Company Law: History, Nature, and Scope

Company Law

• The development of company law in Ghana is linked to the historical development of company law in Britain.
• The first British legislation on companies was passed in 1844 (Registration, Incorporation and Regulation of Joint Stock Companies Act, 1844).
• The Gold Coast Company Ordinance of 1907 was the first general law on companies in Ghana, which was a reproduction of the 1862 English Companies Act.
• In 1958, the Government appointed Prof. Gower to review the Gold Coast Companies Ordinance of 1907, which led to the Companies Code of 1963 (Act 179).
• Act 179 regulated the activities of companies in Ghana from 1963 to August 2019.
• The new Companies Act, 2019 (Act 992) was introduced to improve corporate governance standards and draw on international best practices.

Nature of Company

• A company is an association of persons formed for the purpose of an undertaking or business carried on in the name of the association.
• A company may be classified as:
  • Chartered (formed by a grant from the government)
  • Statutory (formed by an Act of Parliament)
  • Registered (incorporated under the Companies Act)
• The 1st Schedule of the Companies Act, 2019 (Act 992) defines a company as “a body formed and registered under this Act”.

Classification of Companies

• Companies can be classified based on:
  • Object or specific business undertaking (e.g., financial institutions, leasing companies, insurance companies)
  • Mode of ownership (e.g., joint venture, affiliated, associated)
  • Extent of liability (limited or unlimited)
  • Mode of formation and legalization (e.g., partnership, sole proprietorship, limited liability)

Company Law

• Company law can be defined as the written body of rules and guidelines that govern the formation, operation, and dissolution of companies.
• Company law is a single document that governs and regulates the formation of companies in Ghana by incorporation.
• It is a national law that belongs to private law branches, but also has aspects of public law.

Scope of the Companies Act, 2019 (Act 992)

• The Act covers the following thematic areas:
  • Formation and dissolution of companies
  • Requirements for companies to commence business
  • Rights and duties of members, directors, officers, and auditors
  • Raising, disbursing, accounting, and auditing of funds and capital
  • Supervision of corporate affairs by the executive (Registrar) and the judiciary (courts)

Objectives of the Companies Act

• To enhance the position of members and ensure greater participation in the governing of companies
• To provide for greater accountability by fiduciaries (e.g., directors, officers, receivers, managers, liquidators, auditors, and promoters)
• To protect the general public, particularly creditors and investors
• To take legal action against offenders for non-compliance with the Act's provisions
• To ensure compliance with the Act's provisions and protect the interests of persons in employment relationships with companies

Sources of Company Law

• The sources of company law in Ghana include:
  • The Constitution
  • Enactments (e.g., Companies Act, 2019)
  • Rules and Regulations
  • Existing law
  • Common law (including judicial precedents)
  • Equity
  • Customary law

Legislative Source (Statutes/Decrees)

• Enactments by Parliament and decrees made by military regimes that are still in force
• The Ghana Companies Act, 2019 (Act 992) is the primary legislative source of company law in Ghana
• Other relevant statutes that have special provisions regulating business associations and the conduct of business

Statutory Instrument (LI) as Supplementary Source

• Regulations made by ministries and other authorities under power conferred by Parliament
• Examples of such regulations 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 (L.I. 1510)

Common Law Source (Judicial Precedents)

• Examples of judicial precedents that have shaped company law in Ghana include:
  • Salomon v Salomon & Co. (1897)
  • Trevor v Whitworth (1887)
  • Ewing v Buttercup Margarine Co. Ltd. (1917)
  • Royal British Bank v Turquand (1855)
  • Foss v Harbottle (1843)

Formation of a Company

• The documents required for incorporation in Ghana include:
  • Application form
  • Memorandum of Association
  • Articles of Association
  • Names and particulars of first directors
  • Names and particulars of each subscriber
  • Names and particulars of proposed company secretary
  • Names and particulars of proposed company auditor
  • Names and particulars of each beneficial owner

Memorandum of Association

• The Memorandum of Association regulates a company's external activities and should include the following clauses:
  • Name of the company
  • Objects
  • Registered Office(s) and domicile
  • Names and particulars of first directors### Incorporation of Companies

Required Documents for Incorporation

• A company's name must be stated on the company's seal, business letters, negotiable instruments, and order for goods.
• The name must indicate the type of company (e.g. Ltd or PLC).
• The Registrar can direct a change of name if it is found to be misleading or undesirable.
• A company may appeal to the court against a directive to change its name.

The Name Clause

• A company's name must be affixed outside every office or place of business.
• If a company fails to change its name within 6 weeks of a directive, the Registrar can change the name in the Register of companies.
• The defaulting company and its directors are liable to pay an administrative penalty.

Object Clause

• The object of a company is its authorised business.
• The object must not be illegal or against public policy.
• Companies are not required to state their authorised business or objects in the application for registration or the company's constitution.

Types of Companies

• Companies limited by shares (liability of members limited to unpaid share capital)
• Companies limited by guarantee (liability of members limited to amount undertaken to contribute to assets in the event of winding up)
• Unlimited companies (no limit on the liability of members)
• External companies (companies formed outside Ghana with an established place of business in Ghana)

Legal Effect of a Constitution

• A company's constitution binds the company, its members, and officers to the same extent as if it had been signed and sealed by each of them.
• The constitution creates rights and obligations for the company, its members, and officers.

Alteration of Constitution

• A company's constitution can be altered by a special resolution.
• Alterations must be made in good faith and in the interest of the company.
• Alterations cannot conflict with a court order or require a member to take more shares, increase their liability, or restrict their right to transfer shares.

Incorporation of Companies

• A company is incorporated by submitting an application for incorporation in the prescribed form to the Registrar.
• The application must include the company's name, type, nature of business, address of the registered office, and details of the subscribers, directors, secretary, and auditor.
• The Registrar issues a certificate of incorporation upon satisfaction that the application complies with the Act.

Advantages of Incorporation

• A company becomes a separate legal entity with its own powers and liabilities.
• The company can own assets and enter into contracts.
• The company has perpetual succession, meaning it continues to exist even if its members change.### Advantages of Incorporation
• Death of a member does not automatically bring the company to an end
• Company has the capacity to:
  • Enter into contracts with third parties through its personnel
  • Sue and be sued in its own name (legal action)
  • Borrow money (borrowing powers) - banks prefer dealing with companies than natural human beings
  • Transfer shares (especially with a public company) - not permitted under partnership
• Decision making is improved due to the need for diverse ideas and notification of all members on important decisions
• Company cannot be regarded as an agent, nominee, or trustee of the members (no agency relationship)

Case Examples

• Salomon v. Salomon & Co. - the company was validly formed and distinct from Salomon
• Morkor v. Kuma - the CEO was separate from the company and the company was responsible for its own debts

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 their shares
• Example: Macura v. Northern Assurance - the plaintiff had no insurable interest in the forest after selling it to the company

Perpetual Succession

• A company can exist in perpetuity if professionally run
• The company must have at least two directors; if not, the existing director and each member shall be liable for any loss
• Section 41 and 171 of the Act are crucial in this regard

Legal Action after Incorporation

• The company has the capacity to sue and be sued in its own name
• Legal documents shall be served at the registered office of the company (Section 291)

Borrowing Powers/Raising of Capital

• The company's ability to borrow money is enhanced
• Only companies can create debentures (acknowledgement of indebtedness)
• Debentures can be fixed or floating

Disadvantages of Incorporation

• Expenses incurred (e.g., service of promoters, legal advisers, auditors, accountants, and registration)
• Loss of privacy (e.g., involvement of the public, documents kept with Registrar General's Department)
• Loss of control (members lose control over the company's business)
• Decision making may take time due to consulting boards, members, etc.
• Lifting the veil (courts could ignore distinct legal personality)
• Double taxation (members suffer from double taxation)

Company Promoters

• A person engaged or interested in the formation of a company
• They are responsible for starting the company
• Definition: S.10(1) of the Act
• Examples: Twycross v. Grant CJ Cockburn

Duties of Promoters

• Until the company's capital has been raised, the promoter shall:
  • Stand in a fiduciary relationship with the company
  • Act in utmost good faith towards the company
  • Compensate the company for losses incurred
  • Account and not make secret profit
  • Strict disclosure requirements to all directors and members at a general meeting

Remedies

• In breach of fiduciary duties, there are remedies such as:
  • Rescission of contract made with promoter
  • Account for secret profit
  • Damages for breach of fiduciary duty

Pre-Incorporation Contracts

• Refers to contracts made before the company comes into existence
• Common Law Position: legal nullity (Kelner v. Baxter)
• Modified in England (Section 51 of the Companies Act of 2006)
• Ghanaian Position: ratification of pre-incorporated contracts by the company within 18 months after its incorporation (Section 11 of Act 992)

Corporate Veil

• Doctrine: separate legal entity and individual members/directors are not personally liable
• Lifting the veil (piercing the veil): exceptions to the Salomon rule
• Circumstances under which the veil may be lifted:
  • By Statute (e.g., Companies Act, other legislation)
  • By the courts when it is just and in public interest to do so (e.g., fraudulent trading, evading of contractual obligations, agent company, tax avoidance/evasion)

Meetings

• Importance of meetings: decisions relating to the management of the company have to be taken through certain resolutions
• Types of meetings:
  • General meetings (e.g., Annual General Meeting (AGM), Extraordinary General Meeting (EGM))
  • Class meetings