How to Convert a Sole Proprietorship or Partnership into a Company Under Ghanaian Law

By Seth Doe Esq and Yaw Mensah Bosompem Esq

Introduction

As Ghanaian businesses grow, their legal and commercial needs evolve. Many begin as sole proprietorships or partnerships because these structures are simple and inexpensive. Over time, however, the limitations of these forms become clear. Challenges such as unlimited personal liability, the inability to raise significant capital, the absence of perpetual succession, and strict statutory limits on membership create a natural pressure for restructuring.

The Companies Act 2019, Act 992 provides a detailed legal pathway by which such enterprises can be transformed into companies. This is most commonly done through the formation of a private company limited by shares. This legal guide explains the reasons for conversion, the statutory foundations of the process, the procedural requirements, the legal consequences of the transformation, and the practical issues that lawyers and business owners must manage during the transition.

1. Why Businesses Convert: Understanding the Legal and Commercial Pressures

Conversion is not simply an administrative formality. It is driven by important legal, financial, and operational realities that eventually restrict the growth of sole proprietorships and partnerships.

1.1 Statutory Membership Limits under Act 152 and Act 992

Under section 2 of the Incorporated Private Partnerships Act 1962, Act 152 a partnership cannot have more than twenty partners.
Under section 3 of Act 992 any association formed for gain with more than twenty members must be registered as a company.

This statutory ceiling forces expanding partnerships to reorganize once they approach the limit.

1.2 Unlimited Personal Liability

Sole proprietors and partners are personally liable for every debt and obligation of the business. The law does not recognise the business name as a separate legal person.

Ghanaian courts have reaffirmed this principle in several decisions:

• Barclays Bank Ghana Ltd v Lartey [1978] GLR 282
• Turqui v Dahabieh [1987 to 1988] 2 GLR 486
• Baidoo v Sam [1987 to 1988] 2 GLR 666

These cases confirm that registration of a business name does not create a separate legal entity. Creditors may sue the proprietor or partners personally and attach their private assets.

1.3 Limited Capital Mobilisation

These forms cannot issue shares, cannot invite equity investment, and cannot raise funds from the public. They depend solely on personal savings or partner contributions.

Companies, on the other hand, can issue shares under section 55, increase share capital under section 59, and easily admit new investors.

1.4 Lack of Perpetual Succession

A sole proprietorship or partnership collapses upon death, bankruptcy, withdrawal, or insanity of the owner or a partner.

Companies enjoy perpetual succession under section 18 of Act 992 and are therefore more stable and attractive to financiers.

1.5 Commercial Credibility

Corporate entities are perceived as more professional and better regulated. Banks, investors, development partners, and procurement bodies prefer to contract with incorporated companies because they offer predictability, transparency, and continuity.

2. Choosing the Appropriate Company Structure

Act 992 recognises four main company types but for conversion purposes one option dominates.

2.1 Unlimited Companies

These offer no limited liability protection and therefore do not resolve the risks that prompt conversion.

2.2 Companies Limited by Guarantee

These cannot trade for profit and are therefore suited for charities, non profit bodies, and clubs. They are not appropriate for trading businesses.

2.3 Public Companies

These involve heavy regulatory obligations. They require the issue of a prospectus, strong governance structures, and continuous disclosures. They are rarely chosen by small or medium enterprises.

2.4 Private Companies Limited by Shares

This is the most suitable form for transformation.
They allow between one and fifty members, provide limited liability, permit issuance of shares, and have manageable governance obligations.

3. Legal Mechanism for Conversion under Section 303 of Act 992

Section 303 outlines the statutory basis for transformation.
A sole proprietorship or partnership does not automatically become a company. Rather, the owners must form a new company that meets all the requirements of Act 992.

From that point, the owners become promoters within the meaning of sections 15 and 16.

4. The Detailed Conversion Procedure

4.1 Name Reservation

The promoters must reserve the intended company name with the required corporate suffix, such as Limited or Public Limited Company. This is done under section 12.

4.2 Drafting the Company Constitution

The constitution is prepared in accordance with sections 11 to 16. It covers the objects of the company, the internal governance structure, the powers of directors, shareholding rights, appointment of officers, and other regulatory matters.

4.3 Preparing Corporate Forms

The application is supported by the statutory forms, including:

• Form 3
• Particulars of directors under section 172
• Consent of secretary under section 212
• Consent of auditor under section 138 where applicable
• Beneficial ownership disclosures under section 373

These must be accurate, complete, and duly executed.

4.4 Assignment and Transfer of Assets

The assets of the existing business must be transferred to the new company. This requires formal documentation:

• Land is transferred by deed of assignment and registration
• Vehicles require reassignment at the Driver and Vehicle Licensing Authority
• Intellectual property must be assigned in writing
• Movable equipment is transferred by inventory or bill of sale
• Old bank accounts must be closed and replaced with new corporate accounts

4.5 Assignment or Novation of Contracts

Existing contracts cannot automatically bind the new company.
Landlords, suppliers, customers, service providers, and employees must enter into assignment or novation agreements to ensure continuity of obligations.

4.6 Stamp Duty on Stated Capital

Stamp duty is charged at the rate of zero point five percent of the stated capital.

4.7 Filing and Issuance of Certificate

Once the Registrar is satisfied that all statutory requirements are met, the Registrar issues:

• Certificate of Incorporation
• Company Particulars
• Business Profile

These documents confirm that a new company has been lawfully formed under section 18.

5. Legal Consequences of Conversion

5.1 Separate Legal Personality

Once incorporated, the company becomes a distinct legal person capable of suing and being sued. This principle is confirmed in the decisions:

• Appenteng v Bank of West Africa Ltd [1961] GLR 196
• Owusu v R N Thorne Ltd [1966] GLR 90
• Agricare Co Ltd v Chicks and Chicken Services Ltd
• Salomon v Salomon [1897] AC 22

5.2 Limited Liability

Members are liable only to the extent of any unpaid amount on their shares under section 16.

5.3 Continuity of Obligations

Section 303 requires that liabilities of the old business be transferred to the company. If they are not transferred, the proprietor or partners remain personally liable.

5.4 Perpetual Succession

Death or bankruptcy of the former proprietor or partners does not affect the new company.

5.5 Improved Creditworthiness

Banks, investors, and contracting agencies generally treat incorporated companies as more reliable.

6. Practical Checklist for Lawyers

Before Conversion

• Conduct tax due diligence
• Review all major contracts
• Examine leases and property interests
• Confirm regulatory licences and permits

During Conversion

• Reserve name
• Draft constitution
• Complete beneficial ownership register
• Prepare asset transfer agreements
• Prepare novation and assignment agreements

After Conversion

• Obtain new taxpayer identification
• Update Social Security and National Insurance Trust records
• Update business operating permits
• Notify suppliers and clients
• Update regulatory bodies

7. The Role of the Lawyer

Lawyers play a central role in ensuring legal compliance and smooth transition. The lawyer must ensure proper due diligence, accurate documentation, clear asset transfer, valid contract novation, appropriate corporate governance, and full compliance with Act 992.

Conclusion

Conversion under Act 992 allows Ghanaian businesses to modernise their legal structure, limit personal exposure, attract investors, and ensure continuity. A deliberate and well managed conversion process creates a stable and credible business entity capable of long term growth. With proper legal advice, proprietors and partners can transition into the corporate form with confidence and clarity.