UNIVERSITY OF CAPE COAST

SCHOOL OF BUSINESS
DEPARTMENT OF ACCOUNTING
COURSE: COMPANY AND PARTNERSHIP LAW
LECTURER; DANIEL ARTHUR (ESQ)
GROUP LIST
1. JULIET DONKOR SB/ACC/16/0107
2. PATRICIA AKUSSAH SB/ACC/16/0070
3. BRUNO AHOSSEY SB/ACC/16/0016
4. OPPONG MAHAMA SB/ACC/16/
5. OTHNIEL OSEI ANIM
6. BENARD DOUGHAN SB/ACC/16/0067
7. LYDIA ADAMTEY
8. AUGUSTINE AGYEI
9. NANA HANSON
10. S
11. C

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Question 1B.
AREAS OF LAW
 Directors of a Company
 Secretary of a Company
 Contract entered on behalf of the company by the Secretary
The legal issues raised by this case can be identified as follows.
 Whether only one director can run a company.
 Whether a secretary can bind a company in a contract with a third party
 Whether a director is legally permitted to perform the role of a Secretary
 Whether or not a company with one director is legally permitted to have a Secretary
Under the Company’s Code Act 179, a director is any person by whatever name called who is
appointed to direct and administer the affairs of the company. The codes include De-facto
and shadow directors.
De-facto directors are persons thought not officially appointed as directors allow themselves
to be held out as directors. Shadow directors are also persons who are not duly appointed as
directors but on whose instructions the duly appointed directors are accustomed to act.
This means that any person on whose directions and instructions the duly appointed director
feel accustomed to act are subjected to the duties of the company by the Secretary and
liabilities as if they were directors even though they are actually not directors. Anyone
described by the company as directors by whatever adjective qualified will be deemed to be
held out as a director.
Anybody appointed as a director must have consented to his appointment in writing as a
director and the first directors shall be named in the company’s regulations and they are
usually appointed by the promoters but subsequently, directors shall be appointed by the
company’s regulations but where the vacant position is casual, then it may be filled by the
continuing directors or by the members at the General Meeting.
There are some persons who are not qualified for appointment as directors. And they are
infants, lunatics, a body corporate, undischarged bankrupt or fraudulent persons once
convicted in connection to the formation of a business. The code says that a company must
not have less than 2 directors. If anytime the number falls below 2 and the company
continues to operate for more than 28days, every member and director in default shall be
liable to a fine, and the director and members shall be jointly and severely liable for all debt
incurred during the period.
A director can be removed by an ordinary resolution of the company. However, the director
is entitled to be given the opportunity to be heard and defend his part, and thereafter, the
members can decide to dismiss him. A director need not be a shareholder of a company. In
some companies, the regulation provides that the director must hold some minimum amount
of shares in the company. Any director who fails to take up the requirements becomes
disqualified.

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Retirement of a director in private companies is unlimited until they retire or are removed. A
director of a company can resign without giving any reason. Directors are agents of the
company and owe fiduciary duty to the company. Even though directors don’t owe fiduciary
duty to creditors of a company, when the company is solvent. In a situation where the
company becomes insolvent, they however owe duty of fiduciary duty to creditors. Though
directors are responsible for directing the affairs of the company, their power is limited in the
following ways;
1. They cannot transform the whole undertaking of the company without the approval of
members.
2. They cannot issue shares other than treasury shares without observing the pre-
emptory right.
Remuneration of the directors are determined by members from time to time. Any director
who holds another place of profit in the company other than the auditor’s position is known
as an executive director. If a director has been assigned all or some powers of the other
director, this director becomes a Managing Director.
SECRETARY OF A COMPANY
Every company registered under the code must have a secretary. And this position shall not
be vacant for a period more than 6months. If a company carries on business for more than
6months without a secretary, every officer of the company in default shall be liable to a fine
each day from the 6thmonth. The code says that a director can act as a secretary of a
company. But where something is required to be done by both the secretary and the director,
the director cum secretary cannot do both. A secretary is appointed and removed only by
directors. A secretary need not be a natural person. A corporate body can also be employed as
a secretary of the company. A secretary cannot bind a company in contract with a third party
because his powers are only ministerial and administrative. In other words, because a
company’s secretary’s job is not managerial, he does not come under officers and directors
whose decision with the third parties can bind the company.
Under the company’s code Act 179, a company must not have less than 2 directors. Any time
during operation, if the number falls below 2, after 4 weeks of operation, any officer in
default of this shall be fired and severally liable of any debt incurred.
Therefore, Olivia being the sole director of the company has the full capacity of a director
within 4weeks after which she breaches the code, if the number of directors is still less than
2. Furthermore, the code says that Secretaries are appointed and removed by directors.
Therefore, Olivia being the only director has the power within the 4 weeks to appoint and
remove the secretary. Therefore, the company is legally permitted to have a secretary. But
after 4weeks of operation, if the number of directors still falls below two they will be fined.
 The code says that a secretary of a company cannot bind the company in a contract
with a third party because his powers are only ministerial and administrative. In other
words, because a company’s secretary’s job is not managerial, he does not come
under officers and directors whose decisions with third parties can bind the company.
Therefore, legally speaking, Global investors Ltd would not be bound by the contract
to buy the set of items from All Is Well Company Ltd.

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  Under the code, a director can act as a secretary of a company. But where something
is required to be done by both the secretary, the director acting as the secretary cannot
be both. Therefore, Olivia is legally permitted to perform the role of the company’s
secretary. However, if something is required to be done by both the director and the
secretary, Olivia cannot do both.

Question 1A.
AREAS OF LAW
The areas of law are;
Directors express authority, CEO's implied authority, De facto CEO and Turquand’s principle

ISSUES
a. Whether or not Twum's acts as CEO binds the company

b. Whether or not Arhin is entitled to payment from ABC ltd in respect of the contract
entered into by Twum.

Solution

RULES OR RELEVANT LAWS

a.
Directors express authority is the authority to make decisions on behalf of the company such
as entering into contracts if the director is authorized to do so by the company's regulation in
the ordinary course of the company's business. Directors are appointed to direct and administer
the business of the company. In the discharge of his duties, directors become agents of the
company and in effect their acts expressly stated in the regulation legally binds the company.
b.

Sometimes the board of directors may entrust to or confer any or all powers exercisable by the
directors on one or more directors. These directors with vested power and authority from the
board are called managing directors, where a company has more than one managing director,
the overall head of the executives is called Chief Executive Officer.

CEO's implied authority is the authority granted to the CEO to perform acts which are
reasonably incidental to and necessary for the effective performance of his duties. Authority
may be implied by the court, customs of trade or by virtue of his position as a CEO. Where
enough evidence reasonably attests that the CEO's act was implied and that he was acting in
the best interest of the company, that act is legally binding on the company.
Case: Freeman and locker vs Buckhurst Park Properties limited
De Facto CEO is one who is not duly appointed as a CEO but holds himself out as CEO or
allow themselves to be held out as one. Where a third party deals legally with such a person,

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the contract will be legally binding on the company under some conditions restricted to some
limitations.

Turquand Principle is a rule that was established in the case of Royal British Bank vs Turquand.
The rule is to the effect that person's contracting with the company in good faith may assume
that the officers of the company or their agents have been properly authorized or the regulation
of the company and its powers have been properly and duly complied with unless there are
facts indicating otherwise. This principle is based on the business efficacy. Under the
companies code, a person dealing with a company may assume that the company's regulation
has been duly complied with and that any document issued by an officer of the company is
genuine. This is also known as presumption of regularity in section 142 of the company’s code
1963 (Act 179).

Limitations to the Turquand Principle

This rule will not be enforced by the court and that the company will not bear liabilities under
a contract if the following conditions prevail. The third party cannot rely on the rule,
1. Where in fact he has knowledge of the irregularity.

2. Where due to his position in relation to the company ought to have been aware of the
irregularity or lack of authority.

3. If he is put on enquiry but he fails to enquire. Sometimes the transaction may appear
suspicious which may incite a reasonable person to conduct enquiry. If the third party fails to
do so, he cannot rely on the rule.

Analysis
Since the sole running of the business is left to Twum, he becomes the managing director in
the sense that he is vested with some power to do so by the board of directors although this
may be subject to some restrictions or terms as the board deems fit. Although Twum purports
to be a CEO of the company without official appointment, the board didn't make any
representation to dispute the fact.
RESOLVING THE CASE(APPLICATION) In effect, Twum assumes the authority of the
CEO in dealing
Conclusion
Twum's acts as the CEO bind the the company. Also Arhin is entitled to payment from ABC
Ltd in respect of the contract entered into by Twum if he, Arhin had no knowledge of Twums
faulty title as CEO or should have known of the irregularity and the fact that twum was acting
in the best interest of company.

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Question 2
CORPORATE VEIL
INTRODUCTION
A legal concept that separates the personality of a corporation from the personalities of its
shareholders, and protects them from being personally liable for the company’s debts and
other obligations.
It means the company has a separate legal entity from the persons constituting its members.
Once it is incorporated, it becomes distinct, separate and artificial person. There is the rule of
separate legal personality which was established in the case of Salomon v Salomon. It was
held that who controls a corporation in fact, or the motives of the promoters for
incorporation, or the motives of the shareholders for obtaining shares in a company, are
immaterial. Once duly incorporated, there is a figurative veil that separates and distinguishes
the corporation from the persons who may control it.
The principle of veil of incorporation is a legal concept that separates the personality of a
corporation from the personalities of its shareholders and protects them from being personally
liable for the company’s debts and other obligations. While a company is a separate legal
entity, the fact that it can only act through human agents that compose it, cannot be neglected.
Since an artificial person is not capable of doing anything illegal or fraudulent, the façade of
corporate personality might have to be removed to identify the persons who are really guilty.
This is known as lifting of the corporate veil. Besides the statutory provisions for lifting the
corporate veil, courts also do lift the corporate veil to see the real state of affairs. However,
even though the legislature and the courts have in many cases now allowed the corporate veil
to be lifted, it should be noted that the principle of veil of incorporation is still the rule and
the instances of lifting or piercing the veil are the exceptions to this rule.
Before dealing with the lifting of corporate veil it is pertinent to define what the meaning of a
company is. Company implies an association of a number of individuals formed for a
common purpose. The company must be registered under the Companies Act for it to become
an incorporated association. If it is not registered it becomes an illegal association. This paper
would deal with the lifting of corporate veil and its aspects with the judicial decisions.

LIFTING THE CORPORATE VEIL

This principle deals with situations where the law will disregard the separate legal entity
principle and identify members and or officers of the company and attached responsibility to
them. But as the separate personality of the company is a statutory privilege and it must be
used for legitimate business purposes only. In a situation where a fraudulent and dishonest
use is made of the legal entity, the individuals concerned will not be allowed to take shelter
behind the corporate personality. The Court will break-through the corporate shell and apply
the principle of what is known as “lifting of or piercing through the corporate veil”. The
Court will look behind the corporate entity and take action as though no entity separate from
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the members existed and make the members or the controlling persons liable for debts and
obligations of the company. When this occurs, the corporate veil is said to have been lifted.
At times it may happen that the corporate personality of the company is used to commit
frauds and improper or illegal acts. Since an artificial person is not capable of doing anything
illegal or fraudulent, the façade of corporate personality might have to be removed to identify
the persons who are really guilty. This is known as ‘lifting of corporate veil’.
There are two existing theories for the lifting of the corporate veil. The first is the “alter-ego”
or other self-theory, and the other is the “instrumentality” theory.
The alter-ego theory considers if there is in distinctive nature of the boundaries between the
corporation and its shareholders.
The instrumentality theory on the other hand examines the use of a corporation by its owners
in ways that benefit the owner rather than the corporation. It is up to the court to decide on
which theory to apply or make a combination of the two doctrines.
Lifting the corporate veil can happen in three (3) ways. These are:
1. By the companies Act itself
2. Through other pieces of legislation
3. By the court through judicial decisions.
Lifting the veil pursuant to the Act
Examples when the corporate veil will be lifted pursuant to the Act include the following:
1. Where a company carries on business for more than six months without any member.
One person can form a company under the company's code. However, if the company
the company operates for more than six months without at least one member, during
that period of operation beyond the six month, each director in default shall be liable
to a fine each day that the company operates. If the company do not have any
member, the directors are six months to find at least one member or wind up the
company. In a situation where the company fails to do any of these and carries on
business, the directors shall personally be jointly and severally liable.
2. When a company breaches of minimum number of directors.
In a situation where the company breaches the minimum number of directors, the
corporate veil will be lifted. Every company is required to have at least two directors.
When the number of directors falls below two and the company carries on business,
every member of the company cognisant to the breach or any director shall be liable
to a fine.
3. When a company breaches the minimum capital requirement.
If a company operates without meeting the minimum capital requirement, the
company and every officer in default shall be liable to a fine not exceeding the
prescribed amount for every day during which the default continues (section 29(a)).
Further to the forgoing penalty liability, the subscribers to the regulations, the first
directors named in the Regulations and any person who was a director at any time
after the company commenced business prior to meeting the minimum capital
requirement, shall be jointly and severally liable for the whole of the debts and

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 liabilities of the company incurred while the company had not met the minimum
capital requirement.

4. Companies limited by guarantee shall not carry on business for the purpose of making
profits.
Under the company's code, a guarantee company cannot carry out business for the
purpose of making profit. If in the process of operation and the guarantee company
makes profit, the profit must be re-invested in the company. All officers and members
of a company limited by guarantee that conducts profit making business shall be
jointly and severally liable to pay and discharge all debts and liabilities of the firm
incurred if they know that the company limited by guarantee has undertaking a profit-
making venture. Also, all such officers and members shall be liable to a fine not
exceeding a prescribed amount for everyday that the company limited by guarantee
carries on business (code, section 10(2)).

5. Where an officer of the company or any person purporting to act on behalf of the
company uses or authorises the use of a seal that purports to be the company's seal,
although the seal does not have its name legibly engraved, that officer or person shall
be liable to a fine not exceeding a prescribed amount.

6. When the company breaches the requirement to furnish a return in duplicate

containing certain particulars to the Registrar prior to commencing business. The
company and every officer in default shall be liable to a fine not exceeding a
prescribed amount for everyday during which the default continues. (section 29)(a).
7. Misdescription
Under the code, every company must have its name affixed outside its registered
place of business. The name must be clearly stated on its stationary, business letters,
invoices and negotiable instruments. Any member in default shall be held liable for
fine if the company breaches this provision.
8. Premature trading
When a company commences business if it has not been issued with certificate to
commence business after certificate of incorporation has been given. When this
occurs, any officer in default of this shall be liable for a fine.
Lifting the veil pursuant to other legislation
Another means through which the veil may be lifted is pursuant to other legislation. Example
1. Bodies Corporate (Official Liquidation) Act
2. The Banking Act
3. Income Tax Act
4. Ghana Investment Promotion Centre Act
Bodies corporate (Official Liquidation) Act
Under this law, during official winding up, if it becomes evident that the business of the
company have been carried out with the intent to defraud creditors of the corporation or any
other person, then upon application to the court by the liquidator or creditor or member of the

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company, the court may declare any member who is responsible in the fraudulent to be
personally liable for the debts of the company.

The Banking Act

Under this law, a difference is drawn between a foreign bank and a local bank by going into
the company and identify who are the equity shareholders. If not less than 60% of the equity
shareholders are Ghanaians then it is a Ghanaian bank but if not less than 60% of the equity
shareholders are foreigners then it is a foreign bank.
Ghana Investment Promotion Centre Act
This law also differentiate Ghanaian companies from foreign companies by providing that a
Ghanaian company is one where the majority of its members are Ghanaians. Foreign
company on the other hand is the one where majority of its members are foreigners.
Income Tax Act 2015
Where a wholly owned subsidiary company is being used as a vehicle by its holding
company to avoid taxes, the Internal Revenue Service (Commissioner of Income Tax) may
ignore the declared income of the company operating in the country and base the tax liability
on the consolidated income of the holding or related company. Additionally, in Ghana, where
the income tax is assessed on income from a business, employment or investment, a
shareholder is liable to pay tax on dividend earned on the shares held. If, however, a viable
company fails to pay dividend to shareholders under suspicious circumstances, and the
company is controlled by not more than five persons and their associates, the Income Tax
Commissioner can deem there have been a distribution and tax accordingly.
Lifting the veil by the court
Courts have found it necessary to disregard the separate personality of a company.
The situations in which a corporate veil can be lifted are as follows:
 Fraud
 To avoid a scheme to evade contractual obligations
 Single economic unit principle
 Agency
 Public policy

1. Fraud
This is where the corporate veil has been used for commission of fraud or improper
conduct. When the court finds out that the activities of a company are purposely to
defraud creditors, the officers responsible for that fraud will be personally liable for
any liabilities caused. In such a situation, Courts have lifted the veil and looked at the
realities of the situation.

This was established in the case of Morkor v Kuma (East Coast Fisheries Case)

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 In this case, the Supreme Court would have lifted the veil if it were satisfied that the
appellant's multifaceted status in the company together with other circumstances
tendered the company her alter ego. The court also stated, per Sophia Akuffo JSC
that, while not exhausting the grounds under which it would lift he veil, "where it is
shown that the company had been established to further fraudulent activities or to
avoid contractual liability, the veil would be lifted.

2. To avoid a scheme to evade contractual obligations.

The corporate veil may also be lifted to prevent the deliberate evasion of a contractual
obligation. Where the court establishes that a party to a contract is relying on the
separate legal entity purposely to evade the contractual obligation the court will lift
the corporate veil and him responsible.
In the case of Gilford Motor Co. V Horne, the trial court refused to grant the
injunction and the defendant successfully appealed to the court of Appeal.

3. Single economic unit principle

Courts may also lift the corporate veil to allow a group of associated companies to be
treated as one and not several entities in order to achieve justice.
In DHN Food Distribution Ltd v Towers Hamlets London Borough Council, the
court, per Shaw LJ noted "that the bonds which bundled DHN and bronze together is
a close and, so far as Bronze was concerned, indissoluble relationship" And as Lord
Denning noted: "This case might be called the "Three in One". Three companies in
one. Alternatively, the 'one in Three'. One group of three companies.

4. Agency
Courts 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.
In the case of Kumi V State Gold Mining Corporation, the court held that where the
company is proven to be an agent of the other, then the liability of the subsidiary can
be classified as a liability of the holding company.

The court stated that, in proven agency between companies, the following factors
ought to be considered.
a. Are the profit of the subsidiary considered as that of the principal?
b. Are the management of the subsidiary appointed by the parent company?
c. Is the parent company the head and the brain of the subsidiary company?
d. Are the profits of the subsidiary company made by the skill and direction of the
parent company?
e. Is the parent company in effective control of the subsidiary?

5. Public policy
Where the doctrine conflicts with public policy, courts will lift the corporate veil for
protecting the public policy. In case of war, the court will lift the Corporate veil,
identify a company as an enemy alien by looking at its members nationality and fix
them with responsibilities. In otherwise, where a company is owned or controlled by

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 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. Such firm will be considered in fact as an enemy
firm and face all disabilities of enemies.

Case: Daimler Co Ltd v Continental Tyre and Rubber Co (Great Britain) Ltd
In Daimler Co. Ltd. v. Continental Tyre & Rubber Co., (1916) 2 A.C. 307, it was held
that a company will be regarded as having enemy character, if the persons having de
facto control of its affairs are resident in an enemy country or , wherever they may be,
are acting under instructions from or on behalf of the enemy. Daimler Co Ltd was
held to have an enemy character.
Conclusion :
Wherever the members of a company violates any statutory provisions or carry out any non-
desirable activities under the guise of the corporate veil above the company, thereby misuse
the privilege conferred to them, the courts are entitled to look beyond the veil, and this is
known as lifting of corporate veil. But in exceptional cases, individuals and related
companies may be held responsible for corporate acts, defaults and liabilities. The veil of
incorporation protects incorporators, members, directors and employees from corporate
liability. These people are held responsible when the veil of incorporation is lifted. Liabilities
are ascribe to them.

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References
Bondzi-Simpson Philip Ebow (Professor) (2002): Company Law in Ghana. 1st
Edition. Avant Associates Limited, Accra. Ghana.
The company’s Code 1963 (Act 179)

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