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How to legally start up a business entitity in Uganda - Kyambadde Associates & Legal Consultants

How to legally start up a business entitity in Uganda

There various types of legal entities from which a lawyer can advise his or her client to legally setup in Uganda, in this post, they are disused together with the relevant provisions of the law as following;

1. Partnerships

-These are defined under section 2(1) of the Partnership Act to mean a relationship which subsists between or among persons not exceeding twenty in number who carry on a business in common with a view of making profits however under subsection 2 where it includes professionals they are limited to 50 persons.
-Inclusively under section 2(3) of the same act provides that registered companies under the company act or any other act relating to registration of joint stock companies are not partnerships.
-Section 47 considers another type of partnerships referred to as limited liability partnerships and consists of not more than 20 persons and has one or more persons called general partners who are liable for the debts and obligations of the firms.

However, it is imperative to note that partnerships have unlimited liabilities for each partner, no perpetual succession, no legal status separate from that of the partners and limited borrowing powers. Having regard to our client’s instructions, he wants to set up an entity with longevity like that of Guinness and perpetual succession through his son clemensio Bazekuketta. In totality he seeks to establish an entity that mirrors Guinness and as such a partnership would not be appropriate.

2. Sole proprietorship

-This is a business entity carried out by one individual who is directly in control of all the operations of the entity. The sole individual has full exposure and liability for the debts and other business liabilities and obligations thereto.
-This kind of entity is not independent of the proprietor and therefore any liabilities of the business are referenced to that individual and his ability to meet them.
-It is therefore important to note that our client’s intent is to include his son as a co-owner of the business and inclusively partner with experienced business managers thus excluding a sole proprietorship as a viable business entity

3. Cooperative societies

These are created b the cooperative societies act cap 112 and specifically under section 4 (1) (a) a minimum of 30 members is provided for. The main aim is to institute community development and the liability is established by statute. This type of entity definitely does not meet our clients’ needs as he intends for ownership that is limited to him and his son as co-owners.

4.  A Joint ventures

In United Dominion Corporation LTD V Brian Pty LTD (1985) 157 CLR 1 a joint venture was defined to mean “an association of persons for the purposes of particularly trading, commercial , mining, or other financial undertaking or endeavor with a view to mutual profit, with each participating usually( but not necessarily) contributing money, property or skill. They are usually intended to exist for a limited period of time. Our client clearly states that he wishes the business to last for a very long time just like Guinness. As such, a joint venture would not be appropriate.

5. Company

A company is defined under section 2 of the Companies Act to mean a company formed and registered under the companies act or an existing company or a re-registered company under the same act. In Salmon v Salmon 1897 AC 22, court observed that, a company is a legal entity with separate legal existence from its owners. The advantage of operating business under the entity of a company is that separation of ownership and control of the company allows it to raise capital on a large scale, and management can be left to the professional and skilled directors while shareholders can take on the role of capitalizing the business.

Companies are divided into two types and these are;
a) Public companies
b) Private companies
Section 5 of the Companies Act, 2012, defines a private company as one which restricts the right to transfer its shares and other securities, limits the number of its members to 100 (one hundred) and also prohibits raising capital publicly.
On the other hand, section 6 of the same Act provides that a public company is one which is not a private company as categorized in Section 5 of the companies Act.
It is important to note that section 4 (2) of the Companies Act further categorizes companies into three categories which include;

a) A company limited by shares

According to Section 4(2) (a ) companies act 2012, this is one where the liability of its members is limited by the memorandum of association to the amount if any, unpaid on the shares held by them. In other words, shareholders of this company are only liable to the extent of their unpaid capital contribution.

b) A company limited by guarantee

Under Section 4(2) ( b) liability of members of the company is limited by the memorandum of association to the amount which the members undertake in the memorandum to contribute to the assets of the company in the event of its being wound up. This type of company is appropriate for charitable organizations, reason being business requires capital which is usually raised by issue of shares

c) Unlimited companies

According to Section 4(2) (c) companies act 2012 this is a category of companies that does not have a limit on the liability of its members.

Promoters of a company can form a private limited liability company because of the following reasons.
Creating a company creates a legal entity which is separate from its members that is it creates a separate legal personality. (Salomon v A Salomon & Co Ltd [1896] AC 22). depending on the cirumstances, if a promoter anticipates lots of travel but he or she does not want to disrupt the business. he or she can form a company which will be separate from him or her.

Perpetual succession.
The company has indefinite duration. The death or bankruptcy does not terminate its life. From the facts at hand, our client is inspired by Guinness which has been running since 1759. We therefore advise him to form company since it has perpetual succession.

Organizational structures.
Power is divided between shareholders depending on capital contribution / members as well as directors. With such structures a client can easily involve his family in business and also hire other experienced managers as he wants.

Transferable shares.
Ownership is in form of shares which are easily transferable.

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