How to Set up a limited liability company in Uganda
Imagine a scenario where Mr Domazo Bazekuketta, father to 26 year old Clemensio Bazekuketta, has just returned from Dublin, Scotland where he worked for 30n years as a machine operator. Domazo has since become a celebrated brewer whose home-made brew Juggernaut Stout® made him a household name in Dublin. Through his cousin John Apenyimor, he procured protection of his product Juggernaut Stout® in Uganda last year. He has now relocated to Uganda and with his savings of GBP 117,000 wants to formally set up his trade and set the standard for a lasting business drawing his inspiration from the history of Guinness which has been running since 1759. He has instructed M/s Togikwatako Advocates & Solicitors to set up a local entity highlighting the critical role of stakeholder management in business sustainability and growth. He also wants to appoint directors not being family members.He would like to maintain a strong grip on the entity you establish for him unless and until he feels Clemensio Bazekuketta is ready to take up the reigns. He anticipates lots of travel but does not want to disrupt his business due to his intense travel and yet he does not want to be left out of critical decision making. He would like to partner with experienced business managers at a strategic level who can help him with decision making, supervise management of the entity, and give him a perspective that is not biased by ownership.
Issues of Consideration
1. What additional information is needed from Domazo Bazekuketta?2. How to set up a limited liability company limited by shares in Uganda to further his interests?
3. Who will be the stakeholders of this entity and why is it important to manage them?
Law Applicable
1. The Companies Act No. 1 of 2012
2. The Uganda Registration Services Bureau Act Cap 210
3. Electronic Transactions Act No. 8 of 2011
4. Electronic Signatures Act No. 7 of 2011
5. The Investment Code Act Cap 92 - Part III
6. The Stamps Act Cap 342 - Part II
7. The Stamps (Amendment) Act No. 2/2002
8. The Advocates Remuneration and Taxation of Costs Rules SI 267-4
9. The Companies Fees Rules SI 57 of 2005
Resolution of Issues
1. What additional information may be needed from a client?
To render proper legal advice and assistance to Mr Domazo Bazekuketta, we would ask him for this further information through an interview guide:
⦁ His particulars like name, age, and address.
⦁ The intended name of the entity he wants to set up and physical address of the same.
⦁ The kind of entity he wants to set up and how he intends to run it.
⦁ The names and particulars of the Directors of this entity and others such as the company secretary, auditor and other shareholders if any.
⦁ The number of shares and value of each share
⦁ The percentage shareholding he wants to own in the entity
⦁ The banker of the entity and the signatories to the entity’s bank account
2. What is the most suitable legal entity he should set up to further his interests?
There are various kinds of entities that Domazo can establish to set up his trade in Uganda like a partnership, Association, corporate society, joint venture, or a sole proprietorship but these will not properly suit his desire for the entity’s longevity like Guiness in the event that he dies.
The most appropriate legal entity for him to set up in the circumstances would be a Private Company limited by shares. Generally, company is a group of persons carrying on business with the view of making profits and contributing to the betterment of society. Legally, Section 2 of the Companies Act defines a company as a company formed and registered under the Act, or an existing company or a re-registered company under the Act.
According to Salmon v Salmon (1897) AC 22, a company becomes a legal entity separate and distinct from its members, with perpetual succession and can sue and be sued in its own name upon incorporation.
For a private company, it is one which limits the number of its members to 100 not including the company's former and current employees as stipulated under Section 5 of the Companies Act. A private company is also one where there are restrictions on the right to transfer shares and other securities, and also prohibits any invitation to the public to subscribe for any of its shares or debentures.
Section 6 of the Act provides that a company that is not a private company under section 5 is a public company. These characteristics of a company make it the most suitable as they cater for his interests in business longevity and replicate Guinness which has lived on even after the death of its founder. This is due to the fact that a company has perpetual succession and thus the death or retirement of a member does not have an effect on the company’s existence.
A company will also be the best avenue to insulate his business from family mismanagement and interference as any decisions affecting the company can only be made by special resolution. More so, the criteria for appointment of Directors, Company secretary, and Auditors will ensure that he works with independent professionals who can give him objective opinions and ideas not biased by ownership.
A company has a greater advantage when juxtaposed with a partnership which has no perpetual succession and limited borrowing powers. As in contrast to sole proprietorships which have one person owning the business, there is no protection as such are not legal entities distinct from their owner hence implying unlimited liability making them non viable in the circumstances.
Associations are defined as individuals or organizations pursuing a common objective. They also have limited liability by guarantee but lack perpetual succession. Often times, their main objective is not profit driven hence not commonly used as investment entities in Uganda.
Cooperative societies are created and governed by the Cooperative Societies Act, Cap 112. Section 4(1)a of this Act provides for a minimum of 30 members and their liability is statute created. While they can exercise perpetual succession and have corporate status, their main objective is community development, which not Domazo’s aim or objective.
Joint ventures equally don’t suffice because despite being profit oriented, they are governed by the Contracts Act and are for a definite period of time yet Domazo wants a long lasting investment hence not viable. This leaves a company as the best option.
Tags : Corporate and Commercial