Supreme Court, Civil Appeal No. J4/24/2004 | Judgment delivered on 1 December 2004
Introduction:
Can a subscriber to a company’s Regulations be regarded as a shareholder even if he has not paid for his shares or been issued a share certificate?
This case tested the nature of company membership under the repealed Companies Code, 1963 (Act 179), particularly whether subscription to the Regulations alone is sufficient to confer shareholder status, and under what conditions such membership may cease.
Facts:
Adehyeman Gardens Ltd (the 1st Defendant Company) was incorporated in April 1991 with one million shares of no par value. The subscribers were the 2nd Defendant, Mr. Kofi Owusu Ansah (who took 600,000 shares), Nana Osei Afriyie, and the Plaintiff, Peter Osei Assibey, each taking 200,000 shares at a cash consideration of ₵200,000.
After the company began operations, a dispute arose between the Plaintiff and the 2nd Defendant. The Plaintiff claimed to be a fully paid-up shareholder entitled to participate in the company’s management, but the 2nd Defendant insisted that he had not paid for his shares.
In November 1995, the company’s solicitors wrote to the Plaintiff, calling him a “nominal shareholder” and offering him 20% shares in exchange for payment within 14 days. Shortly thereafter, the 2nd Defendant demanded ₵47,410,258.20 (representing 20% of the company’s net asset value), threatening that failure to pay would result in forfeiture of his shares.
The Plaintiff sued, seeking declarations that:
- He was a paid-up shareholder holding 20% shares;
- The demand for ₵47,410,258.20 was illegal;
- His purported classification as a nominal shareholder was oppressive and unlawful; and
- An injunction restraining the Defendants from excluding him from the company.
The High Court held that the Plaintiff had failed to prove payment for his shares and was therefore not a shareholder or director.
On appeal, the Court of Appeal (majority) reversed that decision, declaring that the Plaintiff was indeed a member and shareholder by virtue of being a subscriber to the company’s Regulations.
The Defendants then appealed to the Supreme Court.
Issues for Determination:
- Whether, under the Companies Code, a person becomes a member and shareholder of a company merely by subscribing to its Regulations.
- Whether the Plaintiff had legally ceased to be a member or shareholder of the company.
- Whether non-payment for shares or lack of a share certificate invalidated his membership.
The Court’s Holding:
The Supreme Court dismissed the appeal, affirming that:
- Under Section 30(1) of the Companies Code (now Section 35(1) under the Act 992), subscribers to a company’s Regulations automatically become members upon incorporation, regardless of whether they have paid for their shares or received share certificates.
- A person remains a member until one of the conditions in Section 30(5) (now section 36(1)-(2) ) occurs – such as valid transfer, transmission, forfeiture, or death. In this case, there was no evidence of any valid call or forfeiture under the company’s Regulations.
The purported demand for ₵47,410,258.20 was illegal, as the liability of a subscriber is limited to the amount stated in the Regulations (₵200,000).
The absence of a share certificate does not affect membership; it is the company’s statutory duty to issue it, and failure to do so attracts a penalty under Section 53 of the Code now Section 55(1)-(3) of Act 992.
The Plaintiff, having been named as one of the first directors in the Regulations, had not been validly removed as a director.
Accordingly, the Court held that Peter Osei Assibey remained a lawful member and director of Adehyeman Gardens Ltd.
Implication of the Decision:
This decision reinforces that subscription to the Regulations of a company is, in itself, a binding contract that confers membership under Ghana’s company law. Non-payment for shares or the absence of a share certificate does not nullify membership unless there is a valid forfeiture in accordance with the company’s Regulations.
The decision also underscores the importance of procedural compliance – particularly the requirement that forfeiture of shares must follow due process, including formal calls, notices, and board resolutions.
Significant Quote:
“By the terms of the Code, until all of his shares are forfeited for non-payment of a validly made call (or until the occurrence of any of the other said eventualities), a subscriber remains a fully-fledged member and shareholder of the company, even if he has not paid a pesewa for his shares.”
– Sophia A.B. Akuffo, J.S.C.
Commentary and Insight:
The Plaintiff in a similar situation today would still be deemed a shareholder and director, and any forfeiture or demand for additional payment would be invalid unless done in strict compliance with the Companies Act, 2019 (Act 992)
The Supreme Court’s decision underscores the principle that company membership is a matter of law, not mere accounting. It again emphasizes a clear distinction between share ownership and payment obligations.
Practical Takeaway
A subscriber to a company’s Regulations automatically becomes a shareholder upon incorporation. Unless validly forfeited through due process, that membership cannot be revoked, even if the subscriber never paid for the shares or received a certificate.
