Changes Introduced by the Companies Act, 2019 (Act 992): Additions to Companies Act, 1963 (Act 179)
Introduction:
This note will discuss the new enactments introduced by the Companies Act, 2019 (Act 992). By “new enactments,” we refer to provisions that did not exist under the Companies Act, 1963, (Act 179) but forms part of Act 992. The major ones to be discussed include the introduction of new suffixes for all types of companies, the regulation of major transactions, provisions on buy-out for minority shareholders, establishment of the office of the Registrar of Companies, and introduction of an interest register, among others.
1. Introduction of Suffixes for All Types of Companies:
In Section 15(1) of Act 179, it was only provided that “the last word of the name of a company limited by shares shall be "Limited".” There were no suffixes for companies limited by guarantee, unlimited company, or even a suffix to recognise the distinction between a private company limited by shares and a public company limited by shares.
However, in Section 21 of Act 992, the following suffixes were introduced for the various types of companies that can be incorporated under Act 992:
21. (1) The last words of the name of a
(a) private company limited by shares shall be “Limited Company” or the abbreviation “LTD”;
(b) public company limited by shares shall be “Public Limited Company” or the abbreviation “PLC”;
(c) company limited by guarantee shall be “Limited by Guarantee” or the abbreviation “LBG”; and
(d) private company unlimited by shares shall be “Private Unlimited Company” or the abbreviation 'PRUC. ’
(e) public company unlimited by shares shall be “Public Unlimited Company” or the abbreviation "PUC.”
Summarily, the suffix “PLC” now represents a public company limited by shares, “LBG” represents a company limited by guarantee, “PRUC” represents a private unlimited company, and “PUC” represents a public unlimited company.
2. Regulation of Major Transactions:
Directors, as part of their general duty to direct and administer the business of a company, must transact on behalf of the company. In the case of Morkor v. Kuma [1999-2000] 1 GLR 721, the court recognised the power of directors to transact on behalf of the company as follows:
Furthermore, since a company is non-human, the only means by which it may execute an agreement is for its directors, or some other authorised person, to sign on its behalf.
Under Act 992, a limit is placed on the power of directors to enter into major transactions. In Section 145(1) of Act 992, it is provided that:
(1) A company shall not enter into a major transaction unless the transaction is
(a) approved by special resolution; or
(b) contingent on approval by special resolution.
Also, in Section 189(1)(b) of Act 992, it is provided that:
Subject to this Act, the directors of a company with shares shall not, without the approval of… a special resolution, pursue a major transaction under Section 145.
A major transaction, per Section 145(2), has the following meaning:
(b) major transaction means:
- the acquisition of, or an agreement to acquire, whether contingent or otherwise, assets, the value of which is more than seventy-five percent of the value of the assets of the company before the acquisition; or
- the disposition of, or an agreement to dispose of, whether contingent or otherwise, assets of the company, the value of which is more than seventy five percent of the value of the assets of the company before the disposition; or
- a transaction that has or is likely to have the effect of the company acquiring rights or interests or incurring obligations or liabilities, including contingent liabilities, the value of which is seventy-five percent of the value of the assets of the company before the transaction;
Summarily, a major transaction is any acquisition, disposition, or agreement affecting the company's rights, interests, obligations, or liabilities where the value involved is more than seventy-five percent of the company's pre-transaction asset value. For example, if the value of a company’s assets is Ghc 100,000, it cannot acquire land for Ghc 80,000 without a special resolution.
3. Provisions on Buy-Out for Minority Shareholders:
Under Act 992, a shareholder who is aggrieved with or disagrees with some decisions by the company is entitled to have his shares bought by the company, so he ceases to be a shareholder. In Section 220(3) of Act 992 , it is provided that:
A member of the company is entitled to have the shares of that member bought under the provisions of this Act, only if that member voted wholly against the resolution for matters specified in subsection (1).
Per said Subsection 1, the following are the circumstances under which a shareholder can request that his shares be bought back by the company.
4. Beneficial Owner Disclosure:
Under Section 13(2)(m) of Act 992, it is provided that the application for the incorporation of a company must include the particulars of each beneficial owner, such as full name, date of birth, telephone number, nationality, and the level of political exposure, among others. Also, under Section 35(1)(b), the company is requested to keep a register of members and, among others, enter the details of each beneficial owner of the company.
A beneficial owner, per the First Schedule of Act 992 , is an individual:
(a) who directly or indirectly ultimately owns or exercises substantial control over a person or company;
(b) who has a substantial economic interest in or receives substantial economic benefits from a company, whether acting alone or together with other persons;
(c) on whose behalf a transaction is conducted; or
(d) who exercises significant control or influence over a legal person or legal arrangement through a formal or informal agreement;
This provision was not contained in Act 179.
5. Addition to the Content of Directors Report:
Under both Act 179 and Act 992, it is provided that the directors of a company shall send to every member of the company and every debenture holder a report on the state of the company’s affairs.
Under Act 992, one of the pieces of information that should form part of the report is “corporate social responsibility of the company and a subsidiary and the amounts spent during the financial year." (Per section 136(1)(b) of Act 992). This did not form part of the director’s report under Act 992.
6. Expansion of the Ways of Sealing of Documents:
There may be questions about whether a document is sealed by a company. When a document is sealed by a company, it means that the company's authorised agents or officers have approved it and that it is official.
Under Act 179, in Section 142(d), a person dealing with a company was entitled to assume that:
(d) that a document has been duly sealed by the company if it bears what purports to be the seal of the company attested by what purports to be the signatures of two persons who, in accordance with paragraph (b) of this section, can be assumed to be a director and the secretary of the company; and the company and those deriving title under it shall be estopped from denying the truth of any such assumption.
Thus, once a document bears a mark, like a stamp, that is regarded as the seal of the company and has the signature of the director and secretary, a person is entitled to presume that the document is issued by the company.
Under Act 992, there is the addition of another means of determining if a document is issued by a company. In Section 150(1)(d)(ii) of Act 992 , it is provided that:
(1) A person having dealings with a company or with any other person who derives title under the company is entitled to assume that,
(d) a document has been duly authenticated by the company if it
(i) bears what purports to be the seal of the company attested by what purports to be the signatures of two persons who, in accordance with paragraph (b), can be assumed to be a director and the Company Secretary of the company; or
(ii) is certified by what purports to be the signatures of two directors and the Company Secretary of the company.
Thus, if a document merely contains the signatures of two directors and the company secretary, it can be presumed that the document is issued by the company whose two directors and secretary certified the document. The provision in Section 150(1)(d)(ii) (supra) is thus an addition to the means of authenticating a document, as Act 179 only contained one means of doing so.
7. Requirement for the Rotation of Auditors:
To ensure the independence of auditors and reduce the risk of fraud, Act 992 now requires that persons appointed as auditors do not remain in that role for more than six years. Once an auditor has been with a company for six years, the company is required to get a new auditor and can only rehire the old auditor after six years (by which time the new auditor too is expected to leave the company). The applicable provision is Section 139(11) of Act 992, which reads:
An auditor shall hold office for a term of not more than six years and is eligible for appointment after a cooling-off period of not less than six years.
The rationale is that an auditor may develop close relationships with a company’s management, potentially compromising their impartiality. Also, during the period of cooling-off of the old auditor, a new auditor may discover irregularities, leading to the reduction of fraud.
8. Establishment of the Office of the Registrar of Companies:
In Section 328(1) and (2) of Act 179, it was provided that:
(1) The President may appoint a registrar of Companies in this Code referred to as the Registrar, to carry out the duties and functions vested by or under this Code or any other enactment in the Registrar.
(2) Until any other appointment is made the Registrar-General shall be the Registrar.
This provision gave discretion to the president to appoint a person as registrar.
Under Act 992, however, Section 351 expressly provides for the establishment of a separate office known as the Office of the Registrar of Companies . Among others, Act 992 provides that the office is a body corporate with perpetual succession, can acquire and hold property, enter into contracts, and have financial autonomy subject to the provisions of the Act.
9. Automatic Disqualification of Directors:
Under Act 992, some classes of persons are automatically disqualified from being directors of a company for a period of five years. This is provided for in Subsection 2 of Section 177, which reads:
(2) Without limiting subsection (1), a person is automatically disqualified for appointment as director or to act as a director of a company for a period of five years if that person has
(a) been convicted within the last five years of an offence involving fraud or dishonesty, or relating to the promotion, formation, or running of a company,
(b) has been a director or senior executive of a company that has become insolvent within the last five years on account of or partly as a result of the culpable activities of that director, or
(c) has been disqualified to act as Company Secretary, receiver, manager or liquidator of a company.
Here, once a person falls into any of the above three categories, he is automatically disqualified from being a director of a company for a period of five years. There was no provision on automatic disqualification under Act 179.
10. Expansion of Factors that Shape the Decisions of Directors in Acting in the Best Interest of the Company:
Under both Act 179 and 992, it is provided that:
A director shall always act in what the director believes is the best interest of the company as a whole so as to preserve the assets, further the business, and promote the purposes for which the company was formed, in the manner that a faithful, diligent, careful and ordinarily skilful director would act in the circumstances… (quoted from Section 190(2) of Act 992, but a similar provision can be found in Section 203(2) of Act 179).
Section 203(3) of Act 179 then adds that in considering whether a transaction or action is in the best interest of the company as a whole, a director may have regard to the interests of the employees, as well as the members, of the company, among others.
However, under Act 992, Section 190(2) provides that in acting in the best interest of the company, the director shall have regard to:
(a) the likely consequence of any decision in the long term,
(b) the impact of the operations of the company on the community and the environment, and
(c) the desirability of the company maintaining a reputation for high standards of business conduct.
Thus, while Act 179 uses the phrase “may have regard,” making it optional for directors to consider the interests of employees and members, Act 992, with the phrase “shall have regard,” appears to make it mandatory for directors to consider additional interests when determining whether an action is in the best interest of the company. Furthermore, Act 992 expands the factors directors must consider, as seen in paragraphs (a), (b), and (c) supra.
11. Introduction of Interests Register:
Unlike Act 179, Act 992 now requires that a company maintain or have an interests register. Per Section 196(1) of Act 992, this interests register is to record the interests that directors disclose under Section 194(6). Section 194 of Act 992 makes provisions on contracts in which directors are interested. When there is a contract in which a director has an interest, subsection requires that:
…the director shall, before the consideration of the matter, disclose the nature and extent of the interest of the director in the proposed contract at a meeting of directors or by written notice given to the directors and shall cause that interest to be registered in the Interests Register and to be disclosed to the Board of the company in accordance with Section 195.
The above requirement is to ensure transparency and accountability. By disclosing the nature and extent of their interest, the director prevents potential conflicts of interest that might compromise their impartiality in decision-making.
12. Introduction of Qualifications and Duties of a Secretary:
Under both Act 179 and 992, there is a requirement that a company shall have a secretary, and failure to appoint one attracts a fine. Act 179, however, is silent on who qualifies to be a secretary. At best, it provides in Section 190(4) that a secretary may be a body corporate.
Under Act 992, there is an introduction of provisions on who qualifies to be a company secretary. In Section 211(3), it is provided that:
(3) The directors shall not appoint a person as a Company Secretary unless that person
(a) has obtained a professional qualification or a tertiary level qualification that enables that person to have the requisite knowledge and experience to perform the functions of a Company Secretary,
(b) has held office, before the appointment, as a Company Secretary trainee or has been articled under the supervision of a qualified Company Secretary for a period of at least three years,
(c) is a member in good standing of
(i) the Institute of Chartered Secretaries and Administrators, or
(ii) the Institute of Chartered Accountants, Ghana,
(d) having been enrolled to practice, is in good standing as a barrister or solicitor in the Republic, or
(e) by virtue of an academic qualification, or as a member of a professional body, appears to the directors as capable of performing the functions of secretary of the company
No similar provision was contained in Act 179.
13. Introduction of Unanimous Agreement by Shareholders:
In Section 301 of Act 992, the shareholders of a private company are allowed to agree to do an act, despite the power to do so not being provided for in the constitution of a company, or even if the act is contrary to its constitution. The section reads:
(1) Where all shareholders of a private company agree to or concur in any action which has been taken or is to be taken by the company
(a) the taking of that action is deemed to be validly authorised by the company despite any provision in the registered constitution of the company; and
(b) the provisions in any of the constitutions referred to in the Second, Third and Fourth Schedules shall not apply in relation to that action.
The essence of this provision is that the shareholders of a company can bind the company even without passing a resolution. What is essential is that every single shareholder must agree to the action being taken.
14. Provisions for Electronic Transactions:
Act 992 now gives the Registrar the power to authorise the use of electronic systems for:
(a) the incorporation or the registration of a company;
(b) the reservation of a company name;
(c) the filing of particulars;
(d) the conversion of a company;
(e) the filing of annual returns and financial statements;
(f) the keeping and maintenance of a register;
(g) arrangements, compromises, mergers, divisions and sale
of undertakings; …
See Section 378 of Act 992.
Conclusion:
In this note, we discussed fourteen new enactments that have been introduced into Ghana’s company law by Act 992.