Kwame Nkrumah University of

Science & Technology, Kumasi, Ghana

MAS 354

Company Law II
UNIT 1: HISTORY, NATURE AND SCOPE OF COMPANY LAW

Oswald K. Seneadza

Jan 2014
 HISTORY, NATURE AND SCOPE OF COMPANY LAW

(A) HISTORY
 The development of Company law in Ghana is linked
with the historical development of Company law in
Britain.
 Ghana’s company law has been shaped and
influenced by the 1844 British legislation in many
respects as a result of the colonial rule:
 The first British legislation on companies was passed in
1844 (Registration, Incorporation and Regulation of
Joint Stock Companies Act, 1844)

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Continued

 The Gold Coast Company Ordinance of 1907 which was

the first general law on companies specially made for the
Gold Coast, was passed by the colonial legislators.
 It was the first companies legislation directly applicable in
the Gold Coast. It was hastily drafted and virtually a
reproduction of 1862 English Companies Act.
 This law was not suitable for the then Gold Coast since
enough consultation was not made and therefore it
became obvious after independence that a new
comprehensive legislation was needed to replace the old
one.

For a historical outline on company law, see Robert R. Pennington, Pennington’s

Company Law, 3rd ed. (London: Butterworths. 1973

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 In 1958, a year after independence of Ghana, the Government
appointed the late Prof. Gower to review the Gold Coast
Companies Ordinance of 1907.
 A commission was instituted chaired by Prof. Gower which
became known as the “Gower Commission.”
 Their work resulted in the Companies Code of 1963 for Ghana,
(Act 179) Act 179 regulated the activities of companies in Ghana
from 1963 to August 2019.
 Act179 has currently been reviewed as part of a wider review of
business law, initiated by Ghana’s Attorney General and the
Ministry of Justice in 2007.
 The new companies Act, 2019, Act(992) seeks among others to
introduce improved corporate governance standards for
companies operating in Ghana.
 It also draws on experiences of more developed jurisdictions and
International best practices.

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 (B) The Nature of Company
1. What is meant by a company?
 Generally, a company is an association of persons formed for
the purpose of an undertaking or business carried on in the
name of the association. It makes or sells goods or services in
order to make profit. It may be classified as:
(a)Charted (formed by a grant from government)
(b)Statutory (formed by an Act of Parliament e.g. GCB, ECG,
NIB)
(c) Registered (incorporated under Companies Act)

 The 1st Schedule of the Companies Act, 2019 (Act 992) defines
company as “a body formed and registered under this Act”.
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 2. Other forms of Classification of Companies

Companies come under different classifications ranging from

its object to its ownership. The commonest types are as follows:

1. by object or specific business undertaking(financial institutions,

leasing companies, insurance companies)
2. by mode of ownership (joint venture, affiliated, associated)
3. by extent of liability (limited or unlimited)
4. by mode of formation and legalization(partnership, sole
proprietorship, limited liability)
•

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 3. What is Company Law?

 Company law can be defined as the written body of

rules and guidelines largely derived from formal
enactment and custom, which are recognized as
binding among those persons engaged in any form of
business association as classified above, so that those
rules will be imposed upon and enforced among those
persons by appropriate penalties.

 In Ghana, by Company law we are referring to the

Companies Act, 2019 (Act 992). It is a single document
that governs and regulates the formation of companies
in Ghana by incorporation.
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 4. Nature of Companies Law
 In the light of the economic and technological developments
occurring in Ghana and globally, company law has assumed a very
wide area and it touches on a number of related disciplines.
 Company law is one of the national laws (domestic laws) belonging to
private law branches but with certain aspects belonging to public law
also.
 Other related private laws include: Contract Law, Torts Law, Family
Law, Land Law, Business Law, Partnership Law, Commercial Law, etc.
 It also relates to the public laws including: Constitutional Law,
Administrative Law and Criminal Law.
 Company law covers the substantive law and procedural law. It
operates within the territorial jurisdiction of Ghana only.
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 (C) Scope of the Companies Act, 1963 (Act 179)

 Section 7(1) of the Companies Act sets out 4 type of companies

governed by the Act, and they are:
a) company limited by shares
b) company limited by guarantee
c) unlimited company
d) External Company

Per S. 7(4) either of the companies listed above could be Private or

Public company

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 (C) Scope of the Companies Act, 2019 (Act 992)

 The Act covers the following specific thematic areas:

1. how companies are formed and dissolved;
2. the requirements that companies must fulfill before they can
commence business;
3. the rights and duties, powers and liabilities of members, directors,
officers,
and auditors of the company;
4. The raising, disbursing, accounting and auditing of funds and
capital of the company; and
5. The supervision of corporate affairs by the executive (i.e. the
Registrar and the judiciary – the courts)

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 (D) The Objectives of Companies Act

The objectives of the Companies Act are:

 To enhance the position of members and ensure a greater

opportunity for members to participate in the governing of
companies. (right to attend, speak, vote at general
meetings, or inspect the company’s register of debentures
 To provide for greater accountability by fiduciaries, notably
the directors, but also including officers, receivers,
managers, liquidators, auditors and promoters.

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 Company Codes continued

 To protect the general public, in particular creditors and

investors in dealings with business companies.
 To take legal action against offenders for non-compliance
with provisions of the Act. To ensure compliance, the
Companies Act imposes penalties for defaults. Practically all
the provisions of the Act have attached sanctions by way of
fine, jail sentences, and/or civil liabilities to persons in
default of those provisions.
 To protect the interest of persons in employment
relationship with companies.

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 Kwame Nkrumah University of
Science & Technology, Kumasi, Ghana

THANK YOU
 Kwame Nkrumah University of
Science & Technology, Kumasi, Ghana

MAS 354
Company Law II
UNIT 2: SOURCES OF COMPANY LAW

Oswald K. Seneadza
 THE SOURCES OF COMPANY LAW
A source of law may mean two things:
 First, it may mean the authority from which the laws of
a State spring, for example, the current constitution,
enactments by parliament/decrees by military
government. These are described as formal source.
 The second meaning is the source from which the rules
of law are derived and are referred to as legal source.
Under the second meaning, the law of Ghana has three
sources, namely: Common Law, including judicial
precedence, Equity and Customary Law.

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The question of sources of law in Ghana is answered
by our country’s most authoritative legal document,
the CONSTITUTION OF GHANA.

Article 11(1) of the 1992 Constitution gives the

following as sources of law in Ghana:
 The constitution,
 Enactments,
 Rules and Regulations,
 The existing law and the
 Common law
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 (B) LEGISLATIVE SOURCE (Statutes/ Decrees)

 Enactments by Parliament and decrees made by

military regimes which are still in force.
 These form the primary statutory sources of law in
Ghana. In this sense, the Ghana Companies Act,
2019 (Act 992) is the main primary legislative
source of Company law in Ghana (regulating
business companies and their operations).
 However, some other relevant statutes have special
provisions regulating business association and the
conduct of business.
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The other relevant Statutes include:

 Ghana Investment Promotion Center Act 2013, Act

865
 Contract Act, 1960 (Act 25)
 Trustee (Incorporation)Act1962 (Act 106)
 Bodies Corporate (Official Liquidation) Act 1963
(Act 180)
 Co-operative Societies Decree 1968 (NLCD 252)
 Exchange Control Act 1961 (Act 71)
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 Incorporated Private Partnership Act 1962 (Act 152)
 Insolvency Act 1963 (Act 153)
 Registration of Business Names Act 1962 (Act 151)
 Borrowers and Lenders Act 2008 (Act 773)
 Banking Act 2016, (Act 930)

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 (C) STATUTORY INSTRUMENT (LI) AS SUPLIMENTARY SOURCE

These are regulations made by ministries and other

authorities under power conferred by parliament. Such
Regulations relating to associations of business organizations
include:
 Companies (Prescribed Forms) Instrument, 1963 (L.I. 289)
 Registration of Business Names Regulations, 1974 (L.I. 982)
 Stock Exchange (Ghana Stock Exchange) Membership
Regulations 1990 (LI 1510)

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 (D) LEGAL SOURCE
COMMON LAW SOURCE (Judicial Precedents)
 Salomon v Salomon & Co. (1897), dealing with the separate
legal personality of company when incorporated and its
liability;
 Trevor v Whitworth (1887), which requires a company’s
share capital to be kept intact for the benefit of its creditors;
 Ewing v Buttercup Margarine Co. Ltd. (1917), it concerns
name used by two companies to sell the same goods and the
plaintiff who earlier in1904 used the name contended that
there was likely to be confusion between the two companies
which the defendant denied. Court held that an injunction to
be granted to restrain the defendant from the use of its name
which registered in 1916 (because the objects and the place
of business are the same and could create confusion, i.e. the
tort of passing off)
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 Royal British Bank v. Turquand (1855), the company went
into liquidation and the liquidator (Turquand)argued that
the company had no obligation to repay the loan since the
loan contract (debentures) had been made without the
authority required by the articles.
 Held: the bank must be deemed to be aware that the
directors needed authority to borrow but could also
assume that authority had been properly given since the
bank may have no means of knowing whether a valid
resolution had been passed. However, a person who has
any knowledge to the contrary cannot make these
assumptions. The case also lays down the indoor-
management rule.
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
 Panagiotopoulos v Plastico Ltd. (1965) GLR 176, deals with
pre-incorporation contracts. Personal liability of signatory
to contract of a company (before its formation) will be fully
effected in the absence of expressed exclusion of personal
liability.

 Foss. v Harbottle (1843), which affirms the principle of

majority rule and minority protection. The principle that
court will not intervene in a matter which the company is
competent to settle itself, particularly in a case of
irregularity requiring that the company ratifies it by its own
internal procedures. An individual cannot take a legal
action in response to a wrong suffered by the company.
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 Kwame Nkrumah University of
Science & Technology, Kumasi, Ghana

THANK YOU
 Kwame Nkrumah University of
Science & Technology, Kumasi, Ghana

MAS 354

Company Law II

UNIT 3: FORMATION OF A COMPANY

Oswald K. Seneadza
 REQUIRED DOCUMENTS FOR INCORPORATION
The English Position
• Articles of Association
• The articles here deal with internal issues of the
company and special clauses must necessarily
includes:
 Appointment of directors & their powers,
 Rights associated with various classes of shares,
 Voting rights of the members,
 Rules on transfer of shares and
 Conduct of meetings.

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 Memorandum of Association
Memorandum of Association regulates a company’s external
activities and by law should include the following clauses:
Name of the company
Objects
Registered Office(s) and domicile
Names and first Directors
The two documents (Articles of Association and Memorandum of
Association) put together was known in Ghana as the
REGULATION and now per Act 992 referred to as the
CONSTITUTION of the Company.

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 (A) REQUIRED DOCUMENTS FOR INCORPORATION
The Ghanaian Position
• In Ghana a company cannot be created except under the
authority of the Companies Act 2019. A promoter is required to
deliver to the Registrar duly completed Application form which
contains the following particulars: (complying with Sections 13
of Act 992)

• Name and type of the Company

• Nature of business (optional)
• Registered Office(s) and domicile
• Number of issue shares
• Names and particulars of first directors
• Names and particulars of each subscriber
• Name and particulars of proposed company secretary
• Name and particulars of proposed company auditor
• Names and particulars of each beneficial owner
•

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 (A) REQUIRED DOCUMENTS FOR INCORPORATION
• THE NAME CLAUSE (S. 21)
• Name of the company - name used should not be already registered or prohibited
by statute or used by government.
• in Ghana the applicant is required to pay a nominal fee for a search to be
conducted by the Registrar’s Office to find out whether the proposed name
already exist.
• Sec.21. (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".

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 (A) REQUIRED DOCUMENTS FOR INCORPORATION

• THE NAME CLAUSE

• Name of company required by law to be stated on the company’s
Seal, Business letters, Negotiable instruments and Order for goods.
• Also name shall be affixed outside every office or place of business to
distinguish it from other companies.
• The promoters select the name and the general rule is that they may
choose any name. However their freedom of choice is subject, inter
alia, to the restriction:
• that the name must indicate the type of company, i.e. Ltd or PLC etc.
• that no company shall be registered by a name, which in the opinion
of the Registrar is misleading, or undesirable and may direct a change
of name within 6 months from registration if found unacceptable on
those grounds. The company so directed has 6 weeks to comply.

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 (A) REQUIRED DOCUMENTS FOR
INCORPORATION
THE NAME CLAUSE
• if a name is changed pursuant to the directives of the
registrar, he shall issue an altered certificate of
incorporation. However the company may appeal to the
court against such a directive and the court may cancel or
confirm the directive to alter. A change of name shall not
affect any rights or obligations of the company or legal
proceedings by or against the company.
• An action may be taken against another company to
restrain it from carrying on business under a similar name
and this is called Passing off Action as in Ewing v.
Buttercup Margarine Co. Ltd (1917)
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 (A) REQUIRED DOCUMENTS FOR
INCORPORATION
THE NAME CLAUSE
• Where a company fails to change its name within 6weeks of
the directive, S.21(9) mandates the Registrar to change the
name of the company in the Register of companies.
• Per sub sec.10, the defaulting company and any of the
directors of the company that are cognisant of the default are
liable to pay to the Registrar, an administrative penalty of
twenty-five penalty units and a further penalty of fifty penalty
units for each day that the default continues.
• Reservation of name: S.22(1) introduces the application for
reservation of the name of a company.

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 REQUIRED DOCUMENTS FOR
INCORPORATION- Object Clause
 Objects/Nature of Business – this is the authorised business of the
company. Object must not be illegal or against public policy.
 Per Act 992, the objects may be stated in the Application for
registration and the constitution of the company. S.18&19.
 Per Act 992, companies are not mandated to state their authorised
business or objects. The Act does not require companies to file an
object clause with the Registrar in either the Application form or the
Company’s constitution. Consequently, companies are not restricted
in the activities they wish to carry on.
S.18. (1)(a) states: Subject to this Act and to any other enactment, a company
shall have full capacity to carry on or undertake any business or activity, do
any act, or enter into any transaction
 The Limits of authority of a company can only be set by its
constitution.

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 Object Clause
S.19(I): 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.
 This provision notwithstanding, the Act permits even companies who
have defined their objects to act beyond such objects.
S.18(2): 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.

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 Object Clause
• Since companies can now engage in any activity they wish,
the ultra vires rule that required companies to stick strictly
to their objects/authorized businesses is no longer
applicable.
Regulatory Restrictions
• Pursuant to S.18(1)(a), regulatory restrictions will continue
to apply to companies operating in restricted areas (under
special/specific Acts) such as banking, insurance,
telecommunication etc., where special licenses are
required for their operations. Such companies must clearly
state their objects and restrict their operations to those
objects alone.
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 REQUIRED DOCUMENTS FOR INCORPORATION-

 Registered Office(s) and domicile: there must be a

permanent and identifiable registered office where
shareholders and creditors can visit to ascertain the
purpose for which their money are been applied, to
ascertain the powers of the company as defined by the
constitution (but statute may also confer additional
powers), for inspection of constitution and also writs of
summons could be served on the company.
 Shares- number of shares to be issued (for companies
limited by shares).
 Names of first Directors and that their powers/limitations.

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 (B) Types of Companies Sec. 7

• Section 7 (1) of Act 992 list incorporated companies

in Ghana as:
 (a) a company limited by shares;
(b) a company limited by guarantee;
(c) an unlimited company; or
(d) an external company.

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 (B) Types of Companies
1. Company limited by shares (7(2a)): a company having the
liability of its members limited to the amount, if any,
unpaid on the shares respectively held by them (limited to
capital contributed).
• In the event of the company going bankrupt or being
wound-up, a shareholder would be called upon to pay up
the unpaid value of his share capital (if any) and may lose
only the capital invested. There would be no forfeiture of
any part of his private property.
• Majority of companies registered under the Act are of this
type.
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 2. Company Limited by Guarantee (7(2b))
 A company having the liability of its members
limited to such amount as the members may
respectively undertake to contribute to the assets
of the company in the event of it being wound up
(liquidated) or in the event of bankruptcy.
 The amount must have been stated in the
Company’s constitution. This type of company is
suitable for non-profit-making bodies such as social
clubs, residents associations, churches, NGOs etc.

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 3. Unlimited Liability Company (7(2c))

A company not having any limit on the liability of its

members is referred to as unlimited company. This is
a company which has a corporate personality but the
liability of the members is unlimited. The
shareholders are liable for all the debt. In practice,
however, this type of company is not common.

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 An External Company (7(2d))
• Sec. 329(2) An external company is a body corporate formed
outside the Republic which, has an established place of
business in the country.
• 3) The expression "established place of business" means a
branch, management, share, transfer, or registration office,
factory, mine, or any other fixed place of business.
• 330. (1) An external company which establishes a place of
business in Ghana must within one month of the
establishment deliver to the Registrar for registration a copy
of the certificate of incorporation and where applicable a
copy of the constitution, charter, statutes, regulations,
memorandum and articles, or any other instrument
constituting or defining the constitution of the company

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(C) Legal effect of a Constitution after it has been
incorporated, S.29(1) of Act 992
As soon as a registered company lodges its constitution with
the Registrar, it binds the company and its members and
officers to the same extent as if it has been respectively
signed and sealed by each of them. It assumes the effect of a
contract, creating rights and obligations for the following
groups;
1) The company and its members (shareholders)
2) The company and officers (directors, managers, auditors,
Secretary, solicitors, etc.)
3) The members inter se (i.e. individual member against one
another.
4) Officers Inter se e.g. a director against another director

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 Case example: Hickman v. Kent
A case of a contract between Company and members
 The members agreed to observe and perform the
provisions of the regulations, and the regulation
had a clause which stated that any dispute
between the company and its members or between
the members themselves must be settled at
arbitration. The plaintiff who was expelled from
the company went to court to challenge the
decision.
 The court held that he is bound by the regulation
and should submit to arbitration and not the court
first.
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 Case example: Rayfield v. Hands [1960] Ch. 1;

A case of contract between members inter se (a director

verses other directors)
• The regulation required all directors to be members of
the company,
• It further provides that a director who wanted to sell
his shares shall sell it to directors.
• The attempt by Rayfield to sell his shares was opposed
by other directors.
• As such the court enforced this provision in the
regulation against the opposition by the directors.

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 Case example: Eley v. Positive Life Insurance [1876] 1 Ex.88
Enforcement by members against company

 The company’s articles provided that the plaintiff shall be

the solicitor of the company,
 The Plaintiff drafted the regulations
 He became a shareholder after registration
 , The company failed to appoint him as solicitor and he sued
the company to enforce it.
 The court refused the application noting that plaintiff could
only sue in his capacity as a member of the company but not
in his capacity as the solicitor.
 He could not go to court to enforce the regulations because it
did not affect him in his capacity as a member of the
company but as a solicitor of the company.

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 Effect of unregistered Constitution S.25 of Act 992

• 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.
• For a public company the provisions of the Third Schedule
shall apply.
• For a company limited by guarantee the provisions of the
Fourth Schedule shall apply.

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 (D) Alteration of Constitution

 Company business is dynamic - there might be the

needs for changes
 The Companies Act strikes a balance between
frequent changes and the right to alter,
 The Act permits alteration by passing a special
resolution.

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 Alteration under Act 992, s. 30

Section 30 of Act 992 permits a company to adopt, alter,

amend and revoke its constitution by a special
resolution.

As in the Ghanaian case of Du Paul Wood Treatment v.

Asare [2005-2006] SCGLR 667; Complete new set of
regulations purported to have been adopted to replace
the one subscribed to during incorporation.
The SC held (based on Act 179) that the new
regulations of the company were invalid as it did not
comply with sections 16 and 21 of the Act 179 i.e. No
special resolution was passed.
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 Alteration must be made bonafide

Every alteration must be effected in the interest of the

company,
Case: Greenhalgh v. Arderne Cinemas Ltd [1951] Ch 286;
 Articles of a company provided that no shares should be
transferred to non-members.
 A majority shareholder wished to sell shares to a non-
member and an ordinary resolution was passed to alter
the articles to permit the sale to a non-member.
 The plaintiff went to court that the resolution was void
because the intentions of the minority has been sacrificed
for the interest of the majority.
 The court held that the resolution was valid as it had
been passed bonafide for the benefit of the company as a
whole.

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 Limitation on alteration of Constitution

 Alteration should not conflict with a court order in

terms of remedy granted; s. 30(d),
 A member is not bound by alteration to do the
following:
1. Take more shares, increase liability to the company
or restrict right to transfer shares. (S. 30(h)(i))
2. An alteration cannot turn a limited liability
company to unlimited or a guarantee company to
company limited by shares. S. 30(i)

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 Kwame Nkrumah University of
Science & Technology, Kumasi, Ghana

THANK YOU
 Kwame Nkrumah University of
Science & Technology, Kumasi, Ghana

MAS 354
Company Law II

UNIT 4: INCORPORATION OF COMPANIES

Oswald K. Seneadza
 INCORPORATION OF COMPANIES

a) Methods, procedures and effects of incorporation,

b) Issuance of certificate of incorporation,

c) Advantages & Disadvantages of incorporation

d) Company Promoters, and

e) Pre-incorporation contracts.
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 A. Incorporation
A corporate body incorporated (registered) under the Act
consist of procedures:
 Requirements of the Companies Act 2019 (Act 992)
• Section 3 of the Act requires registration of an association
consisting of not more than 20 people carrying on
business for profit.
• Section 6 allows just one member to form a company
• Sec 12 permits any person of the age of eighteen and
above to apply for the incorporation of a company under
this Act
• Section 13 requires the submission of an Application for
incorporation.

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B. Method of Incorporation
 There are basically 2 methods of incorporation:
1. By an Act of Parliament.
2. By registration at the Registrar General’s Department
Per Sec. 13, An application for incorporation shall be
made in the prescribed form and delivered to the
Registrar. The application shall include
(a) the name of the company;
(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,
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 Method of Incorporation
(e)The telephone number and the post office box,
private mail bag or digital address of the registered
office of the company;
(f) the electronic mail address and website of the
company, if available;
(g) the name particulars of each subscriber
(h)the name particulars of each proposed director
(i)the name particulars of each proposed Secretary
(j)the name particulars of each proposed Auditor

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 Incorporation
• The application for incorporation may be effected
by the delivery of the completed application form
which may be accompanied with a proposed
constitution.
• S.14 (1) states that, “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 is capable of
performing the functions of an incorporated company.
• The combined effect of S.14 (1)&(2) is that companies no longer require
certificate to commence business
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 Error or Omission in Documents
• 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 liable to pay to the Registrar an
administrative penalty of one hundred and
fifty penalty units.

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 D. Advantages of Incorporation
 Separate Legal Personality: The company becomes a legal entity
separate and distinct from members (Separate Legal Personality, s. 18 of
Act 992) “..... the company shall have all the powers of a natural person”
the company is liable for its own debt , members are not liable for the
debt. A shareholder can be a debtor or creditor of the company and can
sue or be sued by the company.
 Ownership of assets: Becomes capable of owning assets. The corporate
property belongs to the company and not its members
 Perpetual succession: As soon as it is incorporated the company acquires
a perpetual succession. The death of a member does not automatically
bring the company to an end.
 Execution of contracts: The company has the capacity to enter into
contracts with third parties though through its personnel because it has
no mind or soul of its own, it acts through human beings.

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 Advantages of Incorporation

 Legal action: Company has the capacity to sue and be sued in its own
name
 Borrowing powers: Outsiders respect and relate to the incorporated
company with due diligence. It thus enhances its ability to borrow
money. Banks prefer dealing with companies than natural human
beings because they have perpetual existence and can always recover
their loans or monies lent to it.
 Transfer of shares is possible especially with a public company. This
right is not permitted under partnership.
 Decision Making: Because members are many, with diverse ideas,
who must all be notified on important decisions, it helps to avoid
hasty and ill-considered decisions taken by the company at general
meetings.
• No Agency relationship: Company cannot be regarded as an agent, a
nominee or trustee of the members

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 Cases examples
Salomon v. Salomon & Co. [1897] AC 22;
 Solomon transferred his sole proprietorship business into a
company. It was registered with 40,000 shares. Salomon had
39,994 shares while his wife and 5 children each had 1 share.
Part of the payment for his shares was made in the form of
secured debenture.
 Issue was whether Salomon was a creditor of the company
 Trial court and COA ruled that company was a sham (an
agent, trustee or nominee) liable person.

Held (House of Lords): Once validly incorporated, the company

is separate from the members who form it,
 The company was validly formed hence it is distinct from
Salomon.
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 Morkor v. Kuma [1998-99] SCGLR 620;
 This is a case where the company was sued together
with its CEO for the debt of the company.
 An objection was raised on the CEO being joined.

 The objection upheld by the SC that the CEO was

separate from the company and the company was
responsible for its own debts.
Held: Once the company has complied with the
requirements of incorporation in the Act, it is separate
and distinct from the members.

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 Ownership of company assets
 After incorporation, the corporate property belongs
to the company and not its members. The property a
member has in the company is his shares.
Macura v. Northern Assurance [1925] AC 619;
 Plaintiff incorporated a company and sold his forest
to the company.
 Prior to the sale he had taken an insurance on the
forest in his own name which was destroyed by fire.

 Held: he could not make a personal claim since the

property belonged to the company.
 He had no insurable interest.

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 Perpetual Succession
 If a company is professionally run, it could exist in
perpetuity.
 The rationale is from the fact that a company is
different from its shareholders, hence until
liquidation the company must continue.
 Section 41 and 171 of the Act is crucial;
 If a company ceases to have a member and it carries
on business, directors will be held liable for any
loss. A company at all material times must have
two directors, failing this, the existing director and
each member shall be liable
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 Legal Action after incorporation
 Company has the capacity to sue and be sued in its
own name.

 This gives the company the capacity to enforce its

rights against the members and third parties.

 Section 291 emphasises this point and states that legal

documents shall be served at the registered office of
the company.

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 Borrowing powers / Raising of Capital;
 The company’s ability to borrow money is enhanced.

 Only companies can create debentures.

 It is an acknowledgement of indebtedness

 It may be fixed or floating

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 E. Disadvantages of incorporation
 Expenses incurred: (service of promoters, legal advisers, auditors,
accountants and the registration)
 Loss of privacy: (involvement of the public, document kept with
Registrar General’s Department for any interested member of the
public). Even in the case of public company, it is obligatory to publish
its annual statement of account.
 Loss of control: Members loss control over the company’s business
because of the separate personality status assumed by company
see,s.137(4) of the Act.
 Decision making: This may take time due to consulting boards,
members, etc.
 Lifting the veil: Courts could ignore distinct legal personality by
lifting the veil, e.g. where company secures a loan that it can not pay,
signatory Directors may be liable
 Double taxation: Members suffer from double taxation.
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 Company Promoters S. 10

Definition- S.10(1) of the Act;

 A person engaged or interested in the formation of
a company.
 They are responsible for starting the company.
 In the case of Twycross v. Grant CJ Cockburn describes
them as “ one who undertakes to form a company with
reference to a given subject and to set it going and takes
all the necessary steps to accomplish that purpose”. He
lays the foundation of the company

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 Duties of Promoters;
Until the company’s capital has been raised, the promoter shall;

a) Stand in a fiduciary relationship with company,

b) Act in Utmost good faith towards the company,

c) Compensate the company-for losses incurred,

d) Account and not to make secret profit,

e) Strict disclosure requirements to all directors and members the

company at a General meeting.
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 Remedies
In breach of fiduciary duties there are remedies

 Rescission of contract made with promoter,

 Account for secret profit and

 Damages for breach of fiduciary duty.

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 Pre-Incorporation contracts Sec. 11
 It refers to contracts made before the company comes into
existence.
 But how is the issue of capacity dealt with?
Common Law Position on this issue:
Kelner v. Baxter [1866] L.R. CP 174;
At common law, the effect is legal nullity. In this case the
company was not liable on pre-incorporation contract but the
individuals were.
• Wine sold to promoters of a company and the company
failed and the action against the promoters succeeded.

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 Pre-Incorporation contracts
 Newborne v. Sensolid [1954] 1Q.B. 45;
 Newborne, a promoter signed a letter on behalf of an
unincorporated company confirming an agreement
to sell ham to the defendant who refused to take
delivery.
 The court held that the contract was invalid as the
unborn company lacked capacity to enter into
contract in its own name.


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 Pre-Incorporation contracts

• This position has been modified in England:

• Section 51 of the Companies Act of 2006 states that ‘A contract
which is purported to be made by or on behalf of a company at
a time when the company has not been formed has such an
effect, subject to any agreement to the contrary, as one made
with the person purporting to act for the company or as agent
for it, and he is personally liable on the contract accordingly” .

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 Ghanaian Position on pre-incorporated contracts
 Ghana’s position given under s. 11 of Act 992 abolishes the
decision in these two cases cited above.
 The position is that pre-incorporated contracts may be ratified
by the company within 18 months after its incorporation if the
company wishes. Ratification here means retrospective
approval by the company after it formation under the act.
 After such an action the company will be bound by the contract
or transaction and be entitled to the benefits of it.
 The company is however, not bound to ratify a contract.
Ratification must conform to its objectives.
See, Kumi & Co v. New World Investment Ltd. (UR)
 ‘’It is when they are so ratified by the company when it is
eventually incorporated that they become binding on the
company.’’
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 Pre-Incorporation contracts
 Panagiotopoulos v. Plastico [1965] GLR 179;
 In this Ghanaian Case, Apaloo JSC held that;
‘’A company is not bound by a contract purporting to be
entered by the promoters or other persons before
incorporation unless the company after incorporation
enters into a new contract to the effect of the previous
agreement.’’
 Once the contract is ratified, the contract shall become
binding to both the benefits and liabilities thereof.

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 Kwame Nkrumah University of
Science & Technology, Kumasi, Ghana

THANK YOU
 Kwame Nkrumah University of
Science & Technology, Kumasi, Ghana

MAS 354

Company Law II

UNIT 5: CORPORATE VEIL & MEETINGS & DIRECTORS

Oswald K. Seneadza
 CORPORATE STATUS
1. Corporate Veil – Understanding the Doctrine,
Lifting the Corporate Veil, Circumstances for
lifting the veil will be explained.
2. Meetings of a Company
3. Directors and Officers of the Company

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 1. The Corporate Veil
 Doctrine: After incorporation, a figurative ‘’veil’’ or a shield
separates and distinguishes the company from the persons
who may be behind it or who may control it. This is known
as the corporate veil and emanates from the principle of
separate legal entity.
 The principle has been affirmed in the case of Salomon v.
Salomon. & Co.
• The principle of lifting the veil, (piercing the veil), therefore,
acts as an exception to the Salomon rule. Meaning, the rule of
separate legal entity can at certain times be ignored and the
individual members or directors may personally be held
liable for their actions or other corporate bodies related to it.
• When this occurs, the corporate veil is said to have been lifted
or pierced.

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 Circumstances under which the Veil may
be lifted
• The corporate veil may be lifted:
• By Statute
• By the Companies Act
• By other legislation
• By the courts when it is just and in the public interest to do so.
• Fraudulent Trading
• Evading of contractual obligations
• Agent Company
• Tax Avoidance/Evasion

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 Circumstances under which the Veil may be
lifted (By Statute)
Pursuant to the Companies Act
(a) Stated Capital Requirement (s.68 (5&6)
A company shall furnish the Registrar, within twenty-eight days after
raising its stated capital, the prescribed form showing the amount of
money raised and the total stated capital,
Where the company defaults in delivering to the Registrar the
particulars required, the company and every officer of the company that
is in default is liable to pay to the Registrar, an administrative penalty of
twenty-five penalty units for each day during which the default
continues.
(b) Concealment of the name of a creditor s.82(3)
An officer of the company who willfully conceals the name of a creditor
or amount of the debt or claim of any creditor shall be personally liable
to pay the creditor the amount of his debt.

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 Circumstances under which the Veil may be
lifted (By Statute)
(g) A company without any membership (s.41)
If a company ceases to have members or carry on business without at least
one member, every person who is a director during the time that it carries on
the business, shall be jointly and severally liable for payment of all debts and
liabilities of the company incurred during that period.
(h) Painting and Affixing a company’s name (s. 125)
Any default made in painting or affixing and keeping of company’s name on
the outside of its registered offices and documents in legible characters, shall
make every officer of the company who is in default liable to a fine not
exceeding a prescribed amount
Number of Directors.(s.171)
Every company shall at least have two directors. Where a company carries on
business for more than four weeks after the number of its directors falls below
two, there shall be penal liability of the company, every director in default and
every member in default shall all be liable to a fine not exceeding a prescribed
amount.

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 Circumstances under which the Veil may be
lifted
(b) Evading contractual liability or obligation
It is referred to as facade (cover-up)
If a party to a contract wishes to use the mechanism of
separate legal personality to evade or avoid a
contractual liability, the veil will be lifted or pierced.
Cases;
Gilford Motor Co Ltd. v. Horne [1933] Ch. 935,
Jones v. Lipman [1962] 1 All ER 462.

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 cases
• Gilford Motor Co Ltd. v. Horne [1933] Ch. 935
• An employee entered into an agreement not to compete with
his former employer after ceasing employment. In order to
avoid this restriction, the employee set up a company and
acted through that.
• Held: such maneuver would not be tolerated. The veil will be
lifted and an injunction would be issued against the
Company.
• Jones v. Lipman [1962
• A vendor had agreed to sell a piece of land. Subsequently, he changed his mind. In
an effort to defeat a move to obtain specific performance, the vendor transferred the
land to a company which he controlled.
• Holding: The court refused to countenance this. The veil was lifted and specific
performance was ordered against the vendor and the company.

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 (b) Fraudulent Trading (Section 8(2) )
 Section 8(2) provides that if any company limited by guarantee
carries on business for the purpose of making profit, all officers
and members who shall be cognizant of that fact, shall be
jointly and severally liable for payment and discharge of all the
debt and liabilities of the company incurred and also be liable
to a fine of a prescribed amount for everyday during which the
company shall carry on such business.
 The courts have not allowed the Salomon principle to be used
as an engine of fraud.
 Where incorporation is seen as a window dressing for evading
of fiduciary or legal obligations the courts will intervene.
Read: Amartey v. SSB Bank [1987-88] GLR 497
Morkor v Kuma (East Coast Fisheries case), (1998-1999) for fraud
and improper conduct.
Appenteng v Bank of West Africa [1961] GLR 196

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 Brief cases
Amartey v. SSB Bank
Amartey was the MD and chairman of a company. He used his own
house as a mortgage to secure a loan for the company. The company was
unable to pay the loan so the bank had to enforce the security.
Consequently, the bank gave notice to Amartey in his capacity as the
Chairman and the MD of the Company but he contended that he did not
receive the notice in his capacity as a mortgagor and as such he had not
been notified.
Held: The court ruled against him for pretending not to be aware that
the Bank intended to enforce the mortgage.

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 (c) Acting as Agent of Company

 An agency relationship denotes the existence of a principal

being represented by an agent.

 A company does not exist to be used as an agent for its

shareholders.

 Once this principle is breached, the corporate veil will be

lifted.

 The agency cases here involve relations between parent

and subsidiary companies.

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 (d) Tax Evasion/Avoidance

 The law permits the piercing of the veil in

circumstances of tax evasion or liberal schemes of tax
avoidance by parent and subsidiary companies.

 Whenever there is a tax malpractice between related

companies, the veil is lifted.

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 2. Meeting S.147
Importance of Meetings
• Under S. 147 of the Act, members in general meeting
constitute an organ of the company and their
act/decisions are binding on the company.
• Bosiako v Cocoa Marketing Board. This case reinforces
the fact that outside general meetings, no member or
members acting alone may bind the company.
• General meetings are necessary because certain
decisions relating to the management of the company
have to be taken through certain resolutions, (S.189).
In the case above a Board Chairman awarded a contract
without recourse to members in a general meeting.
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 Meeting
• Meetings are necessary because it allows members to
exercise their rights such as speaking, the right to vote,
etc.
• Allows members to hold Directors accountable.
ESHUN V. POKU [1989-90] 2 GLR 572.
• Auditors and directors can only be removed at a
general meeting.

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 Types of Meetings

• Two broad types:

• General meetings
– Annual General Meetings (AGM) (S. 157)
– Extraordinary General Meeting (EGM) (S. 158)
• Class meetings (164)

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 Annual General Meeting
• S.157 – every company must hold at least one general meeting in
each year with intervals of not more than 15 months.
• It also provides that if the first AGM is held within 18 months of
incorporation then an AGM need not be held the following year.

• AGM usually discuss the financial report of the company for the year.
• S.157 (5) provides the situation where the company may dispense
with a general meeting for a particular year.

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 Annual General Meeting (contd.)
• Who May Convene General Meetings
 Directors as part of their management functions.
• In Luguterah V. Northern Engineering the letter was signed
by the secretary to the board. It was held that the notice was
invalid since she could not as secretary convene a meeting.
 OTHERS WHO MAY CALL AN AGM
 Registrar-General of Companies
• Since AGMs are mandatory, the law allows the Registrar-
General to act on his own motion and call an AGM without
any prompting.
 S.162 – Power of the Court to Call a Meeting
• The Courts will intervene where it is impracticable to call or
conduct a meeting in the manner described.
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 Extraordinary General Meeting
• It is any meeting other than the AGM. It may be called at ANY TIME
and for ANY PURPOSE.
• S.158 says that directors may convene an EGM when they deem
Fit. EGM therefore is at the discretion of Directors.
• S.158(2) – if there is only one director in Ghana, that director can
convene the EGM.
• S.158(3) (private companies) – any two or more members can
requisition an EGM.

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 QUORUM/RESOLUTION
Quorum
• Without a quorum, no valid resolution can be passed and no business can
be transacted validly.
• The quorum for a meeting depends on the type of meeting being held.
Resolution (3 kinds)
• Ordinary
• ordinary resolution is a resolution passed by a simple majority of members
who are entitled to vote and actually voting either in person or by proxy.
• Special
• It is a resolution passed by not less than 75% of the members entitled to
vote who actually vote either in person or by proxy.
• Written
• resolution in writing signed by all the members for the time being entitled
to attend and vote

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 3 Directors and Officers of a Company
(a) Who are Directors?
 By Section 170(1) directors are persons who are appointed to
direct and administer the business of the company. Any person,
not being a duly appointed director of a company, who shall hold
himself out or knowingly allow himself to be held out as a director
of that company, or on whose direction or instructions the duly
appointed directors are accustomed to act, shall be subject to the
same duties and liabilities as if he were a duly appointed director
of the company.
 In Commodore v Fruit Supply (Ghana) Ltd. (1977) 1GLR 241, the
name of a non-shareholder who had not been appointed a
director was printed on the company’s letterhead as a Director.
This person was also allowed to transact business for the company.
The court of appeal held that he was a director and that his acts
were binding on the company unless the person with whom he
dealt knew or should have knowledge of the irregularity.
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 (b) Number of Directors
• Every incorporated company must have at least 2 directors. (s.171
of Act 992). If the number of the directors is less than 2 and the
company continues to carry on business for more than 4 weeks
the sanctions would apply.
(C) Appointment of Directors
In accordance with section 172 of Act 992:
a) the Regulation may provide the appointment of a director.
b)Filling of casual vacancy may be effected by the continuing director
c) By an ordinary resolution of the company in general meeting.

Directors derive their power from the Constitition or by Resolution.

Disqualification:s.173(1) an infant, unsound mind declared by court,
a body corporate, court order of bankruptcy or conviction, etc.

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(D) Types of Directors
i. Substitute Directors:S.180 One appointed to act as deputy
for another named director and as his subordinate in his
absence. He shall be entitled to vote at any meeting of
directors or any committee of directors. His substitutive
appointment and removal would be the same as required
when appointing directors.
ii. Alternate Director:s.181 a Director may appoint another or
any other person approved by a resolution of the board of
directors to act on his behalf for 6 months if a director is
absent from Ghana or unable for any reason to act. For the
period of such appointment, he will be deemed for all
purpose to be a director and officer of the company and not
the agent of his appointer. (Okudjeto v. Irani Brothers)-
Held: the refusal of the board of directors to accept the applicant’s attorney as an alternate
director cannot be questioned. The attorney was not a director and there was no resolution of
the board approving him. Neither he nor the applicant can therefore complain.

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iii) Managing Director:
The First Schedule of the Companies Act defines MD as a director to whom it has been
delegated some of the powers of the Board of Directors to direct and administer the business of
the company.
Section 184 provides that unless the Company’s Regulation shall otherwise provide the directors
may from time to time appoint one or more of their body to the office of managing director.
iv Executive Directors: (183)
Any director holding any other office or place of profit under the company, other than of the
office of an auditor in addition to the office of a director.
(E) Directors and their Duties:
under common Law and Act 992 section 190
Directors are required to :
i. Exercise due care and skill in carrying out their function as Directors of a Company
ii. Act in good faith for the benefit of the company
iii. Exercise their duty properly as directors
iv. Avoid conflict of interest.
v. Exercise properly their powers as directors
vi. Cannot enter into contract with the company unless permitted by Regulation,

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(F) Civil liability for breach of duty (Remedies):
If a director breaches any of his duties, the following shall apply:
i. Compensate the company and return any profit made
ii. Contracts entered into between the director and company in
breach of such duty may be rescinded by the company.
iii. Restoration of the property in their possession or control
iv. Any director who holds another office such as managing
director or executive director may be relieved of such office
for breach of duty.
Read: Asafo-Adjaye and others v Agyekum [1984-86] 1GLR 382

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 Officers of a company
The First Schedule of the Act defines “officer” of a company to include: any
director, secretary or employee of that body corporate and a receiver and
manager and any liquidator
Secretary–(s.211-212: He makes arrangements for board meetings; send out
notices; he sets in motion the machinery to convene general meetings of
members; attends to the issuance of share certificates with sealed documents
of company; he records minutes; registration of documents; custodian of
company documents; drafts terms and conditions of loans; keep statutory
books (register of debenture-holders, register of directors and register of
members; files returns at the Registrar General.
Auditor: (s. 142): is not an officer or agent of the company. He however,
stands in a fiduciary relation with the members of a company and must act in a
faithful, diligent, careful, skillful manner consistent with the standards of his
profession. They work under a contract with the company, expressly or
impliedly. They have access to the books, accounts and vouchers of the
company. They can attend any general meetings and receive notice. For
appointment by a private company, he must qualify under the Charted
Accountant Act, 1963 and be a practicing accountant according to that Act.

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 Kwame Nkrumah University of
Science & Technology, Kumasi, Ghana

THANK YOU