Dear Mirror Lawyer, I run my own business at Makola in the Central Business District of Accra.
I sell wine and other alcoholic drinks.
I have registered this business under the Registration of Business Name Act.
Quite recently, I entered into an arrangement with one of my suppliers but I was unable to follow through with the arrangement because when he brought my goods, I did not have enough money to honour the deal.
He has threatened to sue me as a result.
Someone informed me that when you own a business, you do not suffer personally for any lawsuit from the business.
How accurate is this information?
Dear Joe, Thank you for reaching out to me on your issue.
First, the advice you received is partially accurate.
There is a principle in law that says that when a company is duly formed, it becomes a person, separate from the person or people that formed it.
This principle is called the Separate Legal Personality principle, and I think it exists so that directors of a business can feel free to pursue legitimate business risk for profit without the fear of bankruptcy or personal impoverishment.
What this means is that any financial loss arising from a bad deal or even a lawsuit will usually be borne by the company and not its shareholders or directors as held by the courts in the cases of Salomon vs Salomon and Mordor vs Kuma.
The Companies Act 2019, Act 992, provides the procedures one must comply with to duly form a company under Ghanaian law.
When a company is formed by those rules, it becomes a juristic entity capable of suing or being sued in its name.
This was explained in the case of Bank of West Africa vs Appenteng.
It can also take loan facilities from financial institutions in its name and own or transfer property as held in the case of Macaura vs Northern Assurance.
On the other hand, registering a business name under the Registration of Business Name Act 1962, Act 152 is not enough to grant a business a separate legal personality.
Registering a business name merely grants you exclusive use and right to the business name as decided in Barclays Bank Ghana Ltd vs Lartey and Baidoo vs Sam.
It does not absolve you personally from any loss incurred while you are running the business.
What this means is that in your current situation, you may be personally liable to your supplier for damages on the grounds of breach of contract.
You should seek further advice from a lawyer.
Also, endeavour to convert your sole proprietorship into a limited liability company and you will enjoy the benefits of the principle of separate legal personality.