Company law Paulo Formation of companies

S.5 of the companies‘ Act 179 code- states the legal requirement of companies
and provides that:

No company, association or partnership consisting of more than twenty persons

shall be formed for the purpose of carrying on any business that has for its object
the acquisition of gain by the company, association or partnership, or by the
individual members thereof, unless it is registered as a company under this Code
or is formed in pursuance of some other enactment for the time being in force.

The company must be registered with the Registrar General s.

8 provide that:
Any one or more persons may form an incorporated company by complying with
the provisions of this Code in respect of registration.

s. 14
After the commencement of this Code a company shall be formed in manner
following, that is to say,
(a) there shall be delivered to the Registrar for registration a copy of the
proposed Regulations of the company complying with sections 16 to 18 of this
Code;
(b) unless, in the opinion of the Registrar,
(i) the Regulations do not comply with this Code;
(ii) the objects for which the company is being formed or the business which it is
to carry on, or any of them are unlawful;
(iii) any of the subscribers to the Regulations is an infant or of unsound mind; or
(iv) any of the directors named in the Regulations is under section 182 of this
Code, incompetent to be appointed a director,
the Registrar shall register the said Regulations;
(c) upon registration of the Regulations, the Registrar shall 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;
(d) from the date of registration mentioned in the certificate of incorporation, the
company shall be a body corporate by the name contained

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Company law Pauloin the Regulations and, subject as provided in sections 27 and
28 of this Code, be capable forthwith of exercising all the functions of an
incorporated company;
(e) the Registrar shall insert a notice in the Gazette stating the issue of such
certificate and the terms thereof;
(f) the certificate of incorporation, or a copy thereof, certified as correct under the
hand of the Registrar, or the Gazette containing the notice referred to in
paragraph (e) of this section, shall be conclusive evidence that the company has
been duly registered and incorporated under this Code and no proceedings shall
be brought in any Court to cancel or annul such registration:
Provided that nothing in this paragraph contained shall prejudice the institution of
proceedings to wind up the company in accordance with section 247 of this
Code.

∙ It should be noted that in Ghana we only have Regulations ∙ A company is a

separate legal entity from its members. This means even if one person forms
a company the company would still have a separate legal personality from
the founder. This is the fundamental principle of company law.

Salomon v. Salomon
Facts:
Mr. Salomon converted his sole proprietorship business into a limited liability
company. The company had seven members: Mr. And Mrs. Salomon and their
five children. Mr. Salomon had 20,001 shares, and Mrs. Salomon and the
children had one share each.
Mr. Salomon had sold his business to the company at the inflated price of 38,782
pounds. The company purported to pay for Mr. Salomon‘s interest by the allotting
to him 20,000 shares at one pound each, making payment of 20,000 pounds.
The company also issued him with debentures of 10,000 pounds.
The company then paid Mr. Salomon the balance of 8,782 pounds in cash. Thus
the company owed him 10,000 pounds since he was a debenture holder

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secured by a charge on the company‘s assets in his favour. Mr. Salomon and two
of his sons were appointed directors. Mr. Salomon was also the managing
director of the company. Later on, however the company faced difficulties and the
company had to be wound up a year later.
The value of the company‘s assets as realized was 6,000 pounds; but the
company owed 7,733 pounds to unsecured creditors and 10,000 to Mr. Salomon
whose debt was secured as a debenture holder. If Salomon was paid off for his
debentures, the unsecured creditors would receive nothing, since the company‘s
debts exceeded its assets.
The creditors, quite naturally, sought to impugn Salomon‘s apparent right to
receive payment. They argued that although incorporated, the company was a
mere sham; it never had an independent existence and was in fact Mr. Salomon
under a different name. They also argued that the business still remained Mr.
Salomon‘s and that the company merely carried on business as Mr. Salomon‘s
agent and consequently, Mr. Salomon as principal, owed the company as agent,
the duty to indemnify it (the company) against the liabilities incurred by it in the
course of the agency.
The case went before a trial judge and later on to the Court of appeal and the
House of Lords.
HELD:
The House of Lords unanimously rejected these arguments of the creditors.
Lord Halsbury said:

―I must pause here to point out that the statute enacts nothing as to the extent
or degree of interest which may be held by each of the seven or as to the
proportion of influence possessed by one or the majority of the shareholders over
the others. One share is enough.
Still less is it possible to contend that the motive of becoming shareholders or of
making them shareholders is a field of enquiry which the statute itself recognizes
as legitimate.
If they are shareholders, they are shareholders for all purposes; and even if the
statute was silent as to the recognition of trusts, I should be prepared to hold that
if six of them were the cestuis que trust for the seventh, whatever might be their
rights inter se, the statute would have made them shareholders to all intents and
purposes with their respective rights and
Company law Paulo

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liabilities, and, dealing with them in their relation to the company, the only relation
which I believe the law would sanction would be that they were corporators of the
body corporate‖.
Lord Halsbury continued at page 31 of the case:
―Either the limited company was a separate legal entity or it was not. If it was,
then the business belonged to it (the company) and not to Mr. Salomon. If it was
not a separate legal entity, then there was nothing of which Salomon could be the
agent‖.
He also said it is impossible to say that there is a company and at the same time
that it is not.
At page 51, Lord Macnagthen said:
―the company is at law a different person altogether from the subscribers and
though it may be that after incorporation the business is the same as it was
before and the same persons are managers and the same hands received the
profit, the company is not in law the agent of the subscribers or a trustee for
them. Nor are the subscribers as members liable, in any shape or form, except to
the extent and in the manner provided by the Act‖.

∙ ―The company is at law a different person altogether from the

subscribers and memorandum…..‖
∙ ―the company is not an agent for the subscribers

INDUCING FACTORS TO THE FORMATION OF COMPANIES

1. Desire to avoid the risk of bankruptcy

2. Increased capacity to raise capital [increased facility afforded for borrowing
money]. Ld Halsbury in Salomon v. Salomon

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Company law Paulo Lee v. Lee’s Air Farming Ltd

Facts: The appellant was the widow of the deceased who had been the
governing director and majority shareholder in the respondent company. The
deceased had absolute control of the affairs of the company. Being a skilled pilot,
the deceased entered into a contract of employment with the defendant company
to pilot the aircraft which was used in spraying crops. The company was one that
specialized in spraying crops for customers.
The deceased met his death following a crash he suffered while piloting the
aircraft. The widow claimed compensation for his death from the company under
the Australian Workmen compensations Act on the basis that her husband was a
worker of the company. The company denied this and the matter went to the
court of Appeal after the court of first instance denied the claim of the widow. The
court of appeal denied the claim of the appellant because it held that it was
impossible for the deceased who was the majority shareholder as well as
governing director of the company to enter into a contract with the company and
to obey the orders of the company as an employee. The court of appeal held that
in such a situation there could exist no power of control and therefore the
relationship of master –servant was not created.
The widow appealed to the Privy Council.
Issue: Whether the position of the deceased as sole governing director made it
impossible for him to be the servant of the respondent company in the capacity
of chief pilot of the company?
Holding
The Privy Council held on the first issue that it was not impossible at law for a
governing director who had absolute control over the company to be at the same
time a worker of the company. It held that the deceased was properly a worker of
the company for which his widow could claim compensation.
On the second issue, the Privy Council held that it was not impossible for the
deceased to be the servant of the respondent company for the simple reason
that he acted for the company as its agent when he entered into a contract with
himself in his capacity as a pilot. This was because following

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the decision in Salomon v. Salomon the company was a separate and legal
personality distinct from the personality of the deceased. This was
Company law Paulo

especially true as the defendant company was not a mere sham or a mere
simulacrum.
IMPLICATIONS OF BEING A SEPARATE LEGAL ENTITY 1. The company
enjoys separate legal personality. S.24 of the Companies Code.
―….shall have for the furtherance of its objects and of any business carried
on by it and authorised in its Regulations, all the powers of a natural person of
full capacity.‖
***But it should be noted that being an artificial person it acts through natural
persons.
This is buttressed by section 137(1) of the Code which provides that ―(1) A
company shall act through its members in general meeting or its board of
directors or through officers or agents, appointed by, or under authority
derived from, the members in general meeting or the board of directors.‖

The company has 3main organs:

(a) members in general meetings
(b) board
(c) managing director

The board or managing director can ask someone to act for the company and if
done legally it can bind the company.

2. Limited Liability
Where shares are fully paid up a member is not liable to continue in the event
that assets of the company are not sufficient to meet its liability during
liquidation. The concept of limited liability reinforces the reason in the case of
Salomon v. Salomon.

3. Separate Property

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Upon incorporation the property of the company belongs to the company and
not the share holders, i.e. members have no direct ownership over assets of the
company. The share holder‘s main interest is in the shares.

Company law Paulo ∙ Share holders in the eyes of the law are not part owners of
the undertaking (of the company)
∙ Neither the shareholder nor an insurer of the company has an insurable
 interest in the company

Macaura v. Northern Assurance Ltd

FACTS:
The appellant was the owner of an estate. The respondents were 5 insurance
companies with whom the appellant effected insurance against fire on timber and
wood goods which were lying in the estate. The insured goods were those which
were not within a hundred yards of any saw mill or any building in
which woodworking by power other than wind or water was carried on. The
appellant later on assigned the whole of his timber both felled and unfelled to a
company known as Irish Canadian Ltd for an amount of 42,000 Pounds. This
amount was paid by creating shares worth that amount to the appellant. The
company thus fell all the timber and had it sawn up in the saw mills. Along the
way the appellant became a creditor of the company for the sum of 19,000
Pounds. The cut timber remained lying on the appellant‘s land and was
destroyed by fire. The appellant claimed against the respondents upon the
policies and respondents declined liability for the loss of the timber within a
hundred yards of the saw mill. The whole interest of the company was owned by
the appellant.
Held:
The appellant had no insurable interest in the timber described. It was not his. It
belonged to the company he had assigned it to. He had no lien or security over it,
and though it lay on his land by his permission, he had no responsibility to its
owner for its safety, nor was it there under any contract that enabled him to hold it
for his debt. He owned almost all the shares in the company and the company
owed him a great deal of money, but neither as creditor nor as shareholder, could
he insure the company‘s assets. (Per Lord Sumner)

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Lord Buckmaster: No shareholder has any right to any item of property owned by
the company, for he has no legal or equitable interest therein.

Company law Paulo LD Salmon: It is clear that the appellant had no insurable
interest in the assets of the company. His relation was to the company and not to
its goods‖
 4. legal action
Because the company becomes a separate legal entity, the company can
sue and be sued

Section 263 of the companies‘ code

A document may be served on a company by leaving it at, or sending it by post
to, the registered office of the company or the latest office registered by the
Registrar as the registered address of the company. (2) Any document to be
served by post on a company shall be posted in such time as to admit of its being
delivered in due course of delivery within the time, if any, prescribed for the
service thereof; and in proving service it shall be sufficient to prove that a letter
containing such document was properly addressed prepaid and posted, whether
or not by registered post. (3) If a company has no registered office, service upon
any director of the company or, if the company has no director or if no director
can be traced in Ghana, upon any member of the company, shall be deemed
good and effectual service upon such company.
(4) If it shall be proved that any document was in fact received by the board of
directors, managing director or secretary of a company such document shall
be deemed to have been served on the company notwithstanding that service
may not have been effected in accordance with the foregoing subsections of
this section.

Apenteng v. Bank for West Africa

Facts: The plaintiffs were the only shareholders in a trading company. As a result
of financial advice given negligently by the first defendants, the company lost
heavy sums of money and was subsequently wound up. The plaintiffs, alleging
that as shareholders they have lost "their business

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interests and yearly profits and dividends" sued the first defendants and two of
their agents in negligence, claiming damages and special damages, and general
damages

Company law Paulo Held:

A company is a distinct personality having an existence separate from its
shareholders. The shareholders cannot sue in respect of a wrong done to the
company, unless it can be shown that the wrong is against the individual rights of
the shareholders as distinct from the corporate rights of the company. In this case
the loss complained of is a loss to the company not to the shareholders, and the
plaintiffs have no cause of action.

5. Perpetual Existence and succession

The company can enjoy an unbroken personality. Therefore where the
company is properly managed it can exist in perpetuity. Therefore until there
is liquidation and execution the company remains:
A company generally speaking has no obligation to buy back the shares from
share holders
∙ Perpetual succession
Section 180(1)
1) Every company incorporated after the commencement of this Code shall have
at least two directors.
(2) Every company incorporated prior to the commencement of this Code shall,
after the expiration of six months from the commencement of this Code, have at
least two directors.
(3) If at any time the number of directors is less than two in breach of either of the
foregoing subsections of this section and the company continues to carry on
business for more than four weeks thereafter, the company and every director
and member of the company who is in default shall be liable to a fine not
exceeding five pounds for every day during which it so carries on business after
the expiration of such four weeks without having at least two directors; and every
director and member of the company who is cognisant of the fact that it is
carrying on business with fewer than two directors shall be jointly and severally
liable for all the debts and liabilities of the company incurred during that time.
(4) Subject as aforesaid the number of directors shall be fixed by, or in
accordance with, the company's Regulations.

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6. Borrowing Powers and raising capital
∙ Debentures

Company law Paulo ∙ Increase shares especially if it is a public company since there
is no limit to the number of shareholders
 7. management of company by directors
∙ division of responsibility between directors and
shareholders
∙ Companies are managed by directors. In large companies
the separation is more visible

8. Transferability of interest (shares)

∙ In public companies there shall not be any restrictions on shares
unless there are unpaid liabilities
∙ In private companies there may be restrictions and these must be
made clear by the company‘s regulations

9. taxation
A company is liable to tax separately from its share holders. There is no
requirement of group

Section 45 of Act 592 IRS ACT

1) Where the Commissioner is satisfied that a company controlled by not more
than five persons and their associates do not distribute to its shareholders as
dividends a reasonable part of its income from all sources for a basis period
within a reasonable time after the end of the basis period, the Commissioner
may, by notice in writing, treat that part of the company‘s income which the
Commissioner determines as distributed as dividends paid to its shareholders
during that period or any other period.

DISADVANTAGES OF INCORPORATION

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1. Sometimes the corporate entity works
like a boomerang. Control of a company
by a proprietor is both difficult in fact
and in law
2. separate property
Sometimes the court would ignore the phenomenon of separate legal entity and
would lift the veil of incorporation and identify the person behind it. 3.
incorporation necessarily involve
formalities and the company must comply with the formalities which may be
stringent
4. Incorporation may impose burdensome
cost on companies. Compliance with
regulatory requirements may require
the engagement of professionals
5. loss of control
∙ Unless share holders are also
directors they would not have
control over the company.
∙ Generally removing directors is
a bit of hassle

6. loss of privacy
Because of the requirement of making information available to the registrar
general
7. unfavourable regime for creditors
It provides a disincentive for lending to companies

Incorporation gives capacity to a company to operate as if it were a human being.

For large companies the advantages of incorporation are overwhelming. The
disadvantages are conclusive.
Some requirements for small companies should be reduced. On the whole
incorporation is good.

Types

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In forming a company the promoter would have to make certain preliminary
decisions and that would inform the nature of the company.

2main types of companies----public and private

∙ One limited by shares
∙ Unlimited
∙ Company limited by guarantee
 1. limited liability company:

S. 16(3) of Act 179

The Regulations of a company limited by shares or by guarantee shall also
state that the liability of its members is limited.

s.16 (2) (a)

(2) The Regulations of a company shall state,
(a) The name of the company, with "Limited" as the last word of the name in
the case of a company limited by shares

Where the liability is limited then a member should pay for his shares in full.

Section 37(4)
(4) In the event of a company being wound up every present or past member
shall be liable to contribute to the assets of the company to an amount sufficient
for payment of its debts and liabilities and for the costs, charges and expenses of
the winding up and for the adjustment of the rights of the members and past
members among themselves but subject to the following qualifications, that is to
say,
(a) A past member shall not be liable to contribute if he has ceased to be a
member for a period of one year or upwards before the commencement of the
winding up;
(b) a past member shall not be liable to contribute unless it appears to the Court
that the existing members are unable to satisfy the contributions required to be
made by them in pursuance of this section;

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(c) in the case of a company limited by shares, no contribution shall be
required from any member or past member exceeding the amount, if any,
unpaid on the shares in respect of which he is liable as a present or past
member;
ADVANTAGES
∙ protection to shareholders against creditors (Salomon v. Salomon) ∙ reduces
the risk involved in the separation of ownership and control ∙ allows
shareholders to diversify their holding and to invest more
knowing that in each case their liability would be limited to their shares

DISADVANTAGES

∙ creates an unfavourable regime for creditors

∙ encourages irresponsible investment
∙ lenders and creditors in order to protect themselves may insist on personal
guarantees as collateral

UNLIMITED COMPANIES

S. 9(1) (c)
A company not having any limit on the liability of its members, in this Code
referred to as an unlimited company.

∙ does not end with ―limited‖

∙ members are liable to contribute to the limit of their personal fortune in the
event of the company being wound up and their assets not enough to
satisfy the company‘s liability
2things stand out here:
1. the company should be wound up

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2. the assets should be insufficient to satisfy the
liability
**if the company is a going concern members cannot be asked to contribute
more than required liability
***creditors cannot sue members of the company
**liability is jointly and severally

COMPANIES LIMITED BY GUARANTEE

∙ suitable for clubs, churches, etc. that is non profit making entities who may
want to take the advantages of companies such as perpetuity. ∙ The
regulations of the company should state that the liability of members is limited
to such amount as the members of the company agreed to contribute….
in the event of it being wound up.

Section 10(3)
(2) If any company limited by guarantee shall carry on business for
the purpose of making profits, all officers and members thereof who
shall be cognisant of the fact that it is so carrying on business shall
be jointly and severally liable for the payment and discharge of all the
debts and liabilities of the company incurred in carrying on such
business, and the company and every such officer and member shall
be liable to a fine not exceeding five pounds for every day during
which it shall carry on such business.
(3) The total liability of the members of a company limited by guarantee to
contribute to the assets of the company in the event of its being wound up
shall not at any time be less than one hundred pounds.

∙ Does not have share holders but members

∙ Shall not be registered with shares and shall not be created with
shares
∙ The regulations should state the objectives of the company

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Section 10(1)

1) A company limited by guarantee may not lawfully

be incorporated with the object of carrying on
 business for the purpose of making profits

Section 16(5) (c)

state that if, upon the winding up of the company, there remains after the
discharge of all its debts and liabilities any property of the company the
same shall not be distributed among the members but shall be transferred
to some other company limited by guarantee having objects similar to the
objects of the company or applied to some charitable object, such other
company or charity to be determined by the members prior to the
dissolution of the company.

Section 72
(1) A company limited by guarantee shall not at any time pay any dividend or
make any distribution or return of its assets to its members. (2) If any payment,
distribution or return shall be made in contravention of this section any member
to whom it is made shall restore the same to the company with interest thereon at
the rate of five per centum per annum

PRIVATE & PUBLIC COMPANIES

A company limited, unlimited or guaranteed may be public or private
Section 9(3)
A private company shall be a company which by its Regulations,
(a) restricts the right to transfer its shares, if any;
(b) limits the total number of its members and debenture holders to fifty, not
including persons who are bona fide in the employment of the company and
persons who, having been formerly bona fide in the employment of the company,
were while in that employment, and have continued after the determination of
that employment to be, members or debenture holders of the company;
(c) prohibits the company from making any invitation to the public to acquire any
shares or debentures of the company; and

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(d) prohibits the company from making any invitation to the public to deposit
money for fixed periods or payable at call, whether bearing or not bearing
interest:
Provided that where two or more persons hold one or more shares or debentures
jointly, they shall, for the purposes of this subsection, be treated as a single
member or debenture holder.
Four distinguishing features between a private and a public company

1. restrictions on transfer of shares:

Section 9(3)
A private company shall be a company which by its Regulations,
(a) restricts the right to transfer its shares, if any;

Section 294(1)
Notwithstanding subsection (2) of section 95 of this Code, the Regulations of a
public company shall not impose any restriction on the right to transfer any
shares of the company and if the Regulations purport to impose any such
restriction it shall be ineffective:
(a) Prohibit any restriction on the right to transfer any shares on which there is an
unpaid liability

2. Number of Members

∙ Maximum number of debenture holders and members should not

exceed 50 in the case of private companies.
∙ A public company on the other hand has no limit on the maximum
number of members

3. Prohibition from making invitations to the public

∙ Generally a private company cannot make

invitations to the public
∙ A private company shall not issue a prospectus
∙ A public company can however do these

4. Prohibition from inviting the public to deposit money

∙ Private companies are restricted
∙ Public companies have no such restrictions

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It should be noted that for the public to deposit money would involve the Bank of
Ghana.

Other features found in the Code

 a. Appointment of directors:
∙ Section 272
—Appointment and Removal of Directors of Private Companies.
(1) The appointment and removal of directors of a private company
shall, subject to sections 180 to 185 of this Code, be regulated by the
company's Regulations.
(2) In the absence of any contrary provision in the company's
Regulations each of the existing directors shall continue to hold office
until he vacates office under section 184 of this Code, or is removed
under section 185 of this Code; and the company may at any time by
ordinary resolution fill any vacancy in the number of directors and may
at any time by ordinary resolution increase the number of directors so
however that the total number of directors shall not exceed the
maximum, if any, prescribed by the Regulations.

∙ Section 298 for public companies

a) at the first annual general meeting of the company all the directors shall
retire from office, and at the annual general meeting in every subsequent
year one-third of the directors for the time being or, if their number is not
three or a multiple of three, then the number nearest one-third, shall retire
from office

(b) Number of Directors

The Code defines only the minimum number not the maximum For
private companies the minimum is 2 and the maximum is 5. For
public companies the minimum is 2 and the maximum is 12.

Section 293
The directors of a public company with shares may, unless the Regulations of
the company shall otherwise provide, from time to time pay to

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the shareholders of the company interim dividends on account of dividends to be
declared by the company in accordance with section 73 of this Code:

Section 301

—Prohibition of Loans by Public Companies to Directors. (1) It shall not be lawful

for any public company to make a loan to any person, who is its director or a
director of any associated company, or to enter into any guarantee or provide any
security in connection with a loan made to such a person by any other person:
Provided that nothing in this section shall apply,
(a) to the making of a loan to an associated company or the entering into any
guarantee or the proving of any security in connection with a loan made to an
associated company by any other person; or
(b) subject to subsection (2) of this section, in the case of a company whose
ordinary business includes the lending of money or the giving of guarantees in
connection with loans made by other persons, to anything done by the company
in the ordinary course of that business.
(2) Proviso (b) to subsection (1) of this section shall not authorise the making of
any loans or the entering into any guarantee or the providing of any security,
unless the total amount lent, guaranteed, and secured in respect of loans to such
persons as aforesaid does not exceed one per centum of the net assets of the
company; and for the purpose of this subsection the expression "net assets"
means the assets less the liabilities of the company as shown in the last audited
balance sheet of the company.
(3) If any company shall make default in complying with the provisions of this
section the company and every officer of the company who is in default shall be
liable to a fine not exceeding one hundred pounds and the directors authorising
the making of the loan or the entering into the guarantee or the providing of the
security shall be jointly and severally liable to indemnify the company against any
loss arising therefrom.

(c) Minimum Capital

Companies Code Amendment Act 1997 Act 531 ∙ Minimum capital applies only
to limited liability company ∙ For private companies the minimum is 5million of
which 1million must be in cash

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∙ For public companies minimum is 25million of which 5million must be in
cash.

(D) Qualification of Auditors

Section 270
∙ Need not be a chartered accountant
 ∙ Suffices if he is a practicing accountant

(E) Filling of Returns

Section 122(5)
In the case of a private company the annual return shall be accompanied by the
documents specified in section 269 of this Code and in the case of a public
company by the documents specified in section 295 of this Code.

∙ Returns should be accompanied by financial statements for public

companies

(F) Conflict of interest on the part of directors

Section 205(b)
Notwithstanding any provision in the company's Regulations, a director shall not,
without the consent of the company in accordance with section 206 of this Code,
place himself in a position in which his duty to the company conflicts or may
conflict with his personal interests or his duties to other persons, and in
particular, without such consent a director shall not,
(a) use for his own advantage any money or property of the company or any
confidential information or special knowledge obtained by him in his capacity as
director;
(b) be interested directly or indirectly, otherwise than merely as a shareholder or
debenture holder in a public company, in any business which competes with that
of the company; or
(c) be personally interested, directly or indirectly, in any contract or other
transaction entered into by the company except as provided by section 207 of
this Code

(G) Requisition (request that directors should call a meeting other than the
annual general meeting)

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Section 271
(1) The directors of a private company, notwithstanding any provision in its
Regulations, shall, on the requisition of any two or more members of the
company or a single member holding not less than one-tenth of the shares of the
company, or, in the case of a company limited by guarantee, one-tenth of the
total voting rights of all members, forthwith proceed duly to convene an
 extraordinary general meeting of the company.

∙ For Public companies a member or members holding

not less than 5% of the shares or voting rights can
request a meeting.

Section 302(2)

Definition of external company

―An external company is a body corporate formed outside Ghana which, at or
subsequently to, the commencement of this Code has an established place of
business in Ghana.‖

Section 302(3)

Definition of what is an ―established place of business‖

―The expression "established place of business" means a branch,
management, share, transfer, or registration office, factory, mine, or other fixed
place of business, but does not include an agency unless the agent has, and
habitually exercises, a general authority to negotiate and conclude contracts on
behalf of the body corporate or maintains a stock of merchandise belonging to
that body corporate from which he regularly fills orders on its behalf‖

Section 66(1) of IRS Act

A tax is hereby imposed, for each year of assessment, on a
non-resident person carrying on business in Ghana through a permanent
establishment which has repatriated profits for a basis period ending within the
year.

20
LIFTING THE VEIL
∙ Broadly speaking both the legislature and the courts recognise the decision
in Salomon v. Salomon as the cornerstone of company law in Ghana.
∙ Occasionally the law has to disregard the idea of corporate personality to lift
the veil to identify the person hiding behind the company
∙ Describes the situation under which the principle of corporate personality is
 disregarded and responsibility attached
∙ The responsibility may be in the form of fine or liability ∙ The
principle of lifting the veil is in two forms:
1. it may be authorised by statute
2. judicial inroads by the courts

1. the legislature:
The corporate veil is drawn by statute and be pierced by statute. The objective of
the legislature in passing these statutory provisions is to reinforce the principles
enunciated in Salomon v. Salomon in that a company limited by liability is a
different person from those who promoted it . . . That the court will not hesitate to
break through the concept of corporate personality and find out from behind
those who are at the helm of affairs with these considerations in mind.

The position in Ghana

∙ no direct provision but by virtue of interpretation

(a) Act 179

(i) breach or the prescribed number of
minimum members
Section 8
Any one or more persons may form an incorporated company by complying with
the provisions of this Code in respect of registration.

21
Section 38
Companies ceasing to have Members: If at any time a company ceases to have
any member and it carries on business for more than six months without at least
one member, every person who is a director of the company during the time that
it so carries on business after those six months shall be jointly and severally
liable for the payment of all the debts and liabilities of the company incurred
during that period

(ii) breach of the required number of

 directors
Section 180— Number of Directors:
(1) Every company incorporated after the commencement of this Code shall
have at least two directors.
(2) Every company incorporated prior to the commencement of this Code shall,
after the expiration of six months from the commencement of this Code, have at
least two directors.

Section 180(3)
If at any time the number of directors is less than two in breach of either of the
foregoing subsections of this section and the company continues to carry on
business for more than four weeks thereafter, the company and every director
and member of the company who is in default shall be liable to a fine not
exceeding five pounds for every day during which it so carries on business after
the expiration of such four weeks without having at least two directors; and every
director and member of the company who is cognisant of the fact that it is
carrying on business with fewer than two directors shall be jointly and severally
liable for all the debts and liabilities of the company incurred during that time.

(iii) trading for profit by a guarantee

company for distribution for members
Section 10
A company limited by guarantee may not lawfully be incorporated with the object
of carrying on business for the purpose of making profits.

22
(2) If any company limited by guarantee shall carry on business for the purpose
of making profits, all officers and members thereof who shall be cognisant of the
fact that it is so carrying on business shall be jointly and severally liable for the
payment and discharge of all the debts and liabilities of the company incurred in
carrying on such business, and the company and every such officer and member
shall be liable to a fine not exceeding five pounds for every day during which it
shall carry on such business.

Section 16(5)
(5) In the case of a company limited by guarantee the Regulations shall also, (a)
contain a regulation …… stating that the income and property of the company
shall be applied solely towards the promotion of its objects, and that no portion
thereof shall be paid or transferred directly or indirectly to the members of the
company except as therein permitted;

(iv) Misdescription
Section 121
Publication of Name of Company
(1) Every company shall,
(a) Paint or affix, and keep painted or affixed its name on the outside of its
registered office and of every office or place in which its business is carried on, in
a conspicuous position in letters easily legible; (b) Have its name engraved in
legible characters on its seal; (c) Have its name accurately mentioned in legible
characters at the head of all business letters, invoices, receipts, notices, or other
publications of the company, and in all negotiable instruments or orders for
money, goods or services purporting to be signed or endorsed by or on behalf of
the company. (2) If any company makes default in complying with subsection (1)
of this section the company and every officer of the company who is in default
shall be liable to a fine

∙ Where there is a default then the company and all its offices shall be
liable

23
(vi) Names of Companies
Section 15
(1) The last word of the name of a company limited by shares shall be "Limited":
Provided that an existing company limited by shares is to dispense with the word
"Limited" shall retain the right to such dispensation until the expiration of six
months after the commencement of this Code.
(2) No company shall be registered by a name which, in the
opinion of the Registrar, is misleading or
undesirable.
Other statutes apart from Act 179
 (a) Fraudulent trading
Section 26 of Act 180 (Bodies Corporate (official
Liquidations) Act, 1963

1) If in the course of the official winding up of a company it appears that any

business of the company has been carried on with intent to defraud the creditors
of the company or creditors of any other person or for any fraudulent purpose,
the Court may, on the application of the liquidator or of any creditor, member or
contributory of the company, if it thinks fit so to do, declare that the persons who
were knowingly parties to the carrying on of the business in the manner aforesaid
shall be personally responsible, without any limitation of liability, for all or any of
the debts or other liabilities of the company as the Court may direct.

(b) nationality of a company

Banking Act section 90 defines what ―foreign
bank‖

Section 121 of IRS Act defines residence of a company

2. JUDICIAL INROADS:
From the numerous cases it is impossible to clearly define the circumstances
that the court would consider.

24
Sophia Akuffo JSC in Morkor v. Kuma
∙ façade, sham, device, mask, strategy, alias, etc
∙ evasion of contractual obligations
∙ fraud
∙ evasion
Sometimes the court would not allow the corporate formed to be used as a
device to evade a contractual or other legal obligation

The ―corporate veil‖ argument: (façade, sham, etc)

Whenever a device or sham cloak is alleged in cases the motive of the alleged
perpetrator must be legally relevant.
In JONES V. LIPMAN, the 1st defendant had agreed to sell to the plaintiffs some
land for over 5,000 pounds. Pending completion the first defendant sold and
transferred the land to the second defendant company for 3000 pounds. The
evidence showed that the company was at all material times under the complete
control of the first defendant. It also showed that the acquisition by him of the
company and the transfer of land to the company had been carried through
solely for the purpose of defeating the plaintiffs‘ right to specific performance. It
was held that the company was the creature of the first defendant, a sham, a
mask which he holds before his face in an attempt to avoid recognition by the
eye of equity.

In GILFORD MOTORS V. HORNE, the individual defendant had entered into

covenants restricting his trading activities. It caused to the defendant company to
be formed. This company was under his control and did things which if they had
been done by him would have been a breach of the covenants. And injunction
was granted not only against him but also against the company. The court stated
that the defendant company was a mere channel used by the defendant for the
―purpose of enabling him for his own benefit.‖

JONES V LIPMAN
Facts: The defendant who had contracted to sell land to the plaintiff, later
endeavoured to put the land beyond the reach of an order for specific
performance by conveying it to a company which he had formed for this

25
express purpose, and which the defendant himself effectively owned and
controlled.
Ignoring the corporate veil, Russell J ordered specific performance against both
the defendant and his company.
Russell J
―The company was a creature of the first defendant. It was a device, a sham
and a mask which he holds before his face in an attempt to avoid recognition by
the eye of equity‖

GILFORD MOTORS v. HORNE

Facts:
The plaintiff company employed the defendant as the managing director for a
number of years. A contract was drawn up to that effect which also contained a
clause that the defendant should not engage in any business during his tenure of
office and that after he left the company he would not solicit the customers of the
company. Unfortunately the managing director‘s tenure of office was shortened
and he was removed by the plaintiff company.
This was done by an oral agreement. After the defendant left the company, he
set up a company and engaged in the same business as the plaintiffs and
solicited the customers of the plaintiff company. Later on the defendant, fearing
that his activities might be in breach of the contract he entered into with the
plaintiff company, got his solicitor to request a copy of the agreement from the
plaintiffs. After this was done, the defendant incorporated a company which
carried on the business that he had previously engaged in, that is, the same
business as that of the plaintiff company.
He registered the new company with the name of his wife‘s initials. His wife was
also a shareholder in the company along with a former employee of the plaintiffs
who was also a director and employee of the new company.
The plaintiff company sought an injunction to prevent the defendant from
poaching its customers in breach of the agreement. The court of first instance
found that the defendant‘s company was a sham, but did not award the injunction
because it held that the contract agreement was too wide and

26
was an unfair restraint of trade. The plaintiff company appealed to the court of
appeal
Holding
The Court of appeal held that the company was a mere sham through which the
defendant carried on its business which was in clear violation of the agreement
entered into with the plaintiff company. The court of appeal also found that the
agreement was not too wide since the category of customers the defendant was
forbidden to solicit was clearly stated in the contract agreement. Thus the appeal
was allowed and the injunction was awarded.
NB: in both Gilford motors v Horne and Jones v. Lipman the company whose
separate existence was disregarded had been set up deliberately in an attempt to
evade an existing obligation.

CREASY V. BREACHWOOD MOTORS 1993

This was an appeal by the defendant ("Motors") against an order

substituting Motors as the defendant in an action in which the
plaintiff, "C", had obtained judgment. C worked for a company,
"Welwyn", which carried on the business of a garage trading in cars
and other vehicles. Motors carried on similar businesses at other
premises. Both Welwyn and Motors were owned and controlled by
Mr. Ford and Mr. Seaman. C was summarily dismissed by Welwyn
and C issued a writ claiming damages for wrongful dismissal against
Welwyn.
Welwyn then ceased trading and next day Motors took over its
business. Motors took over all the assets of Welwyn and paid all the
debts of Welwyn to its then creditors, but without making any
provision for C's claim if that were to succeed. After C had obtained
judgment in default against Welwyn, Welwyn was struck off the
register as defunct and dissolved. C then obtained the order
substituting Motors as defendants, against which Motors appealed.

27
Motors argued that any liability of Welwyn to C could only devolve on
Motors by contract or statute and had not done so; alternatively, the
action had abated on Welwyn's dissolution. C argued that there was
authority for a general presumption in law that where the whole
business of a company or partnership was taken over by a different
company or partnership, liabilities were transferred as well as assets,
and that that presumption was not displaced on the facts;
alternatively that the court should lift the corporate veil and not
let F and S take the benefits of Welwyn's business by means of
the informal transfer of the business and all Welwyn's assets to
Motors, another company controlled by them, but leave C with a
claim against a defendant with no assets whatever.

Held, dismissing Motors' appeal,

1 There did not appear to be authority in English law for the
presumption C contended for, and even if there were, the
presumption would probably be displaced on the facts. 2 It was a
case in which the court would be justified in lifting the veil and
treating Motors as liable for the remaining liability of Welwyn.
The most important factor in this case is that Mr Ford and Mr
Seaman, and through them Motors, themselves deliberately ignored
the separate corporate personalities of Welwyn and Motors.
Nothing I have seen in the evidence could justify their conduct in
deliberately shifting Welwyn's assets and business into Motors in
total disregard of their duties as directors and shareholders, not least
the duties created by Parliament as a protection to all creditors of a
company.
Welwyn was not put into liquidation. As a subsisting company it was
entitled to retain its business and assets, so that they might

28
be available to pay a dividend however small to such of Welwyn's
creditors as Motors decided not to pay. Mr Ford and Mr Seaman
decided instead to remove the business and assets of Welwyn to
Motors, and, realising that the business could not be carried on
satisfactorily unless Welwyn's trade creditors were paid, paid all their
then actual creditors, but left Mr Creasey facing a defendant without
assets. They did so in full knowledge of Mr Creasey's claim. On the
state of the evidence before me the inference could readily be drawn
that one of the reasons why Mr Ford and Mr Seaman acted in the
way they did was in order to ensure that Mr Creasey if he succeeded
in his claim would not be able to recover anything.
In all the circumstances, however, this is a case in which the court
would be justified in lifting the veil and treating Motors as liable for
this remaining liability of Welwyn.

ORD V. BELHAVEN
The plaintiffs applied for leave to substitute the defendant's holding
company and/or another company in its group for the defendant. The
reason for this was the plaintiffs' appreciation that the defendant no
longer had substantial assets as there had been a restructuring of
assets between the group companies. The trial court Judge Alton
allowed the application for substitution and considered that the
group's actions in restructuring had ignored the separate personality
of its members and had ignored and disregarded their duties to
creditors in general and the plaintiffs in particular. The def appealed.

29
Held, allowing the appeal:
The judge's factual basis for lifting the veil was wrong. The defendant
company was not a mere facade for the holding company, the true
facts had not been concealed nor was there any sham. All the
transactions that took place were overt transactions, no impropriety
had been alleged and the companies had operated at all material
times as trading companies and they had not been interposed as
shams or for ulterior motive.

The decision in Creasey v Breachwood Motors Ltd [1992] B.C.C. 638

in which an order for substitution had been made in similar
circumstances could not be sustained. It represented the wrongful
adoption of the principle of piercing the corporate veil and a misuse
of power granted by the rules to substitute one party for another
following death or succession and should no longer be treated as
authoritative.

∙ FRAUD

RE DARBY
Facts:
The two defendants both undischarged bankrupts with a number of convictions
for fraud registered a company. It had only seven shareholders and the
defendants were its only directors and entitled to all of its profits. The prospectus
inviting the public to take debentures in the company disclosed the role of the
corporation but did not mention the names of the defendants or the fact that it
was they who were to receive the profit on the sale.

Held:
It was merely an alias for them. It was merely a name under which they carried
on business, and I am quite clear in my own mind that was their object and that
whenever they represented that some business was being done by or through
the corporation and concealed the fact that it was being

30
done by or through them (i.e. the 2defendants), they were by that mere fact
probably perpetrating a fraud.
―They were perpetuating a fraud because their names and person were well
known‖.

Re Bugle Press
Facts:
The plaintiff was the minority shareholder of a company. The defendants were
the majority shareholders of the company. They held between them 90% of the
shares of the company. Under a provision in the English Companies Act, 1948, a
transferee company upon the approval of the majority shareholders and directors
could make an offer to buy all the shares of the transferor company. If that offer
was accepted by the majority of shareholders in the transferor company, the
dissenting minority shareholder could be compelled to sell his shares to the
transferee company upon being given reasonable notice by the transferor
company. In this case it turned out that the majority shareholders in the transferor
company incorporated a new company which was the transferee company with
themselves as the majority shareholders and directors.
They then sought to buy all the shares of the transferor company of which they
were the majority shareholders. Of course this was agreed to by the transferor
company since they were the majority shareholders. The minority shareholder
however resisted this. Notice was given the minority shareholder of their intention
to compulsorily acquire his shares by the transferee company. The minority
shareholder applied to the court of first instance which found that the section of
the Act would not apply because the majority shareholders were the same people
who were also the people behind the transferee company.
The defendants appealed to the court of appeal.
Held: The court of appeal held that the minority shareholder could not have his
shares expropriated by the transferee company. The reason for this judgment
was because the same people were behind the transferee company and the
court felt that the transferee company was ―nothing but a little hut built around
the two majority shareholders‖ for the purpose of expropriating the shares of the
minority shareholder. They held that the section would only apply where the
transferee company was in fact as well as substance different from the transferor
company. In other words, the court

31
lifted the corporate veil and found that the same people were behind the
transferor company and the transferee company. In this case the section would
not apply and the minority shareholder could not have his shares expropriated.
In lifting the corporate veil, a crucial element is whether the company was in
existence before the matters in dispute arose or whether the company was
formed to enable one wriggle out of his obligation. Thus, the questions to be
asked are the motive(s) for forming the company and what use the company has
been put to. (PROF. GOWER).

AMARTEY v. S.S.B
FACTS:
The plt chairman and managing director of Y Ltd. owned houses at Accra. His
wife also owned a house which adjoined to his. Y Ltd. took a loan from the dft
bank. As security for the repayment of the loan, the plt joined one S to guarantee
the repayment of the loan. The company defaulted in the repayment of the loan
and the bank obtained judgment against it. In execution of that judgment a house
of the plt was sold. Since the proceeds were not sufficient to satisfy the judgment
debt and costs the bank
obtained another judgment for the outstanding balance and in execution of that
judgment had both the plt‘s house and his wife G's house sold. The plt brought a
suit to have the sale of his houses set aside

Held:
Although the plt was a mortgagor, he was also the managing director and
chairman of Y Ltd. and since he in that capacity, received the bank's final demand
notice to repay the loan, his feigning ignorance of that notice bordered on
fraudulent behaviour. Though Y Ltd. was a separate legal entity, in the
circumstances the court would unveil the cloak of incorporation because A
was the real person operating the company.
Accordingly, he would be held to have had notice of the demand note as a
mortgagor. The bank therefore complied with the terms of the mortgage and
consequently the sale of the house was proper.

32
MORKOR V KUMA (the east coast fisheries case) Facts:
The plaintiff agreed to supply frozen fish to the defendant company. The
agreement was negotiated on the defendant company‘s behalf by its CEO. When
the defendant company defaulted in making good its word to pay the agreed
amount the plaintiff sued for the outstanding balance of the purchase. The action
was brought against the defendant company as well as its CEO. The CEO raised
an issue as to the propriety of her being joined to the suit since the agreement
was between the plaintiff and the company not she personally.

Held:
A company after its registration has all the powers of a natural person of full
capacity to pursue its authorized business. Within the bounds of Act 179 a
company is a legal entity with a capacity separate, independent and distinct from
the persons constituting it.
The CEO negotiated the agreement in the normal course of her business as
CEO. Her multifaceted status in the company cannot by itself render the
company her alter ego.
The corporate barrier between a company and the persons who run it may be
breached only under certain circumstances- dictates of justice, public policy or
the companies code itself so requires-generally speaking. If the company was
established to further fraudulent activities or to avoid contractual liability the veil
would be lifted.
Vol 7(1) paragraph 90 of Halsbury‘s Laws of England:
―Notwithstanding the effect of a company‘s incorporation, in some cases the
court will ―pierce the corporate veil‖ in order to enable it do justice by treating a
particular company………..as identical with the person or persons who control
that company‖

OWUSU V. R. N. THORNE

Facts: The plaintiff sued the defendants, R. N. Thorne Ltd. and J.K. Anane. The
plaintiff, by an ex parte motion, obtained an absconding warrant against Mr. R. N.
Thorne, one of the directors of the first defendant company. It

33
was argued on behalf of the first defendant that the plaintiff sued R. N. Thorne
Ltd. as the first defendant as distinct from R. N. Thorne personally. Counsel
submitted that as the first defendant is a limited liability company with a separate
personality from the directors, and as Mr. Thorne has not personally contributed
to or personally caused the injury, he cannot be held personally liable for the torts
of the limited liability company. Counsel further submitted that the action in this
case does not fall or come within the limited exceptions where the directors of a
company are held personally responsible.
On behalf of the plaintiff it was argued that the first defendant acts through
human beings and the human beings are therefore responsible for the acts of the
company; that, as in this case Mr. R. N. Thorne and his wife are the only
directors, the two therefore comprise the first defendant company. They have
sold some of their property, closed their office and Mr. R. N. Thorne is going on
leave and is not likely to return to Ghana and it was submitted he must therefore
give security for his appearance.

Held:
What the court had to determine in this motion is whether R. N. Thorne
personally or the company is the first defendant in this case. The theory of legal
personality of corporations has its own practical problems but it is clear that a
limited company or corporation has legal existence apart from the directors and
members, and it is in a few recognised exceptions that the law lifts the "corporate
veil," as it has been put, and looks to the directors and members personally. On
the plaintiff's own pleadings he sued R. N. Thorne Ltd. the first defendant and
one other as the second defendant— the first defendant was the master of the
second defendant. It may well be and undoubtedly is true that R. N. Thorne and
his wife are the only directors of the company but the company exists apart from
the directors and the members. To hold that the directors are personally the first
defendant in this case will be defeating the doctrine of the separate existence of
a limited liability company. The action is not against R. N. Thorne personally. As
far as the court is aware the company is not in the process of being wound up
and even if that were so, it would not make R. N. Thorne personally the first
defendant in this case. In the absence of R. N. Thorne from Ghana, another
director has been appointed. The company as far as the court can gather is still
in existence and R. N. Thorne is not and cannot be

34
personally the first defendant herein so as to go into the question of his security.

***Interpretation of statutes and documents

Sometimes the wording of a particular statute justify the…..as one entity Where
the particular statute or contract justifies the lifting of the veil the court is not free
to set aside Salomon v. Salomon
In aid of interpretation the court may have regard to the economic realities in
deciding whether or not to lift the veil

The single economic unit argument:

The veil of incorporation may sometimes be lifted to allow a group of associated
companies to be treated as one. The fundamental principle is that each company
in a group of companies is a separate legal entity possessed of separate legal
rights and liabilities.

In HAROLDS V. CADDIES, the question arose as to whether the respondent

company which had entered into a service agreement with Mr. Caddies under
which he was appointed MD of the company was entitled to require him to devote
his whole time to duties in relation to subsidiaries of the company. It was argued
that the subsidiary companies were separate legal entities and that in law the
board of the parent company could not assign duties to anyone in relation to the
management of the subsidiary companies and that therefore the agreement
could not be construed as entitling them to assign any such duties to Mr.
Caddies. This argument was rejected by the court describing it as too technical.
According to the court the agreement must be construed in light of the facts of
the situation.

In SCOTTISH CO-OPERATION V. MEYER, the appellant society had formed a

subsidiary company of which the respondent was a member. It was submitted on
behalf of the society that even if it had acted in an oppressive manner yet it had
not conducted the affairs of the company in an oppressive manner. It was held
that it was not possible to separate the transaction of the society from those of
the company. Every step taken by the later was determined by the policy of the
former. Therefore the court must look at the business realities of a situation and
not to confine itself to a narrow legalistic view.

35
NB: In many cases such as HOLDSWORTH, SCOTTISH CO-OPERATION and
DHN the wording of a particular statute or contract has been held to justify the
treatment of a parent and subsidiary as one unit at least for some purpose. Save
as in cases which turn on the wording of particular statutes or contracts the court
is not free to disregard the principle in SALOMON V. SALOMON merely because
it considers that justice so required. In BANK OF TOKYO V. KAROON, Goff L.J.
said; ―counsel suggested beguilingly that it would be technical for us to
distinguish between parent and subsidiary companies in this context;
economically he said they were one. But we are concerned not with economics
but with the law. The distinction between the two is in law fundamental and
cannot be bridged.

HOLDSWORTH v. CADDIES
Facts:
The appellants a company purchased from the respondent the entire share
capital of a company. The appellant company thus became the beneficial owners
of that company. They were also the beneficial owners of all shares in two other
companies. By an agreement between the appellant company and the
respondent the respondent was appointed MD of the appellant company. As a
result of differences in opinion between the respondent and his fellow directors
he was asked to confine his duties to only the company bought from him. The
respondent regarded this resolution as a repudiation of the agreement and wrote
a letter to the appellant company that as a result of this repudiation he regarded
himself as no longer bound to the give his services to the appellant company.

Held:
The respondent by the mere fact that he was appointed MD of the appellant
company had any responsibilities, obligations or liabilities which would prevent
the appellant company ordering him to devote his full time to a subsidiary.

36
DHN FOOD V. TOWER HAMLETS
The plt was the parent company and had 2subsidiary companies. The first held
title only, the second held the vehicles of the group only. The plt took charge of
the actual business from its premises.
LD Denning:
This group is virtually the same as a partnership. They should not be treated
separately so as to defeat them on technical grounds.

ADAMS V. CAPE
Facts:
Cape an English company headed groups which include many wholly owned
subsidiaries. Some of these mined asbestos in South Africa and others marketed
the asbestos in various countries, including the U.S. Several hundred plaintiffs
had been awarded damages by a Texas court for personal injuries suffered as a
result of exposure to asbestos dust. The defendants included one of cape‘s
subsidiaries which was based in the U.S. An action was brought against cape in
England to enforce the judgment against it.

Held:
There is no general principle that all companies in a group of companies are to
be regarded as one. On the contrary, the fundamental principle is that each
company in a group of companies is a separate legal entity possessed of
separate legal rights and liabilities.

THE AGENCY ARGUMENT:

The court sometimes disregards the concept of legal personality and states that
the company is acting as an agent for the owner. In law the word ―agency‖ is
used to connote the relationship which exists where one person has an authority
or capacity to create legal relations between a person occupying the position of
principal and third parties. Therefore when the subsidiary company has general
authority to create contractual relations between its parent company and third
parties and exercises this authority there may be little difficulty in applying the
principle

Smith Stone v. Birmingham corp

37
FACTS: Smith was the parent company and formed a subsidiary. Both
companies carried on business. The parent company held the premises and
assets of the subsidiary. The profits of the subsidiary were treated as that of the
parent company. When the local authority acquired the premises of the
subsidiary company a question arose as to whether the parent company could
obtain compensation for the subsidiary.

Held:
The subsidiary was the agent, employee or tool of the parent company. Atkinson
J: salient factors that determine whether a subsidiary is carrying on the business
of the parent company;
Were the profits of the subsidiary those of the parent company? Were the
managers of the subsidiary appointed by the parent company? Was the
parent company the head and brains of the subsidiary company?
Did the parent company govern the adventure?
Were the profits made by the subsidiary company made by the skill and
direction of the parent company?
1. Was the parent company in effective control of the subsidiary?

∙ He attempted what is called functional control.

∙ The concern is not just ownership of the shares
∙ The principle in this case was applied in kuni v. state mining

KUNI V. STATE GOLD MINING

FACTS:
 The plaintiff, an employee of the Prestea Goldfields Ltd., a subsidiary of the
State Gold Mining Corporation, sustained serious injuries when a mass of loose
graphite rocks fell on him whilst working underground at the mines. He therefore
brought the present action against both the State Gold Mining Corporation and
the Prestea Goldfields Ltd. for damages. The main issue for the determination of
the court was whether or not it was proper for the plaintiff to sue the State Gold
Mining Corporation. The evidence adduced at the trial, showed that the State
Gold Mining Corporation held all the shares of the Prestea Goldfields Ltd. The
profits of Prestea Goldfields Ltd. were treated as profits of the State Gold Mining
Corporation. The State Gold Mining Corporation was also responsible for
appointing the general manager,

38
the mines manager and the chief engineer who conducted the business of the
mines and were in effective and constant control. Some of the directors of the
State Gold Mining Corporation constituted the board of directors of Prestea
Goldfields Ltd. Besides the Mining Regulations, made the working of a mine the
responsibility of the manager who in this case was appointed by the State Gold
Mining Corporation and was also responsible for the safety and proper discipline
of the men employed above and below ground.
Held:
(1) Under the ordinary rules of law, a parent company and a subsidiary company,
even a hundred per cent subsidiary, were distinct legal entities. However there
was no rule of law which said that a company could not, and should not, act as
an agent of its holder. From the facts it was clear that the Prestea Goldfields Ltd
was the agent of the State Gold Mining Corporation and carried on its business.
(2) Where a person was authorised by statute or bound by contract to do a
particular work, he could not escape responsibility by contracting with another
person to do it. In the present case, it was clear from the accident inquiries report
submitted by the Inspector of Mines that the plaintiff was seriously injured whilst
he was resting near the footwall side of the stope drive after shovelling. The
responsibility of the agent was that of the employer, and the State Gold Mining
Corporation was to be held liable for the negligence of the mines manager of
Prestea Goldfields Ltd. which resulted in the injuries suffered by the plaintiff.
Sarkodee J took the six factors of Lord Atkinson into consideration when
deciding the matter.
―In this regard I think all the circumstances must be taken into account the
following being particularly relevant:
(1) Are the profits treated as those of the parent company? (2) Are the persons
conducting the business appointed by the parent company?
(3) Is the parent company the head and brain of the enterprise? (4) Does the
parent company govern the business and decide what should be done and what
capital should be employed?
(5) Are the profits made by its skill and direction?
(6) Is the parent company in effectual control?‖

39
Public policy
Daimler v. continental company
―The critical character was control‖. The company would assume the character
of its nationals.
This case was during the First World War.
The principle here is that enemies at war cannot transact business and the
corporate veil will be lifted to see the enemy behind the veil.

FINAL POINTS:
1. Salomon v Salomon would be adhered to unless there is a justification for
departure
2. the courts would always recognise statutory inroads into the separate legal
personality
NB:
When tackling a problem question involving lifting the veil situate the facts within
the various conditions under which the court would ignore the corporate
personality. These conditions are fraud, façade and the agency principle. The
―interest of justice‖ is not one of the conditions for lifting the veil rather what
Sophia Akuffo meant in Morkor v. Kuma was that it was in the interest of justice
that the court would not allow a company to get away with fraud or façade and
that to seek justice the courts are willing to lift the veil. At the end of the day what
the court really seeks to do whenever a matter comes before it is to rule so at to
do justice. So that in lifting the veil by reason of fraud or evasion of contractual
obligations the court in essence is saying that for the sake of justice it would not
allow the defendant to get away with his wrong.
PROMOTERS
∙ Every company must be promoted. There cannot be a company without
promoters. First persons who form the company are the promoters. They
decide the shape of the company.
∙ All activities done to bring about the company amounts to promotion
WHALEY BRIDGE V. GREEN

40
―a term not of law but of business usefully summing up in a single word a
number of business corporations familiar to the commercial world by which a
company is generally brought into existence.‖

Twycross v. Grant (use this quotation as a guide to find out when promotion actually
starts in questions involving promotion of a company) Cockburn J:
―A promoter is one person who undertakes to form a company with
reference to a given project and to set it going and takes the necessary steps
to accomplish that effort‖

Section 12(1)
Definition of a promoter
―Any person who is or has been engaged or interested in the formation of a
company shall be deemed to be a promoter of that company: Provided that a
person acting in a professional capacity for persons engaged in procuring the
formation of the company shall not thereby be deemed to be a promoter‖1

KUMI v. NEW WORLD INVESTMENT

FACTS:
The plaintiff's case was that its Managing director sought advice on the setting up
of a Savings and Loans Company from the Chief Executive Officer of the
defendant Company. The CEO of the defendant company advised that it would
be more efficient to acquire a full banking license than a savings and
loans license if the assets of a liquidated bank (BHC) could be acquired. As a
result of this advice, the plaintiff advanced money to purchase some of the
assets of the BHC. After the acquisition, the plaintiff noticed a lack of
commitment on the part of some of the potential shareholders so he decided not
to pursue the banking idea any longer but to go back to his original Savings and
Loans Company. When the plaintiff decided to back out of the banking project the
defendant wrote to promise to refund the money spent

1
If a the services of a lawyer are for instance employed in the formation of a company the lawyer by virtue
of the legal service provided does not become a promoter of the company. However if the lawyer goes
beyond his professional capacity of a lawyer and goes ahead to convince people to invest in the company
for which he receives wages then he can properly be described as a promoter and he cannot be placed
within the proviso of section 12(1)

41
on purchasing the items to him. He never honoured his promise to do so. The
plaintiff sought to recover the assets purchased with his money from the
defendants.

ISSUE:
Whether or not the defendant acted as a consultant or a promoter

HELD:
As a matter of law, the term 'promoter' is defined in section 12 (1) of the
companies Code, Act 179 to cover any person who is or has been engaged or
interested in the formation of a company. It is a very wide definition. Persons who
act in their professional capacity for others who are engaged in forming the
company are excluded. Cockburn C.J. vividly described a promoter in Twycross
v. Grant as 'one who undertakes to form a company with reference to a give n
project and set it going and who takes the necessary steps to accomplish that
purpose'. 'Persons who give instructions for the preparation and
registration…….are promoters. So, too, are persons who obtain the directors,
issue a prospectus, negotiate underwriting contracts for the purchase of property
by the company or procure capital' see Charles worth and Cain: Company Law,
10th Edition at page 84. Who a promoter is, is largely a question of fact to be
resolved from the totality of the evidence on the record.
One thing that was clear was that the plaintiff went to seek the defendant‘s
professional assistance on some projects he wanted to set up. It was in his
professional capacity as a management consultant that the defendant offered
some advice based on the plaintiff‘s business plan. At the highest the defendant
coordinated their activities and brought them together to form the bank. The
defendant on the facts acted in his professional capacity as a management
consultant. In the true meaning of Section 12 of the Company's Code he is not a
promoter.
 Gower‘s report p.31u
―Expressed in general terms so that it would give room for construing it‖

Section 12(5)
No period of limitation shall apply to any proceedings brought by a company to
enforce any of its rights under this section; but in any such proceedings

42
the Court may relieve a promoter in whole or in part and on such terms as it
thinks fit from liability hereunder if in all the circumstances, including lapse of
time, the Court thinks it equitable so to do.

Special activities
Section 12(2)
―Until the formation of a company is complete and its working capital has been
raised, the promoter shall,
(a) stand in a fiduciary relationship to the company;
(b) observe the utmost good faith towards the company in any transaction with it
or on its behalf; and
(c) compensate the company for any loss suffered by it by reason of his failure
so to do‖
A promoter need not do all these since even one of them would be enough to
constitute promotion.
The standard of skill and care expected of a promoter is that expected of an
ordinary skilful person.

Section 12(3)
A promoter who acquires any property or information in circumstances in which it
was his duty as a fiduciary to acquire it on behalf of the company shall account to
the company for such property and for any profit which he may have made from
the use of such property or information.

NB:
 Note that a promoter is in a fiduciary relationship with the company and this
requires honesty. He must as such make full disclosures and account for profits
or info which comes into his possession as a result of the unique position he
occupies as a promoter. The company can then ratify any transaction involving
the promoter and the third party. This type of ratification therefore falls under
section 13 of the Code.
It is not every ―property or information‖ which the promoter gets that is being
spoken of here. Rather such information or property must be in line with the
business of the company.

43
∙ What if a promoter decides to sell his property to the company what
should he do? What act of the company would constitute ratification
in this context?
Section 12(4)2
―Any transaction between a promoter and the company may be rescinded by
the company unless, after full disclosure of all material facts known to the
promoter, the transaction shall have been entered into or ratified on behalf of the
company,
(a) if all the company's directors are independent of the promoter, by the
company's board of directors; or
(b) by all the members of the company; or
(c) by the company at a general meeting at which neither the promoter nor the
holders of any shares in which he is beneficially interested shall have voted on
the resolution to enter into or ratify that transaction.

GLUCKSTEIN V. BARNES
FACTS:
The plaintiff and 3others bought an exhibition premises in liquidation at 140,000
pds and then promoted a company to which they sold the premises for 180,000.
There were no independent directors. In a prospectus inviting applicants for
shares and debentures the 40,000 profit was disclosed but no further profit of
some 20,000 which they had made by buying securities on the property. The
company went into liquidation within four years and the liquidator claimed 6,341
parts of the 20,000 received by Gluckstein.
HELD:
‗Disclosure‘ is not the most appropriate word to use when a person who plays
many parts announces to himself in one character what he has done and is doing
in another. To talk of disclosure to a company, when as yet there were no
shareholders is a mere farce. To the intended shareholders there was no
disclosure at all. The whole sum was obtained by very gross fraud, and all

2
Not that section 12(4) only applies when the promoter is involved in a transaction with the company. The
conditions set under the subsection denote what are needed for a valid ratification of such transactions.
Therefore ratification of pre incorporated contracts under section 13 does not come in here.

44
who were parties to it are responsible to make good what they have obtained
and withheld from the shareholders.

Remedies Available
1. Account
2. compensation for loss suffered
3. Rescission
Section 12 (4) & (5)
Where a contract is entered into between a promoter and the company, the
company has the right to rescind the said contract. Indeed the company may
according to subsection 5 rescind at any time and there is no limitation period
on proceedings brought by the company3

PRE INCORPORATION CONTRACTS

Section 13(1)
(1) Any contract or other transaction purporting to be entered into by a company
prior to its formation or by any person on behalf of the company prior to its
formation may be ratified by the company after its formation; and thereupon the
company shall become bound by and entitled to the benefit thereof as if it had
been in existence at the date of such contract or other transaction and had been
a party thereto.
 ∙ These are contracts entered into either by the company itself or on its behalf
before its incorporation
∙ These contracts are usually made in anticipation of incorporation. ∙ Before a
firm is incorporated, it has no separate legal entity; in fact it has no existence
at all.
∙ And a non-entity cannot be party to a contract.

3
Contracts between promoters and companies are considered not to be at arm’s length, with the company
being the vulnerable party. For example, a promoter may sell his property or business to the 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 scepticism and the company given the
option to rescind at any time.

45
∙ Where the person purports to enter into the contract, e.g. by signing the
proposed name of the company (―for the company‖, ―on behalf of the
company‖)

KELNER V. BAXTER4
FACTS:
Kelner agreed with the promoters of an unformed company to sell wine. The
wine was delivered and duly consumed. Later the proposed directors met at
which they purported to ratify the purchase. The company folded up before
Kelner had been paid so he brought an action against the promoters
personally.

HELD:
As there was no company in existence at the time, the agreement would be
wholly inoperative unless it was held to be binding on the defendants
personally.
When the company came afterwards into existence it was a totally new
creature, having rights and obligations from that time, but no rights or
obligations by reason of anything which might have been done before. Where
a contract is signed by one who professes to be signing ―as agent‖, but who
has no principal existing at the time, and the contract would be altogether
inoperative unless binding upon the person who signed it, he is bound
thereby.
 ∙ By section 13(2) any such contract is not automatically binding on the
company but it is binding on the promoter

―Prior to ratification by a company the person or persons who purported to

act in the name or on behalf of the company shall, in the absence of express
agreement to the contrary, be personally bound by the contract or other
transaction and shall be entitled to the benefit thereof.‖

4
Note that there is no ratification of pre incorporated contracts at common law because at common law
ratification is valid only when the principal on whose behalf the agent seeks to make the transaction was in
existence at the time the agent was entered the transaction.

46
∙ It is however binding on the company if it decides to ratify the transaction
after its incorporation.

PANAGIOTOPOULOS V. PLASTICO5 FACTS:

The plaintiff agreed with P. and M. to establish a company to be called Plastico
Ltd. to manufacture plastics. In furtherance of this agreement, they acquired a
plot of land at Tema on which they built a factory and installed machinery in it.
The plaintiff met the pre-incorporation expenses and paid for the machinery
which was purchased for the company. Prior to the incorporation of the company,
the plaintiff purported to sell his interest in the venture to the company. By a
contract of sale executed on that day, the plaintiff who was described as the
vendor was recorded as having sold his interest in the land, factory and
machinery to P. and M. acting for themselves and as trustees in the formation of
Plastico Ltd. As security for the payment of the purchase price, it was provided in
the contract of sale that, "pending the full payment thereof, the said land, factory,
machinery and spares shall be mortgaged to the vendor." The company was
incorporated and entered into possession of the land and factory which were the
subject-matter of the sale. The company's solicitors wrote to the plaintiff's
solicitors stating that the company was beneficiary of the agreement entered into
by the promoters of the company. After paying ten instalments of the purchase
price, the company defaulted.
The plaintiff therefore caused to be issued an action against the company. The
company denied that the contract of sale was binding on them on the ground that
it was concluded before the company came into existence.

Held:
(1) A company is not bound by a contract purporting to be entered on their behalf
by the promoters or other persons before incorporation unless the company after
incorporation enter into a new contract to the effect of the previous agreement.
Such a contract may be inferred from the acts of the company. In this case there
was no evidence that the company had since incorporation entered into a new
express contract with the plaintiff to the effect of the contract of sale. Although
the actions of the company, i.e. in taking possession of the factory and making
the instalments of the purchase price would seem to infer that there was a
contract entered into between

5
The case although Ghanaian was decide under the common law not the companies code

47
the company and the plaintiff on the same terms as the contract of sale those
acts of the company were done in the mistaken belief that the pre incorporation
contract of sale was binding on the company. Consequently, no such contract
could be inferred from those acts of the company.

JADBRANSKA V. OYSA
―It seems to me that it is necessary that there be a clear and unequivocal act on
the part of the company if ratification is to be inferred. Such an act may be a
resolution of the company in general meeting adopting the contract, or a
resolution to the same effect passed by a meeting of the board of directors
and confirmed by the company in general meeting. I do not think that a letter
signed by the managing director would be sufficient unless there is evidence that
he was communicating a decision to ratify taken by the company in general
meeting or by the board of directors which has been confirmed by the company in
general meeting.‖
-Amua Sekyi J

∙ How do we juxtapose this with the section 127 of the Companies Code
which in essence makes the position of the MD comparable to the Board?
It appears Amua Sekyi overstated the position.
∙ Moreover by section 142 the principle is that when outsiders are dealing
 with a company they are entitled to assume that the company has
complied with its regulations.
∙ By extension section 12(4) (b) can be extended to a contract between a
party and an unborn company.

***Kumi v. New world Investments

***Dei Anang‘s Article

NB: when solving a question on ratification look at the various means by which a
company may ratify a contract.
These means are:

48
--the conditions under section 12(4) when the company is ratifying a transaction
between itself a promoter when the promoter is selling his property to the
company

---ratification under section 13 which includes acts under section 12(3)

----express ratification under section 140 (2) by the company

-----note also that ratification may be by acquiescence. This is provided for by the
second part of section 140 (2) which states that ―………and knowledge of
action by such officer or agent and acquiescence therein by all the members for
the time being entitled to attend general meetings of the company or by the
directors for the time being or by the managing director for the time being, shall
be equivalent to ratification by the members in general meeting, board of
directors, or managing director, as the case may be‖
THE MECHANICS OF INCORPORATION Section 8- Right to form A
Company Any one or more persons may form an incorporated company by
complying with the provisions of this Code in respect of registration.6

Section 180(1) - Number of Directors Every company incorporated after the

commencement of this Code shall have at least two directors.

∙ First file a search that the name you want to use is available ∙ A name can
 be reserved for a maximum of two months –section 15 ∙ Section 14 deals
with regulations and the regulations of a company must comply with section
16-18
∙ Section 14 (b) grounds on which the registrar can refuse to register a
company. When:
(i) the Regulations do not comply with this Code;
(ii) the objects for which the company is being formed or the business which
it is to carry on, or any of them are unlawful;
(iii) Any of the subscribers to the Regulations is an infant or of unsound mind;
or

6
Both natural and artificial persons can form a company

49
(iv) Any of the directors named in the Regulations is under section 182 of this
Code, incompetent to be appointed a director,
Otherwise he is obliged to register the company.

EX PARTE MOORE (R V. REGISTRAR OF JOINT STOCK COMPANIES)

DUPAUL WOOD TREATMENT V. ASARE (this case is briefed specifically for

mechanics of incorporation.)
FACTS:
Two business partners the second appellant and the respondent subscribed to
the regulations of a company. By that act they both became shareholders and
members of the company each holding fifty percent of the issued share capital.
Some time later the parties disagreed on the extent of their shares and the
respondent sued for the declaration that he was a shareholder and member of
the company and that the affairs of the company were being conducted and
powers of the directors exercised in a manner oppressive to him or in disregard
of his legitimate interests. It was the case of the defendant company that when
the respondent fell out with the company the regulations of the company were
changed and he no longer was a subscriber of the company.

HELD:
Even if the new regulations have been registered under section 14 of the Code it
was doubtful whether they could lawfully have re-written history by substituting a
new set of original subscribers to the company‘s regulations, as they sought to
do. (In this case the regulations had not been registered.)
The regulations of a company incorporated in Ghana must have certain
prescribed form and contents as well as recommended provisions and may be
changed in a certain prescribed manner. Under the code the company has the
power by special resolution of the shareholders in general meeting to do certain
amendments but this cannot be effected by the mere replacement of the existing
regulations.

50
{Section 22 of the Code does not sanction the near-sacrilege of manipulating the
regulations for the collateral purpose of depriving a member of his stake in the
company.
Section 22 does not allow for the alteration of the regulations so as to produce a
complete obliteration of those who were truly the first directors and the
subscribers of the company.}

Section 14(a)
There shall be delivered to the Registrar for registration a copy of the proposed
Regulations of the company complying with sections 16 to 18 of this Code

Section 15(4)
If, through inadvertence or otherwise, a company on its first registration or on its
registration by a new name is registered by a name which, in the opinion of the
Registrar, is misleading or undesirable, the company may change its name with
the sanction of the Registrar, and if the Registrar shall so direct within six months
of its being registered by that name, shall change it within a period of six weeks
from the date of the direction or such longer period as the Registrar may think fit
to allow

∙ the issuance of a certificate is supposed to be conclusive evidence of the

due recognition of the company
∙ no proceedings shall be allowed to cancel or annul the registration of the
company the company7
∙ the proviso under section 14(f) should be read in conjunction with section
 4(2) (c) of the Bodies Corporate (Official Liquidation Act) Act, which
provides that the AG has power to petition for the winding up of a
company where the business or the objects of a company are unlawful or
the company is operating for an illegal purpose or the business being
carried on by the company is not authorised by its corporation

7
After the issue of a certificate of incorporation the regularity of the incorporation cannot be challenged on
the grounds of illegality except proceedings brought by the AG

51
EX PARTE AG
Facts:
The AG applied to quash the incorporation and registration of a company after a
year of its incorporation. The grounds of the application were that the registrar in
registering and incorporating the said company erred in law in that the company
was not formed for any lawful purpose but on the contrary was formed expressly
with the objective of carrying on the business of prostitution.

Held:
Application granted.
A contract which is made upon a sexually immoral consideration or for a sexually
immoral purpose is against public policy and is illegal and unenforceable. Here
as the document clearly indicates, the association is for the purpose of carrying
on a trade which involves illegal contracts because the purpose is a sexually
immoral purpose and as such against public policy.

Section 18(1) —Subscribing to Regulations The Regulations of any company

registered after the commencement of this Code shall be signed by one8, or more
subscribers in the presence of, and shall be attested by, one witness at the least.
(2) In the case of Regulations of a company with shares the subscribers, or each
subscriber if more than one, shall write opposite to his name the number of
shares he takes and the cash price payable thereof, and shall take at least one
share.

Name of the company:

∙ Section 15(1)
 The last word of the name of a company limited by
shares shall be "Limited"

8
This appears at the last page of the regulations

52
∙ Section 121 refers to the display of the name of
company at its offices and every other place it
conducts business, engraved on the seal and its name
should be on all business documents
∙ By section 15(2) the registrar has a wide discretion
to refuse to register a name. e.g. if the name is
misleading in relation to another party‘s business

∙ Section 15(4)
If, through inadvertence or otherwise, a company on its first registration or on its
registration by a new name is registered by a name which, in the opinion of the
Registrar, is misleading or undesirable, the company may change its name with
the sanction of the Registrar, and if the Registrar shall so direct within six months
of its being registered by that name, shall change it within a period of six weeks
from the date of the direction or such longer period as the Registrar may think fit
to allow.

Section 15(3)
A company may, by special resolution and with the approval of the Registrar
signified in writing, change its name

Attention:
Additional approval may be required in the case of specific companies e.g.
Banks need prior approval for the Bank of Ghana.

COWRIES FINANCE V. PAKO BAY

―The fact of a change of name does not affect the existing rights and liabilities
of the company‖
COMMENCEMENT OF BUSINESS Section 14(d)
From the date of registration mentioned in the certificate of incorporation, the
company shall be a body corporate by the name contained in the Regulations
and, subject as provided in sections 27 and 28 of this Code, be capable forthwith
of exercising all the functions of an incorporated company

53
Section 28—Minimum Capital
(1) A company limited by shares shall not transact any business; exercise any
borrowing powers or incur any debt except such as shall be incidental to its
incorporation or to obtaining subscriptions to or payment for its shares until—
(a) there has been paid to it for the issue of its shares consideration to the value
of at least—
(i) twenty million cedis of which at least five million cedis shall be paid in cash
within section 45 of this Code in respect of a public company; or (ii) five million
cedis of which at least one million cedis shall be paid in cash within the
meaning of section 45 of this Code in respect of a private company‖
Section 27
Deals with the requirement that the prescribed form must be signed by all the
directors
Section 29
Imposes sanctions for non compliance with section 27 and 28

FXNS AND STATUS OF THE REGULATIONS The regulations of a

company set out the rules and procedures by which a company is governed.

Section 16 - Contents of Regulations

(2) The Regulations of a company shall state,
(a) the name of the company, with "Limited" as the last word of the name in the
case of a company limited by shares;
(b) the nature of the business or businesses which the company is authorised to
carry on, or if the company is not formed for the purpose of carrying on a
business, the nature of the object or objects for which it is established; (c) that the
company has, for the furtherance of its authorised businesses or objects, all the
powers of a natural person of full capacity except in so far as such powers are
expressly excluded by the Regulations; (d) the names of the first directors of the
company;

54
(e) that the powers of the directors are limited in accordance with section 202 of
this Code.

∙ the regulations are in standard form

∙ The law allows companies to include other
lawful provisions in the regulations as the
company may deem fit

Section 16(6)
The Regulations may contain any other lawful provisions relating to the
constitution and administration of the company

The Status of the Regulations at Common Law

1. At Common Law the regulations were considered to constitute a contract
between the members and the company. This was in relation to
members qua members.

In Hickman v. Kent the plaintiff was a member of an association and there was
an attempt to expel him. He brought an action to contest the expulsion but the
articles of association (regulations) provided that all disputes between the
association and its members should be submitted to arbitration. The court held
that the articles were a statutory agreement between the association and the
members as well as between the members inter se and constituted a submission
to arbitration. (This meant the regulations could be enforced as a statutory
requirement).

Bratton Seymour v Oxborough

This case sets out the differences between the normal agreement between 2
people and the regulations of the company. The issue was whether provisions
could be implied into the articles of association (regulations) like any other
contract.
The court held that the statutory contract was of a special nature and had
distinctive features. It derived its force from the terms of the statute and not a
bargain by the contracting parties.
On the specific point as to whether one could imply a term the judge said:

55
―It is possible to imply a term purely from the language of the document itself‖.
This is purely a constructional implication. Extrinsic circumstances can however
not be implied into the articles or regulations.
1. The regulations of a company constitute a contract between the members
themselves which can be enforced without necessarily involving the company.
There are 2 positions at common law on this point:

London Sacks & Bay Co. V. Dickson

Here it was held that the member‘s rights in relation to each other can only be
enforced through the company. Thus the company should be a party to any
action brought to enforce rights or obligations arising under the regulations.
The opposite view was established in Rayfield v Hands
In this case the court held that the articles constituted an enforceable contract
between the company and its members and a member could sue to enforce his
rights under the regulations without joining the company as a party to the suit.
(2) At common law the regulations did not constitute a contract between a
company and a member or the members inter se, where the member in question
is not acting in his capacity as a member.

Eley V. Positive Government Life Assurance Here the plaintiff was a member
and also a solicitor of the company. The regulations of the company said he
should be appointed as a solicitor. The appointment was later terminated. The
court held that the action affected him in his capacity as a solicitor and not as a
member.
BEATTIE V. BEATTIE
The defendant also a director, sought to invoke an arbitration clause contained in
the regulations when he was sued by his company for the return of certain sums
which it was alleged had been improperly paid to him. The

56
court ruled that since he was being sued in his capacity of a director and not that
of a member, he could not rely on the arbitration clause.

Effect of Regulations in Ghana

Section 21 of the code shows that the regulation of a company is no mean
document:
∙ It is the registration of the regulations that brings the company into existence
as body corporate (section 14(d) of the code)
∙ Once registered the regulations have, inter alia, the effect of a contract
under seal between:
(i) the company and its members
(j) the company and its officers
(k) the members and the officers of the company
(l) the members of the company inter se
(m) the officers of the company inter se

Section 21
It says the regulations have the effect of a contract under seal between the
company and its members and between the members themselves.
In Gower‘s view, section 21 attempts to clarify the law and put it on a sounder
basis. The regulations are to constitute a contract between the company and its
members or officers as such. (The definition of who is an officer of a company
can be found in the 1st schedule of the Code)

On the basis of the provisions in section 21 Beattie V. Beattie is no longer good

law in Ghana because the Director is an officer of a company and can rely on the
provisions of the regulations to enforce any rights relating to his office.
However Eley v. Positive Life Assurance is still good law in Ghana because the
definition of an officer does not apply to a solicitor unless the solicitor is fully
engaged as an employee of the company.

57
Section 21(2) of the Code recognizes the power that may be given to a total
outsider who is not an officer or member of the company to appoint or remove a
director or any other officer of the company.

Section 21 therefore provides that the company Regulations have the effect of a
contract between the company and each member, and between members inter
se.

One consequence of this is that the company can take action against its
members to force them to comply with the provisions in the Regulations where
they are unwilling to do so voluntarily.

Thus in Hickman v Kent the court held that the member has to comply with the
articles and have his dispute with the company brought before arbitration and not
in a court of law

Similarly, the members have the right to force the company to follow the
provisions of the Regulations. In Wood v Odessa Waterworks Co they had the
right to enforce payment of a declared dividend in accordance with the articles.

In Rayfield v Hands the court continued to extend the contractual effect of the
articles among the members themselves in their capacity as members. Thus, the
members were held bound to purchase the shares offered to them by another
member in pursuance to the pre-emption clause in the company‘s articles.

At common law the Regulations however, do not constitute a contract between a

company and an outsider. In Raffles Hotel Ltd v Malayan Banking (No.2) the
articles gave the lessor the power to appoint a director. The lessor appointed
itself as director. The lessee contested this and the Federal Court of Malaysia
ruled that the articles could not constitute a contract between the company and
an outsider. Since the lessor was not a member of the company, the articles did
not confer any enforceable right to appoint a director.

58
Shareholders Agreements

In answering questions on shareholders agreement first establish the

constituents of the formal and informal types, their effects and the various cases
that illustrate them.

Section 16(6) of the Code

The Regulations may contain any other lawful provisions relating to the
constitution and administration of the company
2types of shareholders agreement:
1. formal
2. informal
This refers to adding to the standard regulations. Shareholders sometimes enter
into agreements whether as joint holders or not. It is an agreement between the
shareholders relating to the administration and governance of the company.
Shareholders agreements may be informal or it may come about by formal
written agreement between them.

Informal Agreements
Ordinarily the Companies Code and the regulations of a company set out specific
procedures for doing various things relating to the company. For instance the
regulations of the company cannot be amended except by special resolution
(section 22 of the Code).
Secondly the authorized shares of a company cannot be altered except by a
special resolution amending the company. (Section 57)

However the judicial authorities indicate that members acting unanimously can
amend the Regulations and do other acts to bind the company without going
through the procedure of a resolution or the formality of a meeting.
This is the principle of unanimous consent/Duomatic principle, of informal
consent.
The approach of the courts in construing unanimous informal acts of
shareholders can best be summarized as a triumph of substance over form.

59
SALOMON V. SALOMON
Lord Davey:
"The company is bound in a matter intra vires by the unanimous agreement of
its members."

The law is willing to accept what the members have agreed over the substance
of the form.
Re George Newman: In this case it was held that the individual concerns of
shareholders are equivalent to the resolution of a general meeting.

That it is sufficient for all the members informally to ratify an act of the directors
without a meeting
PARKER V. READING
Facts: The defendant was appointed director of a company at a board meeting. A
few years later the company by an extra ordinary resolution agreed to voluntarily
wind up. The company and the liquidator brought an action against the defendant
claiming inter alia that his original appointment as a director was invalid. Their
main grounds were that there was no quorum at the board meeting at which they
were appointed and that the seal of the company was not affixed in the manner
prescribed by the regulations of the company.
Held:
Where a transaction is intra vires and honest, and especially if it is for the benefit
of the company it cannot be upset if the assent of all the corporators is given to it.
It does not matter in the least whether that assent is given at different times or
simultaneously.
 ―where a transaction is intra viries and honest, and especially if it is for the
benefit of the company it cannot be upset if the assent of all the corporators is
given to it. It does not matter in the least whether that assent is given at different
times or simultaneously.‖
The principle can thus be set down as follows:

60
If all the shareholders agree to a certain course then, however informal the
manner of their agreement, it is binding subject only to two pre-requisites:
(1) That the transaction to which the shareholders agree should be intra vires
the company;
(2) That the transaction should be honest.

That it is necessary only that all the members entitled to vote should give their
assent:
RE DUOMATIC
Facts:
The liquidator of a company brought an action claiming sums of money from a
director of the company which comprised amounts paid to him as director and
money paid to a former director of the company to discourage him from bringing
a lawsuit against the company. According to the liquidator the director was not
entitled to retain the money since they were not
remunerations voted by the company in a general meeting as required by the
company‘s regulations.
Held:
The error of not passing a resolution at a general meeting to vote on the moneys
drawn by the directors was one of substance, but still of a technical nature.
(In section 204 of Act 179 for the equivalent provisions)
2 things are to be noticed here:
Directors cannot exceed the powers given them by the code or the regulations
Where shareholders are aware and acquiesce to the acts of the Directors they
need not pass a resolution at a general meeting to ratify the agreement or the
actions of the Directors –section 140 (2)
 ∙ That where the directors are the same as shareholders, a board
resolution passed with all the directors present is effective to

61
bind the company, notwithstanding that what is done is beyond the
powers of the directors.

RE EXPRESS ENGINEERING
In this case the court held that when all the shareholders of a company are
present at a meeting though the meeting may be designated as a board meeting,
that meeting in substance becomes a general meeting and there is no necessity
for any further formality to be observed. At such a meeting any unanimous
resolution passed requires no formality to make it binding on the company.
QUE: How is this possible?
ANSW: It happens when all the members are also the directors.

NB! The most important element is unanimity!

∙ That the regulations of a company may be altered by such an
agreement of the shareholders, notwithstanding the provision that the
alteration may be made by special resolution
CANE V. JONES
Shareholders agreed that the chairman of the Board should not exercise his
casting vote and that in the event of an equality of votes at a meeting the parties
should appoint an independent chairman. The members did not meet at one
place to sign the agreement nor was the agreement signed in the presence of
each other. The court held that the agreement represented the
meeting of minds of shareholders which was the essence of a general meeting
and was thus effective to amend the regulations.

ASAFU ADJAYE V. AGYEKUM (1984/86) GLR

Although Act 179 contains many provisions empowering or requiring certain
matters to be effected or authorised by the passing in general meeting of a
particular resolution, it is established that all the shareholders acting together can
do anything intra vires the company, even though the code

62
specifies a particular procedure by which the thing, may or is to be done. It was
perfectly within the powers of the members of the company to agree orally to
issue shares without any resolution or alter the number of shares without any
resolution to alter the company‘s regulations as prescribed in section 57 of the
code.

The main effect of informal shareholders agreement is aptly captured in

DAHOLMAL V. PUPULAMPU (1984-86) GLR

―It is as if to the statutory provisions have been added the rider, "But, if all the
shareholders entitled to vote agree upon the matter, there is no need to convene
the meetings or to pass the resolution.‖

∙ The principle does not only apply to Regulations, it also applies to

provisions in shareholders agreement

EUROPE BROKERS V. MONEYCOI FACTS:

Under a shareholders agreement the members agreed on a specific procedure to

be followed by the company where the company was making a request to its
members to provide additional capital. The company did not follow this procedure
rather members were sent emails asking them to agree or to disagree to the
raising of capital for the company. All the members replied their emails agreeing
to provide the capital. Later on one of the members sought to withdraw his
consent on the grounds that it did not follow the laid down procedure.
HELD:
It applied to procedures either in the Regulations or shareholders agreement

Another requirement
The members must have had full knowledge of the matters which they have
informally agreed upon.

63

LIMITATIONS
∙ It would not apply to waive a procedure which was not enacted solely
for. E.g. it cannot be used for the removal of directors and the removal
of auditors
∙ The procedure being waived should be to the benefit of the shareholders
∙ The matter being waived must be procedural in nature
∙ Cannot be used where there is an express prohibition to waive that
requirement
∙ There is a difficulty when it comes to proving that there has been an
informal consent since such evidence would necessarily be adduced
by oral evidence in case it would be on the basis of ―my word against
your word‖

Formal Shareholder Agreements

∙ A formal shareholder‘s agreement is a contract between persons who
are members of a company and is enforceable in accordance with
normal contractual principles.
∙ A company may or may not be a party to a shareholders‘ agreement but
in practice in most shareholders‘ agreement the company is a party
∙ The legal nature and effect of a formal shareholders‘ agreement is
based on the principle of unanimous consent
∙ The principles related to informal agreements form the basis of the
validity of formal shareholder agreements. Thus where members have
unanimously and expressly assented to the terms of an agreement it
would be deemed to have been incorporated and become part of the
regulations without necessarily being out as express provisions of the
regulations

CENTRE PROPERTIES V. OBUOM

The High court held that such agreements (formal shareholders agreement) are
enforceable on the basis of the doctrine of unanimous consent. On that basis an
agreement or acquiescence of all shareholders is something the court would
accept as a corporate act of the company.

64
So that where members have unanimously assented to the terms of the
shareholders‘ agreement it would be deemed to have been incorporated and
become part of the Regulations without necessarily been set out as express
provisions of the Regulations.

Under section 197 of the code any amendment made to the company‘s
regulations must be filed within 28days at the companies‘ registry. However the
non filling of a shareholders agreement which in effect amends the regulations
would not invalidate the agreement.

LARTEY and LARTEY V BEANY

It is not the filing which makes the appointment effective. The appointment
becomes effective by the resolution passed by the company. The appointment
takes effect on the day the resolution is passed—not when the registrar is
notified. The notification is only to bring up to date the register of particulars of
the company kept with the Registrar of Companies. If there is default in filing it
outside the 28 days period set in the subsection the penalty or sanction for the
default according to subsection (4) is a fine. The default does not invalidate the
appointment.

USES OF SHAREHOLDERS AGREEMENT 1. To confer rights on shareholders

and officers which may not be enforceable if contained in the regulation. For
instance it may not be possible for ―A‖ to bring an action under the regulation
against ―B‖ for going against an agreement not to remove him because ―A‖ is
not an officer of the company. However if the agreement is enshrined in a
shareholders agreement, because such an agreement is based on normal
contractual principles, it would be possible for ―A‖ to enforce his legal rights.
The plaintiff in the case of ELEY POSITIVE V. PERSEVERANCE ASSURANCE
would have succeeded if there was in existence a shareholders agreement to the
effect that he could not be dismissed in the manner he was dismissed.

2. The effect of formal shareholders agreement is given more emphasis by an

analysis of section 47(1) of Act 179. Section 47(1) provides that the company
may divide its shares into certain classes and these shares cannot
 65
be altered except by the provisions in the regulations. However by the principle in
Harman v. BML, the shares can be divided by a shareholders agreement and it
would have the same effect as if it is in the regulation. As such anytime a party is
looking at class rights of a company that party should not only look at the
regulations but the shareholders agreement as well. This is more so because
formal shareholders agreement are enforceable according to normal contractual
principles and a shareholder can bring an action claiming specific performance
against other shareholders in case his class rights are being infringed upon.

3. It can be used to regulate certain special relationships which may not be

related to the governance and administration of the company and which
the parties may want to keep confidential.
The regulation of a company is the constitution of the company and it is a
public document. However shareholders may have an agreement which may
be technical or financial and which may be useful against their competitors.
Such an agreement may not necessarily amend the regulations and as such
must not be registered under section 176 of Act 179 but it has an impact on
one‘s understanding of a provision in the regulation.

4. The protection of minorities

There are certain times when the members may want to add to the protection of
minority provisions outside what is generally available under the general law or
Regulation and to do this they would put it into the shareholders agreement. The
courts would not interfere with class rights if that amounts to unlocking a deadlock
where the deadlock concerns the protection of the minority since it would amount
to throwing off board the contractual relations of the parties. A look at the cases
under section 162 relates to situations where the shareholders agreements were
in the right. Section 162 gives power to the Court to make an order for a meeting
and contains the ingredients or conditions for making such an order. In Harman
v. BML a company's share capital was divided into ―A‖ and ―B‖ shares. The
party which held the majority of shares was the holder of the ―A‖ shares. Under
an agreement entered into by the holders of ―A‖ and ―B‖ shares, it was
provided, inter alia, that a meeting of shareholders could not quorate unless a
―B‖ shareholder or proxy was present. The holders of the majority

66
of shares applied for an order that a meeting of shareholders be summoned. It
was held that a meeting could not be summoned which would have the effect of
overriding a class right. The decision gave effect to the share holders agreement
entered into by the holders of ―A‖ and ―B‖ shares.

It is not every issue that a formal shareholders agreement can be used to

regulate.

1. If the company is not party to a shareholders agreement it is unenforceable

against the company

ZASTAVA V. BONSU
FACTS:
The respondents, principal shareholders (T. & T. Co., Ltd.) entered into a written
agreement with a Yugoslav company whereby the respondents agreed to
transfer part of their shareholding in T & T Co., Ltd. to the Yugoslav firm. Clause
15 of the agreement provided that the agreement should remain irrevocable for
ten years, and no member or director of the company as re
named could present a petition or make an application to the court seeking the
winding-up or the liquidation or in any way seek or attempt to bring the existence
of the company to an end. Despite the existence of clause 15, the petitioners
petitioned for the official winding-up of the company, and the appointment of the
Registrar of Companies as the provisional liquidator. At the hearing of the
petition, counsel for the respondents raised a preliminary objection as to whether
having regard to clause 15 of the agreement, the petition was competent.

Held:
the law was clear that every contract was prima facie permanent and irrevocable,
and it lay upon a person who said that it was revocable or determinable to show
either some expression in the contract itself or something in the nature of the
contract from which it was reasonable to be implied that it was not intended to be
permanent and perpetual, but was to be in some way or other subject to
determination. In the present case, the effect of clause 15 then was that a period
of at least ten years must elapse before any of the parties to the agreement could
apply to the court under Act 180, s. 4 (1) for the official winding-up of the
company. It was not the

67
court which said that the petitioner should not come before it until after the
expiration of ten years; the parties themselves had so agreed. Since the
petitioners were content to enter into the contract upon that footing, they could
not complain if the respondents held them to their bargain.

2. it cannot be used to prevent the company from exercising its rights to

amend its regulations either to increase its capital or for some other
purpose

Section 22
A company may, by special resolution, alter or add to its Regulations or adopt
new Regulations

Section 57
Alteration of Number of Shares
(1) A company may, by alteration of its Regulations,
(a) increase the number of its shares by creating new shares; (b) reduce the
number of its shares by canceling shares which have not been taken or agreed
to be taken by any person or by consolidating its existing shares, whether issued
or not, into a smaller number of shares.

RUSSEL V. NORTHERN DEVPT BANK

The House of Lords judgment in this case goes far in accepting shareholders‘
agreements. The restriction it maintains is this: A company cannot itself be party
to an agreement which would restrict its powers as they are required by
company‘s regulations. But this does not bar shareholders‘ agreements with the
same effect from being enforceable by the courts.

The relevant facts were as follows. The five shareholders in Tyrone Bricks
Limited and the company itself entered into agreement under which each
undertook that the terms of the agreement should have precedence between the
shareholders over the (regulations) and that ‗no further share capital shall be
created or issued ... without the written consent of each of the parties hereto‘.
Some years later the board of Tyrone Bricks Limited gave notice of an
extraordinary general meeting at which it was proposed to

68
move a resolution that the share capital be increased. The plaintiff, who was one
of the shareholders, applied to the court for an injunction to restrain the other
shareholders from considering or voting on the proposed resolution. The issue
before the House of Lords was whether or not the shareholders‘ agreement was
either an unlawful and invalid fetter on the company‘s powers or was no more
than an agreement, as between the shareholders, as to how they would vote.
The court stated that ‗while a provision in a company‘s articles which restricts its
statutory power to alter those articles is invalid an agreement dehorns the articles
between shareholders as to how they shall exercise their voting rights ... is not
necessarily so‘. Of the agreement between the company and its shareholders,
the court said an undertaking by the company not to exercise its statutory powers
for such long time was as obnoxious as if it had been contained in the articles of
association and therefore is unenforceable as being contrary to the statute. It is
instructive to note that the restriction that an increase in the capital required a
unanimous consent was in the shareholders agreement.

For our specific purposes in Ghana a shareholders agreement cannot be used to

prevent the company from exercising its rights to amend its regulations.
According to section 22 of the Code a company can amend its regulations by a
special resolution. A special resolution under the Code is 75percent of members
present and voting. Section 57 also provides that a company can increase or
reduce its shares by altering its regulations. The combined effect of the two
provisions is to the effect that a company can by a special resolution increase or
reduce its shares. So therefore if a shareholders agreement stipulates that a
company can only alter its shares by more than a 75percent that agreement
would be invalid because it would amount to a fetter on the discretion of the
company to increase its capital under section 57.
Shareholders agreement does not apply where there may be provisions in a
statute which cannot be waived because waiver is expressly prohibited. An
example is section 265(a), of the Code which states that it shall not be lawful for
any person to make any invitation to the public, to acquire or dispose of any
shares or debentures of a company.

69
**** It can also not be used for the removal of directors or auditors of a company
under section 185 of the Code which has specialized process to be abided by.
NB:
Where some aspects of the shareholders agreements contradict the regulations it
would be deemed to have amended the regulations. CANE V. JONES.
Formal shareholders agreements are normally found in private companies
because of two reasons:
The small size of the company as regards members
The restrictions on transferability of shares

MEMBERSHIP
Section 8:
Every company shall have at least one member. If there is no member for 6
months, there are legal consequences.
For a company registered with shares, we talk of shareholders and for a
company limited by guarantee we talk about members. A member is a
shareholder but not every shareholder is a member.

WHO IS QUALIFIED TO BE A MEMBER OF A COMPANY? A citizen or

non-citizen resident in Ghana can become a shareholder. However external
residents need the approval of the Minister of Finance before one can become a
shareholder. Almost invariably, the application is granted as a matter of course.
Under the Bank of Ghana Regulations external residents cannot hold more than
74% of the shares i.e. listed shares of a company.

CAN MINORS AND PERSONS OF UNSOUND MIND BECOME MEMBERS?

They cannot be subscribers. In effect, shares cannot be transferred to them. In
section 75(3), Section 95(3): a company can refuse a transfer of

70
shares to minors or persons of unsound mind. Corporate bodies can be
shareholders. A company under certain conditions can be a member of itself, i.e.
it buys treasury shares.

WHO IS A MEMBER?
Although section 30 makes provision for only 2ways of becoming a member of a
company there are 4ways by which one can become a member of a company:
☞ Subscribers to the regulations
☞ By agreement with the company
☞ By transfer of shares from an existing member
☞ By operation of the law

∙ SUBSCRIBERS TO THE REGULATIONS

Subscribers are the original or founding members of a company whose names
are contained in the company‘s regulations.
Section 18 (1):
―The regulations of any company registered after the commencement of this
Code shall be signed by one or more subscribers in the presence of, and shall be
attested by, one witness at least‖.

Section 18 (2): ―In the case of regulations of a company with shares, the
subscribers, or each subscriber if more than one, shall write opposite to his name
the number of shares he takes and the cash price payable therefore, and shall
take at least one share‖.

The key provision is section 30 (1): ―The subscribers to the regulations shall be
deemed to be members of the company and on its registration shall be entered
as members in the register of members referred to in section 32 of this code‖.
Case law has established that subscribers are deemed to be members as soon
as the regulations are registered. So long as a person is a subscriber the person
is deemed to be a member. On the registration of the company the name of the
subscribers shall be entered in the Register of members.
Payment of the shares is not a condition precedent to membership. Whether a
subscriber has paid his share price or not is irrelevant in determining his
membership status.

71
NICOL’S CASE
Fry LJ (explaining why a subscriber is a member as soon as a company is
incorporated):
―It does not appear to me that entry on the register is a condition precedent in
the case of subscribers. In fact I cannot see how it can possibly be so because
until the company is formed no register can be made and until there are some
members the company cannot be formed.‖

∙ In other words there is a link between the formation of the company and
membership. Every subscriber must have his name in the regulation of the
company, so that the definition of a subscriber includes the inclusion of his
name in the regulation. And as soon as the company is incorporated then
the subscribers become members.

LUGUTERAH V. NORTHERN ENGINEERING CO.LTD Taylor J

―It seems to me that having regard to the provisions of section 30 of the Code,
entry in the register is at least some prima facie evidence of the fact of
membership and the extent of shareholding. The effect of the corresponding
English provision of section 30 (1) of the Code was considered in Evans's Case,
and it was there held that as a general proposition, registration ipso facto makes
a subscriber automatically a member of the company and holder of the shares for
which he has signed and in my opinion the subscriber continues to be a
shareholder and a member even if the company makes default by omitting to
perform its statutory obligation of putting the subscriber's name in the register or
allotting the shares to him. It seems to me that even if the company refuses
deliberately to issue share certificates to subscribers to the regulations, the said
subscribers at least in the case of a private company are nevertheless by virtue of
section 30 (1) of our Code, members and shareholders of the company.

ADEHYEMAN GARDENS V. ASIBEY

Facts:

72
The plaintiff brought an action against the appellants inter alia for the following
reliefs: that he is a paid up shareholder of the company and holds 20percent of
the total shares of the company, a declaration that the demand by the defendants
that the plaintiff pay a further sum for his shares is totally illegal and has no
justification, that the defendant‘s threat to exclude or expel him from the company
on the grounds of non payment of his shares is illegal.

Issue:
Whether or not the plaintiff is a fully paid-up member/shareholder of the company
and also a director of the company

Held:
There are two kinds of members of a company: those who become members at
the inception of a company by subscribing to its regulations and those who, after
the company comes into existence agree to become members. The membership
of a subscriber is by legal prescription and in the absence of a valid forfeiture, is
not predicated on full or partial payment of the consideration for the shares taken.
Since the plaintiff is a subscriber to the regulations of the company, he pursuant
to section 30(1), became a member of the company right from the date of its
incorporation, holding the number of shares as indicated against his name. As a
member he also became a shareholder pursuant to section 30(4) and as such his
membership may cease only upon the occurrence of one of the eventualities
stipulated in section 30(5).
By the terms of the code until all of his shares are forfeited for non payment of a
validly made call or until the occurrence of any of the eventualities, a subscriber
remains a fully-fledged member and shareholder of the company, even if he has
not paid a pesewa for his shares.

*****as to the demand by the board that he pay a sum proportional to the present
value of the company the court held the demand to be unlawful since such an
amount must be determined based on the unpaid shares which can be found
upon referring to the subscription to the regulations. The extent of the plaintiff‘s
liability is what he undertook to pay when he subscribed to the company.

73
Subscribers and the formation of a company are intertwined, they go with each
other. ALEXANDER V. AUTOMATIC TELEPHONE is authority for the
proposition that one can be a subscriber or member without paying for the
shares.

∙ MEMBERSHIP BY AGREEMENT WITH THE COMPANY

Section 30(2)
―Every other person who agrees with the company to become a member of the
company and whose name is entered in the register of members shall be a
member of the company‖. There are two elements here:
❖ Any person who AGREES WITH THE COMPANY to become a member. ❖
The name must be entered in the Register of members.

CONTE V. KPEGLO9
Facts:
The liquidator appointed by the court for winding up J. Conte Ltd. called upon the
High Court to settle the list of contributories as provided by section 103 of the
Companies Ordinance. The first respondent claimed that the majority of the
shareholders and directors of J. Conte Ltd. had voted him 10,000 shares free of
charge for services he had rendered to the company.
Held, allowing the appeal:
(1) An allotment of shares is an appropriation by the directors or the managing
body of a company to a particular person. This may take the form of an offer of
shares to the allottee or an acceptance of an application for shares by the
allottee; but an allotment by itself does not necessarily create the status of
membership. The allotment may be subject to conditions.
(2) The wording of the letter could amount to either an offer of shares by the
company to the first respondent or an acceptance by them of an application for
shares. With respect to the first alternative there was no evidence of an
acceptance by the first respondent; and with respect to the second alternative
there was no evidence of a payment or completion of conditions by the first
respondent.

9
Not adjudicated in accordance with Act 179

74
∙ This case shows that there must be a bilateral act between the person and
the company before he can become a member. Under Ghanaian law,
payment for shares must be by valuable consideration.

RE NUMEATON
―Agrees to become a member‖

But under Act 179 specifically section 30(2), the operating words are;
―Agrees with the company to become a member‖
 ∙ ―Agrees to become a member‖ was interpreted to mean consents to
become a member. There is no requirement for any bilateral element.

Section 202(1) (b) talks of issuance of shares first to existing members ∙ Both
Luguterah and Adams v. Tandoh stated that non-compliance with section
202(1) (b) would be fatal

Section 202(1) (b)

(1) The directors of a company with shares shall not, without the approval of an
ordinary resolution of the company,
(b) issue any new or unissued shares, other than treasury shares, in the
company unless the same shall first have been offered on the same terms
and conditions to all the existing shareholders or to all the holders of the
shares of the class or classes being issued in proportion as nearly as may be
to their existing holdings;

Allotment:
All arrangements prior to the entering of the names into the register

Issuance:
After the names have been entered

∙ For one to establish his status as a member by agreement the name must
be entered in the Register according to Section 30(2)

75
∙ Mere agreement with the company is necessary but not sufficient. The
person must have his name entered in the register of members.

In Re Nuneaton Borough Association Football Club A football club was in

financial difficulty. A well known supporter agreed to support the club with 10,000
Pounds. He was given shares worth that amount. He was appointed a vice
chairman of the Board. Shares were allotted to him and the issue arose as to
whether he agreed to become a member. (NB! Under the relevant legislation in
England, it said ―any person who agrees to be a member of a company and
whose name is entered in its register of members‖).

Our Ghanaian law says ―any person who agrees with the company to become
a member

∙ Transfer of Shares from an Existing Member:

A non member may become a member of a company if there is a transfer of
shares from an existing member subject to all the prescribed conditions. A
person may purchase the shares of a member or may receive it as a gift. In
either case, the person‘s name must be registered in the Register of Members.
Sections 95 and 98 of the Code talk about transfer from members.

∙ A share is a bundle of contractual and statutory rights and is transferable

except in the case where the transferee is an infant ∙ If a shareholder has
unpaid liability can he transfer his shares? There seem to be no restrictions

Section 98(2)
There should be valid document, what is called proper instrument of transfer
(a deed of transfer)

Section 98(3)
The transferor must surrender his share certificate

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Either the transferor or the transferee may lodge the instrument of
transfer with the company
The name of the transferee must be entered in the register of members. Until
the name is entered the transferor would be deemed to be the member.

Apart from subscribers your name must be in the register to be

recognised

WHAT AMOUNTS TO AN EFFECTIVE TRANSFER?

There should be no restrictions on the right to transfer shares. Any such
restriction will not be valid or binding until the holder or member agrees in writing.
In section 22(h) and 95 of the Code, where there is no restriction, then transfer
under section 95 is by a written transfer in common form. Section 98 (2) goes a
bit further, saying that it shall not be lawful for the company to register a transfer
unless a proper instrument of transfer has been delivered to the company.
Generally speaking, under our law, the instrument in question could be a deed of
transfer. (NB! There is no particular form for the transfer of shares in Ghana).

Section 98(3) says ―…..the company may refuse to register any transfer unless
it is accompanied by the appropriate share certificate, debenture, or debenture
stock certificate, or the company is bound to issue a renewal or copy thereof in
accordance with subsection 2 of section 53 or 82 of this Code‖.

Section 98 (4) says the transfer of the document may be lodged by either the
transferee or the transferor.

Section 98(5) provides remedies for a refusal of a company to register the

transfer. It says that if a company refuses to register a transfer, the company
shall within two months after the date on which the transfer is lodged with the
company, send to the transferee and transferor notice of the refusal.

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RE A COMPANY
Here, 4 people (i.e. F and 3 others) set up a company. There was the
understanding that all 4 would play a major role in the company. F asked that his
wife become the shareholder and Director on his behalf. F became an employee
of the company. Subsequently F was dismissed as an employee of the company
and his wife was removed as the Director. The question was whether F had the
locus standi to bring an action against the company. This case is important
because there was the understanding that F‘s wife would eventually transfer the
shares to F.
However the action was brought by F before the shares could be transferred. It
was held that F could not bring an action since he was neither registered as a
member nor a person in whose favour a proper instrument of transfer had been
executed.
Hoffmann J:
―In my judgment, the word ‗transfer‘ requires at least that a proper instrument
of transfer should have been executed and transferred to the transferee or the
company in respect of the shares. It is not sufficient that there should be an
agreement for the transfer‖.

Membership by Operation of Law:

On death of member
Section 99
Transmission of shares or debentures by operation of law

The company will only recognize the legal representatives of the deceased
member. That is in the case of a company with only one shareholder his shares
would devolve to the person entitled to inherit him. There is no law that requires
the production of the share certificate. But the court has the capacity to order the
attachment of the certificate.
Where shares are jointly held by 2 persons and one dies, the other takes all the
shares.

ENFORCEMENT OF COURT ORDERS

Section 265 (1)
Sale of shares may be the result of the execution of a judgment. Here the
distinction between a public and a private company is ignored.

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Ord 45 r 8 of CI 47
∙ A person who acquires shares by such a court order shall become a
member by operation of law
∙ The company in order to register the shares would insist that evidence be
produced so that depending on how one relates to the shares you may
have to produce letters of administration, death certificates, etc

Page 32 of POLITIS V. PLASTICO

―At the time that the new shares were supposed to have been issued……….the
applicants had already been granted letters of administration of the estate of Dr.
Politis………they were entitled, by virtue of section 99 (3) of the Code, to the
same dividends, interest and other advantages as if they were the registered
holders of the shares and also had the same rights and remedies as if they were
members of the company……..‖
EVIDECNE OF MEMBERSHIP:

∙ Share Certificates

Section 53-54
Section 53(1) says every company shall within 2months after the issue of shares
or registration of a transfer deliver a share certificate under the common seal of
the company

The section further gives details of such a certificate to include amount paid,
number of shares, name and address of registered holder

Section 53(2)
Places an obligation on the company to replace the certificate on payment of a
fee

Section 53(3)
States clearly that it is the company‘s obligation to issue share certificate

THE EFFECT OF THE SHARE CERTIFICATE

1. it is a regulatory requirement on the company to issue one

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2. statements made in the certificate shall be prima facie evidence of title to
the shares of the amount paid or payable-section 54 (1)

Section 54(2)
Provides that if any person should change his position to his detriment in
reliance in good faith on the continued accuracy of the statement made in
the certificate then the company shall be estopped in favour of such a person
from denying the continued accuracy of such statement

∙ In such a case the company is obliged to compensate such a person for the
misrepresentation contained in the certificate.
∙ The purpose here is to protect the innocent third party
 SERBEH YIADOM V. STANBIC BANK
"If any person shall change his position to his detriment in reliance in good faith
on the continued accuracy of the statements made in such certificate the
company shall be estopped in favour of such person from denying the continued
accuracy of such statements and shall compensate such person for any loss
suffered by him in reliance thereon and which he would not have suffered had the
statement been or continued to be accurate ". This provision cannot avail the
holder of the certificate himself who must be deemed to know the true position. It
applies, I hold, to third parties who change their positions to their detriment by
relying in good faith on the accuracy of the certificate.

∙ The purpose of issuing share certificate is to offer opportunity to

shareholders to transfer their shares on the market
∙ It is also a declaration by the company to the whole world that the person
holding the certificate is a shareholder

ADEHYEMAN GARDENS V. ASSIBEY p. 1025

―……the issue of share certificates is not a precondition to membership of
a company. Section 53 of the Code requires every company to deliver a share
certificate to the registered holder within two months of the issue of shares or
registration of transfer of shares. This is the company‘s

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