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Position paper on the companies’ bill 2018 submitted to the parliamentary committee on constitutional, legal and parliamentary affairs in the parliament of Ghana

October, 2018

 

SUMMARY OF COMMENTS ON THE COMPANIES BILL 2018 REVIEW

 

2.1 General Comments

 

1. Lack of Policy Framework to Direct Businesses – 

 Related to the above, the Bill does not take into account socio-economic issues that affect businesses in Ghana. Example, there have been calls to bring informal sector into the formal sector for tax inclusion and the preparation of the new Companies Bill offers a good opportunity to achieve that purpose. But the Companies Bill seeks to restate positions of the Companies Act, 1963 which failed to clarify the indigenous and cost to other infant MSMEs and compliance of the various dictates of companies. 

2. Holistic Review of Laws Affecting Business Entities – 

There is the need for all the laws related to business establishments and operations to be reviewed in a holistic manner and synchronized. That is the Companies Bill should not be looked at in isolation but must be done together with the Registration of Business Names Act, 1962 (Act 151) and the Incorporated Private Partnership Act, 1962 (Act 152). 

3. Registrar General’s Departments / Office of the Registrar of Companies – the Companies Bill seeks to create a new office solely for the registration of companies. Whilst this is laudable idea, it is important to emphasis that failure to provide the needed resources including capable officials to ensure that the Companies Bill is effectively implemented, will not yield any result. Rather it is our recommendation that this option should be a unit in the office of the Registrar General’s.

4. Tier System of Companies – 

The establishment requirements, compliance issues, and other related provisions of the Companies Bill apply to small and big companies without any distinction between them. In addition, the complexity of the incorporation requirements, applying across board, to both small and big companies hinder small business owners from incorporating into a formal business entity. One mechanism to attract informal sector into the formal sector, is to consider the creation of segregated types of companies which attract informal business owners. For example having Tier 1, Tier 2, Tier 3 etc companies with different legal regime for each tier. The above will require different compliance requirements for the different tiers of companies. Based on the above, a tier system of private companies limited by shares can be created.

5. Restriction on Number of Members/Debenture holders of Private companies - the Bill should create exceptions, for example, for churches that incorporate as private companies limited by guarantee and associations of more than 50 members who want to incorporate to carry on business but which do not necessarily want to incorporate a public company, especially where the entity do not intend to advertise for purchase of shares or public deposit or any public involvement. The fundamental issue that needs to be addressed is that it is not prudent to maintain the 50 members limitation which may have been reasonable in 1963 and not in today’s environment without allowing any exception. Due to functionalities and the highly competitive nature of doing business, we recommend the threshold should be increased to not less than 100 members.

6. Reduction of the age of subscribers (shareholders) and directors to 18 years - what is not clear is if the reduction of the age of subscribers and directors under the Companies Bill does amend also the general position under Contract Law that a minor (who is someone below 21 years old) has no capacity to enter into a contract, thereby lowering the age limit to 18 instead of 21. If not, there is implication for the reduction of the age under the Bill in terms of validity of such contracts signed by the directors below 21 years of age (example the validity of such contracts may be challenged). Another implication if the contracting age and the age of subscribers/directors are not synchronized, is that, such subscribers/future directors cannot enter into pre-incorporation contracts on behalf of the proposed companies; neither can they act as promoters. 

2.2 Specific Comments

7. Abolishing of the Ultra Vires Doctrine – one highlight of the Bill is the statement in the memorandum to the Bill that ultra vires doctrine or principle has been totally abolished. It is suggested that the ultra vires doctrine as in the 1963 Act should be maintained to ensure that businesses conduct the business for which the entity is registered for as stated in its incorporation document.

In addition, the fundamental question is whether the indication in the memorandum that the ultra vires doctrine has been abolished is not entirely true given that the Bill allows the court to grant injunction to prevent transactions subject to issues of fairness to the third party. Also, members and debenture holders can prevent such ultra vires act under section 219. Section 150 (which deals with Presumption of Regularity) also does not protect such transactions when the third party knows the transaction is ultra vires or ought to know or fails to be diligent when he/she is put on notice. 

The stated objectives of an incorporated institution should be clearly identified and limit the functions and operations of such incorporated institutions to the stated objectives and functions.

8. Regulations/Constitutions

(a) The change of name from Regulations to Constitution is likely to confuse business entities. The suggestion is that the name Regulations should be maintained. Other jurisdictions who has amended their companies legislation multiple times maintain the terminologies that the user of the code are familiar with and the Companies Bill should also maintain the terminology especially if the substance of the document is not affected to warrant the change of name.

(b) The Bill also requires the Constitution to conform to the form of constitution (Regulations) in the Bill under section 27(1). It gives the Registrar power to refuse to register the constitution even though the substance of the Regulations/Constitution satisfies the requirements of the Companies Act. The insistence on the form over the substance should be avoided.

(c) There is no recognition of the status of Shareholders Agreement vis-a-vis the Regulations/Constitution of the Company. Since both essentially play the same role, the Act should recognize this and make provision for instances where shareholders enter into a Shareholders Agreement in addition to the Regulations/Constitutions.

9. Registration of Charges – the registration of charge is now required to be done within 45 days (compare to previous 28 days under the Act). If not done, section 118 maintains the position that it should be done after an application is made to the court and order obtained to effect the Registration. The procedure of seeking court approval for the extension of the time of registration is unnecessary. It is recommended that the power is given the Registrar General to grant or refuse such extension and the charge should take effect from the date of registration (so that any prior charge registered has precedence). 

Further it is important that the registration process under the Companies Bill is made consistent with the registration process under the Borrowers and Lenders Act. Under the Borrower and Lenders Act, registration of charges at the Collateral Registry is to be done within 28 days. Where this is not done, the Collateral Registrar (Bank of Ghana) is given the power to grant extension for registration. Alternatively, a single registration process should be adopted to avoid duplication and misunderstanding of registration of charges.

10. Minimum Number of Directors, Residence Requirement and Competence – it is not in all instances that it is prudent for companies to have a minimum of two directors. In practice, a name is added to that of the shareholder just to satisfy the minimum requirement without any further implication. Based on the suggestion of tier system of companies, the requirement of permitting a single director for lower tier companies is preferred. 

11. Prohibition of Financial Assistance in Acquisition of Shares – the Companies Bill maintains the position of the Companies Act, 1963 that prohibits companies giving financial assistance directly and indirectly to prospective shareholders in the acquisition of shares of the company. It is suggested that this may rather in some instances prevent companies from accessing funds (including venture capital fund). It is therefore necessary that in some instances financial assistance in acquisition of shares be permitted especially if agreed to by the shareholders and interested third parties such as creditors and debenture holders (whose interest are to be protected by the prohibition).

12. Requirement of adopting International Financial Reporting Standard (IFRS) – the Companies Bill in sections 127(5) and 131(5)(b) provides that financial statements should comply with IFRS. However, there are some inconsistencies with the provisions of the Companies Bill and the IFRS that must be synchronized.

(1) Exclusion of Subsidiary From Consolidation IFRS – under IFRS, a subsidiary is excluded from consolidation when control is lost. However, the Companies Bill section 131(3)(b) provides as follow:

Subject to the approval of the Registrar, consolidated financial statements need not deal with a subsidiary of the company if the company’s directors are of opinion that:

 It is impracticable or would be of no real value to the members  and debenture holders  of the company  in view of the insignificance  of the amount involved; or

 It would involve expense of delay  out of proportion to the value to members or debenture holders of the company ; or

 The results would be misleading  or harmful to  the business of the company or any of its subsidiaries; or

 The business of the holding company and that  of the subsidiaries are so different that they cannot  reasonably  be treated  as a  single undertaking

This is inconsistent with the IFRS standard and leave it to too much discretion. It is recommended that this section be deleted and IFRS standard should be applicable.

(2) Transaction Cost on Issue of Shares – under IFRS, Transaction Costs of an equity transaction are deducted from equity. The Companies Bill section 68(1)(a), however, provides that Transaction Costs on issuing of shares are not deducted from the total proceeds of every share issue. These are therefore charged to statement of income. The suggestion is the IFRS should be adopted and the treatment of Transaction Cost under the Companies Bill should be deleted.

13. Filing of Annual Return – The reporting requirements for companies particularly the filing of annual returns with the required financial statements should be looked at to make the reporting requirements more simple to enable the “small” companies comply with the requirement without incurring the huge expenses to engage qualified accountants to prepare accounts and engage qualified auditors to audit the financial statements prior to filing their annual return. This is burdensome on such small companies in terms of their ability to afford such incremental cost to be in compliance. 

Notwithstanding the suggestion on defining a small company provided above, such Small Companies which are in specialized industries must comply with all the provisions relating to financial statements contained in their respective industry legislation. The financial burden of meeting the respective financial reporting be it quarterly, semi-annually or annual should be reviewed to grant the MSMEs for other yearly reporting unless the business is seeking public solicitation for support when they stand to meet standard requirements.

14. Qualification of Company Secretary – the Company Secretary plays critical role in ensuring compliance with legal requirements imposed under the Companies Act and the current Companies Bill. The Companies Bill permits a Director to act as a Company Secretary (a position maintained from the Companies Act, 1963). It is recommended that this practice is against good corporate governance principle. The Companies Bill should therefore prohibit acting in such dual capacity.

 

 

 

 

 

 

PEF calls for enforcement of Ghana’s Local Content Regime

Nana Osei-Bonsu, CEO of PEF and some other members of the panel 

The American Chamber of Commerce in Ghana (AMCHAM) and the European Business Organization (EBO) organized a seminar in Accra to discuss Ghana’s local content regime and how it can be used as a tool for development. Both organizations have reiterated their commitment to seeing the successful implementation of Ghana’s local content policies and regulations, stating that such policies and regulations must ensure win-win situation for both foreign investors and Ghana. The CEO of PEF, Nana Osei-Bonsu was invited to join a panel to deliberate on the provisions in Ghana’s laws on local content and participation in various sectors of the economy. The discussion was to find a way forward for effective local content legislation and implementation for development of Ghana’s economy without undermining the drive for foreign direct investments. Nana in his submission stated that the pursuit of local content and participation is the surest way of safeguarding the interest of the local private sector to have a share in the benefits of the Ghanaian economy and also to ensure sustainability of the industry when the foreign counterparts sometimes leave for their home countries. However, he emphasized the need to train the local workforce across the value chain, to equip them with the requisite skills and competencies to drive innovation and growth in the industry. Nana mentioned that local content policies usually cover four key elements: local contracts to provide local goods and services; provide local employment opportunities; local equity participation; and technology transfer. He stated that in the mining sector where Ghana has zero equity in companies operating in the sector, local content regulations were intended to share the value generated in the mining sector with Ghanaians. Nana Osei Bonsu cited the good example of Technip FMC, an upstream oil and gas service provider that had invested in training local engineers, instead of using mostly foreign engineers.

Nana remarked that content legislation cannot substitute mediocrity for quality of business and fail woefully if low skill and competencies level of labor is not trained to world class standard. The event gave stakeholders, foreign and local; the positive and negative sides of local content regulation and to seek a mutually beneficial ground to operate thus making the country attractive to FDIs. The event had a panel comprising Kwasi Abeasi, Chairman, Board of Directors of the Ghana Investment Promotion Centre (GIPC); Nana Osei-Bonsu, CEO of Private Enterprise Federation; George Brakoh, Regional Manager, Local Supplier and Contractor Development, Newmont Ghana; David Addo Ashong, Founding Partner, Ashong Benjamin and Associates and Senyo Hosi, CEO of Chamber of Bulk Oil Distributors. The panellists agreed that local content policies and regulations are important in bringing value and benefits to all stakeholders of the business-including shareholders, employees, suppliers and locals.

 

PEF inaugurates District Business Councils

DBC members in a float through the principal streets of Mampong

  


The Private Enterprise Federation (PEF) in its efforts to influence and enhance the participation of local businesses in opportunities at their localities at the district levels initiated a project in 2016 aimed at establishing District Business Councils (DBC) at various districts across the country. PEF seeks to enhance the competitiveness of SMEs at the district levels through the formation of vibrant District Business Councils that will serve as platforms for private sector players to not only advocate for policy changes that will improve the enabling environment but also seek business opportunities within the districts for business growth. This advocacy action has led to the establishment of pilot District Business Councils in three (3) selected Districts (Techiman, Mampong, Ejura) which brings together a wider range of business groupings into a common platform at the district level to effectively advocate for recognition, dialogue and influence policies with the duty bearers.

The establishment of the District Business Councils will serve as viable networking platforms for advocacy and business incubation towards; Enhanced dialogue between the business community and duty bearers, Influence incubation and business growth at the district level, improve investment environment for businesses to grow within the respective districts and create jobs and wealth to alleviate poverty and stem the migration of rural population to the various metropolis.

Though these pilot DBCs have been in existence since October 2016, it became necessary for them to be officially launched supported by the Konrad Adenauer Stiftung; PEF was able to organize a single launch of the three (3) DBCs at the Asante-Mampong on September 21st, 2018.

The Special Guest of Honour was the Omanhene of Mampong Traditional Council, Daasebre Nana Osei-Bonsu II. The event was chaired by Nana Agyei Duku, the Nkosuohene of Mampong Traditional Council and Chairman of Ghana Union Assurance. Other invited guest for the event was the Chief Executive Officer of the National Entrepreneurship and Innovation Programme (NEIP), Mr. John Kumah who represented the Minister of Business Development, Nananom of the Mampong Traditional Council including Ejurahene and the Chief Executive Officer of the Mampong Municipal Assembly, Hon Thomas Appiah- Kubi who was a full partner in the organization of the event. The inauguration brought together stakeholders from Mampong, Techiman and Ejura including Nananom and faith-based organizations to demonstrate their support for the initiative. The Mamponghene offered himself as the first Chairman to steer the affairs of the collective District Business Councils to ensure its success given the potential benefits of a vibrant District Business Council to the communities. The event was graced by an exhibition from the Food Research Institute and Industrial Research Institute both of CSIR to showcase innovation in preparation of variety of food products using local raw materials. The Industrial Research Institute demonstrated its competency in renewable power generation at low cost from human faeces and waste. Participants were overwhelmed with these innovations.

 

PEF orgainses training of trainers’ program for member associations

A group photograph of participants at the training workshop in Accra

 

MSMEs in Ghana face numerous challenges that hinder their operations. Key among them is the lack of enhanced technical and managerial skills to effectively run their businesses to become competitive, profitable and grow to create jobs. In Ghana, this inability to adequately understand the dynamics of their sector of operations makes MSMEs uncompetitive. Their inefficiency is characterized by the following; failing to track their finances; low reserve capital; poor choice of location; poor execution of operations and non-viable business model; absence of innovations; ineffective marketing strategies; paucity or absence of pertinent information; and underestimating the competition.

All the above can be attributed to shallow and mediocre management capabilities of the majority of owners and managers of these companies or businesses coupled with low skills-set and inadequate technical abilities of the staff of these businesses for efficient operations. This therefore calls for a holistic approach that will continuously provide sustainable capacity building solutions to these businesses. To strengthen the capacities and capabilities of the associations to deliver to their constituent members PEF engaged the BUSAC Fund for support to build the capacity of the technical team of the Federation and its member associations to impart succinct training to their constituent businesses.

As a result of a nationwide programme that was undertaken by PEF in 2015, the following capacity building needs were identified; Research and Advocacy, Data aggregation and Record Keeping, Business plan development and Financial Management, Participation in Public Tenders, Taxation. To ensure sustainability of the provision of training to these SMEs, PEF adopted a Training of Trainers (TOT) approach. This will ensure that the secretariat of PEF and the beneficiary member associations have the requisite skills to continue to administer these trainings beyond the support to be provided by the BDS consultant. Subsequently, the Federation will roll out these trainings on a large scale.

 

4th Africa Organic Conference

4th Africa Organic Conference. November 5-8, 2018 in Cameroon

AfrONet events archives
AfrONet events archives



The 4th Africa Organic Conference targets farmers, consumers, researchers, trainers, academics, extension practitioners, policy makers, donor, media etc

The conference is organized by AfrONet in collaboration with the National Consultation of Farmers’ Organization under the auspices of Africa Union led Coalition of Ecological Organic Agriculture Initiative.

View Event Brochure

Register Here

 

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