Company Law II

Shares All companies require funds to operate. Companies raise funds through shares and debentures. “Shares” means the interests of members of a body corporate who are entitled to share in the capital or income of such body corporate A shareholder contributes to the capital of a company Authorized shares are the number of shares the company through its Regulations is permitted to issue Issued shares are the shares which have actually been issued Stated Capital includes shares paid for in cash or in kind

Types of Companies Section 9 of the Companies Act: – Companies limited by shares – Companies limited by guarantee – Unlimited liability companies It could also be classified as public and private companies. – A private company sets out the following in its regulations: Restricts the right to transfer shares Maximum number of members is 50 Prohibits the company from making invitations to the public to purchase shares Prohibits company from making invitation to the public to deposit money, whether for interest or not. Hence all banks are public companies

The Act says a public company is any company other than a private company – section 9(4) Companies limited by shares – A company formed to make profit for its members – Profit, called dividend, is distributed among its members – Members are called shareholders and are required to hold at least one share – Personal liability of members to settle debts of the company is limited to the amount unpaid on shares the members hold in the company – Advantage is that members cannot be personally held liable for the whole of the debt of the company, thus minimizes risk of personal assets of members being used to defray company’s debt – Disadvantage to creditors is they cannot require shareholders to personally settle company’s debt in excess of their unpaid liability

Companies limited by guarantee – formed to carry on charitable and non profit activities – Any profit made must be invested in the activities of the company – Upon winding up, assets must be applied to a charitable purpose or transferred to another non profit company with similar objectives – Prohibited from creating and issuing shares – Raise money through members dues and donations – Liability is limited to amount of money each has pledged at the time of becoming a member to contribute towards the payment of debts.

Unlimited liability companies – Members liability to debts extends to the whole of the debts of the company – Creditors are entitled to pursue members to recover debts – Profit making, has shares – Advantage is that creditors are more likely to lend to it

Corporate Governance Regulations – Document that controls the administration of a company. The regulations must include the following information: Name of the company, must also indicate whether limited Objectives of the company The names of the first directors That the company has all the powers of a natural person with full capacity In the case of limited liability a statement that liability of members is limited

Rights and duties of shareholders – Source of rights and duties are the Act and the regulations. Rights include: Attend, speak and vote at meetings Share in the profit (dividend) Share in the net assets of the company Entitled to have name and other particulars entered into the register of members

Duties include: – Observe the regulations of the company – To pay for shares held in a company – Contribute to the assets of a company

Directors: rights and responsibilities – Every company must have at least 2 directors – Both may be foreigners but one should be resident in Ghana – Infants, persons of unsound mind, undischarged bankrupt persons, persons convicted of offences involving fraud, dishonesty, or an offence connected to the promotion, formation and management of a company cannot be Directors.

Their powers include: – Disposing of company assets but only with the authority of the members by resolution. And such disposal must be in the interest of the company. – Borrow money – Declare dividend – Power to reorganise the company, e.g. through mergers. If it will radically change the structure of the company then approval of the members is needed.

Duties include: Observe utmost good faith in their dealings with the company – They must act in the best interest of the company – Must not be in a position where personal interest conflicts with the interests of the company. – Commodore v. Fruit Supply: a director of a company received money meant for the company from a customer of a company. He deposited it in the accounts of his private firm without accounting to the company. CA held that his conduct was in violation of his duty to avoid conflict of interest in his dealings as a director. A director of a company who enters into a contract for the company cannot legally derive any personal benefit from it without the consent of the company.

Asafu-Adjaye v. Agyekum : one of the directors of a company, while still being a director of the company, formed a new company with other people to carry on business which was in competition with the company of which he was director. CA held his conduct constituted a breach of trust and was contrary to the duty imposed on directors to act in the best interest of the company in a faithful manner Other duties include not exceeding their powers; declaring interest in a contract with company; and cannot vote on a matter in which he has a personal interest.

Directors may be removed by ordinary resolution: – Notice of removal with reasons filed 35 days before meeting and served on all members and the director – May write or speak to his defence – After discussions a simple majority vote will determine his removal

Company meetings: All members of the company are eligible to attend meetings. Who may convene: – Directors – Members: where despite requisition, directors fail to convene – RG: where AGM is not held in the normal course – Court: application by a director, member, RG

Annual General Meeting (AGM) Held every year The following documents must be dispatched 21 days before the meeting to members – Profit and loss account – Balance sheet – Directors’ and auditor’s report

Emergency General Meetings (EGM) – May be convened by directors whenever they think fit, or by any director if there are insufficient directors in the country to form a quorum – Usually deal with extra ordinary or grave matters which cannot wait for the next AGM, e.g. alteration of regulations, removal of directors etc

Exercise Prof. Anne, finance director of “All Purpose Goods Co. Ltd,” is contacted by Sister Michelle, a potential client who wishes to purchase goods worth $250, Appreciating the economic benefits of a long term relationship with Sister Michelle, Prof. Anne incorporates a new company with Bro. Daniel called “Forever Yours Co. Ltd.” Through Forever Yours, Bro Daniel and Prof. Anne supply the needed goods to Sister Michelle, and also uses her to meet other clients. State your opinion on the conduct of Prof. Anne Support your opinion with a decided case