As the primary law that governs company-related issues in Ghana, the Companies Act 2019 (Act 992) provides a framework for companies to raise capital through shares or debentures.
Companies are created for different purposes—some to make money and others to achieve specific goals or support a cause (these are non-profits). While companies that focus on making profits are called “unlimited companies” or “companies limited by shares”, companies formed for non-profit purposes are called “companies limited by guarantee.”
Company Limited by Shares – limits the liability of its members to the amount remaining unpaid, if any, on their shares. This type of company can either be private or public, each having its own rules of operation under the general law governing companies.
Company Limited by Guarantee – limits the liability of its members to the amount they have pledged to contribute to the company’s assets in the event of its winding up.
This article will focus on methods for raising capital specifically for business companies, which are profit-oriented. There are several ways to raise capital in Ghana but this article will focus on two methods; through shares (equity financing) and debentures (debt).
The other methods include reinvesting the company’s profits rather than distributing them as dividends, venture capital, private equity, grants, and crowdfunding, among others.
A. SHARES
A share is a unit of ownership in a company and is a way for businesses to raise capital. Companies can raise capital through shares in the following ways:
1. PUBLIC OFFER OF SHARES
A company can raise money by selling shares to the public. It can offer shares for sale or ask the public to make offers to buy them. Only a public company limited by shares can do this. A public company allows free transfer of its shares and does not limit the number of shareholders or debenture holders.
Companies looking to raise money this way often list their shares on the Ghana Stock Exchange (GSE), in accordance with Act 992 and the GSE Listing Regulations 1990 (LI 1509). If shares are placed with a bank or other intermediary to sell to the public, it still counts as a public offer.
The first time a company offers shares to the public is called an Initial Public Offer (IPO), and this is usually done by new public companies or private ones that have become public companies. The benefit of a public offer is that it allows companies to raise large amounts of money from many people.
2. PRIVATE OFFER OF SHARES
This method involves offering shares to specific investors, either directly by the company or through intermediaries. The funds raised are added to the company’s stated capital. This approach allows companies to target chosen investors.
3. RIGHTS ISSUE
The company offers its new or unissued shares to its current shareholders based on how many shares they already own. According to the Companies Act, company directors cannot sell new shares to the public without first offering them to existing shareholders.
However, if the shareholders agree through an ordinary resolution, the directors can go ahead and offer the shares to the public. Regardless of who buys them, the money made from the sale is added to the company’s capital. The benefit of this approach is that it does not change the ownership balance and is usually easier because current shareholders are already familiar with the operations of the company.
4. CAPITALIZATION ISSUE
This is when the company reinvests its profits instead of giving them to shareholders as dividends. Instead of paying out dividends, the company gives shares to the shareholders and puts the profits back into the business, adding to the company’s capital.
5. CONVERSION ISSUE
This is when a company’s debt is turned into shares and given to the creditors/lenders. Instead of paying back the money it owes, the company gives shares to the creditors/lenders, canceling the need to repay the loan. This usually happens with a convertible debenture (a type of debt), as described in Act 992, and can be done by the company, the debenture holder, or triggered by a specific event. The money that would have been used to repay the debt is added to the company’s capital.
B. DEBENTURES
A company can raise money by issuing debentures, which is a way of borrowing funds. According to Act 992, a company can borrow by issuing a debenture or debenture stock.
A debenture is a document that acknowledges the company’s debt. The company borrows money from persons and issues them debentures, which outline the terms of the loan. Instead of borrowing a large amount in one go, the company can split the loan into smaller parts called units, each with a set price.
Investors can buy these units, providing the company with the total loan amount based on the number of units bought. Each unit is called debenture stock and is also known as bonds, notes, or marketable loans. The money raised through debentures is added to the company’s capital. The benefit of this method is that it does not affect the ownership structure of the company.
In Ghana, companies have different ways to raise money. These include issuing shares through public or private offers, rights issues, capitalization issues, and conversion issues, as well as borrowing through debentures. Each option has its own benefits, allowing companies to choose the best one based on their needs and financial plans. By using these methods, companies can raise the money they need to grow and stay financially strong.
David Amaara Adaawin on behalf of OSD & Partners
