FORMATION OF A

COMPANY
• According to section 20 of Act 179, it is unlawful to carry on
business without incorporation/registration if the number of people
involved is more than 20 (remember that we said the general rule
under partnerships is that the maximum number is 20)

• Anyone or more persons may incorporate a business by complying

with section 8 of Act 179.

• Every shareholder is a member of the company

• A company is a separate legal entity distinct from its members i.e.

the company is a separate legal entity – sec 24

• SALOMON V. SALOMON
• Mr. Salomon decided to change his enterprise to a company. The business was valued at 39,
000 pounds. Mr. Salomon then gave debentures worth 10, 000 pounds to the company making
him a creditor of the company. The membership of the company comprised Mr. Salomon, his
wife and his two sons
The Regulations
The Regulations
• To form a company, a person must deliver to the Registrar the
proposed Regulations (s. 14a).

• The Regulations:
• A company’s Regulations is its fundamental constitution or charter. It is
the document that sets out:
• the purpose/objects of the company;
• It defines the limitations of the powers of the company itself;
• It defines the duties, the rights, and the powers of organs ( BOD, members
in General Meeting; MD)
• Defines the interrelationship between the various organs and the company;
and
• It spells out how the company’s affairs may be changed from time to time.
• In sum, the Regulations define and regulate the manner in which a
company
The Regulations
• Unlike in other jurisdictions, notably England, where the Regulations
are contained in two documents namely the Articles of Association
and the Memorandum of Understanding, in Ghana the Regulations
are contained in one document only.

• Content of the Regulations:

• The name of the company
• “Limited” as the last name for limited companies
• Nature of the authorized business (es)
• A statement that the company has all the powers of a natural person
• In the case of a limited liability company, a statement that the liability of
the members is limited
• For company with shares, the number of shares with which the company
is to be registered.
The Regulations
• With limited guaranteed companies Regulations must
contain the ff additional info,
• Statement that income of limited guaranteed company shall be
applied solely towards the promotion of its objects

• Statement that each member undertakes to contribute to the assets

of the company in the event of its being wound up

• Statement that if, on the winding up, there remains after the
discharge of all its debts and liabilities a property of the company
that property shall not be distributed among the members but
shall be transferred to some other company limited by guarantee
having objects similar to the object
Registration of Regulations
• DUPAUL WOOD TREATMENT v ASARE
[2005-06]SCGLR 667, 696-7
• Sophia Akuffo JSC
• “By virtue of section 14 of the Code, a company
comes into existence when its regulations are
delivered to the Registrar of Companies and he
enters the same into his register. It is the act of
registration that incorporates the company, such
incorporation being evidenced by the Registrar’s
certificate of incorporation”
Registration of the Regulations
• The Registrar is not bound to issue a certificate of registration
upon the mere submission of the Regulations. On the other
hand, the Registrar must not act arbitrarily.

• The circumstances in which the Registrar may refuse to issue a

certificate of incorporation upon the submission of the
Regulations are provided by law in sec 14(b) of the Act. These
are:
1. Where Regulations do not comply with the Code
2. Where the Company objects or businesses intended to be carried out are
illegal
3. Where any of the company’s subscribers are an infant
4. Where any of the company’s subscribers is of unsound mind
5. Where any of the directors is incompetent to be appointed as a director
Registration of the Regulations
• Upon registration of the Regulations, the Registrar shall certify under seal that the
company is incorporated and in the case of a limited liability company, that the liability is
limited

• The registration of a company occurs when its proposed

Regulations are duly registered with the Registrar and a
CERTIFICATE OF INCORPORATION is issued by the Registrar

• Section 14 provides to the effect that

• Once registered, the Registrar must certify under his seal that the
company is incorporated and, in the case of a limited company, that the
liability of its members is limited.
• the certificate of incorporation is conclusive evidence that the company is
duly registered and incorporated under Act 179.
Registration of the Regulations
• Section 27,
• Registration does not mean that, the newly incorporated company can transact a business, exercise a
borrowing power, or incur an indebtedness
• However, it is permitted to do those things which are incidental to its incorporation or to obtaining
subscriptions to or payment for its shares.

• To commence business, the Company must File Particulars

• A return in duplicate, in prescribed form, giving particulars of
• its name;
• its authorized business, or, objects;
• the names and addresses of its directors ;
• the name and address of its auditor;
• the addresses of its registered office and principal place of business in Ghana;
• The address at which register of members is kept
• if the company has shares,
• the amount of its stated capital, as defined in section 66,
• the number of its authorized shares of each class, and
• the number of its issued shares of each class and the amount paid on those shares

• If the company is limited by shares, the return must state that the declaration required by sec 28(1) has been
delivered to the Registrar for registration.
• The return must be signed by 2 directors and the secretary of the company.
• The Registrar shall register the return and publish a copy of the return in the Gazette.

• AND
Registration of the Regulations
• Sec 28
• must show that its members have paid for its issued shares with minimum
value of
• twenty million cedis of which at least five million cedis shall be paid
in cash in respect of a public company
• five million cedis of which at least one million cedis shall be paid in
cash within the meaning of respect of a private company
• File a declaration in the prescribed form verifying that the payments have
been received
• Declaration must be signed by all directors and secretary.
Effect of the Regulations when
Registered
• When registered, the regulations have 3 main effects:
1. First, the Regulations constitute a contract under seal between the
company and its members, the company and its officers, the members
and officers of the company, the members of the company inter se, and
the officers of the company inter se. This is so for both public and private
companies.
2. Second, it vests power in any person stated by Regulation, whether or
not the person is a member of the company, to appoint, remove any
director or officer of the company. Note: the power of appointment
and/or removal is usually conferred on debenture holders or their
trustees
3. Third, the Act provides that any suit by a member or officer for breach of
the Regulations shall be brought in a representative capacity on behalf
of oneself and the members or officers who may be affected. This
provision is to prevent multiplicity of actions. The result of a
representative action binds all who were represented.
1. Adehyeman Gardens Ltd v. Assibey
Alteration of the Regulations
• A company may have a genuine reason to change its regulations from time to time.
However, care must be taken to prevent frivolous changes to the Regulations.

Requirements for altering the regulations

• Under the Act, a Special resolution is required to make changes to the Regulations.
A special resolution is one that requires ¾ majority vote to pass.

• Although a Special Resolution is always required, in certain cases, there are

additional requirements to amend the Regulations. These cases are summarized as
follows:
• Changing the company’s name requires the Registrar’s consent –sec 22(a);
• Changing the number of the company’s shares requires compliance with several other
provisions of the companies Act – sec 22(b)
• Changing the company’s business or objects requires prior notice to debenture holders,
secured by a floating charge, and to the trustees, if any of such debenture holders
• Changing the rights attached to any of the different classes of shares of that company
requires also the prior written consent of the holders of at least 75% of the issued shares
of that class or a special resolution of that class
Alteration of the Regulations
• Limitations Regarding the alteration of regulations
• No alteration shall conflict with the court’s order providing remedy against
oppression – sec 22(d)

• The content of the regulations as altered shall contain the compulsory

elements of a regulation – sec 22(g) (who recalls some of these from last week)

• Unless a member agrees in writing to do otherwise, a member shall not be

bound by an alteration that is made after he became a member which seeks for
the member to:
• To take more shares
• To increase his liability to pay for money to the company; or
• To increase or impose restrictions on the right of the member to transfer his shares
• sec 22(h)
• No alteration shall have the effect of converting:
• An unlimited company to a limited liability company; or
• A company limited by guarantee to a company limited by shares; sec 22(i)
• The court can restrain or cancel an alteration in the event of illegal or irregular
activity
Alteration of Regulations:
Summary
• A special resolution of the company is always required as a
minimum and necessary condition for the alteration of the
company’s Regulations

• A special resolution is however, not a necessarily sufficient

condition for the alteration of the Regulations. There are
several instances where other requirements and additional
conditions have to be met to validly alter the regulations

• There are limitations on the power to alter the Regulations

Promoters
 12(2)(b)

Promoters
Defn
• any person who is or has been engaged in or interested in the formation of a
company – sec 12(1). However, it excludes a person acting in a professional capacity
for the persons who are engaged in procuring the formation of the company.

Duties of the Promoter

• Pending the complete formation of the company, the duties of the promoter include:
• Stand in a fiduciary relationship with the company; 12(2)(a)

• Observe utmost good faith towards the company; 12(2)(b)

• Compensate the company for any loss suffered by reason any of the promoter’s above
failings; and 12(2)©

• Account for profits for property or information in circumstances where such acquisition
should have been for the company and not for the promoter 12(3)
• Erlanger v. New Sombrero Phosphate Co.
• Facts
• A syndicate headed by Mr. Erlanger acquired a lease to work some
phosphate mines. It cost the syndicate 55, 000 pounds.
• Mr. Erlanger and the syndicate then formed New Sombrero Phosphate
Company. They named the first directors of the company. The lease was
then sold to the new company at a price of 110, 000 pounds. This purchase
price was purportedly ratified by the directors without inquiry.
• The phosphate shipments failed and the shareholders removed the
directors and replaced them with new ones. The new directors found that
the circumstances of the sale of the lease to the New Sombrero Phosphate
Company were not disclosed to the directors prior to the purported
ratification.
• The new BoD then brought proceedings to rescind the sale
• Holding
• That the promoters owed fiduciary duties to the company including the
duty to disclose all material facts relating to the contract to an
independent board of directors, which may then choose to agree with the
terms. Failing full disclosure of all material facts by the promoters, a
contract entered into between the promoters and the company was
voidable at the company’s option.
Pre-Incorporation Contracts
Pre-incorporation Contracts
• Definition
• This is a contract that is made between other persons before the incorporation of a firm. These
contracts are made in anticipation of incorporation.

• Before a firm is incorporated it has no separate legal personality. In fact, it has no existence at all.
And a non-entity cannot be a party to a contract.

• Kelner v. Baxter
• One Mr. Kelner offered in writing to the three promoters of a company yet to be formed to sell wine
to the named individual promoter on behalf of he proposed company. The offer stipulated the
quantity, price (900 pounds) and the date of payment for the wine. The promoters accepted the
offer. The wine was delivered and consumed. Later, before the company was actually incorporated,
the 3 directors held a meeting and purported to ratify the purchase. However, the company failed
before Mr. Kelner could be paid
• He successfully sued the promoters personally.

• Note: that the promoters purported to enter into a contract for the company yet to be formed and
the directors purported to ratify the contract for the company before the company was in fact
incorporated so at the time the contract was purportedly ratified (premature), there was in fact no
company. So who should be liable?
Pre-Incorporation Contracts &
Promoters
• Erlanger v. New Sombrero Phosphate
• The decision in this case shaped the law on pre-incorporation contracts and promoters:
• Where a contract is entered into between a promoter and the company, the company has the right
to rescind the contract – sec 12(4)
• The company can rescind the contract at anytime and there is no limitation period on proceedings
brought by the company – sec 12(5)

Reasoning
Due to their fiduciary relationships with companies, contracts between promoters and
companies are considered not to be at arms length, with the company being the vulnerable
party.

E.g. a promoter may sell his property or business interest to a company at above-market prices, or
enter into a contract to render services at above-market rates.
It is for these reasons that contracts between promoters and companies are viewed with
skepticism and the company given the option to rescind at any time.

• However, a court may relieve the promoter in whole or in part from liability in the court thinks
it fit and equitable to do so.
 Pre-Incorporation Contracts
• Note: nothing forbids a company from entering into a contract with its
promoter; and a contract between a promoter and the company may be
ratified by the company.

• However, for the ratification to be valid, the following must be complied with:
• There is a full disclosure by the promoter of all material facts known to him; and
• The contract must be entered into or ratified by an INDEPENDENT board of
directors i.e. independent of the promoters; or
• The contract is entered into or ratified by all the members of the company;
• The contract is entered into or ratified by a general meeting at which neither the
promoter nor shareholder of any shares in which the promoter is beneficially
interested shall have voted on the resolution to enter or ratify that transaction.

• Once the ratification of a pre-incorporation contract is validly done, it cannot

be rescinded.
Pre-incorporation Contracts
• Under the Act, a company has the right to consider the
propriety of contracts entered into before incorporation and
to have the option to ratify such pre-incorporation contracts.

• Until and unless there is ratification, the risks associated with

pre-incorporation contracts are borne by the parties
themselves. One may avoid these risks by completely avoiding
pre-incorporation contracts or by expressly excluding such
liability – sec 13
Pre-Incorporation Contracts
• Panagiotopoulos v. Plastico Ltd (leading GH case)
• Facts
• Plaintiff and 2 others decided to promote a company. The company was subsequently
incorporated as the defendant company. The plaintiff was the financier and the two others – Dr
Politis and Mr. Michaelides were the actual parties behind the company.
• The plaintiff bore all the expenses prior to incorporation, including the acquisition of the land,
factory and machinery. However, prior to incorporation, in light of the plaintiff’s other
commitments, he felt he could not continue with the enterprise and he therefore, executed a
contract with the 2 others acting for themselves and as trustees in the formation of Plastico.
• By the terms of the contract, the plaintiff purported to sell his interest in the soon-to-be
established company to Plastico Ltd as the purchaser. As security pending full payment , the land,
factory and machinery of Plastico Ltd was to be mortgaged in favor of the plaintiff.
• Upon incorporation, the company went into possession of the land, factory and machinery. The
company also made 10 out of 15 payments to the plaintiff and then defaulted.
• The plaintiff then sued the company (but not the individuals) for the balance of the purchase
price and specific performance.
• The defendant denied liability alleging that the purported contract was made prior to
incorporation and did not bind the company.
• In response, the plaintiff argued that the company had assumed the obligations of the contract
or can be said to have entered into a subsequent or implied contract with the plaintiff.
Pre-Incorporation Contracts
• Holding:
• First, the judge considered the issue whether the plaintiff had
entered into a contract – express or implied – with the defendant
company. He ruled that there was no express contract and while
there seemed to be an implied contract (based on the company’s
beneficial enjoyment of the land, factory and machinery acquired
on its behalf by the plaintiff and also based on the 10 installment
payments it had made to the plt). Both events arose from the
mistaken belief of both parties that the pre-incorporation
contract was binding, while in fact, it was not.

Can anyone think of why the pre-incorporation contract was not

binding – ans = no ratification. So who should have been the
defendant? Ans = the promoters in their individual capacity.
Commencement of Business
Commencement of Business
• Before a company that is limited by shares can:
• Can transact any business;
• Exercise any borrowing powers; or
• Incur any indebtedness; it must meet 2 requirements:
• FILING OF PARTICULARS
• No company can transact any business, exercise any borrowing powers or incur any indebtedness until it has
delivered to the Registrar a return in duplicate in prescribed form that contains the following:
1. Name
2. Authorized business or nature of objects
3. Names and former names, addresses and business occupations of its directors and secretary and particulars of any
directorship held by them;
4. Name and address of auditor
5. Address of company’s registered office and principal place of business in Ghana and the post office address box number of its
registered office (location and postal address)
6. Address of place where register of members is kept and maintained, if other than at the registered office of the company
7. For companies with shares:
1. The amount of its stated capital
2. The number of its authorised shares of each class; and
3. The number of its issued shares of each class and the amount paid thereon distinguishing between the amount paid in cash and the amount
paid otherwise than in cash
8. In the case of a company limited by shares, the amount if any, remaining payable on the shares distiguinghing btn the amount
presently due for payment and the amount not yet due for payment
9. In the case of a company limited by shares, in addition to the delivery and filing of the return, the company shall also deliver
to the Registrar for registration a declaration in the prescribed form. And state that the declaration relating to the minimum
capital rqmt has been delivered to the Registrar for registration.
Commencement of Business
• Minimum Capital Requirement
• To avoid businesses folding up due to inadequate capital shortly after
incorporation, the Act has stipulated certain minimum capital requirement before
companies limited by shares can transact business, exercise any borrowing
powers or incur any indebtedness.
• The principles relating to minimum capital are that:
• Before a company limited by shares can transact any business, exercise any borrowing
power or incur any indebtedness there shall have been paid to it for the issue of its
shares, consideration to the value of at least a prescribed amount.
• Of he consideration paid, at least, a prescribed lesser amount shall have been paid in
cash
• In computing the value of the consideration received by the company, one excludes
values that are attributed to:
• Goodwill of a business;
• Services rendered to a business;
• Services to be rendered to the business
• The company shall have delivered to the Registrar of companies for registration a
declaration in the prescribed form, signed by all the dirctors and the secretary of the
company, verifying that such payments have been received by the company
Tutorial Questions
1. What are the features of a corporation?
2. Distinguish between a private and a public company
3. Write short notes on the following:
1. companies limited by shares;
2. Companies limited by guarantee; and
3. Unlimited companies
4. How is a company formed?
5. What are regulations? What particulars are required to be contained in a company’s proposed
Regulations?
6. When may the Registrar refuse to register a proposed regulations?
7. When may the register refuse to register a proposed company?
8. What are the effects of the Regulations when registered?
9. How may a company’s regulations be altered? What , if any, limitations exist respecting the
alteration of the Regulations.
10. What is a pre-incorporation contract? What rules relate to pre-incorporation contracts in GH?
11. Define promoter. What conditions have to be met for an unassailable contract between a promoter
and a company?
12. What are the duties of a promoter?
13. What particulars must be filed with the Registrar before a company can commence business
14. What are the rules respecting a company’s minimum capital?