on several issues.
d. The law does not permit them to form a partnership because of their
number.
13. Under the doctrine of ultra vires under Act 992, when a company enters into
a contract contrary to the objects of the company stated in its constitution,
a. such a contract will nevertheless be valid
b. such a contract will not be valid
c. such a contract will have to be re-entered into appropriately
d. such a contract cannot bind the company
14. A body corporate cannot form a partnership with a natural person.
a. False
b. True
15. Partners share profit. So inasmuch as profit is shared, family ownership of a
property can create a partnership.
 a. True
b. False
16. Kofi is a limited partner in S & O Ventures. This means
that ……………………………………..
a. Kofi contributed more money towards the partnership business than any
other partner
b. Kofi controls decision making in the partnership business
c. Kofi does not involve himself in the management of the partnership
business
d. Kofi can cause the winding up of the partnership since he contributed the
biggest amount of money
17. One of the following statements is false.
a. After issuance of a certificate of incorporation by the Registrar, an
aggrieved person shall be able to bring proceedings in court to
cancel or annul the incorporation.
b. A certificate of incorporation is conclusive evidence that a company
has been duly incorporated.
c. A copy of certificate of incorporation, which is duly certified as correct
by the Registrar, is conclusive evidence that a company has been duly
incorporated.
d. After issuance of a certificate of incorporation by the Registrar, no
proceedings shall be brought in court to cancel or annul the
incorporation.
18. After a company comes into existence, it has the right to approve or affirm
any transaction entered into by the promoter of the company. This process of
approval or affirmation is termed as ………………………
a. incorporation
b. ratification
c. registration
d. fiduciary obligation
19. Where there is a breach of a promoter’s fiduciary obligation towards the
company, one of the following is not a remedy opened to the company.
a. Action for compensation against the promoter
b. Rescission of contract entered into by the promoter
c. Action to recover secret profit made by the promoter
d. Action for injunction against the promoter
20. A company is entitled to ratify a contract entered into by a promoter in one
of the following ways.
a. By all the members of the company
b. By the company at a general meeting
c. By the Board of directors of the company
d. By the officers of the company
21. Since a promoter, basically, acts or does things on behalf of a company, it is
legally right to describe him as an agent of the company.
a. True
 b. False
22. Termination of a person’s membership of a partnership firm can be secured
by an order of the High Court upon the occurrence of one of the following.
a. Upon the death of the person
b. Where circumstances have arisen which, in the opinion of the court,
render it just and equitable that the partner should cease to be a
partner of the firm
c. When insolvency order has been made against the said partner under
the Insolvency Act, 2006 (Act 708)
d. When the partner has become an alien or enemy during a time of
war
23. When there is only one partner of a partnership firm left, he has up
to ………………….. within which to admit any other person or persons into the
partnership firm or take steps to wind up the firm.
a. one year
b. one month
c. six months
d. three months
24. The corporate veil may be “lifted” by a court of law except
when ……………………….
a. public policy is to be protected
b. a company tries to avoid legal obligations
c. fraud is suspected
d. the promoter breaches his fiduciary obligation
25. Partnership Agreement is to partnership while ……………………….. is to a
company.
a. Shareholding
b. Constitution
c. Statement in the prescribed form
d. Prescribed Form
Use the facts pattern below to answer questions 26-27
Vincent is engaged in the registration of a company and he has been running around
speaking to people he trusts to agree to fill positions of directors, company secretary,
auditor, and so on. He wants to enter into a contract for the purchase of land to be
used by the proposed company. The land actually belongs jointly to his uncle and
himself. He thinks he will need the legal assistance of his lawyer friend Odame to
conclude the contract of sale and for advice on some aspects of the registration
procedure. Lawyer Odame assists.
26. Lawyer Odame is not a promoter for the proposed company
because ………………..
a. he only acts in his professional capacity as a lawyer for Vincent
b. he can only be a promoter with the authorization of Vincent
 c. he is not interested in forming or procuring the formation of a
company
d. his profession does not allow him to be a promoter
27. In what way can Vincent be in breach of his fiduciary obligation as a
promoter?
a. He chose to rather use his friend instead of using someone who would
be objective.
b. He sold his own land to the proposed company.
c. If he failed to disclose his interest in the land sale contract to the
company.
d. He sold to the company land belonging to himself and his uncle.
28. Lawyer Odame, by reason of his being a lawyer, can never be a promoter.
a. False
b. True
29. Under section 21 of Act 992, a private company unlimited by shares shall
have which last words following its name?
a. PUC
b. PLC
c. PRUC
d. LTD
30. In an application for incorporation of a company, which of the following
category of persons is required to attach a statutory declaration?
a. Proposed director
b. Proposed auditor
c. Proposed company secretary
d. Subscriber

Company Law Assignment

Answer All Questions (with the aid of Relevant Case Law
and Provisions of the Companies Act Where Applicable)
1. What is a company?
A company may be referred to as a body formed and registered under the Companies
Act, 2019 (Act 992). A company refers to a legal entity formed which has a separate
legal identity from its members, and is ordinarily incorporated to undertake
commercial business. Although some jurisdictions refer to unincorporated entities as
companies, in most jurisdictions the term refers only to incorporated entities.

What the types of company and explain

1. A company limited by shares
2. A company limited by guarantee
3. An unlimited company
4. An external company

1. Company limited by shares

Section 7(2)(a) of Act 992 states that a company limited by shares is a company
which has liability of its members limited to the amount unpaid on the shares
respectively held by them.
If therefore the shares have been fully paid, then the holders of the said shares incur
no further liability for the debts of the company.

2. COMPANY LIMITED BY GUARANTEE

Section 7(2)(b) of Act 992 defines a company limited by guarantee as 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.
Companies limited by guarantee are not supposed to be used for trading. They also do
not have shares. Such companies are used for the promotion of charitable or social
causes such as NGOs
Section 8(1) of Act 992 provides that A company limited by 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.

3. UNLIMITED COMPANY
Section 7(2)(c) of Act 992 provides that an unlimited company is a company which
does not have a limit on the liability of its members.
In an unlimited liability company, the members of the company are personally liable
for all the debts and liabilities so incurred by the company

4. EXTERNAL COMPANY
An external company according to Section 329(2) of Act 992 is a body corporate
formed outside Ghana which has established a place a business in the country.

PRIVATE COMPANY
A private company is a company which by virtue of its constitution:
Restricts the right to transfer the shares of the company if any
Limits the total number of members and debenture holders to fifty (not including
employees)
Prohibits the company from making an invitation to the public to acquire shares or
debentures of the company

PUBLIC COMPANY
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.

2. What is the legal effect of a registered constitution?

Companies Act, 1963 (Act 179), the Companies Act 2019 grants companies the
option to file a registered constitution upon registration with the Registrar of
Companies. The constitution would be signed by one or more members or the
Company Secretary and may either be delivered to the Registrar before incorporation
or filed after incorporation. The constitution contains the specific objects and
regulations of the company as well as matters specific to the company and its
operations. Should a company fail to file a constitution with the Registrar of
Companies, the standard constitution contained in the Schedule to the Bill would be
applied to that company. Companies formed for special purposes or that operate in
highly regulated industries such as telecommunications, oil and gas and financial
services and banking are required to file written copies of their constitution with the
Registrar of Companies which would restrict their objects specific to the compliance
requirements for the specific industries in which they operate. Section 29 of the
Companies Act provides that a constitution has the effect of a contract under seal
between:
The company on one hand, and each member or officer of the company on the other
hand
The members or officers of the company themselves in which they agree to observe
and perform the functions stated in the constitution to the extent that the said
functions relate to the company, the members or the officers.

Example Case;
HICKMAN vrs KENT (1915) 1 CH. 881. In this case the Articles of a company
(similar to constitution) provided that all disputes of the company must be resolved by
arbitration. Hickman brought an action in court against the company. The company
asked for a stay of the proceedings and the court granted it. The Court was of the
opinion that the articles formed the basis of the agreement between the company and
its members in their capacity as members. Since the matter in dispute related to
membership duty, Hickman was bound to refer the case to arbitration.

Example Case;
ELEY V POSITIVE GOVERNMENT SECURITY LIFE ASSURANCE CO LTD
(1876) 1 EX D 88. In this case, the articles of the company concerned had a provision
which said that Mr Eley was company’s solicitor for life. He had been company’s
solicitor for some time and then company decided to dismiss him from his position.
Mr Eley sought to take a legal action against his dismissal. He argued that the
company breached the contract where it said that he would be solicitor for life.
There was some debate as to whether he was a member or shareholder, because if he
was not a shareholder then he would not be able to sue because the contract was with
the insiders and not with the outsiders. He was claiming the court to recognize that his
dismissal was a breach of contract. The Court held that being a company’s solicitor
did not in fact mean that he was a shareholder. In order to be a shareholder, you
should have the rights that shareholders usually have such as voting and getting a
dividend. Being company’s solicitor is not a right that any shareholder can have as a
member. Equally, being company’s accountant, is not a membership right.
Accordingly, he could not sue.

3. What are the essential requirements for incorporating a company in

Ghana?
To register a company limited by shares, the basic requirements are as follows;
I. Name of the company.
II. Nature of business.
III. Address of the company.
IV. Stated Capital.
 V. Email address and telephone number for the company.
VI. TIN of directors, shareholders, company secretary and auditors.

I. Type of company.
II. Incorporation date.
III. Financial year-end.
IV. Registered address (main office)
V. Number of directors.
VI. Company name.
VII. Whether the company name will be the registration number.
VIII. The reserved name and reservation number.

What is a director or the meaning of a director

The term director is not fully defined under the Companies Act
Also Section 170(5) of the Companies Act provides that where a person who is
described as a director of a company whether the description is qualified by the word
local, special, executive or in any other way shall be deemed to be held out as a
director of the company
Section 171 of Act 992 provides that every company shall have at least 2 directors.

QUALIFICATION OF DIRECTORS
The Companies Act provides that the following persons are not qualified to be
appointed as directors of a company:
an infant;
a person adjudged to be of unsound mind;
a body corporate;
a person who is prohibited from being a director or promoter of, or being concerned
or taking part in the management of a company as a result of an order made under
section 177 so long as the order remains in force unless leave to act as director has
been granted by the Court in accordance with that section;

DISQUALIFICATION OF DIRECTORS (DISQUALIFICATION BY COURT)

Section 177(1) of the Companies Act provides that in the following circumstances
the following persons shall not without leave of court be a director of a company:
Where a person is convicted in Ghana or elsewhere of:
an offence involving fraud or dishonesty,
an offence in connection with the promotion, formation or management of a body
corporate,
an offence involving insider dealing, or
any other criminal offence which is not a misdemeanour;
Where a person is adjudged bankrupt whether in the Republic or elsewhere;

TYPES OF DIRECTORS
1. DE FACTO DIRECTORS:
The de facto director is a person who, despite the fact that he lacks valid appointment
to a directorship acts as if he was a de jure director.
Outsiders perceive the de factor director as a validly appointed director, as he or she
openly acts as the person responsible for carrying out those tasks integral to the
director’s routine.
 2. SHADOW DIRECTOR:
A Shadow Director means a person in accordance with whose instructions or
directions the directors of the company are accustomed to.
A shadow director is the person, usually hidden in the background, who pulls the
strings and dictates the implemented policies to the actual directors.
3. SUBSITUTE DIRECTORS:
Section 180 of the Companies Act provides that a substitute director is one who is
appointed to act as a deputy for another named director and as the substitute in the
absence of that director.
4. ALTERNATE DIRECTORS:
This form of a director is appointed by an existing director to act in his absence,
unless the Constitution of the company prohibits such an of appointment. The
appointment must be done by the appointor and accepted by the appointee in writing
and lodged with the company.
5. EXECUTIVE DIRECTORS
An executive director is one who holds office or a place under the company other than
the office of the auditor. Thus he holds the position as a director and another position
in the company which isn’t one of an auditor. Thus a DIRECTOR who also serves as
the Managing Director, production or sales manager etc is an EXECUTIVE Director.
6. MANAGING DIRECTOR
He is one to who whom the directors have entrusted to and conferred on any or all
powers exercisable by the directors with such terms and restrictions that the board of
directors deem fit.

QUORUM FOR MEETINGS

A business shall not be transacted at a general meeting unless a quorum of members is
present at the time when the meeting commences. P.8(a)
A quorum refers to the number of members required to be present at the meeting
venue within a specified waiting period after the notified commencement time of the
meeting before the meeting can properly commence.

PROXIES
A member of a company entitled to attend and vote at a meeting is entitled to appoint
another person, whether a member of the company or not, as a proxy. P 9(a)
This does not apply in case of a company limited by guarantee unless the registered
constitution otherwise provides.

TYPES OF RESOLUTIONS

Ordinary resolutions :
A resolution passed by a simple majority of votes cast by members entitled to vote at
a general meeting. 14(a)

Special resolutions:
A resolution passed by not less than three-fourth of votes cast by members entitled to
votes at a general meeting of which notice specifying the intention to propose the
resolution as a special resolution has been duly given.
 4. Who is a promoter?
According to Section 10(1) of the Companies Act a promoter is a person who is or has
been engaged or interested in the formation of a company.
A promoter can also be defined as any person who complies with the necessary
formalities of company registration, finds directors and shareholders for the new
company, acquires business assets for use by the company, and negotiates business
contracts on behalf of the company and the like.

Example;
Cockburn, C.J. in the case of TWYCROSS VRS GRANT (1877) 2 CPD 469 in
explaining who a Promoter is said that “a promoter I apprehend is one who undertakes
to form a company with reference to a given project and to set it going and who takes
the necessary steps to accomplish that purpose”.

5. What are the duties and possible liabilities of a promoter?

Legal position;
A promoter is neither a trustee nor an agent of a company. This is due to the fact the
promoter performs his or her duties when the company is not in existence.
A suitable way to describe a promoter’s legal position is that the promoter stands in a
fiduciary position towards the company which is yet to be formed.

Example;
Lord Cairns stated the legal position of a promoter in the case of ERLANGER VRS.
NEW SOMBRERO PHOSPHATE COMPANY (1878) 3 App Cas 1218. He stated
that “the promoters of a company stand undoubtedly in a fiduciary position. They
have in their hands 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
into existence and begin to act as a trading corporation.”
In Ghana, Section 10(3) of the Companies Act provides that prior to the formation of
a company being complete and prior to the working capital of the company being
raised, a promoter shall:
Stand in a fiduciary relationship to the company
Observe utmost good faith towards the company is a transaction with the company or
on behalf of the company.

Duties of a promoter;
Compensate the company for any loss suffered by the company.
the promoter must not make secret profit. It is the promoter’s duty to disclose all
money secretly obtained by way of profit.

Example;
GLUCKSTEIN V. BARNES (1900) AC 240. In this case, a syndicate of persons
bought ‘Olympia’ (an amphitheatre) and sold this to a company promoted by them
and made secret profit of £20,000.00 not disclosed in prospectus. It was held profit of
£20,000.00 is a secret profit and promoters are bound to pay it to the company
because the disclosure was not sufficient.
  Duty to disclose all material facts: A promoter must disclose all material facts
and information concerning his functions associated with the yet to be formed
company.
 Duty to disclose interest in a transaction: The Promoter has a duty to disclose
to the company (when it is eventually formed) any interest which he or she has
in a transaction entered into or proposed to be entered into. Such disclosures
must be made to the company in full.

Liabilities of a promoter

 Liability to account in profit: A promoter is liable to account to the company

for all secret profits made by him or her without full disclosure to the
company.

 Personal liability: A promoter will be personally liable for all contracts made
by him on behalf of the company until such contracts have been discharged or
the company takes over the liability of the promoter.

 Liability for mis-statement in the prospectus: Section 313(2)(b)(ii) of the

Companies Act provides that a promoter of a company who was a party to the
preparation of the prospectus is liable to pay compensation to every person
who subscribes for any share or debentures on the faith of the prospectus for
any loss or damage sustained by reason of an untrue statement in the
prospectus

6. What is the ultra vires doctrine and how has it been modified under Act
992?
The Doctrine of Ultra Vires is a fundamental rule of Company Law. It states that the
objects of a company, as specified in its Memorandum of Association [Constitution],
can be departed from only to the extent permitted by law. Hence, if the company does
an act, or enters into a contract beyond the powers of the directors and/or the company
itself, then the said act/contract is void and not legally binding on the company.

Example;
Ashbury Carriage Company vrs Riche (1875) LR 7 HL 653
Under Act 992, Section 19 (1) 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.

7. What are the main differences between a private company and a public
company?
A private company is a company which by virtue of its constitution:
Restricts the right to transfer the shares of the company if any
Limits the total number of members and debenture holders to fifty (not including
employees)
Prohibits the company from making an invitation to the public to acquire shares or
debentures of the company. Prohibits the company from making an invitation to the
public to deposit money for fixed periods or payable at call, whether or not bearing
interest. And Public company is not a private company is a public company except a
company limited by guarantee which has a membership of fifty or less.

8. State and explain 2 major differences between an AGM and an EGM

The AGM shall be held no earlier than 21 days after the company provides its Profit
and Loss Accounts, Balance sheets, auditor’s report, etc. to members and debenture
holders.
The law provides for members and auditors to agree in writing to dispense with
holding an AGM in any year.
AGMs are usually convened by the company through its directors.
In other circumstances an AGM can be convened by the Registrar General( s.157(6))
or by an order of the Court. s162. And
An EGM of a company is a meeting, other than an AGM, convened by the directors
of a company whenever they deem fit. S.158, or upon requisition by shareholders.
S299
Directors of a private company shall convene an EGM on requisition by two or more
members or a single member holding not less than one-tenth shares. S.299(a).
In the case of a Company limited by guarantee, two or more members or a single
member holding not less than one-tenth of the voting rights. S 299(b)
The directors of a company must within 7days from the date of receipt of requisition
at the registered office convene a meeting for a date not later than 28 days. S.299(3)

partnership Agreement
 Dispute resolution clauses
 Retirement
 Expulsion
 Option to purchase share of outgoing partner
 Capital
 Property
 Insurance
 Definition of goodwill
 Bank details, cheque signing
 Procedure for amending the agreement

9. Briefly state the facts and company law rules/principles laid down by the
courts in the following cases:
a. SALOMON VRS SALOMON (1897) AC 22
FACTS.
Salomon transferred his business of boot making, initially run as a sole proprietorship,
to a company (Salomon Ltd.), incorporated with members comprising of himself and
his family. The price for such transfer was paid to Salomon by way of shares, and
debentures having a floating charge (security against debt) on the assets of the
company. Later, when the company’s business failed and it went into liquidation,
Salomon’s right of recovery (secured through floating charge) against the debentures
stood aprior to the claims of unsecured creditors, who would, thus, have recovered
nothing from the liquidation proceeds.

To avoid such alleged unjust exclusion, the liquidator, on behalf of the unsecured
creditors, alleged that the company was sham, was essentially an agent of Salomon,
and therefore, Salomon being the principal, was personally liable for its debt. In other
words, the liquidator sought to overlook the separate personality of Salomon Ltd.,
distinct from its member Salomon, so as to make Salomon personally liable for the
company’s debt as if he continued to conduct the business as a sole trader.
RULING.
The Court of Appeal, declaring the company to be a myth, reasoned that Salomon had
incorporated the company contrary to the true intent of the then Companies Act, 1862,
and that the latter had conducted the business as an agent of Salomon, who should,
therefore, be responsible for the debt incurred in the course of such agency.

The House of Lords, however, upon appeal, reversed the above ruling, and
unanimously held that, as the company was duly incorporated, it is an independent
person with its rights and liabilities appropriate to itself, and that “the motives of
those who took part in the promotion of the company are absolutely irrelevant in
discussing what those rights and liabilities are”.3 Thus, the legal fiction of “corporate
veil” between the company and its owners/controllers4 was firmly created by the
Salomon case.

b. MACUARA VRS NORTHERN ASSURANCE

COMPANY (1925) AC 619
Facts:
The owner of a timber estate sold all the timber to a company in which he owned
almost all the shares. He insured the timber against fire policies. The timber was
destroyed by fire and Macaura sought to recover the money from the insurance
company.
RULING;
The Court of Appeal held that M had no insurable interest in the tinder. The House of
Lords dismissed the appeal. It was argued that no shareholder had any right to any
item of property owned by the company because he had no legal or equitable interest
therein. Neither a simple creditor nor a shareholder in a company had any insurable
interest in a particular asset which the company held.

c. TWYCROSS VRS GRANT (1877) 2 CPD

Lord Coleridge, C.J., found that it was necessary to see if the contracts entered by the
defendants were entered as promoters and also, it was necessary to see if it was
intentionally concealed. He had also left some question to the jury which were as
follows:

1. Were the defendant’s promoters of the company?

2. Were the contracts made by the defendants?
3. Was the prospectus issued by the defendants?
4. Did the plaintiff buy the shares depending on the statements of the prospectus?
 5. Did the defendants knowingly omit the mentioning of existence of such
contracts?
6. Were the contracts important for the plaintiffs to be known to?
7. Did the contracts deal with affairs of the company?
8. Did the defendants know that once the company was formed, it would pay
from the company’s fund, for the expenses arising under the contract?
9. Had the existence of contracts been disclosed, would it have affected the
plaintiff in his decision to buy the shares?
10. Did the plaintiff have any notice of existence of such contracts?
11. Was the existence of fraud intentionally suppressed?
RULING
Here, the argument forwarded by Kelley CB, based on a literal interpretation of
Section-38, is harmful to the functioning of law. Such grammatical/literal
interpretation would provide a single promoter to exploit the loophole created by
Kelly CB. Therefore, the decision of the majority and more specifically, the
decision of Cockburn CJ is to be understood and implemented. As Section-38 was
a relief provision, broad interpretation was provided. Further, the requirement as
to the adoption of the promoter’s contracts by the company was not required. The
main purpose of the Section was to preserve the rights of the shareholder. The
case has also been able to put a light on the importance of full disclosure in the
prospectus, inviting for shares. The case has been referred by other cases, so as to
determine the liability of promoters, who had entered into contracts on behalf of
the company.[13]

The case has helped to prove that a promoter holds a stringent fiduciary duty to
the company.[14]For a company, which is insolvent during the issuance of shares,
the measure of damages to be provided to the shareholders, is not seen to be the
full purchase price,[15]even in the present, provided that the person was provided
with all important information and still chose to buy the shares. But, when shares
are taken fraudulently, by concealment of contracts entered into by the company,
directly or through promoters, the damages provided are in full of the payment
made for the subscription of shares. Therefore, the case at hand has paved a path
from other cases to correctly interpret Section-38 and protect the interests of the
shareholders from fraudulent activities.

d. BEATTIE VRS BEATTIE [1938] Ch. 708

A company brought legal proceedings against one of its directors, who was also a
member of the company, concerning his conduct as a director. He sought to enforce
the arbitration clause and refer the dispute to arbitration. To do this, he had to prove
that the proceedings were covered by an agreement in writing to submit present or
future disputes to arbitration. His argument was that the proceedings were covered by
a provision in the company’s articles that any dispute between the company and a
member was to be referred to arbitration.
RULING
CoA ruled that the arbitration article did not apply to a member’s activities as a
director, because the articles were an enforceable contract only in relation to
membership rights.

e. GLUCKSTEIN V. BARNES (1900) AC 24

 Gluckstein and 3 others allegedly purchased property for £140,000 and then
promoted a company to which they on-sold the property for £180,000.
These persons then made up the first directors of the newly formed company.
They disclosed the £40,000 profit, but not another £20,000 profit as they originally
purchased the land for £120,000 and not £140,000.
The House of Lords held that the syndicate had breached their fiduciary duties and
were liable to account to the company for the secret profit that they had made as the
company lacked independent directors.

f. ELEY V POSITIVE GOVERNMENT SECURITY LIFE ASSURANCE CO

LTD (1876) 1 EX D 88
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.
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.
RULING
In the Court of Appeal, Lord Cairns LC affirmed the decision and held, Mr Eley had
the right to sue only in his capacity as member, not as solicitor. His brief judgment
was as follows.
I wish to say, in the first place, that in my opinion a contract of the kind
suggested to exist in this case ought not to receive any particular favour from the
Court. The statement is that Baylis was endeavouring to form a joint stock insurance
company upon a new principle, and applied to the plaintiff to make advances to meet
the expenses of setting up the company, and it was arranged between them that in the
event of the company being formed the plaintiff should be appointed permanent
solicitor to the company. That is to say, a bargain is made between a professional man
and Baylis which, so far as the case is concerned, does not appear to have been
communicated to those who were invited to join the company, that if the former will
advance money for the formation of the company, he shall be appointed permanent
solicitor, and the company shall be obliged to employ him as their professional
adviser. When the articles are prepared, they are so by the plaintiff, and in them he
inserts a clause which no doubt informs those who signed the articles of the
arrangement, but does not appear to have been brought to the notice of those who
joined from receiving circulars. This, I repeat, is not a proceeding which the Court
would encourage in any way.
I also wish to reserve my judgment as to whether a clause of this kind is
obnoxious to the principles by which the Courts are governed in deciding on
questions of public policy; but it does appear to me a grave question whether a
contract under which a solicitor is not bound to give any particular services, but the
company, on the other hand, are bound to employ him for all their business, and to
continue to do so, however incompetent he may prove to be in point of physical health
or otherwise, until they can convict him of some positive misconduct, is a contract
which the Courts would enforce. I prefer to reserve my judgment on the validity of
such an agreement until a case arises which calls for a decision on that point.
 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.
The matter has been put in another way. It is said, this, though not an agreement
in itself, is at all events a statement of what had been agreed upon; it must have been
intended to be brought to the plaintiff's knowledge, he has accepted and acted upon it,
and therefore it is evidence of another agreement on which he can rely. Now it may be
considered that Art. 118 would have warranted the directors in entering into an
agreement with the plaintiff by which they should contract to employ the plaintiff; but
I ask, was such a contract ever made? A joint stock company may act under their seal,
or by the signature of their directors, which may have equal effect as their seal, or
possibly by a resolution of the board. Nothing of the kind exists here; and if the article
is not an agreement on which the plaintiff can rely, there is nothing in the case before
us but the fact of his employment, and that would entitle him to remuneration only for
work he has done. This seems to us to dispose of the whole of the case; and I think
that, irrespective of any question on the Statute of Frauds , the judgment of the Court
below must be affirmed.

g. BAGNALL VRS CARLTON (1877) 6 CH D 371

Agents for a prospective company who made secret profits out of a contract made by
the company were held to be ‘trustees for the company’ of those profits
James, Baggallay and Cotton LJJ
RULING;
A proprietary remedy against Fraudulent Agent
The Court was asked whether a bribe or secret commission received by an agent is
held by the agent on trust for his principal, or whether the principal merely has a
claim for equitable compensation in a sum equal to the value of the bribe.

h. GILFORD MOTOR CO. VRS HORNE (1933) CH 935

Mr Horne was a former managing director of Gilford Motor Home Co Ltd

(Gilford).
His employment contract prevented him from attempting to solicit Gilford’s
customers in the event that Horne left Gilford’s employ.
Horne was fired and he subsequently set up a competing company which
undercut Gilford’s prices.
Gilford did not have any legal restraints upon Horne’s company, only Horne
himself.
Gilford commenced proceedings against Horne individually, claiming that
Horne’s company was an attempt to evade legal obligation (not soliciting customers).
RULING
The English Court of Appeal held that the company was set up to evade Horne’s
contractual obligations.
The Court “pierced the corporate veil” and ordered an injunction against Horne.
Courts can “pierce the corporate veil” if a company is simply a mere device to
evade legal obligations, though this is only in limited and discrete circumstances.

i. LUGUTERAH V NORTHERN ENGINEERING CO. LTD [1980] GLR 62

In Luguterah v Northern Engineering [1978] GLR 477 the court made a distinction
between an act which is ultra vires by the company and an act which is ultra vires the
directors. It held that members cannot ratify an act by the company which is ultra
vires.

after hearing arguments of counsel for the parties I adjourned the application for a
considered ruling this morning as in my opinion the points for decision in this
application are very important for the proper administration of justice. This is a
motion on notice filed on 14 September 1978 praying for interlocutory orders as
follows:

(i) That the extraordinary general meeting of 7 September 1978 [of the N.E.C.] was
invalid, its decisions invalid and resolutions passed thereon and thereat are invalid and
all appointments made thereat are null and void and of no effect.

(ii) That the applicant and Mr. Ziblim Andan remain the lawful directors of the
Northern Engineering Co., Ltd. and that any decision taken or to be taken by Messrs.
C. K. A. Djokotoe, D. A. Mensah, T. B. Frimpong and L. K. Djokotoe as directors of
the Northern Engineering Co., Ltd. are null and void and of no effect.

j. ADEHYEMAN GARDENS VRS. ASSIBEY (2003-2004) SCGLR 1016

The appellant and the respondent incorporated a company, however a conflict
developed between them, owing to the appellant insisting that the respondent had not
paid the entirety of his shares. Further, the respondent was repeatedly notified that
because he had not paid for his shares, he was only a "nominal shareholder" and that
he must pay twenty per cent of the current net value of the company's assets, in order
to become a legitimate shareholder. The appellants also filed a form of notification to
the company’s registry for a change of directors and the appointment of five new
directors. However, this notification was done in contradiction with s181 and 272 of
Act 179, and the company regulations, as no shareholders' resolution was exhibited,
these appointments were not made by the shareholders in a general meeting. Thus, the
respondent brought an action against the company for, inter alia, a declaration that he
was a legitimate (fully paid-up) member-shareholder and a director of the company.
RULING
The Supreme Court held for the respondent on the grounds that section 30 of Act 179
provides that there are two kinds of members of a company:
(1) By subscribing to the regulations at the company’s inception;
(2) Agreeing to become a member after the company came into existence. Therefore,
the membership of a subscriber was not established on full or partial payment of the
consideration for the shares taken.