QUESTION 1

a) For Greenghana ltd to be converted into a company limited by guarantee, according to Section 11
of the Act, provides that if:

i. There is no unpaid liability on any of its shares. There can be no conversion when even a
single share has outstanding liability. Conversion can only be effected when all shares
have been fully paid for. (0.5mark)

ii. When all members agree in writing to such conversion and to the voluntary surrender to
the company for cancellation of all the shares held by them immediately prior to the
cancellation. Four observations must be made. First the members must agree in writing
and not verbally. Second, agreement is required to be reached by all members and not
some of them or even the majority of them. Third, agreement has to be reached by all the
members on the conversion, ie that their company limited by guarantee. Finally, each and
every member should agree in writing to surrender his or her share to be cancelled. The
result of this provision is that upon conversion, every shareholder would have contributed
for free an amount of money to the now-converted company limited guarantee equivalent
to the nominal value of the erstwhile company’s issued shares. (1mark)

iii. New Regulations appropriate to a company limited by guaranteed are to be adopted.

When there is such conversion, the company may retain its original name but drop “Ltd.
as its suffix, unless the name will be misleading or undesirable. Therefore the name
“Greenghana ltd” changes into “Greenghana” – and the Registrar may direct the company
to change its name within 6 weeks. (1mark)

iv. At least one member has to agree in writing to contribute to the assets of the company in
the event of its being wound up to the extent not less than prescribed by the Act.
(0.5mark)
Once the above four conditions have been met, a number of documents should be delivered to the
Registrar to be registered. These documents are:

1. A copy of the new Regulations of the company.

2. A copy of the special resolution adopting the new Regulations.
3. A statutory declaration of a director and the company secretary confirming that
four conditions previously mentioned have been complied with. (1mark)

Once the said documents are submitted to the Registrar and they are all in order, the Registrar shall issue
a new Certificate of Incorporation to the company. The new certificate shall be altered to meet the
circumstances of the case and the date of conversion shall be the date mentioned in the new certificate
(section 11 (2)). Until a new Certificate of Incorporations issued, the former Regulations shall continue to
apply and neither the surrender of the shares of the company nor the agreement to contribute to the assets
of the company in the event of its being wound up shall take effect. In effect, the status quo remains until
the conversion is completed by the issuance of a new Certificate of Incorporation. Were it not so, the old
order will cease and there will be no replacement new order, or a much delayed one. But law, like nature,
abhors a vacuum. (1mark)

b) LEGAL ISSUES

The legal issues in the case are:

 promoters and
 duties and liabilities of promoters
 ratification of transactions entered into by promoters. (1mark)

EXPLANATION OF THE LEGAL ISSUES IDENTIFIED.

A promoter is any person who is or has been engaged or interested in the formation of a company.
However, it excludes a person acting in a professional capacity for the persons who are engaged in
procuring the formation of the company. Example a Surveyor of the land on which the company is to be
built.

Promoters in general have the following duties and liabilities towards the company:
 Stand in a fiduciary relationship to the company
 Observe utmost good faith toward the company
 Compensate the company for any loss suffered by reason of any of promoter’s above failings
and
 Account for profits for property or information in circumstance where such acquisition
should have been for the company and not for the promoter.

Ratification occurs when contracts entered into by promoters with the company during the
formation of the company are been accepted by directors and members.

As a result, a contract between a promoter and the company may not be rescinded, and may withstand
challenge, if the following conditions are present:

 There is full disclosure by promoter of all material facts known to him; and
 The contract is entered into, or ratified by, the board of directors if all the company’s directors are
independent of the promoter; or
 The contract is entered into, or ratified by, all members of the company; or
 The contract is entered into, or ratified by, a general meeting at which neither the promoter nor
shareholder of any shares in which the promoter is beneficially interested shall have voted on the
resolution to enter or ratify that transaction. (1mark)

ANALYZING THE CASE

From the case, it can be observed that Kwakwa was the promoter of Kuuks Limited.
Kwakwa has broken a fiduciary duty. Because he sold a Premises belonging to him at
GH¢400,000 when he had actually bought the said Premises for GH¢200,000 during the same
period.
Also, one of the fiduciary duties of Promoters is not to make secret profit. But in the case,
Kwakwa has made a secret profit of GH¢200,000
Again, he did not disclose all material facts relating to the Premises to the directors and member
of Kuuks Limited. (1.5mark)
 RESOLVING THE CASE

Since Kwakwa has broken a fiduciary duty by making a secret profit of GH¢200,000 and also did
not disclose all material facts known to him (as in the case of Erlanger v New sombrero
Phosphate Co) about the Premises to the directors and member of Kuuks Ltd, the contract
should be set aside or rescinded. Also, Kuuks Ltd can sue Kwakwa and claim the GH¢200,000
secret profit made. (1mark)

CONCLUSION

In a nutshell, the contract between Kuuks Ltd and Kwakwa should not be ratified. Because
Kwakwa has broken a fiduciary duty by making a secret profit, and also not disclosing all
material fact known to him. (0.5mark)

c) I. An alternate director is appointed by the named director, unless the regulations prohibit such
appointment. An alternate director shall not attend or vote at directors’ meetings or committee
meetings of directors if his appointer is present. Whereas a Substitute director is the one
appointed by the company, unless the regulation otherwise provide. A substitute director can
attend meetings if his principal is present but cannot vote.

II. Voting by show of hands is the regular means of voting. All members or their proxies present
at the meeting may vote by raising their hands and they are counted. Every person participating in
a vote by show of hands has only one vote, regardless of the size of his shareholding or the
number of members he represents by proxy. However, in a voting by poll the rule is one-share-
one-vote. The shareholder with more than one share is at liberty to cast all his votes one way or
the other, or cast some votes one way and other votes the other way. It can be done electronically
or manually.

III. Winding-up refers to the steps taken to have a functioning corporate entity or a going
corporate concern ceases to be a corporate entity. It includes the appointment of the officer (the
liquidator) who gathers any assets, pays any debts, and distributes any surplus in accordance with
law. Dissolution on the other hand, is the formal pronouncement by the Registrar that the
corporate entity no longer exists and has been struck off the register and the public has been so
notified by publication in the Gazette.
 QUESTION 2

a) The rule in Turquand’s case states that “as such, persons may assume that officers, agents and
servants of companies have complied with the conditions or procedural requirements of the
Regulations and third parties may hold the company bound by transactions, unless those third
persons know that there has in fact been no compliance”. (2marks)

The Rule in Turquand’scase has received statutory approval in Ghana.

Section 139 of the Companies Act provided that any of the members in general meetings, the board of
directors, or a managing director while carrying on in the usual way the business of the company itself;
and accordingly the company shall be criminally and civilly liable therefore to the same extent as if it
were a natural person. (0.5mark)

Section 141 stipulates that except for the contents of the particulars of the register of the particulars of
charges, no one shall be deemed to have knowledge of any particulars or documents even if they are
registered by the Registrar. (0.5mark)

Furthermore, pursuant to section 142, and subject to a couple of provisos in limited instances, people
dealing with the company or with anyone deriving title under the company shall be entitled to make the
following assumptions, that:

a. The company’s regulations have been duly complied with.

b. Every person described in the particulars filled with the Registrar

as director, managing director or secretary of the company, or represented by the
company, acting through its members in general meeting, board of directors, or managing
director, as an officer or agent of the company, has been duly appointed and has authority
to exercise the powers and preform the duties customarily exercised or performed in
those capacities.
c. the secretary and every other officer or agent of the company, who
has authority to issue documents or certifies copies of documents if bears what purports
to be the seal of the company and attested by what purports to be the signature of two
persons who can be assumed to be a director and the secretary of the company.
Again, company’s liability is not affected by the fraud by or forgery of the company’s officer or agent
(section 143). (1.5marks)

Moreover, the rule has been applied in the following cases:

a. Barclays Bank D. C. O. Ltd. V Perserverance Transprt Services Ltd. (0.5mark)

b. Chellarams & Sons (Ghana) Ltd. V Halarbi (0.5mark)

c. Cudjoe V Conte Ltd (0.5mark)

 d. Bousiako Co. Ltd. V Cocoa Marketing Board (0.5mark)

e. Commodore V Fruit Supply (Ghana) Ltd. (0.5mark)

The exceptions to the Turquand’s rule are:

i. It does not apply to insiders. Thus the presumption of irregularity cannot be relied upon by
persons who by virtue of their position in the company know or ought to know whether or not
the company’s internal regulations have been complied with. (1mark)

ii. The company shall not incur civil liability to a person if that person
had actual knowledge at the time of the transaction in question that the general meeting,
board of directors, or managing directors, as the case may be, had no power to act in the
manner or had acted in an irregular manner or if having regard to his position with, or
relationship to, the company, he ought to have known of the absence of the power or of
the irregularity. (1mark)

iii. If in fact a business is being carried on by the company, the company shall not escape
liability for the acts undertaken in connection therewith merely because the business in
question was not among the business authorized by the company’s regulations. (1mark)

b) The effects of the Regulations when registered are:

i. It constitutes contract under seal between: the company and its members, the company
and its officers, the members and the officers of the company, the members of the
company inter se, and the officers of the company inter se. (2marks)

ii. It vest power in any person stated by Regulation, whether or not the person is a member
or officer, to appoint or remove any director or officer of the company. (2marks)

iii. It mandates representative actions in the event that a court action is brought by a member
or officer alleging a breach of the Regulations. (2marks)

c) The differences between a company limited by shares and a company limited by guarantee are:
i. A company limited by shares is one where the liability of its members is limited to the
amount, if any that is unpaid on the shares respectively held by them. Whilst a company
limited by guarantee is one where the liability of its members is limited to such amount
as the members may respectively undertake to contribute to the assets of the company in
the event of it being wound up. (2marks)
ii. A company limited by shares is a profit-making company. Whereas a company limited
by guarantee is a non-profit-making company. (2marks)
 QUESTION 3

a) A veil of incorporation is a figurative veil that separates a company from its officers. It is thus a
metaphorical veil which conceals the incorporators, members, directors or other personalities
from the incorporation. (2marks)

The following are some of the situation by which the corporate veil may be lifted:

i) Where a company carries on business for more than six months without any member the
corporate veil may be lifted. And as such, every director of the company during the
period that it carries on business after those six months shall be jointly and severally
liable for the payment of all debts and liabilities of the company incurred during this
period. (2marks)

ii) If in the course of official winding up, it appears that any of the corporation’s business
has been carried on with intent to defraud the creditors of the corporation or for
fraudulent purpose, the corporate veil may be lifted. And the High Court, on application
of any creditors or member of the company or other interested party with standing, may
hold personally liable, without limitation on the liability, any person who was knowingly,
a party to carrying on business in the afore said manner. (2marks)

iii) Where a company is owned or controlled by the nationals of an enemy country in times
of war, public policy will dictate that such a company not be recognized as a separate
legal entity, despite its formal incorporation in the jurisdiction. (2marks)

iv) Court may also lift the corporate veil and, in light of the facts and circumstances, hold
that a company is in fact an agent of another entity and not a principal in the purported
transaction. (2marks)

b) The ordinary business of an Annual General Meeting are:

i. Declaration of dividends.
ii. Considering the companies’ accounts and the directors’ and auditor’s reports thereon.
iii. Electing directors to replace those retiring.
iv. Fixing the remuneration of the auditor(s)
v. Removing and electing the auditor and directors in accordance with the provisions of the
Act. (1mark each for any four of the points above)

c) The differences between shares and debentures are:

i. Shareholders earn dividend whilst debentureholders are entitle to interest.

ii. A shareholder is a member of a company whereas a debenture holder is a creditor of a
company.

iii. A shareholder is prohibited from purchasing his/her own share. But there is no such
prohibition in the case of debentures. (2marks for each point)
 QUESTION 4

a) The ways in which the public is protected during the winding up of a company are:

i. The liquidator should not be a director of the company although he should otherwise be
qualified to be director. The liquidator stands in a fiduciary relationship with the
company if he were a director. (2marks)

ii. From the commencement of winding up, the company should not carry on business
except as far as is required for its beneficial winding up. (2marks)

iii. All the company’s documents –letters, orders, invoices etc. –should contain a statement
that is being wound up. (2marks)

iv. The Registrar is notified and she issues various Gazette publications. When the Registrar
is satisfied that the winding up of the company is complete, she shall strike the name of
the company off the register and notify the public of same by publication in the Gazette.
The company shall be deemed dissolved on the date of publication of the notification in
the Gazette. (2marks)

b) 1. The four features of an incorporated company are:

i. It becomes an artificial legal entity once incorporated.
ii. It has a common seal.
iii. It has a perpetual succession.
iv. The company is managed by directors passing resolutions at directors’ meeting. The
powers of directors are collective. Members, as members, do not manage companies.
(0.5mark for each of the above points)

2. The four disadvantages of an incorporated company are:

i. It is very expensive to setup an incorporated company.
ii. Double taxation
iii. Loss of personal “Ownership”
v. It is also characterized by lengthy requirement.

c) The differences between a private company and a public company are:

i. A private company is restricted the right to transfer its shares if any. Whilst a public is
freely allowed to transfer it shares. (2marks)

ii. A private company limits the total number of its members and debentureholders to fifty.
In continuing the fifty, however, one excludes people who presently or previously were
in the genuine employment of the company and become shareholders or debentureholders
 while in that employment. Whereas a public company has no limitation on its
membership. (2marks)
iii. A private company’s Regulations prohibit the company from making any invitation to the
public to acquire its shares or debentures or to deposit money for fixed periods or payable
at call, whether bearing interest or not. Whiles a public company is allowed to invite the
public to acquire its securities or to deposit money for fixed periods or payable at call,
whether bearing interest or not. (2marks)

iv. A private company is required to prepare its accounts but not to publish them. But a
public company is required to prepare and publish its accounts. (2marks)
 QUESTION 5

a) Ways through which one can become a member of a company are:

i. Membership by subscription – these are the foundation members and who sign the
Regulation. (2marks)

ii. Membership by agreement – these are persons who agree to be members of the company
and whose names are entered in the Register of Members. (2marks)

iii. Membership by shareholding – these are persons who subscribe to the shares of the
company. (2marks)

b) The differences between members meeting and directors meeting are:

i) Attendance and voting by proxy at members’ meeting are allowed but proxies are not
allowed at directors’ meeting. (2marks)

ii) Notices of members’ meeting may be served to any member of the company whether in
Ghana or outside. Whilst in the case of directors’ meeting, directors who are absent from
Ghana are not required to be served with a notice. (2marks)

iii) The quorum for directors’ meeting is two regardless of the number of directors. Whilst
that of a members’ meeting may vary depending on the number of members and the
methods to be used.
(2marks)
c) I. A director is a person appointed to direct and administer the business of a company. (2marks)

II

a. statutory duties of a director are:

i) determine the company’s mission and the strategy for accomplishing the same
ii) decide the company’ major policies
iii) ensure or monitor the financial integrity of the company
iv) ensure compliance with law;
v) determine the company’s capital structure;
vi) appoint and remove key officers of the company such as the company secretary and
members of top management;
vii) set compensation for management;
viii) propose dividends payable per share. (1mark each for any three of the above points)
b. fiduciary duties of a director are:

i) to avoid conflict of interest and duty

ii) not to make secret profits or take bribes
iii) to keep proper accounts
iv) to take reasonable care in the management of the company’s affairs

(1mark each for any three of the above points)