COMPANY LAW

Historical evolution of the OHADA LAW

The Organization for the Harmonization of Business Law in Africa (abbreviated as OHADA)
is an intergovernmental organization for legal integration. It was established by the Treaty of
17 October 1993 signed in Port Louis (Mauritius), as revised on 17 October 2008 in Quebec
(Canada). To date, this organization brings together 17 African countries and remains open to
any member state of the African Union, or any State which, though not a member of the AU,
is invited to join by common consent of the OHADA Member States.

OHADA was created in a context of acute economic crisis and a drastic fall of investment
level in Africa. Legal and judicial insecurity were identified as a major cause of investor
distrust. The obsolescence, disparity and inaccessibility of rules governing economic
operations led to legal insecurity materialized by the difficulty to determine the applicable
rule in a given operation. The situation was compounded by the poor state of courts, the
inadequate judicial personnel, and the lack of stakeholders training in business law, judicial
delays and problems of professional ethics. To remedy the situation, OHADA was tasked
with streamlining the legal environment of companies in order to guarantee the legal and
judicial security of economic activities, with a view to stimulating investment and creating a
new development pole in Africa.

To achieve this, OHADA:

 Produces a simple, up-to-date, harmonized and suitable business laws for its Member
States, in order to facilitate business activities. The law is contained in Uniform Acts
which, once adopted, apply equally in all Member States. Ten Uniform Acts have
been adopted so far;
 Ensures that the harmonized law is applied with due diligence, under conditions that
guarantee the legal security of economic activities. This objective is achieved by
securing the legal settlement of business litigations and by promoting alternative
methods of dispute resolution.

At present OHADA has seventeen members state which consist of ; Benin, Burkina Faso,
Cameroon , Central African Republic, Chad, Federal Islamic Republic of Comoros, Congo,
Cote d,lvoire, Equatorial Guinea, Gabon, Guinea, Guinea Bissau, Mali, Niger, Senegal, Togo
and Democratic Republic of Congo which was the latest to join. Frankly speaking the
membership of OHADA currently reflects a common tradition, with the exception of
Equatorial Guinea, Guinea Bissau and the English speaking Regions of Cameroon. Apart of
the above mentioned all the other members states are French speaking with a strong civil law
tradition, expect of the English speaking Regions of Cameroon, which has the common law
legal system. From the above strength language barrier was a major obstacle to the non-
French speaking states. In order to resolved the issue of language barrier when the treaty was
revised on the 17/10/2008 at Quebec Canada, French, English, Spanish and Portuguese were
made the official languages.

Article 1 of the treaty sets out its objective clearly. It provide that the objective of the
present treaty is the harmonization of business laws in the contracting states by the
elaboration and adoption of simple common rules, adapted to the economise by setting up
appropriate judicial procedures and by encouraging arbitration for the settlement of
contractual business.

Article 2 of the treaty defines the scope of Business law with the view to its harmonisation.
The definition cover laws relating to companies, the legal statues of persons and entities
engaged in commerce, the recovery of debts, security, administration, liquidation.
Arbitration, employment, accounting, transportation and sales, and any other matter than the
council of ministers may unanimously decide to include within the field of business law in
accordance with the object and purpose of the treaty.

The principle aims of OHADA, as we earlier mentioned is to unify business laws in its
member states and to promote arbitration as a means of settling contractual disputes or
disputes arising from business transactions. To achieve this the OHADA have introduce
different Uniform Acts in different areas or fields of law. These Acts are applicable to all the
member states who are signatories to the OHADA treaty.

 As from date nine Uniform Acts have come into force which include;
 Uniform Act on General Commercial law
 Uniform Act on commercial companies and economic interest groups
 Uniform Act on secured transactions (collaterals and Guarantees)
 Uniform Act on bankruptcy law
  Uniform Act on arbitration law
 Uniform Act on debt recovery and enforcement
 Uniform Act on law relating to contracts for carriage of goods by road
 Uniform Act on cooperative societies
Institutions of OHADA

 The council of minsters

 The permanent secretariat located in Yaoundé
 The common court of justice and arbitration located in Abidjan and
 The regional training schools for legal officers
As far as company law is concern the Uniform Act we will be making reference to is the
OHADA Uniform Act on Commercial Companies and Economic Interest Groups. It was
adopted on the 17th of April 1997 and entered into force on the 1st of January 1998. Article
907 of this Act provides that the Act shall apply to companies and economic interest groups
which shall be formed in the territory of one of the member states from date of its entry into
force in that state. However, any formalities towards the formation of a company which was
accomplished before the entry into force of the Uniform Act shall not be repealed. Also,
according to Article 1908 of the same Act, companies and economic interest groups which
were formed before the entry into force of the Uniform Act shall be subject to the provisions
of the Act. They shall thus be required to harmonize their Article of Association to be in line
with the provision of the act within a period of the Act within a period of two year

Definition of a company

There is no clear –cut definition of a company in the OHADA Uniform Act on Commercial
Companies and Economic Interest Groups.

Rather the Uniform Act in its Article 4 has given a description that a commercial company
shall be formed by two or more persons who agree, by contract, to
assign assets in cash or in kind to an activity for the purpose of sharing profits or benefiting
from savings that may accrue therefrom. The members of a company shall beer the losses in
accordance with the conditions laid down by the uniform Act.

A commercial company shall be formed in the common interest of the members.

It may also be formed, as provided by this Uniform Act, by a single person,
referred to as a sole proprietor. In company law, the commercial nature of a company is
determine by its form or the object of the company. For example Private companies, public
limited companies and public limited companies are commercial companies by virtue of their
form, irrespective of their object.

Capacity to be member of a company

According to Article 7 of the Uniform Act any natural or corporate person not under any
prohibition, incapacity or incompatibility define under the Uniform Act on General
Commercial Law may be a member of a commercial company.

Exemptions of persons who cannot be members of a commercial company

Minors and legally incapacitated persons may not be members of a company where their
liability for the company‟s debts exceeds their contributions. (Article8)
A husband and wife may not be members of a company in which they shall joint and
severally
have unlimited liability for the company‟s debts. (Article 9)

Forms of commercial companies recognise by the Uniform Act

 Societe a Responsibilities limited (SARL (Private limited company)

This is a commonest form or corporate entity under the Uniform Act. Article 309 of the
uniform act on commercial companies and economic interest groups define a private limited
company as a company whereby the partners are liable for a company debts up to the limit of
their contribution and their rights are represented by the shares they subscribe for. A neutral
person may form a private limited company, or a corporate entity or two or more private
persons. It must have a minimum starting or registered capital of at least 10million C.FA.
This is provided for under Article 311 of the Uniform Act the face value of a share in a
private limited company is 5000fr. The maximum number of members in a private limited
company is fifty members. If this number exceed fifty thousand than the company will be
transform to public limited company. A private limited company end with Ltd.
  Societe Anonym (S.A) Public Limited Company.

These are generally very large companies who have the right to sell shares to the general
public. Article 385 of the uniform act define a PLC as a company in which the liability of
each shareholder of the company is limited to the amount of shares he has taken up and his
rights are represented by the shares. A public limited company may have only a single
shareholder and there in no upper limit to the number of shareholders. By virtue of article 386
of the uniform Act a PLC shall be known as company and its name shall be flowed
immediately by the words PLC or S.A. Article 387 of the Uniform Act on commercial
companies and economic interest groups makes provision for a minimum authorised capital
of 100000000 with shares with a face value of not less than 10000.

Assignment

 Differences between a private limited and public limited company.

 Look at partnership as a form of company and discuss the two types of partners in a
partnership

Unregistered companies

 Societe en participations (S.P) (Joint Ventures)

A joint venture is a situation whereby already existing companies come together to carry out
a specific activity within a specific period. Article 114 and 854 makes provision for joint
ventures as unregistered companies. These article emphasize on the fact that in a joint venture
the members many agree not to register the association and it may be referred to as unlimited
partnership with no legal personality.

 Societe a Cree de fait( SCF) ( De facto company)

This is provided for under article 115 of the Act. As a company that does not respect the legal
procedures for the establishing a company and so cannot be registered. It has no legal
personality. A de factor company shall exist where two or more private person or corporate
persons act as partners without having been legalised or recognised by the uniform act.
Formation of a company

The procedure leading to formation of a company is undertaken by promoters of the

company. The promoters are required to fulfil certain conditions. These conditions include
the general conditions that must be present for the validity of a contract. They include;

 Offer and acceptance

 Consent of parties
 Legal capacity to contract
 Legality (purpose and subject matter) see contract notes

From this stage the promoters or the parties need to agree on the form of the company. We
should note clearly that after the promoters have agreed by contract to form a company the
next important document that will enable it formation is an article of association.

Article of association

The Articles of Association shall be established in writing by a notarial deed or by any other
instrument
that ensures legal validity in the State of the company‟s registered office. Such instrument,
together with a certification of the writing and signatures of all the parties, shall be deposited
as originals in a notary‟s office. They may be amended only by the same procedure. If the
article of association are not established in writing the company is not considered to null and
void but is considered as de facto partnership.
Where the Articles of Association are drawn up in a private document, as many original
copies
shall be established as shall be needed to deposit one copy in the company‟s registered office
and to fulfil all the required formalities. A copy of the Articles of Association on plain paper
shall be given to each member. However, in the case of private companies and sleeping
partnerships, one original copy shall be given to each member.

The Articles of Association shall either be a contract between members of a company where
there are several members, or a unilateral deed of intent, in the case of sole proprietorship.
 Content of an Article of Association.

The Articles of Association shall contain the following information as stated by article 13.

1) The form of the company

2) The name of the company, followed by its acronym where necessary
3) The nature and field of the company‟s activity which constitute its object
4) The company‟s registered office
5) The duration or life span of the company
6) The identity of contributors in cash and, for each of them, the amount of their
contribution
and the number and value of the shares handed over in exchange for each contribution
7) The identity of contributors in kind, the nature and value of the contribution made by
each of them, the number and value of the shares handed over in exchange for each
contribution
8) The identity of persons enjoying special benefits and the nature of such benefits
9) The amount of the registered capital
10) The number and value of shares issued, stating, where necessary, the various classes
of
shares
11)
Provisions relating to the distribution of profits, the constitution of reserves and the
distribution of the bonus after liquidation;
12) The rules governing the functioning of the company.

The company name, object, and duration.

COMPANY NAME (article 14, 15, 16)

Every company shall have a name which shall be mentioned in its Articles of Association.

Unless otherwise provided for in this Uniform Act, the name of one or more members or
former
members may be included in the company name.
A company may not take the name of another company which is already registered in the
Trade
and Personal Property Rights Register.

The company name shall appear on all deeds and documents from the company to third
parties,
especially letters, bills, notices and various publications. It shall be preceded or followed
forthwith by an indication of the form of the company, the amount of its registered capital,
the
address of its registered office and its registration number in the Trade and Personal Property
Rights Register.

The name of the company may be altered in accordance with the conditions laid down by this
Uniform Act for the amendment of the Articles of Association of such a company.

OBJECT OF THE COMPANY

Every company shall have an object which shall constitute the company‟s activity and which
shall be specified and described in the Articles of Association. It shall also have a lawful
object .where the company is engaged in a regulated activity, it shall comply with the special
regulations governing such activity (Article 19, 20, 21 of the Uniform Act)

The company‟s object may be altered under the conditions stipulated in this Uniform Act for
amending the Articles of Association for each type of company.

REGISTERED OFFICE

Every company shall have a registered office which shall be indicated in its Articles of
Association.
The company shall have its registered office either at its principal place of activity or at the
place
where it‟s administrative and financial services are concentrated. The choice of location shall
be made by the members.( Article 23 and 24 of the Uniform Act)

DURATION
According to article 28 company shall be set up for a duration which shall be indicated in the
Articles of Association. The duration of a company is 99 years. Except otherwise the
existence of a company commence on the date on which it is registered in the Trade and
Personal Property credit Registered

CONTRIBUTIONS

Each member shall contribute to the capital of the company.

The Uniform Act provides for three (3) types of contribution (Article 40)

- In cash: made in full at the time of formation of the company or, in an SA, either in full or
in instalments;
- In kind: made by shareholders transferring to the company real or personal rights and
making available to the physical assets to which such rights relate. The contribution in kind
must be made in full at the time the company is created;
- In services: where the shareholder undertakes to work for the company.

Registration of a company

For a company to be registered it must follow the following procedure

 Conception of idea of opening up of a company by the promoters.

 Preparation of an article of association with the notary
 Stamp duty of the article of association
 Deposition of the minimum authorised capital
 Registration of the company with the Trade and Personal Property Credit registry
(TPPCR) at the court where the company intends to operates its head quarter.

The principle of incorporation

As soon as a company is registered in the TPPCR the company acquires a legal personality in
the eyes of the law, making the company to be different from its owners. This implies that the
company is recognised as a legal person in law capable of owning its own property in its own
name and can sued or be sued. The principle of incorporation or corporate personality was
well illustrated in the landmark case of SalomonV.Salomon.Co.Ltd. In this case Aaron
Salomon had for some years owned a business unit as a merchant and boat manufacturer. He
decided to form a limited liability company to purchase his business, but wished to retain
control of the business, and so his plan was that the shareholders of the company should be
restricted himself and members of his family. The company purchase his business and the
business was transferred to it. The company issued debentures worth ten thousand pounds to
Mr. Solomon, and paid him 8782 pounds in cash in satisfaction of the rest of the purchase
price. The business did not prosper and when it was wound up a year later, it‟s liability
exceeded it‟s assets by 7733 pounds. The liquidator claimed that the business in reality was
still Mr Solomon business with the company being merely a sham designed to limit
Solomon‟s liability for debts incurred, and therefore Solomon should be ordered to indemnify
the company against it‟s debt and payment of the debentures owed to him should be
postponed until the company‟s creditor were satisfied. The courts were called upon to
determine the matter. Before the court of original jurisdiction, the trial judge Vulgar Williams
J agreed with the liquidator and gave the judgment against Mr Solomon. The judgment was
confirmed by the court of appeal, but the house of Lord unanimously reversed the judgment,
and held that Mr Solomon was under no liability with the company‟s creditor and that his
debentures were valid against the company. The preceding judge in the person of Lord
Halsbury said “I confessed it seems to me that, the learned judge became involved by this
argument in a very singular contradiction either the company was a legal entity or it was not.
If it was, then the business belongs to it and not to Solomon. If it was not there, there was no
person and nothing to be an agent at all.” Lord Magnaction added that the company is at law
a different person from the subscribers. The House of Lord therefore unanimously put a seal
of approval to the fact that the company is a legal person distinct from its members as soon as
the company is registered in the TPPCR

Advantages of incorporation

 The company can own properties in its own name.

 The company can sue or be sued.
 The possibility of limited liability of members of the company
 The possibility of perpetual succession.
 The possibility of transferability of shares.

Lifting or piercing of the corporate veil

 Lifting of the corporate veil means disregarding the corporate personality and looking
behind the real person who are in the control of the company. In other words, where a
fraudulent and dishonest use is made of the legal entity, the individuals concerned will
not be allowed to take shelter behind the corporate personality. In this regards the
 court will break through the corporate shell and apply the principle of what is known
as “lifting or piercing through the corporate veil.” And while by fiction of law a
corporation is a distinct entity, yet in reality it is an association of persons who are in
fact the beneficial owners of all the corporate property.
 “The doctrine laid down in Salomon v. Salomon and Salomon Co.Ltd, has to be
watched very carefully. It has often been supposed to cast a veil over the personality
of a limited liability company through which the Courts cannot see. But, that is not
true. The Courts can and often do draw aside the veil. They can and often do, pull off
the mask. They look to see what really lies behind”.
 Grounds for lifting the corporate veil
 Fraud or improper conduct- The Courts have been more that prepared to pierce the
corporate veil when it fells that fraud is or could be perpetrated behind the veil. The
Courts will not allow the Salomon principal to be used as an engine of fraud.
 Tax’s invasion -“The Court has the power to disregard corporate entity if it is used
for tax evasion or to circumvent tax obligations.
 Enemy character-A company may assume an enemy character when persons in de
facto control of its affairs are residents in an enemy country. In such a case, the Court
may examine the character of persons in real control of the company, and declare the
company to be an enemy company.
 Where the company is a sham- The Courts also lift the veil where a company is a
mere cloak or sham (hoax).
 Company avoiding legal obligations- Where the use of an incorporated company is
being made to avoid legal obligations, the Court may disregard the legal personality
of the company and proceed on the assumption as if no company existed.
 Agency or trust- Where a company is acting as agent for its shareholder, the
shareholders will be liable for the acts of the company. Public interest- The Courts
may lift the veil to protect public policy and prevent transactions contrary to public
policy. The Courts will rely on this ground when lifting the veil is the most „just‟
result, but there are no specific grounds for lifting the veil. Thus, where there is a
conflict with public policy, the Courts ignore the form and take into account the
substances
 Organization and functioning of companies

The organization and functioning of a company will depend on the form of the company.
The OHADA uniform act have put forward diverse rules and concern relating to the
administration and functioning of companies.

Organs of the Company

Members of a company enjoys certain rights and powers that distinguish them from
ordinary creditors of the company. They become members of the group by signing the
article of association. That is why members of a company are considered as fundamental
organs in the life of the company.

1. Members (Shareholders): The status of a member in a company goes with the

acquisition of shares in the company and because of the shares, the members
enjoy certain rights and privileges in the company. This demonstrate the
importance of membership in the company. A member of a company can be a
natural or an artificial person. All members of the company must future in the
article of association.

The rights and Privileges of members of a company

By virtue of article 53 of the uniform act, the shares of a company shall confer on the
holders the following rights.

- Right to a share of the company‟s profit whenever they are distributed.

- Right to a company‟s net assets which are shared following the dissolution of the
company.
- The right to participate in voting and taking collective decision.
The first two rights are considered as pecuniary right while the last one is known
as the non pecuniary right.
Organs for company management

There are different organs of management in a company and their composition can vary from
one company to the other. However, common rules govern their appointment and dismissal.

Companies are govern either by managers or by board of directors. The uniform act does not
define the term director, but merely provides that the composition of a company‟s
management shall include any person occupying the position of a director, by whatever name
called. The power to appoint directors in a company is a corporate one and it is done in the
mannered laid down in the article of association. Members of the company must be informed
on the appointment dismissal and resignation of directors of a company.

Dissolution of a company

Dissolution of a company means the coming to an end of a company existence. The company
can come to an end in the following ways.

- Expiration of the period for which the company was formed. Even though
members of a company are free to fix the life span of a company article 282 of the
uniform act states that the life span of a company must not exceed 99years.
However, members still have the possibility to extend or reduce the life span of
the company. Once the period for which the company was formed expires the
company must be dissolved.
- Realization or extinction of its object. The realization of the objects of a company
mean the accomplishment of the task for which the company was formed. For
example a company formed to dig a canal or to construct a bridge must be
dissolved once the bridge or canal is accomplished.
- Annulment of Company‟s partnership deed. Article 203 of the uniform act make
provision for dissolution of a company based of annulment of its deal of
partnership. When this is done, the effect is that the company must be dissolved
and the judgement ordering the liquidation of the company automatically calls for
the its dissolution.
- By the article of Association: By virtue of article 200(4) of the uniform act
provides that liquidation of a company could come because of the decision of its
members. Members may provide in the article of association that heavy losses
shall lead to the dissolution of the company.
a) Voluntary Liquidation: One or more of the members of a company can put the
company into voluntary liquidation. The members may provoke this through a
court decision. Article 200(5) of the uniform act provide that members can
provoke a premature dissolution of a company if they have a justified reason
for doing so. The partners on a common accord can decide to dissolve the
 company before the expiration of its term. A member may provoke the
dissolution of a company by renunciation of its membership of the company.
b) Court Liquidation: By virtue of article 200(6) of the uniform act, the courts
may pass a winding-up order ordering liquidation of the company‟s assets.
Factors that can provoke court ordered liquidation of a company include;
failure of a member to honour his engagements vis-à-vis the company, for
example, the failure to pay contribution, perpetual incapacity of a member or
members which paralyses the company. Generally it is left to the courts to
appreciate and determine the reasons for the dissolution of the company as
provided for under article 200(5) of the uniform act. The court will not hesitate
to dissolve a company if it has reasonable grounds to do so.

The effect of dissolution of a company

When a company is wound up it conserves its legal personality for liquidation purposes until
liquidation procedure is completed. Dissolution of a company implies the realisation of a
company asset to settle the list of contributors and creditors, to pay the company‟s debts and
liabilities as well as dividing the surplus if any amongst members as provided in the article of
association (Their right).

Dissolution of a company shall be published through a notice inserted in newspapers

empowered to publish legal notices of the place of registered office of the company.

Once dissolution is ordered and liquidation comes in, a liquidator is appointed. The liquidator
is charged with the responsibility of collecting and realising the company‟s asset and
discharging its debts and liabilities. He may sell or mortgage any of the property of the
company, execute all necessary documents on its behalf, Issue or accept bills of exchange,
promissory note, check and appoint agents to do anything on his behalf.