When you register a company in Ghana, you’re not just setting up a business—you’re creating a brand-new legal “person.” This legal concept, known as separate legal personality, allows the company to own property, enter into contracts, and be held liable in its own name. However, this powerful shield is not impenetrable. In certain situations—especially where fraud or misconduct is involved—the courts may pierce this veil of separation to hold those behind the company accountable.
This article explores the principle of separate legal personality and the circumstances under which Ghanaian courts may “lift the corporate veil.”
What Is a Company’s “Separate Legal Personality”?
When you register a company in Ghana, it becomes its own “legal person.” This means:
- It can own property.
- It can enter into contracts.
- It can sue or be sued.
This principle was established in the famous case of Salomon v. Salomon & Co. Ltd [1897] AC 22, and it’s recognized in Ghanaian law.
When Do Courts “Lift the Veil”?
While companies are separate legal entities, sometimes courts look beyond this separation to hold individuals accountable. This is called “lifting the corporate veil.” Here are situations where this might happen:
1. Fraud or Improper Conduct
If a company is used to commit fraud or deceit, courts can hold the individuals behind it personally responsible. For example, in Amartey v. Social Security Bank Ltd, the court held the managing director personally liable when the company was used to defraud creditors.
2. Company as a Façade (Front)
If a company is just a “front” to hide true intentions or to circumvent the law, the veil can be lifted. For instance, if government officials form a company solely to purchase state land they’re prohibited from buying personally, the court may see through this façade.
3. Evasion of Legal Obligations
Using a company to dodge legal duties, like taxes or employee compensation, can lead courts to lift the veil. For example, if a CEO shuts down a company to avoid paying workers and starts a new one immediately, the court may hold them personally liable.
4. Holding and Subsidiary Companies
In group company structures, if a parent company uses a subsidiary to commit wrongful acts, courts may treat them as one entity. This ensures the parent company can’t escape liability through its subsidiary.
Ghanaian Legal Perspective
Ghanaian courts uphold the principle of separate legal personality but recognize exceptions. In Morkor v. Kuma (No. 1) [1999-2000] 1 GLR 721, the Supreme Court stated that the corporate veil could be lifted in cases of fraud, improper conduct, or where justice demands it.
Conclusion
While companies in Ghana are treated as separate legal entities, this protection isn’t absolute. Courts can and will “lift the veil” to hold individuals accountable when the company is misused for wrongful purposes. This ensures that the corporate structure isn’t exploited to commit injustices.
Philipa N. A. Sima Nuamah on behalf of OSD and Partners. [email protected]
