FOUNDATIONS OF ENTREPRENEURSHIP

Elikem Nutifafa Kuenyehia

CLASS FIVE: LEGAL,REGULATORY AND POLICY CONSIDERATIONS

Agenda for Class Five• Recap of Class Four• Entrepreneuship• Forms of business organisationo Sole Proprietorshipo Partnershipo Limited liability companyo Unlimited liability companyo External Companyo Co-operative

• Other legal formso Joint Ventureso Franchisingo Agencies• Mergers and acquisitions

• Other Legal Considerations • Guest Speaker: Mr. Kwabena Adu-Kusi, Managing

Partner, Law Bureau

Recap of Class Four

• What did you learn about idea generation?

• Comments on the idea generation exercise

• Entrepreneurial Conference – Presentations by different groups

Forms of business organisations

• Sole Proprietorship• Partnership• Limited liability company• Unlimited liability company• External Company• Cooperative

Sole Proprietorship• Most common form of business

organisation in Ghana• Business owned (and typically also

run) by a single individual• The sole proprietor and the business

are essentially one– No distinction at law– No distinction between the entrepreneur

and the enterprise – No limitation on liability

Sole Proprietorship (cont’d)

• If carrying out business in his true personal name, surname or initials no formality required

• But if using name different from true surname, name, initials must register under Registration of Business Names Act

• Certificate of registration to be renewed annually to be able to use the name

Sole Proprietorship (cont’d)• Reg. Of Business Name separate from

intellectual property registration which gives intellectual property rights to the name

• Sole Proprietor has sole responsibility for decisions relating to business

• No fetters on authority so long as lawful• No requirement for board• No obligation to disclose information or

financials

Sole Proprietorship (cont’d)

• Not appropriate for certain industries where Sole Proprietorships are prohibited by law– Banking, insurance, communications

• Not appropriate where you want to seek equity funding from other people

• Does not lend itself to good corporate governance practice

• Comes to an end on death of Sole Proprietor

Partnership • An association of two or more

individuals carrying on business for the purpose of making a profit

• Must be incorporated under Incorporated Private Partnerships Act 1962

• Maximum number of individuals = 50• Partners must be of sound mind &

not have been convicted of dishonesty offence in last five years

Partnership (cont’d) • Is a legal person separate from its

partners– May be sued and sue in its own name,

own assets etc

• Partners share decision making, profits and losses

• Partners jointly and severally liable with the firm and the other partners for all the debts and obligations of the firm

Partnership (cont’d)• Passive/sleeping vs. Active partners

– Key decisions involving all partners

• Individual partners taxed on their share of partnership profits– Each treated as a sole proprietor for tax

purposes

• Required to keep proper accounts• Required to produce financial

statements– No requirement for audit but highly

advisable

Partnership agreement provisions• Commencement

• Name• Financial Contribution• Profit (or Loss) Share• Ownership of partnership assets• Drawings and/or salaries• Decision making • Dissolution• Payment in event of death or retirement• Restraint of trade following departure• Dispute resolution (litigation & arbitration)• Governing Law

Companies • Regulations – constitution of the

company• Types:

– Limited liability • Liability limited to amount paid for the shares• Generally, shareholders cannot be held liable

for liability of company• Assets of Directors not available for company’s

creditors

– Unlimited liability• Not generally used or suitable for

entrepreneurial ventures ; though some professional firms use this

Companies

• Incorporating a company• Incorporation documents to the

Registrar of Companieso Regulationso Form 3 o Form 4o Registration and presentation feeo A sum equivalent to 0.5% of the statedo capital for public companies ando GH¢500 for private companies

Types of Companies • Limited by shares

– Owners given shares for money they contribute

– Liability tied to shares purchased– Shareholders paid dividend from profits

if and when declared

• Limited by guarantee– No shares issued– Members liability tied amount members

agree to contribute if company winds up– Not for profit purposes – income etc

goes towards object of the company

External Companies • Company incorporated outside Ghana

establishes a ‘branch’ in Ghana• No separate legal personality from

parent• Obtain external company status by

filing certain documents and Registrar informing you that registered in register of external companies

• Must have a Local Manager & a local process agent

Co-operatives• Association set up to provide service

(s) or benefit(s) for its members • Typically made up of members with

similar characteristics (same employer, trade, profession)

• May be incorporated or just be a body of individuals– Where incorporated must have word ‘co-

operative’ after its name

• Not permitted to grant loans to anyone other than their members

Co-operatives (cont’d)

• Registered under the Cooperative Societies Decree 1968

• Must have a minimum of ten members

• Members of co-operative are liable for debts of the co-operative

• Separate legal personality – can sue and be sued in its own name

Other forms of business organisations

• Joint Venture– 2 or more businesses pool resources to

achieve a common objective – Can be established by agreement or by

setting up a JV limited liability company

Other forms of business organisations (cont’d)

• Franchising– An agreement where an owner of a

business format, trademark, trade name or copyright (the franchisor) gives the right to another (the franchisee) to sell products or services under the franchisor’s trade name and/or to use his systems and business formula

Other forms of business organisations (cont’d)

• Principal/Agency– Agent acts on behalf of principal in

relation to 3rd parties– Ultimate liability for far as 3rd parties are

concerned is the principal’s

• Mergers & Acquisition– Not a separate business form– Typically involve 2 or more companies

coming together to form a single entity

Other Legal Considerations • Internal Revenue Act, 2000 (Act 592)• National Pensions Act, 2008 (Act 766)• Value Added Tax, 1998 (Act 546)• Ghana Investment Promotion Centre

(‘GIPC’) Act, 1994(Act 478)• Immigration• Labour Issues• Factory, Office and Shop Regulations• Free Zone Act,1995 (Act 504)• Workmen’s Compensation Regulations

Guest Speaker

• Mr. Kwabena Adu-Kusi• Managing Partner, Law Bureau• Former Senior Associate at Ntrakwah &

Company • Teach Civil Procedure at Ghana School

of Law