MAS 354

Company Law II
UNIT 3: FORMATION OF A COMPANY

Oswald K. Seneadza
okseneadza.law@knust.edu.gh // 0244673110
Jan 2014
 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 following
particulars: (complying with Sections 13 of Act 992)

• Name and type of the Company

• Nature of business
• 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
 REQUIRED DOCUMENTS FOR INCORPORATION

• 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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 (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

 Objects/Nature of Business – the authorised business of the

company. The objects must be stated in the Application for
registration and the constitution of the company. S.18&19.
Object must not be illegal or against public policy.
 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.
 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
 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.
 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.
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
(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.
 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.
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.
 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)
 Thank You

For any concerns, please contact

elearning@knust.edu.gh
elearningknust@gmail.com
0322 191132
Jan 2014