Incorporation of a Company in Ghana

Introduction:

This note will discuss the formation of a company in terms of when it becomes necessary to incorporate a company, who can apply for the incorporation of a company, the number of persons required to form a company, the types of company that can be formed under Act 992, the processes involved in the formation of a company, and incorporation.

When it Becomes Necessary to Incorporate a Company:

A person, or group of persons interested in carrying out a business, may, generally, do so without having to form a company in accordance with the provisions of the Companies Act, 2019 (Act 992). However, per Section 3 of Act 992, it becomes necessary to register a company if the following conditions are met:

1. There are more than twenty persons.
2. The purpose of their association is to carry on business that has the object of acquiring gain for:

a. The association as a whole

b. The individual members of the association.

The reason it becomes necessary to form a company if the above conditions are met is that not doing so would be contrary to Section 3 (supra) and consequently unlawful.

Who Can Apply for the Incorporation of a Company:

In Section 6 of Act 992, it is provided that:

One or more persons may form an incorporated company under this Act.

We may ask whether this right is a general conferment of the right to form a company on persons of all ages, on all types of persons, and on all nationalities.

A. Age:

The right to form a company under Section 6 (supra) is further limited by age in Section 12, which provides that:

Subject to this Act, a person of the age of eighteen years and above may apply for the incorporation of a company under this Act.

Thus, there is an express conferment of a right to apply for the incorporation of a company on persons who are 18 and above. The maxim expressio unius est exclusio alterius will then apply to prevent all persons under 18 years from applying for the incorporation of a company under Act 992.

B. Type of Person:

Also, note the use of the word "person" instead of “individual.” In Section 32 of the Interpretation Act, 1960, individual is defined to mean “a natural person and does not include a corporation.” Also, in Section 26 of the Interpretation Act , it is provided that

Where an enactment employs the term "person" or "party," the use of a pronoun importing the masculine gender shall not of itself be construed as limiting the term to a natural person.

Also in Section 32, it is provided that ““person" includes a body corporate (whether a corporation aggregate or a corporation sole) and an unincorporated body of persons as well as an individual.” In the case of New Patriotic Party v Attorney-General (Ciba Case) (19996-97) SC GLR. 729 , the word “person” was interpreted to include artificial persons like companies. In light of the foregoing, a company may form another company.

C. Nationality:

Also, note that the right to form a company under Act 992 is not restricted to only Ghanaians.

Number of Persons Required to Form a Company:

There is a minimum and a maximum number of persons that can form a company in Ghana.

On the minimum number of persons, Section 6 of Act 992 provides that “one or more persons may form an incorporated company under this Act.” Thus, although more than 20 people who are associating for the purpose of obtaining gain for the company or themselves must form a company, only one person can still form a company. In the case of Republic v. High Court Accra, Ex parte Appiah & Others [1999/2000] 2 GLR 420 SC , for instance, the company Lims Co. Ltd. was established to have been incorporated solely by one person. The fact that one person can form a company was also recognized in the case of Salomon v. Salomon & Co. Ltd. [1895-9]. All ER 33; [1897] AC 22 , where the House of Lords, speaking through Lord Herschell, delivered itself as follows:

It is said that the respondent company is a "one man" company, and that in this respect it differs from such companies as those to which I have alluded. But it has often happened that a business transferred to a joint stock company has been the property of three or four persons only, and that the other subscribers of the memorandum have been clerks or other persons who possessed little or no interest in the concern. I am unable to see how it can be lawful for three or four or six persons to form a company for the purpose of employing their capital in trading, with the benefit of limited liability, and not for one person to do so, provided, in each case, the requirements of the statute have been complied with and the company has been validly constituted. How does it concern the creditor whether the capital of the company is owned by seven persons in equal shares, with the right to an equal share of the profits, or whether it is almost entirely owned by one person, who practically takes the whole of the profits? The creditor has notice that he is dealing with a company the liability of the members of which is limited, and the register of shareholders informs him how the shares are held, and that they are substantially in the hands of one person, if this be the fact.

Note, however, that the fact that one person can form a company does not mean that same person can solely be responsible for the management of the company. Formation of a company is to be distinguished from managing the affairs of a company.

On the maximum number of persons, it is essential to note that the maximum number of persons that can form a company is dependent on the type of company being formed. The following rules apply:

1.Private Company:If the company is a private company, the maximum number of members and debenture holders must not exceed fifty, per Section 7(5) of Act 992.

2.Public Company:If the company is a public company, there is no maximum number of persons.

Types of Company that can be Formed under Act 992:

A person intending to form a company may form any of the following types of companies, provided in Section 7 of Act 992:

(a) A company limited by shares;

(b) a company limited by guarantee;

(c) an unlimited company; or

(d) an external company

Per subsection 4 of section 7, the above companies may be private or public. These types of companies shall be discussed extensively in subsequent notes.

Processes Involved in the Formation of a Company:

In exercising the right conferred by Section 12 of Act 992 to apply for the incorporation of a company, there must be compliance with Section 13 of Act 992, which makes provisions on applying for incorporation. Section 13(1) provides that an application for incorporation is made to the Registrar.

In Section 13(2), the content of the application is provided. These include:

1. The name of the company.
2. The type of company (discussed above) being incorporated.
3. The nature of the proposed business in the case of a company registered with an object;
4. Particulars, such as the full name and addresses of the following classes of persons:

a. Subscribers

b. Proposed company secretary.

c. Proposed directors.

d. Proposed auditor of the company.

e. Beneficial owners of the proposed company

5. A statutory declaration by each proposed director that within the preceding five years, he has not been:

a. charged with or convicted of a criminal offence involving fraud or dishonesty; (note that in the case of Derick Adu-Gyamfi v. The Attorney-General Writ No. J1/18/2022 , the Supreme Court of Ghana held that the earlier provision which allowed for the disqualification of a person from being a director merely on the basis of being charged with a criminal offence, even without actual conviction, is unconstitutional.)

b. charged with or convicted of a criminal offence relating to the promotion, incorporation or management of a company; or

c. declared insolvent or if that proposed director has been insolvent, the date of the insolvency and the particulars of that company;

6. The consent of each proposed director to be a director of the company being incorporated.
7. If the company is one with shares, the following must be provided:
8. The amount of proposed stated capital.
9. Number of authorized shares of the company for each class.
10. If the company is limited by guarantee, the specified amount up to which the member undertakes to contribute to the assets of the company, in the event of the company being wound up while that person is a member or within a stipulated period after ceasing to be a member, for payment of the costs, charges, and expenses of winding up and the adjustments of the rights amongst members.

After providing the above in the application, Subsection 3 requires that the application be signed by each subscriber. If the company is one with shares, each subscriber must also write the number of shares he is taking and the cash price payable for the shares.

The completed application is then delivered:

1. Solely to the registrar. If this is done, the default constitution applicable to the type of company shall be the constitution of the proposed company.
2. Together with the registered constitution to the registrar. This registered constitution may override the provisions of the default constitution, subject to the provisions of Act 992.

Incorporation:

A. Meaning of Incorporation:

Incorporation is the process by which a company is formed. Usually, a company is formed when there is compliance with the statutory requirements for the formation of a company and there is a certification by a relevant authority, such as the registrar of companies, that there has been compliance.

B. When a Company Becomes Incorporated and the Effect of Such Incorporation:

Once an application is duly made and the registrar is satisfied that the application is in accordance with Act 992, Section 14(1) provides that

The Registrar shall, after payment of the prescribed fee, certify under the seal of the Registrar that the company is incorporated and in the case of a limited liability company, that the liability of the members is limited.

The effect of such certification, per Section 14(2), is that:

From the date of incorporation, the company becomes a body corporate by the name contained in the application for incorporation and, subject to Section 13, is capable of performing the functions of an incorporated company.

This provision reflects the decision in Salomon v. Salomon & Co. Ltd. [1895-9] All ER 33; [1897] AC 22 that:

When the memorandum is duly signed and registered, though there be only seven shares taken, the subscribers are a body corporate "capable forthwith", to use the words of the enactment, "of exercising all the functions of an incorporated company". Those are strong words. The company attains maturity on its birth. There is no period of minority—no interval of incapacity.

C. Certificate of Incorporation and its Effect:

As evidence that a company is duly incorporated, it is given a certificate of incorporation, which, per Section 15 of Act 992:

Is conclusive evidence that the company has been duly incorporated under this Act, and proceedings shall not be brought in a Court to cancel or annul the incorporation.

The above provision was similarly stated in the case of Peel v. London & North Western Railway Co. [1907] 1 Ch. 5 CA. [2011] J.B. , a case that is conveniently known as the Peel’s case. Also, see the case of Bowman v. Secular Society Ltd. [1917] AC 406.

D. Commencement of Business:

Once the company is duly incorporated, it can commence business as an incorporated company. This position under Act 992 is distinct from the position in the previous Companies Act, 1963 (Act 179) which required:

1. That the company be duly incorporated and obtain a certificate of incorporation
2. That the company fulfils the requirements to commence business. See sections 27 and 28 of Act 179.

Conclusion:

In this note, we discussed that while a person carrying on business is not required to form a company, it becomes necessary to register a company when twenty or more people associate to carry on business with an to acquire gain for the association or its member. Pursuant to the right conferred on persons to form a company, we discussed who can form a company in terms of age, nationality, and type of person (whether natural or person). In addition, we discussed that one person can form a company, and discussed the processes involved in the formation of a company. After such processes are completed, we discussed the concept of incorporation and its effects.