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DEPARTMENT OF BUILDING

TECHNOLOGY, KNUST
BT 262

CONSTITUTIONAL AND COMPANY LAW

DICKSON OSEI-ASIBEY, ESQ

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COURSE OUTLINE
UNIT 1. GENERAL PRINCIPLES OF
CONSTITUTIONAL LAW

S. 1-1 Constitution

S. 2-1 The Organs of Government

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UNIT 2. CENTRAL, REGIONAL AND LOCAL
GOVERNMENT ADMINISTRATION

S. 1-2 Central and Regional Government


Administrative System

S. 2-2 Local Government Administrative System

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UNIT 3 - ELEMENTS OF COMPANY LAW-
FORMATION OF COMPANIES

• S. 1-3 Formation of Companies

• S. 2-3 Membership of a Company

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UNIT 4 – ELEMENTS OF COMPANY LAW-
MANAGEMENT OF COMPANIES

S. 1-4 Directors and Secretary

S. 2-4 Division of Power Between the General


Meeting and The Board of Directors

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Units 3 & 4

• COMPANY LAW
– Formation of Companies
– Members of Company
– Management of Company

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FORMATION OF COMPANY
There are 3 forms of business organizations
• Sole proprietorship
• Partnership
• Companies

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COMPANIES ACT, 1963 (ACT 179)
"Company" is defined by the Act as "a body corporate
formed and registered under the Act.

Generally, a company is any association of a number of


people for a common purpose, usually to carry on a
business for gain.

In this sense, the term "company" may include a


partnership.

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Type of Registered Companies

S.9 of the Companies Act,


an incorporated company may be either
1. limited by shares or simply a limited liability
company, or
a company having the liability of its members limited
to the amount, if any, or unpaid on the shares held
by them;

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2. company limited by guarantee,
a company having the liability of its members
limited to such amount as the members may
respectively undertake to contribute to the
assets of the company in the event of its being
wound up,
may not be formed with the object of carrying
on business for the purpose of making profit

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• normally created for charitable or other
purposes and not for profit,

• shall not be registered with shares and

• shall not create or issue shares.

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3. unlimited company.

a company not having any limit on the liability


or its members,

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Private and Public Companies
• A company of each of the above types may be either a
private company or a public company:

• Private Company
• Restricts the right to transfer its shares, if any;
• Less than 50 shares and debenture holders as members
• Prohibits any invitation to the public to acquire any
shares or debentures of the company.

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Disadvantages of Private
Companies
• Membership:
cannot expand its size and consequently its
source of capital.
• Transfer of shares:
its shares less marketable and therefore less
valuable than those of a public company.
• Prohibition on Invitation:
deprives it of a valuable source of capital.
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Public Company

• a company, which has none of the restrictions


of a private company.

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Characteristics of Limited Liability
Company
1. legal personality

Salomon v. Salomon (1897) AC 22.


establish that upon incorporation
"a company becomes an artificial person,
separate, and independent from the people
who formed it.’’

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• Lord Halsbury :
• "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".

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Lord MacNaghten :
"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
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2. limited liability.

a member is liable in the event of the


liquidation of the company to the extent of
the amount remaining unpaid on the shares
held, by him, so that it is the company itself,
which bears its indebtedness and liabilities.

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3. Filing of documents
• Obligation to file several papers and accounts
with the Registrar

• it is exposed to much publicity

• subject to much control by the Registrar.

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4. “Limited”
• a company limited by shares the last word of
the name of the company shall be "Limited.'"

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Registration and Incorporation of Company
• A company may be formed by delivering to
the registrar for registration, (SS 14-16)

– a copy of the proposed regulations of the


company stating the following:
The name of the company;
• NOT misleading or undesirable.

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The nature of business or businesses which
the company is authorized to carry on, or

the nature of the object or objects for which it


is established;

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That the company' has all the powers of a
natural person, of full capacity'; and

The names of the first directors of the


company (see SS. 14-16)

state the number of shares with which the


company is to be registered.
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Other Requirements for registration
• Signed regulations by one or more subscribers
in the presence of, and to be attested by at least
one witness.

• the subscribers shall write opposite their


names, the number of shares they have taken
and the cash price payable for them;

• it is required that each subscriber shall take at


least one share.

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Incorporation
• the Regulations comply with the code
• the objects is lawful
• Name is not misleading
• None of the subscribers to the Regulation is
an infant or of unsound mind, or
• none of the directors is incompetent
Registrar registers the regulations and certifies
that the Company is Incorporated.
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Consequences of Incorporation
1. The company becomes separate, and
distinct from its membership.
Morkor v. Kuma 1998-1999) SCGLR 620 at p. 635
per Akuffo JSC:
2. the company shall have all the powers of a
natural person of full capacity
Section 24 of the Companies Act, Act 179.

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3. Separate Property:
• In Macaura v. Northern Assurance
Upon incorporation the company's property
belongs to the company and not the
members (shareholders)
• Short v. Treasury Commissioners. (1948) 1 KB
116 at 122: “shareholders are not part owners
of the assets of a company. They only own
shares in a company.”
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4. Perpetual Existence/Succession:
• where a company is competently managed/it
could exist for ever in perpetuity.

5.Legal Action:
it may sue and be sued in its corporate name.
When a wrong is done to the company, it is
the company which must take steps to remedy
the wrong.
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In Bank of West Africa v. Appenteng (1972) GLR
153. (service of documents on a company).

6.Limited liability:
In section 9 . members are not liable for the
debts of the Company

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7.Borrowing:
The company can give its assets as collateral
for loans. The company can also issue
debentures which are loans secured by the
assets of the company.

8. Transferability of Interest:
this means upon incorporation shares of the
members are freely transferable.
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Disadvantages of Incorporation

a. Technical formalities:

b. Loss of privacy.

c. Lifting the Corporate Veil


• the law would disregard the corporate entity
and identify Members for wrong doing,
• Exception to legal personality
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Lifting of veil

• Statutory provisions

• Judicial decisions

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Statutory Provisions
• Breach of the prescribed 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".
section 38 ; after 6 months –jointly and severally
liable for the debts and liabilities of the
company incurred during that period."

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• Misdescription of the Company Section 121
if officers of the company sign on behalf of the
company a bill of exchange, cheque or other
similar document and the name of the
company is not mentioned thereon in legible
characters they can be personally liable to the
holder for the amount due, despite the fact
that the officers act as agents of the company.

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• Breach of the minimum number of Directors:
• section 180(1) – "Every company
incorporated after the commencement of this
Code shall 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

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• 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 for every day
during which it so carries on business after the
expiration of such four weeks without having
at least two directors; and.

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• every director and member of the company
who is cognizant of the fact that it is carrying
on business with fewer than 2 directors shall
be jointly and severally liable for all the debts
and liabilities of the company incurred during
that time”

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• Trading for profit by a guaranteed company:
• section 10(1) - "A company limited by
guarantee may not lawfully be incorporated
with the object of carrying on the business for
the purpose of making profits.
• Section 10(2) - penalty for this breach

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• Premature Trading or Commencing Business
without filing a return;
• section 27 - It is to the effect that after a
company has been incorporated and receives
its certificate of incorporation, it is still not
allowed to commence business until it has
submitted its returns to the Registrar-General.

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• Section 29 - For everyday that section 27 is
not complied with and the company operates,
the company and every officer of the
company who is in default shall be liable to a
fine.
• Section 28 - Failure to satisfy the minimum
capital requirements
• (Section 28 is ONLY applicable to companies
limited by shares.)
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Judicial Decisions
1. Agency
• Morkor v. Kuma Akuffo JSC (1998-1999) SCGLR
620.
• the corporate veil should be lifted in order to
make a CEO of a company personally liable.

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2 Fraud
• Amartey v. Social Security Bank (1987-88) GLR.
where there is fraud on the part of any person
related to the company the court will lift the
veil.
Held per Ampiah J.A
• It was an undisputable fact that the plaintiff as
mortgagor was also the chairman and
managing director of the company.
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The court also found that he had received the
letter and replied to it. The court held that it
was improper for the director to feign
ignorance of the notice simply because it was
sent to him in his capacity as the managing
director (even though he was the mortgagor)

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• and that such conduct amounted to fraud for
which the corporate veil would be lifted. Thus
the mortgaged property along with the others
that were subsequently sold was held to have
been properly sold.

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3. Public Policy
• Pamler v. Continental Co [1916] 2 AC 307. 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.

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4. Interest of Justice
• In Morkor v Kuma (@ 632. Here Akuffo JSC
listed the interest of justice as one of the
factors for lifting the corporate veil.

• In Adams v Cape Industries, the court said the


corporate veil will be lifted where it causes
injustice.

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MEMBERSHIP
• A citizen or non-citizen resident in Ghana can
become a shareholder.
• external residents need the approval of the
Minister of Finance before one can become a
shareholder.
• Corporate bodies can be shareholders.
• A company under certain conditions can be a
member of itself (when it buys treasury
shares).
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There are 4 ways in which membership is
created
• Subscribers to the regulations s 18, 30
• By agreement with the company S 32
• By transfer of shares from an existing member
s 95 and 98
• By operation of the law

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• Conte v Kpeglo (1964] GLR 111.

• Kpeglo claimed he was allotted 10,000 shares


in a company free of charge for his services to
the company and the evidence he produced
was the minutes book of the company and a
letter from the appellant
• Held; not a member

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Register of Company
Section 32:
Details of the register:
• Names and addresses of members
• (company registered with shares) the
number of shares held by each member
• The amount paid or payable for the shares
• The date of entry in the register
• Date of cessation of membership.
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• record should be available for 6 years before
they are expunged.

• name, address and number of shares should


be entered within 28 days in the register of
members.
• sections 53 and 54 of the Code.
within 2 months the certificate should be
provided.
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certificate should state
• the number
• class of shares
• a definite number
• State the amount paid and the amount
payable.

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Effect of certificate
• It is prima facie evidence of any matters
contained therein but not conclusive.
• It constitutes an estoppel against the company

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Termination of membership
Section 30(5) - 4 instances in which membership
of company limited by shares terminates:

• transfers ALL his shares


• by operation of law
• Forfeiture for non-payment
• death

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In section 30 (6) membership of company
limited by guarantee terminates;
• When a member dies
• When a person validly retires
• Where a person is excluded from membership

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Raising of Capital
• 2 ways
• Share
• Debenture

• Share capital 200,000.00


• Issued share capital 150,000.00
• Paid up shared capital 70,000.00
• Uncalled up share capital 80,000.00
• Unissued share capital
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50,000.00
Shares
• 2 Classes of Shares;
• Ordinary Shares
Members who manage the company with
directors
entitled to attend general meeting and vote
Carry no fixed rate of dividend
Rate of dividend depends upon what the
directors declare
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• Not entitled to dividend until it is declared by
directors
• Not paid any dividends until preference
shareholders have been paid their dividends
• Owners of surplus profit

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• Preference Shares
Members who are not part of management of
the company
entitled to attend general meeting and vote on ;
-arrears and unpaid dividends
-variation of rights
-removal of auditors
-winding up
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Carries fixed rate of dividend
• classification of preference shares
– Cumulative and non cummulative
– Redeemable and non redeemable
– Inconvertible and non convertible
– Participating and non participating

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Dividend
• Payment made out of profits to members of a
company
• Declared payable on the paid up amount of
share certificate
• Paid only from accumulated profit s71
• Directors have the sole responsibility of
declaring dividend

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Prospectus
• offer statement or any other document used
in connection with a public offering of
Securities

• A Statement In Lieu Of Prospectus (SILP)-s 274


This is a basic requirement for a public company
which does not intend to issue shares to the
public

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Debentures
• A written acknowledgment of indebtedness by
a company setting out the terms and
conditions of the loan
• Debenture holders are creditors to the
company
• May be secured by a fixed charge or a floating
charge

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Fixed charge
• Created on particular undertaking or asset
• Created over assets such as land, house,
machinery or other goods
• Attaches to the relevant assets as soon as it is
created
• Company seeks the consent of debenture
holder in dealing with the assets eg sale

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Floating Charge
• Charge over the whole or specified part of the
company undertakings or assets

• Created over both present and future assets

• Assets may be dealt with without the consent


of the d-holders

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• Does not attach any asset until the crystallises

• Charge crystallises ;

• Upon default in payment

• Upon winding up

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• MANAGEMENT OF COMPANY
• DIRECTORS

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DIRECTORS
Definitions;
• s179 defines directors as persons by whatever
name called who are appointed to direct the
affairs of a business.

• Those persons who are appointed to direct


and manage the business of the company

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Officers of company
• Directors

• Management

• Secretary

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Appointment of Directors
• Number of Directors (section 180(1)-
Every company shall have at least 2 directors.
• Politis v Plastico [No 2] [1967] GLR 24
• without a written consent the appointment of
a Director will be defective

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• Nominated by a member
• consent in writing by the nominee
• Confirmation of nomination by Existing
Directors ( if any)
• Elected by members

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• Section 180(4)
the maximum number of directors shall be
fixed in accordance with the company's
regulations.

• A private company should have between 2


and 5 Directors.

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Disqualified persons
• Infants

• Insane

• Bankrupt

• Convicted persons (fraud or dishonesty)

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Types of Directors
• First Directors

• Subsequent Directors

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Duties of Directors
• Directors are fiduciaries-

• Observe utmost good faith towards the


company

• honesty and integrity since a director is seen


as trustee

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The fiduciary duties include
• not abusing or using information acquired to
the detriment of the principal.
• Interested in affairs of company
• no conflict of duty and interest
• full disclosure
• accounting for secret profits made

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Industrial Development
Consultants v Cooley (1972)
• An Architect of East Midland Gas Board and a
Director of IDC. Approached by Eastern Gas
Board for design work in his personal capacity
not on behalf of IDC

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• Held
Defendants profit made was to be disgorged
back to IDC because it was a corporate
opportunity even though it was unlikely to
obtain

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Cranlength Precision Engineering
Ltd v Bryant (1965)
• A director of a Company was working on a
swimming pool. He left the company taking
plans with him and developed a swimming
pool of his own based on the drawings.
Company was successful in claiming for
disgorgement of profit

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Types of Directors
• De-facto Director
• Shadow Director
• De-jure Director
• Managing Director
• Executive Director
• Casual Director
• Substitute Director
• Alternate Director
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Removal of Directors
• Section 184 of the Code. A director will have
to vacate his office if he becomes incompetent

• Again where the Director fails to meet any


share qualification

• A director may resign without giving any


reasons.
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Sections 185 and 216
• Ordinary Resolution of Members
• Section 185 defines the procedure for
removing Directors.
– Common Law.
– Equity,
– rules of principal and
– Agent and
– master and servant.

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Board of Directors
• All directors of a company forms BOD

• BOD manages the day to day activities

• BOD delegates to management

• BOD is an organ of the company

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• BOD is not bound to obey the directions or
instructions of members

• Members intervene when there is deadlock

• Executed actions of BOD cannot be invalidated


by alteration of Regulations

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• Shaw & Sons Ltd v Shaw
• If powers of management are vested in the
directors they and they alone can exercise
these powers

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General Meetings

• There are two main general meetings of a


company:
(a) Annual General Meetings (AGM)
(b) Extraordinary General Meeting (EGM)

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• Convene General Meetings
– Policies of the company
– In Luguterah v Northern Engineering Ltd
the letter was signed by the secretary to the board.
However there was no evidence that she was
acting under the directive of the Directors so the
notice was held invalid since she could not as
secretary convene a meeting.

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NOTICE
– Notice of meetings to
• Every member
• Personal representative of members
• Directors
• auditor
– 21 days for AGM

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Contents of Notice
• Date
• Hour
• Nature of business
• Terms of resolution
• Ordinary business
– Declare dividend
– Accounts and reports of directors and auditors
– Election of directors and removal of auditors
– Fixing the remuneration of directors and auditors

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• Without notice no business could be
transacted at meetings
• Eshun v Poku [1989-90] 2 GLR 572.
notices were sent without the accounts and
the issue was whether the notice was valid.
Because the accounts were not enclosed the
meeting did not consider the matter

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• Quorum
-1 for one member company
-2 for more than one member company

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Resolutions
section 168 – 3 types of resolutions

• ORDINARY RESOLUTION
a resolution passed by a simple majority of
members who are entitled to vote and
actually voting either in person or by proxy.

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• SPECIAL RESOLUTION - s22 ands57
It is a resolution passed by not less than 75% of
the members entitled to vote who actually
vote either in person or by proxy.

A special resolution may be taken by mere show


of hands in the absence of a demand for a poll

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• WRITTEN RESOLUTIONS - section 174:
the resolution in writing signed by all the
members for the time being entitled to attend
and vote

Special and written resolution are registered


with the Registrar

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Voting
• Show of hands unless
• Poll demanded by the chairman or at least 3
members
– One vote for one share

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Shaw and Sons Ltd v Shaw ( 1935)
2 KB 113
• Resolution of the general meeting
disapproving the commencement of an action
by the directors was held to be nullity

• Resolutions of a general meeting which


seemed to be a direction to pay an interim
dividend or an instruction to make loans
should be declared nullities

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Majority (Internal Management)
Rule
The principle of majority rule has its rule in the
old English case of FOSS V. HARBOTTLE (1843)
2 Ha 461, 67 ER, 189.
• The rule has two aspects;
1. The court is reluctant to interfere in the
internal management of the company to cure
irregularities which are curable by the
majority.

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2. for a wrong done to the company it is only the
company which can sue.

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Protection of Minority Rights
• Exceptions to the Majority rule;

1. Where an act is ultra vires the company.


S 25- application to court for ultra vires act

s. 217 - Prevention of oppression of the minority


by the majority

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2.Where an irregularity has occurred in the
doing of an act which required a specified
majority.

3. An act which constitutes a fraud against the


minority and the wrongdoers are in control of
the company

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Cook v Deeks (1916) AC 554, PC
Action was allowed to prevent the majority from
committing fraud on the minority

4. An act which infringes on the personal right of


a member.
• S 218

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Dissolution of Company
• Dissolution is the cancellation of the name of
the company from the register of companies

• Winding up – the process by which a company


is brought to an end

• Liquidation is another term for winding up

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• Private liquidation

– Solvent companies decides to end its affairs

– Commenced by special resolution

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• Official liquidation
• Company is ending its affairs because it is
insolvent
• Commenced by
– special resolution
– Petition to court

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• Appointment of liquidator
• Takes over from directors management of the
company
• Sells all properties
• Pay off all debts
• Reports to registrar
• When registrar is satisfied the company is
then dissolved
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• THANK YOU

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