Company Limited by Shares:

Introduction:

This note will discuss a company limited by shares as one of the types of companies in Ghana. The note will also discuss the two types of companies limited by shares, peculiar details that are provided during the registration of a company limited by shares, and the names of companies limited by shares.

A Company Limited by Shares as a Type of Company in Ghana:

In Section 7(1)(a) of the Companies Act, 2019 (Act 992), it is provided that an incorporated company may be a company limited by shares. In Subsection 2(a), a company limited by shares is defined as follows:

a company limited by shares is a company which has the liability of its members limited to the amount unpaid on the shares respectively held by them.

The above provision may be understood with an illustration. Legum, a company limited by shares, issued shares to X, Y, and Z for Ghc 10,000, 20,000, and Ghc 100,000, respectively. X, Y, and Z respectively paid Ghc 5,000, Ghc 10,000, and Ghc 50,000 for the shares, and are yet to pay the balance. During its operations, Legum incurred a debt of Ghc 100,000. The following may then be said:

1. X, Y, and Z, as shareholders of Legum, are not, while Legum is still operating, personally liable for the Ghc 100,000 debt incurred by Legum because Legum is a limited liability company.
2. However, during winding up, debts that remain unpaid by Legum will still need to be paid.
3. The effect of the provision in subsection 2(supra) is that X, Y, and Z will be liable to pay the amount they are yet to pay on their shares. X will thus pay his balance of Ghc 5,000 on his Ghc 10,000 worth of shares, Y will also pay his balance of Ghc 10,000, and Z will also pay his balance of Ghc 50,000. After paying these amounts, X, Y, and Z would not be required to make further contributions to settle the debt incurred by Legum. Section 40(1) of Act 992 expressly provides that: “Before the winding up of a company, a member of the company with shares is liable to contribute the balance of the amount payable in respect of the shares held by that member in accordance with the terms of the agreement under which the shares were issued, or in accordance with a call validly made by the company.”
4. In conclusion, their liability for the debts of the company is limited to the amount unpaid on the shares they were issued. If they had all paid the full amount for their shares, they would not have to pay anything during winding up.

Types of a Company Limited by Shares:

In Section 7(4) of Act 992 , it is provided a company limited by shares can be private or public. In light of this, there are two types of companies limited by shares:

1. A private company limited by shares.
2. A public company limited by shares.

A private company limited by shares, per Section 7(5) , is one with a constitution that imposes the following four restrictions:

1. Restricts the right to transfer the shares of the company.
2. Limits the total number of the members and debenture holders to fifty, not including (i) persons who are genuinely in the employment of the company, and (ii) persons who, having been formerly in the employment of the company, were while in that employment, and have continued after the determination of that employment to be members or debenture holders of the company;
3. Prohibits the company from making an invitation to the public to acquire shares or debentures of the company; and
4. Prohibits the company from making an invitation to the public to deposit money for fixed periods or payable at call, whether bearing or not bearing interest.

Once the company’s constitution imposes the above restrictions, it is a private company limited by shares.

A public company limited by shares, per Section 7(7) of Act 992, is a company that is not a private company. Thus, its constitution does not contain restrictions on the right of transfer of shares, there is no limit of the number of members to fifty, the company is not prohibited from making an invitation to the public to acquire shares or debentures, and the company is not prohibited from making an invitation to the public to deposit money for fixed periods.

Registering a Company Limited by Shares:

In a previous note, we discussed the processes involved in the registration of a company. Here, we merely highlight what specific things ought to be done in registering a company limited by shares.

In Section 13(2)(n) of Act 992, an application for the incorporation of a company with shares must include the following details:

1. the amount of proposed stated capital, as defined in Section 68;
2. the number of authorised shares of the company for each class;

In Section 13(3) of Act 992, the application for incorporation is signed by the subscribers by writing, opposite their names, the number of shares they are taking and the cash price payable for the shares.

Names of Companies Limited by Shares:

In Section 21 of Act 992, it is provided that the last words of the name of a:

1. private company limited by shares shall be “Limited Company” or the abbreviation “LTD”;
2. public company limited by shares shall be “Public Limited Company” or the abbreviation “PLC”;

In light of the above, you may be given the following set of facts, and it is important that you identify the type of company based on its ending. Consider the following facts:

Legum Ltd., aiming to raise more capital, wants to place an advertisement in the Daily Graphic inviting members of the public to acquire shares. They have come to you for advice on how to proceed. Advice them.

From the above, it should be clear that Legum Ltd is prohibited from even inviting the public to acquire shares in Legum Ltd, because the abbreviation “Ltd” reveals that it is a private company limited by shares, and Section 7(5) of Act 992 reveals that its constitution prohibits it from inviting members of the public to acquire shares.