Member firms of the World Law Group recently collaborated on a Global Guide to Venture Capital that covers over 30 jurisdictions on investment approval processes, typical investment sectors and investment structures on capital transactions. -risk (and more!).
The guide does not claim to be exhaustive and the laws in this area are evolving rapidly. In particular, it is not a substitute for professional and detailed legal advice, as facts and circumstances vary from case to case and national regulations may change.
This chapter covers Ghana. Check out the full guide.
In your jurisdiction, what industries do venture capital funds typically invest in?
The sectors in which venture capital investments are made (and the extent of such investments) are difficult to determine because few venture capital transactions need to be disclosed to the public. In our experience, venture capital funds typically invest in small and medium-sized private companies, which allows them to benefit from economies of scale and grow rapidly.
A 2020 Africa venture capital report produced by Partech indicates that the tech sector, particularly FinTech, is currently popular for venture capital investments in Ghana.
Do venture capital funds require approval before investing in your jurisdiction?
a. Venture capital funds can generally invest directly in Ghana without any approval, subject to specific approvals which may be required for specific industries. In such regulated industries, investments may require regulatory approval from the relevant regulatory body (particularly if the change in control thresholds is triggered as a result of the proposed investment). The specific requirements vary from industry to industry.
b. A venture capital firm that intends to establish itself in Ghana must be licensed by the Securities and Exchange Commission (the “SECOND») As a venture capital fund. The SEC will only license a business:
incorporated in Ghana or registered in Ghana as an external company, and which is deemed fit and appropriate by the SEC to be licensed as a venture capital fund; and
1. “the provision of venture capital to small, medium and large enterprises” as its main object in its constitution;
2. a minimum initial fund size of approximately USD 1.7 million;
3. a board of directors composed of at least 1 independent director;
4. 1 independent professional such as a lawyer or a similar person as company secretary; or
5. an SEC approved fund manager.
Are there any legal limits to an offshore venture capital fund that acquires control or influences the business, operations or governance of an investee?
There are generally no restrictions on offshore venture capital funds that invest in and influence the business and operations of a company owned in Ghana, subject to regulatory approvals or limitations applicable to a change of control in the company. detained.
Would an investor be required to undertake antitrust analysis before investing? When would such a requirement be triggered?
No. There is currently no antitrust law in Ghana. However, there is a draft law on competition and fair business practices currently pending before Parliament.
What are the preferred structures for investing in venture capital operations? What are the main drivers of each of these structures?
a. There are no preferred investment structures for venture capital transactions in Ghana. The main factors in determining the specific investment structure are generally (i) the level of privileged control over the activities of an investee company; and (ii) the extent or limitation of the liability and risks of the recipient company.
b. Thus, investment structures may include, but are not limited to, the following:
Equity Funding – The most common structure is where the venture capital fund acquires a stake in the owned company, as this allows better control over the activities of the owned company. The venture capital fund may invest a specified amount in the company in return for common or preferred shares of the company. Preferred shares are generally used in venture capital transactions because they confer preferred rights with respect to dividends, voting rights as well as anti-dilution protection in the event of liquidation.
Debt Financing – Another common structure, if the owned company is already incorporated and operating, is debt financing. While this allows only limited control over the affairs of the owned firm, investors tend to find debt financing less risky than equity financing.
Convertible Debt – This structure provides the opportunity for the venture capital fund to convert its debt in the company held into common stock of the company.
Are there any restrictions on the rights granted to venture capitalists in public enterprises?
No. There are no restrictions on the rights granted to venture capital funds in public enterprises.
What protections are generally offered to venture capitalists in your jurisdiction?
a. Venture capitalists generally receive significant contractual protection in the documentation of the transaction (which will most often consist of a shareholders’ agreement, a contract to subscribe or purchase shares or an amendment to the constitution of the transaction. society). Among other things, the transaction documentation may provide for (i) a list of reserved matters for which the consent of the venture capitalist will be required, (ii) restrictions on the transfer of shares and change of control and (iii) the right of the investor of first refusal of any transfer of shares. These provide the venture capital investor with a greater degree of control than the rights attached to his participation would otherwise give him.
b. The law also provides for inalienable remedies for venture capital investors, including the right (i) to bring legal action in the name and on behalf of the detained company against directors for their negligence or default, and ( ii) the right to request the holding company to purchase its shares in the event of a major transaction, arrangement or merger.
vs. In addition, venture capitalists are generally protected by the following:
I. Limited Liability: Investors’ liability is limited to their contributions to the venture capital fund;
II. Responsibility to Investors: An SEC-authorized venture capital fund is required to issue annual and semi-annual reports to investors that include the statement of assets and liabilities, an income and distribution account, and reports of the auditor as well as the fund manager on the activities of the venture capital fund during the year; and
III. Investor Powers: Investors of an SEC-approved venture capital fund are permitted to call meetings to remove directors of the venture capital fund whom they deem unsuitable to manage the assets of the fund.
Is warranty and indemnity insurance common in your jurisdiction? Are there any legal or practical challenges associated with obtaining such insurance?
a. Guarantee and indemnity insurance is not common in Ghana, although some insurance companies may provide such insurance. We understand that the absence of such insurance is due to the lack of information and the inability of the insurance industry to assess the risks associated with insuring such guarantees and indemnities.
b. As a result of the above, venture capital funds in Ghana generally rely on contractual guarantees and indemnities, the right to claim damages and specific legal relief in transactions. These contractual indemnities generally do not cover matters disclosed as part of the due diligence on the company and matters disclosed by the owned company.
What are the common exit mechanisms adopted in venture capital transactions and what, if any, are the risks or challenges associated with such exits?
a. The outflow or disposal of the venture capital fund’s stake in the investee company generally occurs as follows: (i) sale of shares in the investee company, (ii) repurchase of shares by the company, and (iii) liquidation or liquidation of the beneficiary company.
b. We note that the most common exit mechanism is the sale of shares of the investee. There is no risk associated with this exit strategy. However, depending on the terms of the transaction documents or the constitution of the company, these outings may be subject to obligations such as dragging rights or beacon rights.
vs. The exit mechanisms of public or listed companies in Ghana may however include: (i) an initial public offering (Initial Public Offering), (ii) a sale of the shares of the company by a transaction executed on the stock exchange, or (iii) the repurchase of investor shares by the company.
Do investors generally opt to exit the public market via an IPO? Are there specific public market challenges to overcome?
a. While exits from the public market via the IPO are legally permitted, exits to the public market via an IPO by a venture capital fund are rare in Ghana. Most of the IPOs on the Ghana Stock Exchange were aimed at raising capital for the listed company.
b. In addition, the listing of the shares of a company held on the Ghana Stock Exchange or the Ghana Alternative Market (GAX) during an IPO is subject to (i) the listing rules of the Ghana Stock Exchange (or the GAX Rules), (ii) the requirements of the Companies Act 2019 (Act 992), and (iii) the requirements of the Securities Industry Act 2016 (Act 929), the Security and Exchange Commission Regulations 2003 (LI 1728) and the Security Guidelines and Exchange Commission, if applicable. The costs and organizational efforts required to comply with the regulatory requirements set out above therefore present a challenge for exits via IPOs.