Introduction to Company Law PDF

BUSINESS LAW Company Law Business Administration Department Ashesi University Structure of Discussion Company Law History Business Entity Types Promoters Pre-incorporation Contracts Welcome to Company Law! Company law is the study of …….? Welcome to Company Law! Company law...

BUSINESS LAW Company Law Business Administration Department Ashesi University Structure of Discussion Company Law History Business Entity Types Promoters Pre-incorporation Contracts Welcome to Company Law! Company law is the study of …….? Welcome to Company Law! Company law is the study of… you guessed it! – companies... How they’re started, their inner workings, key personalities, etc. Focused on ‘corporate governance’  Company Law History The idea of “the company” hasn’t always existed. A form of business arrangement that mirror today’s companies emerged in 17th Century Europe. Investors would invest capital and receive a portion of profits in return, in accordance with the amounts they invested. The British Crown gave monopolies to investor Coat of Arms for the East India Joint Stock Company groups called ”joint stock companies” who were (2014). Readings in Economic Thought. willing to undertake riskier ventures or expeditions, photograph. Retrieved from https://econthoughtdotorg.wordpress.com/2 014/09/29/joint-stock-companies/. too large for individuals.  Company Law History These joint stock companies became very powerful such as: The East India Company which was given significant control over India. The United African Company (predecessor to present-day Unilever) The Industrial Revolution brought more regulation and development of law governing companies in Europeand United African Company of Nigeria Ltd – A subsidiary of the United African City – America, bringing us closer to the Harris, E. V. (n.d.). Nigeria, two women in front of present-day picture of company law. United Africa Company of Nigeria Limited building in Ibadan. photograph. Company Law History In Ghana, company law closely followed that of UK company law. We saw the greatest movement forward when Laurence Cecil Bartlett Gower, a University of London Professor was appointed to reform Ghanaian company law. This led to the passage of the Companies Act, 1963 (Act 179), which was existed though with minor amendments until the passage of the Companies Act, 2019 (Act 992) (led by the Date- Bah Commission).  Business Entity Types Six main entity types acknowledged under Ghanaian law are: 1. Sole Proprietorship (governed by the Registration of Business Names Act,1962, Act 151) No separate entity created per se, business is carried out in the person of the sole owner. This means that the owner is personally liable for the debts of the business. 2. Incorporated Private Partnership (governed by Incorporated Private Partnerships Act, 1962 ( Act 152) Business entity created between two to twenty individuals for the purpose of making profit. (S3, Incorporated Private Partnerships Act, 1962 ( Act 152)) Partners are personally liable for debts of partnership.  Business Entity Types Six main entity types acknowledged under Ghanaian law are : 3. Company Limited by Guarantee (governed by the Companies Act, 2019 (Act 992) (”Act 992”) ) An entity separate from its members, who “undertake to contribute to the assets of the company in the event of its winding up”. (S2(b), Act 992) It is an entity type that must be started and run for non-profits purposes. Thus, it is used by non- governmental organisations. 4. External Company (governed by the Companies Act, 2019 (Act 992) (”Act 992”) ) An entity “formed outside the Republic which, has an established place of business in the country.” 5. Unlimited Company (governed by the Companies Act, 2019 (Act 992) (”Act 992”) ) Company members have unlimited personal liability for the debts of the company Business Entity Types Six main entity types acknowledged under Ghanaian law are : 6. Company Limited by Shares (governed by the Companies Act, 2019(Act 992) (”Act 992”) ) Liability of company’s members is limited to amounts unpaid on shares. Company Member = Company Shareholder = Owner of the Company A share = a unit of ownership of a company owned by a member/shareholder. One becomes a company member when you provide either money or other source of value (such as land) towards the working capital of a company, in exchange for a share in the company. Business Entity Types A company (i.e. limited by guarantee, limited by shares and external) can be: 1. Public or private: i. A private company is a company that: a) Is prohibited from making an invitation to the public to acquire shares in the company b) Put some limits on the right of members to transfer their shares c) Limits the number of members to 50, not including: I. “persons who are genuinely in the employment of the company, and II. persons who, having been formerly in the employ- ment of the company, were while in that employ- ment, and have continued after the determination of that employment to be members or debenture holders of the company” S7(5), Act 992 Business Entity Types A company (i.e. limited by guarantee, limited by shares and external) can be: 1. Public or private: ii. A public company is any company that is not a private company, except a company limited by guarantee with 50 or less members. (S7(7) Act 992) 2. Unlimited or limited: i. An unlimited company is one where the liability of members with regards to the debts and liabilities of the company is without limit. This entity type is sometimes used by professional services such as law firms, where by law they are required to utilize entity types with unlimited liability. ii. A limited company is one where the liability of members is limited by what they either agreed to pay for shares (i.e. with companies limited by shares) or to guarantee the entity for ( i.e with companies limited by guarantee) Business Entity Types Thus one can have any of the following kinds of company: Ghanaian private company limited by shares Ghanaian private company limited by guarantee Ghanaian public company limited by shares Ghanaian public company limited by guarantee Ghanaian unlimited private company Ghanaian unlimited public company External private company limited by shares Etc, etc. Business Entity Types A company limited by shares can be converted to a company limited by guarantee, but the inverse cannot be done. (S9, Act 992). This can be done when: 1. There are no unpaid liabilities on any shares 2. All members agree to this and for their shares to be cancelled in the process. Promoters A promoter is a person who “is/has been engaged or interested in the formation of a company” ( S10(1), Act 992) (this would not apply to someone who is merely playing a professional role in the formation of the company.) Promoters have certain responsibilities: 1. To stand in a fiduciary relationship with the company (fiduciary duty = obligation to act with loyalty, honesty, in line with the best interests of beneficiary of relationship) 2. Act with utmost good faith towards the company (good faith = dealing honestly) 3. Compensate the company for any loss suffered through the failure of the promoter to observe good faith 4. Account for profits or information which should have been for the company and not the promoter. S10, Act 992 Promoters A promoter may have a contract with the company and that contract cannot be rescinded if: 1. There has been full disclosure about all material facts known to the promoter 2. The agreement has been entered into or ratified by: i. the company’s board of directors, if they are all independent of the promoter ii. All members of the company; or iii. At a general meeting, where the promoter or any shares he/she may have beneficial interest, voted. S10, Act 992  Pre-incorporation Contracts Pre-incorporation contract = contract made in connection with a company, before the company has been formed. A pre-incorporation contract may be ratified by the company within 18 months of the company being formed. On ratification, the company is bound by the contract, as though the company was in existence on the date it was signed. Before ratification however, the promoter who entered into that contract pre-incorporation is personally bound to the contract. S11, Act 992 See also Panayiotopoulos v Plastico Ltd GLR 176  Additional Concept to Note Naming your Company (S21, Act 992) A company cannot be given a name that is misleading or undesirable, as determined by the Registrar. It also cannot be given a name that is being used by another company, or is too similar. It must also end with the following: private company limited by shares - “Limited Company” or the abbreviation “LTD”; public company limited by shares -“Public Limited Company” or the abbreviation “PLC”; company limited by guarantee - “Limited by Guarantee” or the abbreviation “LBG”; and private company unlimited by shares -“Private Unlimited Company” or the abbreviation ‘PRUC’ public company unlimited by shares -“Public Unlimited Company” or the abbreviation “PUC Questions?