Introduction
“The 100 Club” – a content initiative of Cable News Network (CNN) takes a look at global and iconic brands that have survived and thrived for more than 100 years in business. So far, the production has covered some companies/brands that have survived the 100-year mark since their formation (incorporation) – Guinness, Coca-Cola, Gillette, Twinings, Universal Pictures, and Panasonic.
Underpinning the survival traits of these companies is a defining characteristic of companies – their perpetual existence. Private Companies on their formation (incorporation) acquire some unique features including (but not limited to) separate legal personality, limited liability, centralized management, and alienable shares. The feature of perpetual existence which technically implies companies live forever and that they “do not die” is also acquired. It permits the continued existence and operation of companies, outliving their owners – shareholders who are mortals. An understanding of the implications of the perpetual existence feature can help promote an “immortal” character and outlook of Ghanaian companies that can survive decades of business operations.
In this article, I shall explore the permission of Ghana’s company law practice and regulations which enable a perpetual corporate existence, and how companies can leverage the same in attaining Ghana’s 100 Club membership – incorporated companies that will survive business operations for more than 100 years.
Company Law Practice and Regulation in Ghana
The organization and running of business enterprises (informal) predate the first attempt at regulating businesses in the year 1907 – which was merely a re-enactment of the English 1862 Act. The 1958 Gower Commission constituted the next major step at providing a new approach to company regulation aimed at addressing the private sector and business community needs. Subsequently, the Gower recommendations formed the basis of the first indigenous company law regulation; the Companies Act, 1963 (Act 179) which until as recently as 2019 was the main company law regulation in Ghana.
For fifty-six (56) years, Act 179 (and judicial decisions) significantly had influenced Ghana’s company law practices serving as the parent legislation for all company law issues and supplemented by industry-specific legislations. Throughout its enforcement period, Act 179 just like the Companies Act, 2019 (Act 992) had maintained the unique features of private limited liability companies – separate legal personality, limited liability, centralized management, alienable shares, perpetual existence among others in line with best practice across the world.
These unique features express the legal essence of private companies – as they hold significant imports for their immediate and future operations. The preservation of these features in the new Companies Act is a clear commitment to promote company law practice and regulation in consonance with international best practices and to continue to offer legal validity to known concepts that support the existence of companies for the pursuit of their object(s). In essence, no major disruptions are expected post-enactment and following the implementation of the new Companies Act.
In this context, by the time the Africa Union’s Agenda 2063 is realized, Ghana should be celebrating the 100years anniversaries of its first post-independence incorporated companies. However, whether these early incorporated companies are still in business operating in any form or shape connected to their initial incorporation and working toward their 100 years anniversaries is an inquiry all company law enthusiasts must be interested in.
In the future, Ghana’s company law practice and regulation will continue to provide the legal basis for the perpetual existence of companies. Therefore, analysis and recommendations on ways to actualize this feature beyond a mere legal context must be within the context of practice and regulation advantages.
The legal effects of incorporation
The formal process of registering a company gives it a distinct legal character and separation from its owners (shareholders). On incorporation, a company acquires a separate legal personality with full capacity to carry on or undertake any business or activity or do any act or enter into any transaction. Further, a company will have the full rights, powers, and privileges necessary for doing business.
The Companies Act, 2019 (Act 992) makes specific provisions on other features of a company – limited liability (in respect of a company limited by shares), centralized management (board of directors), and alienable shares (transferability of shares either by way of voluntary transfer or by the operation of law). However, the absence of an explicit provision on the perpetual existence feature of companies does not imply the failure of the law to recognize the same.
Implicit in the provisions on incorporation is the endorsement of the legal position that a company once incorporated is expected to exist forever unless its life is brought to an end in legally recognizable ways. The words “from the date of incorporation” without an indication of termination or end date means a company incorporated under the Act is to enjoy a perpetual corporate existence terminable only in few circumstances.
The “Perpetual Existence” feature and its implication for company management
Andrew A. Schwartz in his article “The Perpetual Corporation” contends that the perpetual existence feature of a company connotes an “indefinite legal existence which can be terminated only in a few circumstances”. This reflection is also true of Ghana’s company law practice and legislation where a company once incorporated is deemed to be “a person” who never dies (immortal) unless in circumstances of voluntary dissolution, insolvency proceedings, merger with another company, or by the exercise of powers of the court or the registrar of companies to bring the life of a company to an end.
The legal characteristic of a company to live forever has practical implications for its corporate management practices especially regarding decision-making with short and long-term impacts. Company managers must exercise sound judgments on issues that promote not only the short-term goals but also inform the long-term directions of a company – particularly investment decisions must reflect the understanding of the immortal character of a company.
The long-term success of a company Schwartz argues “is a consequence of its perpetual existence. Because (a company) will exist in perpetuity, it is in a sense immortal. And an immortal entity must rationally plan not only for today and tomorrow but also for the distant future”. The perpetual character of a company is an inherent demand on managers/owners to consider the long-term interest of a company in decision-making processes.
The following considerations are critical to helping drive long-term successes of a company beyond its current management and ownership – and must be part of the constituent benchmarks for the long-term agenda of companies.
Some considerations for building companies over 100 years old in Ghana
- Personnel – the decision-makers
A company is as good as its officers. The knowledge, expertise, and commitment to new learning among others by persons in the decision-making position of a company can influence the quality of planning, implementation, and review of strategic plans for immediate and long-term gains.
The mandatory requirement of having and maintaining at least two (2) directors and one (1) company secretary should not be misused by appointing persons although qualified at law but unfit to run the affairs of a company. Company owners must maximize these legal opportunities to appoint, retain and motivate persons with proven management skills, industry expertise, and commitment to the long-term growth of a company.
A competent and forward-looking management team (board of directors) will impact strategic planning, critical assessment of risks and opportunities, and exercise of sound judgment on corporate management issues such as the engagement of employees, product/service development, sales, and marketing/branding, regulatory compliance among others.
Company owners must eschew the temptation of officers’ appointment-based solely on family linkages and affinity in the expectation of indirect control and direction – the Companies Act permits governance structures that allow for shareholders’ ultimate control regardless of who is appointed. A clear choice must be made in favor of competent personnel at all times as the results may be lasting and perpetual.
A company should never compromise on the appointment of competent officers and employees – its consequences are too dire for the continuous and sustainable operation of a company. Appointed Officers and employees become corporate decision-makers and a company cannot afford to leave its continuous existence in the hands of persons with little or no knowledge of business management and expect different results. As a best-case scenario, clear policies and guidelines on the appointment of officers should be developed and reviewed periodically to take account of changing corporate management circumstances.
For a company to live forever and “not die” abruptly, the quality of its personnel and the decisions they make cannot be discounted – companies must pay attention to this for the short and long-term benefits.
- Regulatory compliance
A company is a creature of statute. Regulations guarantee its existence and permit its management and operations. In the process, a tall list of regulatory compliance demands is expected of a company – without which it will fail the test of its legal existence.
Apart from the regulatory demands of the parent company legislation (Act 992), other general and industry-specific legislations have mandatory calls on companies. Compliance requirements may cover issues such as the renewal of company registration, product or service permits/licenses, labor, business operating permits, tax obligations, advertisement among others. A company must endeavor to comply with all mandatory regulatory requirements and take steps to utilize the permissible ones to its advantage.
The failure to comply with regulations can threaten the legal existence of a company – as civil liabilities or criminal sanctions may invariably have immense consequences for its continuous existence.
I will not attempt to make any specific prescription of regulations which a company will be required to comply with except to encourage company managers to take steps to engage professionals to undertake full-scale diagnosis of their operating industry regulations and design compliance checklists that drive compliance culture and good corporate citizenship.
Regulatory compliance will not only guarantee the perpetual existence of a company, but it will also offer the advantages of attracting investments or funding, support bold marketing and sales initiatives without concerns for regulatory interferences or create enabling work environment among others.
- Stakeholder engagement
Stakeholders are the “cheerleaders” of companies with varied expectations. Company managers must understand the fact that the right stakeholders’ engagement approach may either sustain their operations or bring the life of their companies to an abrupt end. An engagement plan which takes into account the interests (expectations) of shareholders, creditors, suppliers, customers/consumers, competitors, government, and the community could help foster collaborations that advance the long-term goals of a company.
It is difficult to prioritize the interest of any of these stakeholders over the others. Therefore, managers must adopt a balanced approach to manage stakeholder expectations and build mutually beneficial partnerships. A badly managed engagement process is a sure threat to the continuous operation and existence of a company.
A company must clearly define its stakeholder interests and keep an open channel of communication and engagement to drive support for its plans, goals, and action. It is always better to win the support of these stakeholders than to be seen as competing with their varied interests.
Regardless of stakeholder demands, managers must maintain a good governance practice anchored on doing only that which is lawful and ethical at all times. A manager must not risk the long-term interest of a company for the immediate satisfaction of stakeholder interest.
There are various legal provisions available on dealing with shareholders’ entitlements, creditors’ claim to debt fulfillment, government agencies’ expectation of regulatory compliance, the community’s expectation of corporate social responsibility initiatives among others. A company must be conversant with these provisions and engage with stakeholders within the remit of the law – it helps build alliances for the future.
- Products and services
An application for incorporation of a company must include among others a decision on a name and a proposed line of business – in circumstances of registration with an object. Subsequently, the pursuit of the proposed business or any activity/transaction undertaken is done through the vehicle of a company’s product(s) or service(s) provision.
Ordinarily, a product is developed based on an idea, business case analysis, development and testing, validation, and regulatory approval before commercialization. Similarly, a type of service provision may be in response to an existing market need or the creation of a new service category. A product or service development cycle is critical to any sustainable business operation – the success determines the generation of continuous inflows.
An effective product or service management will encompass issues of establishing quality standards, pricing regimes, marketing, sales and branding strategies, supply chain management, customer/consumer development, and management.
Extensive knowledge on product or service management is widely available – managers should take advantage of in-person and online resources to build competencies in this regard.
It is also allowed by law for companies to diversify their product or service offerings. Managers must take advantage of these provisions to pursue product developments or service offerings that deliver profitability and brand equity for companies and warrants their continuous operations.
- Succession planning and capacity building
Mostly, the dominant desire of owners of private companies is for them to run as family businesses. This results in family members playing leading management roles. Like all others, to build businesses that last, an open decision regarding ownership, governance/management structure, and transition from one management to another – or one generation to another must be encouraged.
A plan for management transition will allow for the identification of persons who will take over from the current management when they resign, retire or die. The identified “future” managers must be supported with personal development plans that cover issues of relevant education and skill development, first-hand experiences/learning on the job, secondments among others – they must be rigorously be prepared for the future.
There is no template for succession planning and must be adapted to, based on the peculiar circumstances of the company. However, the goal should remain to build the next generation of business managers with insights from the “magic wand” that has over the years accounted for the successes of a company. Through this, a strong business understanding and seamless transitions with limited disruptions to business planning and operation can take place involving the “old guards” and the “new champions”.
Good succession planning will ensure competent managers are trained, groomed, and ready for every phase of a company – in essence, ensuring the continued successful operation of businesses in perpetuity.
A single generation can activate a perpetual outlook for a company, but it will require generations to guarantee a company’s actual existence.
Conclusion
As ideas will outlive their originators, so do companies exist potentially in perpetuity long after their owners have died. The ability of a company to exist forever is both a consequence of a legal command and management response. The unique feature of perpetual existence is only lost in limited circumstances implying with the right management approach, a company can exist for more than 100 years if not forever.
In other jurisdictions, companies are attaining the 100 years mark. Although in Ghana, we are decades away from such milestones, companies must deliberately plan for these anniversaries with a long-term focus taking account of some of the factors discussed in this article. A 100th anniversary is a possibility, let companies in Ghana embrace the idea and plan towards it.
The author is Richard Nunekpeku, a lawyer and reachable at richard@sustineriattorneys.com
