Q.1 What is the effect of incorporations of a company?

Answer: Before elaborating on the effect of a company, one must know what a company is. The word company has no strict legal meaning. To a layman the word company means an association of people who have decided to associate for the purpose of carrying on business either for profit or for charity. To a lawyer a company is an entity that is created by law and given a legal status and personality on its own distinct from its owners and officers. An entity has a legal status and personality if in law it can exercise it legal right and is subject to legal obligations in its own right. It should however be noted that not every association of people is counted as company. An association will count as company, if it is registered in accordance with law that provides for the registration of companies. In Ghana, the Companies Code 1963 Act 179 is the Law that provides for the registration of companies. So, if an association of persons is registered in accordance with Companies code Act 179, it is counted as company. After a company has been brought into existence it come with certain consequences of incorporation such as 1. It becomes separate legal entity (case Salomon v. Salomon & Co) (1897) 2. It has a perpetual succession (companies code act 179) section 38 and 180

3. It has the capacity to sue and be sued (Bank of West Africa v. Appenteng) (1972) 4. It has the capacity to acquire own and dispose property both movable and unmovable (Macaura v. Northern Assurance) (1925) 5. It has the capacity to separate corporate assets from personal assets 6. It has the capacity to borrow keep account and create charges over corporate assets 7. It has the capacity to enter in legal relation. Lee v. Lees Air Farming Ltd (1960) Morkor v. Kuma (1998-99) 8. It becomes a taxable unit. SEPARATE LEGAL PERSONALITY/ ENTITY

One consequences of the incorporation is that it acquires a legal status and personality on its own, separate and distinct from its members and officers. It has a separate legal existence in its own right. As a legal person, it has legal rights and obligations attributed to it. It can act as an independent legal person in its own name. a case that illustrate this point is Salomon v. Salomon & Co. Facts: Mr. Salomon had carried on a successful business as a sole trader in the manufacture of leather boots and shoes. Mr. Salomon converted his sole proprietorship business into a limited liability company. Mr. Salomon had sold his business to the company at the inflated price of 38,782 pounds. 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.

The company purported to pay for Mr. Salomons interest by the company 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 secured by a charge on the companys assets in his favor. Mr. Salomon and two of his sons were appointed directors. Mr. Salomon was also the managing director of the company. The business of the company did not prosper. Eventually the company became insolvent. The value of the companys 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. In the confused lawsuit, which followed the main body of unsecured creditors, advance two principles of arguments:

The sale transaction was a sham and so Salomon was still the owner of the business and liable for its debt

The

was

irregularly

formed

because

six

of

the

seven

members/shareholders were mere nominees of Salomon HELD: It was held that the business was owned by and its debts were liabilities of the company, not of Salomon personally; Although Salomon owed beneficially all the issue shares of the company he could also be a secured creditor with enforceable rights against the company in that capacity.

PERPETUAL SUCCESSION The second consequence is that a company enjoys continuity of legal existence. This means that on incorporation, the company continues to exist in the eyes of the law even when its member or officers die or cease to be associated with it. The only lawful processes by which the legal existence of company may be terminated are winding up, liquidation and dissolution. However according to Sec. 38, 180 give the details. CAPACITY TO BE SUE AND BE SUED A company as a legal being can sue in its name and can be sued in its name. A company is sued when its breaches it legal obligations which may result from a contract, a tort or statute. A company can also sue for the purpose of acts of the company simply because the person being sued is a member or an officer of the company.

Question 3

The Companies Code 1963 Act 179 provides the laid down procedures for the sitting up of any company in Ghana. The member(s) of the proposed company must prepare the companys Regulations. The Regulations of a company is a contractual document which when registered, sealed and delivered; bind the members, officers and the company as to the terms thereof. S.16 of the Companies Code 1963 Act 179 state the content of the regulations which include the name of the company, the nature of the business or businesses which the company is authorized to carry on, or the nature of the object or objects for which it is established, that the company has, for the furtherance of its authorized 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, the names of the first directors of the company, that the powers of the directors are limited in accordance with section 202 of this Code. Section 21(1) of the Companies Code 1963 Act 179 state the effect of the Regulations: Subject to the provisions of this Code, the Regulations, when registered, shall have the effect of a contract under seal between the company and its members and officers and between the members and officers themselves whereby they agree to observe and perform the provisions of the Regulations, as altered from time to time, in so far as they relate to the company, members, or officers as such.

The effect of the above provision is that if a membership duty is imposed on a

member in his capacity as a member, then he must perform it otherwise the company can sue him form non-performance. The court will, therefore enforce issues dealing with rights of a member which have been conferred on a member or duties imposed on him in his capacity as a member. On the other hand, if a person is a member of a company and certain right are conferred upon him in his capacity as a member he has a right to ask the company to perform it because it is bound by the Regulations.

Another issue, which has caused more difficulty, is precisely what type of rights the members or the company can enforce as Regulations. There are numbers of effects to section 21 (1) of Act 179 and these are as follows: 1. The Regulation of a company must constitute a specialty contract between the company and its members as well as its officers. Being a specialty contract, it implies that none of the parties to this three party contract need give consideration in order to be able to sue on it. The case of Hickman v Kent or Romney Marsh Sheep Breeders Association (1920) illustrate a proper interpretation of a companys Regulations and whether a company member could be bound by its terms.

Hickman v Kent or Romney Marsh Sheep Breeders Association (1920)

FACTS:

The companys articles included a clause to the effect that all disputes between the company and its members were to referred to arbitration, before court. Mr. Hickman complained about refusal to register his sheep in the published flock book and was under threat of being expelled. He brought court proceedings against the company and the company sought an injunction.

HELD: The proceedings were stayed. The articles prevented Mr. Hickman since there was a contract. As a member, Mr. Hickman was bound to comply with the company procedure for arbitrating disputes and could not resort to court. Since the matter in dispute related to memberships duty, he was bound to refer to the case to arbitration. Our law adopted the rule in Hickman v Kent case by providing that, the Regulations constitutes terms of a contract between the company and a member in his capacity as member. The company must therefore respect its duties.

2. The provisions of the Regulations can, therefore, be said to be terms of this contract and thus when they are breached, it will entitle each aggrieved party to sue for breach of contract. This can

be derived from the case of

Eley v Positive Government Security Life Assurance Co. (1876)

FACTS: Mr. Eley was employed as a life solicitor for the company on contract for service. Later, he became a shareholder. Whilst so employed his contract for service was terminated. He sued the company for breach of contract, claiming that he had a contractual right to act as the companys solicitor arising from the articles. HELD: He failed because he was not a party to the contract, since he was not a member: he had not taken shares in the company when it was formed. This was not a right given to him as a member and he could not rely on the articles as a contract for professional services. The right to be a director of a company has also been held as an outsider right. Thus in Eleys case, the Regulations do not constitutes terms of a contract between a member and the company not in his capacity as member.

3. Members can sue fellow members on the enforcement of the Regulation and likewise officers can sue fellow officers too for the same purpose. Note that, the word Officer as an innovation. Any duty imposed on an officer must be perform by him. The word Officer in this context refers a Director, Secretary or Employee .

Where a member is not performing his membership duty another member can sue, as it is in the case of Rayfield v Hands FACTS: Here Mr. Rayfield asked the directors to buy his fully paid up shares but they refuse to do so. The articles required the directors to be members, i.e. to hold qualification shares and to purchase shares from any member who wishes to sell. HELD: This was enforceable against the directors in their capacity as members.

The duty imposed on the Directors was in their capacity as members and therefore this was a duty imposed on all members. Any member who is aggrieved has the right to sue. An officer is not a member but can sue a

member if he is not performing his membership duty. This is because an officer has certain duties conferred on him as well

The Regulations when registered constitute the terms of the contract between the members themselves. That is a member v. members. The duties impose on a member, must be performed by all members, therefore if any member refuses to perform his duty any member can sue him for not doing his duty. 4. Section 21(1) above shows that the contract envisaged here refers

to the provisions of the Regulations as they apply to the three parties as in their various capacities as company members and officers. Thus an officer or member cannot sue in another capacity other than that as an officer or member.

5. If the Regulations impose a duty on a director not in his capacity as a member he can refuse to oblige because is it a membership duty.

This is illustrate in Beattie v E F Beattie (1938) FACTS: The companys articles contained an arbitration clause (in the wording as in Hickmans case). Mr. Beattie, a member and director of the company, was in dispute with the company. It was a wide-ranging dispute concerning his right as a director. He brought court proceedings against the company. HELD: He was not bound by the arbitration clause since he was acting in his capacity as director, not a member. The rule in Beasties case will be enforce in Ghana, thus a duty impose on a director must be performed by him. An Employee is a full time personnel or one

under a contract of service.

6. The contract concerned can be altered from time to time. This refers to a novation by operation of law. This novation may be by way of change in the subject matter of the contract (i.e. the provisions of the Regulations), change of officers of the company, change in the mane of the company or change in the membership of the company. 1) Since section 21 (1) does not apply to outsiders, subsection 2 of section 21 attempt to make it clear that when certain categories of outsiders have given credit to the company and have thus been empowered by the Regulations of the company to appoint and remove a director or officer of the company they can do so. This section codifies the decision in Woodland Ltd v. Logan

(1948) Where the Regulations empower any person to appoint or remove

any director or other officer of the company such power shall be enforceable by that person notwithstanding that he is not a member or officer of the company.

Finally the section 21 (3) of the Companies Code 1963 Act 179 stipulate that in

any action by any member or officer to enforce any obligation owed under the Regulations to him and any other member or officer, such member or officer shall, if any other member or officer is affected by the alleged breach of such obligation, sue in a representative capacity on behalf of himself and all other members or officers who may be affected. This is aimed at preventing a multiplicity of lawsuits by insisting that suits to enforce the provision of the Regulations shall be by way of a representative action (class suits).

In conclusion, a company Regulations therefore shows how that particular company is constituted and administered. It is however mandatory under the code that companys Regulations must contain the name, objects, powers, the names of Directors, the limit placed on the power of the Directors, the

liability of the company and the nature of that liability. Hence the code under Section 21 of the Companies code Act 179 spells out the character of registered Regulations and the relationship between members and the company and between members themselves and it is summarized as follows: a) A contract between the company and its members; b) A contract between the company and its officers; c) A contract between the member on one hand and officers on the other; d) A contract among the members; e) A contract among the officers