CHANGES IN THE UGANDA'S COMPANIES ACT: ACT 1 OF 2012 VIS AVIS CAP 110

CHANGES IN THE COMPANIES ACT 1OF 2012 VIS AVIS CAP 110

LLB (MAK) Dip. LP (LDC)                                                                                                                 

INTRODUCTION

In 2010, with support from the World Bank, Uganda launched a four-year program to study ways to reform its legal and regulatory regime, develop better investment policies, and further improve Uganda's investment climate. The program aimed to reduce regulatory burdens in Uganda by 25% by 2014.[1] Uganda has, and is still currently reviewing or revising more than 17 commercial and bankruptcy laws to reduce administrative delays and the cost of doing business. The new laws were geared towards amendment of Uganda’s Companies Act, modernize and speed up bankruptcy procedures, expand and clarify provisions on mortgages, update commercial contract law, and modernize provisions for e-commerce and electronic signatures. One of the most notable of the new laws is the Companies Act1 of 2012.

HISTORY TO THE ACT

Uganda's Companies Act (1961) Chapter 110 was based on UK legislation - the Companies Act (1948) - that had long since been replaced in the UK. Several years ago the Uganda Law Reform Commission published a report in which recommendations were made for the reform of Ugandan company law. The Companies Bill No. 14 of 2009 was subsequently introduced in Parliament.  In 2012, the Bill was passed into law and in July 2013, the statutory instrument bringing the Companies Act 1of 2012 into force was passed.

The Companies Bill No 14 of 2009 was read for the first time on 18th August 2009 and was referred to the Committee of Legal and Parliamentary Affairs.[2] While analyzing the Bill, the Committee realized that there were a number of new concepts which had been introduced in the Bill. The Committee undertook a bench marking exercise on the principles in the United Kingdom and South Africa to get a deeper understanding from countries where the new legal concepts had been applied.  Their objectives were;

(a) to study the incorporation and management of a single member company;

(b) lifting the veil of incorporation in cases of single member companies;

(c) requirements of professional qualifications for company secretaries;

(d) mandatory requirements/exceptions to holding annual meetings by companies both, private and public companies;

(e) duties of directors and director disqualifications;

(f) powers of the Registrar of Companies;

(g) the effect of Table F on Corporate Governance and mandatory requirements for the adoption of principles of corporate governance;

(h) powers of the Minister in company regulation;

(i) Protection of shareholders. [3]

They got the following recommendations.

(a) The bill should be amended to provide for only two types of companies, i.e. private and public company;

(b) Clause 14 should be amended to require companies to annually file a statement with the Registrar stating clearly the extent to which they have complied with the code of corporate governance or state reasons why they have not complied with some principles;

(c) A company which fails to state the extent of compliance with the code of corporate governance should be fined;

(d) The Registrar or Capital markets should be given powers to amend and update the code of corporate governance according to any new principles that may have from time to time developed;

(e) Clause 34 regarding the change in status of a single member company to a private company should be deleted;

(f) Clause 40 should be amended by deleting reference to the Minister. The power to dispense with the use of the word “Limited” should be left to the Registrar who supervises the operation of companies;

(g) Clause 140 should be amended by making it optional for private companies to hold annual general meetings;

(h) Annual general meetings of private companies should be held at the requisition of members of the company at any time;

(i) Public Companies should adopt the letters “Plc” at the end and “Splc” for Single Member Public Companies. This will help the public to know the types of companies they are dealing with.

The final document that was passed, namely, Act 1 of 2012 incorporated some of the recommendations and introduced many changes that may usher in a hitherto unseen era of more and efficient corporate commercial activity in Uganda.

ACT 1 OF 2010

The preamble to  Act 1 of 2012 is illustrative of the purpose of the Act by providing that the Act is to amend, replace and reform the law relating to incorporation, regulation and administration of companies and make provision for related matters. Indeed Section 298 repeals the Companies Act Cap 110.

However, no regulations have been made under the Act as required by Section 294 of the Act. Section 12 of the Interpretation Act Cap 3 provides for the effect of repeal on statutory instruments. It states that;

Where any Act or Part of an Act is repealed and reenacted, with or without modification, statutory instruments made under it shall, unless a contrary intention appears, remain in force, so far as they are not inconsistent with the repealing Act, until they have been revoked or repealed by statutory instruments made under the repealing Act, and until that revocation or repeal, shall be deemed to have been made under the repealing Act.

Therefore, in my opinion, anything referred to that necessitates rules, reference maybe made to the rules made under the repealed Cap 110.  

CHANGES IN THE COMPANIES ACT (ACT 1 OF 2012 VIS AVIS CAP 110)

1.       Definition of a company.

 S.2 of the Act 1 of 2012 is wider by including in its definition a re-registered company under the Act.  (cf; S.1 (1) (f) of Cap 110).For re-registration see sections 23, 24, 27, 29-35) A private limited company may re-register as a public company, a limited liability company as an unlimited company, an unlimited liability company as a limited liability company and  a public company as a private company.

This widened the re-registration in S. 17 of Cap 110 which was limited to re-registration from an unlimited to limited company or re-registering a limited company. The effect is that registration of companies has been made easier. A company can easily change status without facing numerous hurdles as before and of re registering a new company. (3) On re-registration under this section, the registrar shall close the original registration of the company and may dispense with the delivery to him or her of copies of any documents furnished on the occasion of the original registration of the company, but, subject to this subsection, the re-registration shall take place in the same manner and shall have effect as if it were the first registration of the company under this Act.

It is worth noting that re-registration of a company shall not affect the rights or liabilities of the company in respect of any debt or obligation incurred or any contract entered into, by, with or on behalf of the company before the re-registration.

There are limitations on re-registering in certain circumstances. Section 24(2) provides that a company shall not be re-registered from private as a public company under that section if it has previously been re-registered as unlimited. Section 29(3) also provides that a limited company shall not be re-registered as unlimited under that section if it has previously been re-registered as unlimited. A Certificate of re-registration is awarded where a company re-registers.

2.      Meaning of a private company

S.5 of Act 1 of 2012 gives a new hitherto non existing meaning of a private company as being a company which by its articles;

(i)                 Restricts the rights to transfer not only its shares but also its securities.

This is a wider definition of a private company than in Cap 110 since it also captures transfer of securities.

3.      Increase the membership of a private company

The new Act now limits the number of its members to one hundred. This can be cross referenced with S.27 (1) (a) of Cap 110 which limited the membership of such a company to only 50.

4.       General commercial company (Memorandum)

Section 7 (1) (c) provides for requirements to the memorandum and is to the effect that the objects of the company may be stated therein. Section 7(5) however qualifies this by providing that where the company’s memorandum states that the object of the company is to carry on business as a general commercial company, the memorandum shall state that-

(a)    The object of the company is to  carry on any trade or business  whatsoever; and

(b)   The company has power to do all such things as are incidental or conducive to the carrying on of any trade or business by it.

The implication is that there is no need to list numerous business objects in the memorandum since the two clauses are sufficient in relation to the objects, except where the company is not a general commercial company.

5.      One man company

 S.4 (1) of Act 1 of 2012, provides for the mode of forming a one man company in the following terms, ‘Any one or more persons may for a lawful purpose, form a company, by subscribing their names to a memorandum of association and otherwise complying with the requirements of this Act in respect to registration, form an incorporated company, with or without limited liability.’  It is worth nothing that a one man company shall not be required to hold an annual general meeting and it does not require a secretary under section 187(3).

In Cap 110, it was impossible to form a one man company since it provided for a minimum of two members.

A One Person Company has almost all the benefits of a private limited company such as of limited liability, separate legal entity, minimum legal compliances, independent decision making and continuity of existence. The new development is among a few reforms by the government to ease doing business in the country.[4] This is against the background that the biggest numbers of businesses in Uganda are informal and successful but are not easily regulated by Government as to have realistic control of the economy let alone losing much needed revenue. The new development is expected to attract more informal businesses to get formalized. This would also improve the capacity of these companies to easily access credit from financial institutions.[5]

One Person Company has been criticized mainly on the ground of tax evasion as such companies can be formed with the purpose of evasion of tax. Some other grounds of criticism are limited marginal ability of a single person to take all the responsibilities of management and suspected fraud which can be done when all the affairs handled and controlled by only one man

Restriction

Under Section 24(7), a private company not being a single member company which has two or more members on the commencement of this Act shall not become a single member company.

6.      Conditions of single member company; Nominee director of a single member company.

The Act however puts in place requirements in relation to the one man company. Under section 186, a single member shall nominate two individuals, one of whom shall become nominee director in case of death of the single member and the other shall become alternate nominee director to work as nominee director in case of non-availability of the nominee director.The duties of the nominee director are;

(a)    To manage the affairs of the company in case of death of the single member until the transfer of shares to legal heirs of the single member;

(b)   To inform the registrar of the death of the single member, provide particulars of the legal heirs and in case of any impediment report the circumstances seeking directions within fifteen days after the death of the single member;

(c)    To transfer the shares to the legal heirs of the single member; and

(d)   To call the general meeting of the members to elect directors.

(3) In case of any impediment due to transfer of shares, or election of directors or any other circumstances, the registrar shall call, or direct the calling of the meeting of legal heirs, in exercise of the powers conferred by section 138 in such manner as he or she deems fit and give such directions with regard to election of directors and making alteration in the articles, if any, and such ancillary and consequential directions as he or she thinks expedient in relation to calling, holding and conducting of the meeting.  

Section 138(4) provides that where default is made in holding a meeting of the company in accordance with subsection (2), the registrar may, on the application of any member of the company, call or direct the calling of a general meeting of the company and give such ancillary or consequential directions as the registrar thinks expedient including directions modifying or supplementing in relation to the calling, holding and conducting of the meeting, the operation of the company’s articles.

7.      Directors with unlimited liability

Under S. 230 of Act 1 of 2012, it is now possible to have a limited liability company with some directors having unlimited liability unlike in Cap 110. Section 2 of the Act defines “unlimited company” as having the meaning assigned to it by section 4(3) (c). The subsection explains that ‘a company not having any limit on the liability of its members in this Act’ is referred to as “an unlimited company”’;

The fact that the liability of some members is unlimited has to be provided for in the memorandum. Indeed section 230(1) provides that in a limited liability company, the liability of the directors or managers or of the managing director may, if so provided by the memorandum, be unlimited. For companies whose members all have limited liability, a special resolution is necessary to give some of them unlimited liability status. This is because S. 231 provides that a special resolution is needed to alter the memorandum to give some directors unlimited liability status.

The Act also seems to propose that companies with unlimited liability may not state the division into their share capital into a fixed amount. This arises from the reading of section 7(4) which provides that ‘in the case of a company having a share capital—

(a)    the memorandum must also, unless the company is an unlimited company, state the amount of share capital with which the company proposes to be registered and the division of that share capital into shares of a fixed amount.’

Section 12 places peculiar requirements for unlimited company in that the number of members with which the company proposes to be registered has to be stated and if the company has a share capital, the amount of share capital with which the company proposes to be registered. Therefore in cases where the company has no share capital, only the number of members thus need be stated.

 Notice has to be given to the registrar in case of an unlimited company and one limited by guarantee when it has increased the number of its members beyond the registered number within fourteen days after the increase was resolved on or took place who shall record the increase. This is in mandatory terms and default attracts a fine to the company and every officer liable of Shs. 500,000/=.

8.       Statutory forms of memorandum and articles.

The Act also provides for the forms for registration of Companies in Section 17. It provides that the form of the memorandum of association of a company limited by shares, the memorandum and articles of association of a company limited by guarantee and not having a share capital and the memorandum and articles of association of an unlimited company having a share capital, shall be respectively in accordance with the forms set out in Tables B, C, D and E in the Third Schedule to this Act or as near to them as circumstances permit. On a closer look, the forms are substantially the same as the ones in the repealed Act. The inference that can be made from S.17 is perhaps the need to place emphasis on the form that should be adopted by promoters.

9.      Pre incorporation contracts

The common law position regarding pre-incorporation contracts remains considerably the same that these are only binding on the promoter rather than the company itself.  However, section 54 goes further than that. Under S.54 (2) of Act 1 of 2012, a company may adopt a pre-incorporation contract made on its behalf on formation and registration without a need for novation which was a requirement under common law.  After adoption by the company under Act 1 of 2012, the liability of the promoters ceases. cf. Motane V Thobani (1945)12 EACA 37, Ngaremutoni Estates Ltd V CIT (1969)1 ALR Comm. 186, which required Novation i.e. a new contract with the same terms.]

10.   Lifting the corporate veil

S.20 of Act 1 of 2012 provides that the high court may, where a company or its directors are involved in acts including tax evasion, fraud or where, save for a single member company, the membership of a company falls below the statutory minimum, lift the corporate veil. The phrase ‘lifting the corporate veil’ is defined in section 2 to mean, disregarding the corporate personality of a company in order to apportion liability to a person who carries out any act. The repealed Act did not provide for it and what was relied on was common law and case law on the subject.  A clear provision for it in the Act seems to indicate the growing need to curb fraud by companies including the newly created single member companies. The phrase ‘including’ seems to imply also that the other grounds of lifting the veil created by common law and case law are still applicable.[6]

11.    Code of corporate governance

The Companies Act 1 of 2012 introduces the concept of corporate governance in all companies and not just public entities. Thus S.14 of Act 1 of 2012 provides for the Code of corporate governance which may be adopted by a company, in the form in Table F. The table introduces the best boardroom practice entailing good practice covering board composition and effectiveness, the role of board committees, risk management, remuneration, relation with shareholders, and the company vital role of the company secretary.  Indeed S. 14 makes it mandatory for a public company and discretionary for a private company to adopt it.

Previously what was relied on was the corporate governance principles imposed upon public listed companies as provided for under the Capital Markets Authority Act, its regulations and guidelines. The printed copy of Table F is required to be annexed to or incorporated to each copy of the articles of association. If adopted, it becomes part of the articles of association and the company (public or private) is required to annually file a statement of compliance with both the registrar and the Capital Markets Authority.

12.   The Company secretary’s renewed role and qualifications

S.187 (1) of the Companies Act 1 of 2012 provides that every Company shall have a secretary. It also forbids a sole director from being a secretary. Therefore, it is mandatory that every company has a secretary except for a single member company (s. 187(3)). A single member company is one where one person owns all the shares in the private company.

  Qualifications of Company secretaries

 Secretaries are important in a company thus the new Act provides for their qualifications in s.190. It provides that in a public company, a secretary should have requisite knowledge and experience to discharge the functions of a company secretary. He or she should be an advocate, a member of a body that appears to directors by virtue of the position held to be capable, or he or she should belong to an institute of Chartered public Accountants in Uganda or Institute of Chartered Secretaries and Administrators. This implies that a company secretary in a private company is not obliged to have these qualifications.

Duties of Secretaries

In Table F (Article 1(4)) of the Companies Act, the board (board of directors) can delegate some powers to mgt. It is arguable that this includes delegation to secretaries. Table F is a code of corporate governance, a model for companies and is mandatory for public companies. Article 10 of Table F provides for the role of the Company secretary. Subsection (1) provides that the secretary shall have a pivotal role in corporate governance. The subsequent subsections provide for this role in detail. The company secretary is mandated to provide directors individually and collectively with detailed guidance on discharging their responsibilities. The secretary’s role is to induct or participate in the induction of directors, assist the chairperson and the chief executive officer in setting the annual board plan, administer other strategic board level matters, provide a central source of guidance on ethics and good governance, be subject to  a fit and proper test, as also directors.

This shows how important a company secretary has become in corporate governance under the new Act.  He has to qualify to perform these important tasks in the Act. Indeed the secretary has usual authority to bind the company in matters concerned with administration.

13.   Formation of contracts

Section 33 of cap 110 and s.50 of act 1 of 2012 provide for formation of contracts. However, the new Act emphasizes in Subsection one, that a company can make a contract under its common seal  or on behalf of the company by a person acting under its authority, express or implied. It is my opinion that it is wider and captures the doctrine of agency implied and express under the common law on agency in relation to companies. In the repealed Act, this was absent and common law was the authority on the matter.

14.   Registered office ( Sections 116 &117)

The Act places stringent terms in respect of the obligation of each company to have a registered office. In the event of non-compliance the Registrar of Companies reserves the right to de register such company where the company fails to remedy the above breach of the law upon notice of the same being given to it in the Gazette and in a newspaper of wide circulation.

15.    Reduction of share capital.

Sections 65 and 69 of the Companies Act Cap.110 are to the effect that a company may by special resolution and upon petitioning court for an order to confirm the reduction, reduce share capital.

These provisions have largely been retained in Sections 76 and 77 of the Companies Act No.1 of 2012. There is however an additional requirement that the resolution for reducing share capital shall be published in the Gazette and a newspaper of wide circulation under Section 77(1).

16.   Financial assistance of a company  for purchase of own shares or shares in its holding company

Private Company

Financial assistance is defined in Section 63 (6) (a) to include that assistance by way of gift, guarantee, security or indemnity, loan or other such financial assistance where the net assets are reduced to a material extent or which has no assets. Financial assistance has always been discouraged in the repealed Act to avoid reduction of capital by the company specifically to protect creditors.

Section 63 of Act 1 of 2012 is much wider than Section 56 of Cap 110 which also lays down exceptions to such assistance. Section 63 goes further to provide for more exceptions in S. 63 (2) (d) that financial assistance may be given if “the assistance is given in good faith in the interests of the company.”   Indeed this exception is broad enough to accommodate many grounds of giving financial assistance. What remain to be determined are the criteria for ‘good faith in the interests of the company’. One may adopt the interpretation attaching to the judgment of directors in their duties in what they consider to be in good faith in the interests of the company as laid down by common law.

A novel section in relation to reduction of capital can be glimpsed from S.65 which provides for the relaxation of the rule in s.63 and provides for when a private company is not prohibited from giving financial assistance. This is only where the acquisition is made for shares in another company or where the acquisition is for shares in its holding company, the holding company is a private company and compliance is made with S. 70 and 72. The sections 70 and 72 deal with notice to the registrar in cases involving certain  dealings affecting the reserve capital of a company i.e. consolidation, conversion or other dealing with the company shares.

The Act also authorizes a distribution of a company’s assets by way of dividend lawfully made or a distribution made in the course of the company’s winding up, the allotment of bonus shares, a reduction of capital confirmed by order of the court, a redemption or purchase of shares, anything done in accordance with an order of court, compromises and arrangements with creditors and members, anything done under an arrangement made in accordance with the insolvency law, acceptance of shares by liquidator in winding up as consideration for sale of property or anything done under an arrangement made between a company and its creditors which is binding on the creditors by virtue of the insolvency laws. This is all new and seems to be directed to enable private companies able to access financial help and encourage commerce in Uganda.

Public companies

S.64 of Act 1 of 2012 is a new provision not in Cap 110. It relates to special restrictions for public companies. It deals with financial assistance to public company. Such a company may only be given financial assistance if it has net assets which are not reduced by the financial assistance or to the extent that those assets are reduced by the assistance, if the assistance is provided out of distributable profits.

Registration of charges

Under S.111 (1) of Act 1 of 2012, the application for extension of time within which to register a charge if one fails to register within the required 42 days is made to the registrar unlike in Cap 110 where it was made to Court. In S.102 of Cap 110, the application was to the court and the procedure was by notice of motion. It is worth noting however that the procedure for applying to the Registrar in Section 111 is not provided for.  The change may have been brought about by the need to avoid delays and expenses involved in court process and reduce backlog in courts too.

17.   Definition section (Section 2)

a)      Director now includes a shadow director. A shadow director is defined in section 2 as a person in accordance with whose directions or instructions the directors of a company are accustomed to act but does not include a person who gives advice to the directors in a professional capacity.

b)      Dormant company;

The concept of a dormant company has been introduced. A dormant company is defined in section 2 as “one that is not doing business and does not have accounting transactions in a financial year.” This is relevant in relation to time for completion of filing the annual return of a company. Under Section 134, the annual return shall be completed within forty two days after the annual general meeting for the year, whether or not that meeting is the first or only ordinary general meeting, or the first or only general meeting of the company in the year and the company shall within that period forward to the registrar a copy signed both by a director and by the secretary of the company. If after expiry of five years from date specified in subsection the company has not filed any annual returns, the registrar shall require the company file a statement of solvency and show cause why a company should not be struck off the register.

However in subsection (4), where a company is dormant, the directors shall notify the Registrar within fifteen working days from the date of the resolution for dormancy and the company shall be exempted from filing returns for 12 months; that is the grace period. This relieves a company from filing returns if for any reason it wants to go out of business for awhile for whatever reason.

18.   Insolvency

The Insolvency Act, 2011, repealed parts of the Companies Act relating to winding up. However, member’s voluntary winding up is still reproduced in the Act 1 of 2012.  The definition section of Act 1 of 2012 in defining ‘members’ voluntary winding up’ refers one to the definition of member’s voluntary winding up in the Insolvency Act as the law governing insolvency in Uganda. The Uganda Insolvency Act was assented to on 8th August, 2011 and came into force on the same day as the Companies Act 1 of 2012.  It amends and consolidates all laws relating to insolvency. It repeals the Bankruptcy Act (Cap. 67), the Deeds of Arrangement Act (Cap. 75) and parts VI (Winding up), VII (Receivers and Managers) and IX (Winding up of unregistered companies) of the Companies Act (Cap. 110). The Insolvency Act now governs how receivership, administration, liquidation, arrangements and bankruptcy shall be handled in Uganda.  Section 272 of the Companies Act 1 of 2012, provides that where a company where a company has passed a resolution for voluntary winding up, the provisions of the Insolvency Act, 2011 shall apply.

In conclusion, it is now clear that the winding up process previously in the Cap 110 has been shifted to the Insolvency Act. It is vital to note too that the Insolvency Act, 2011 ushers in a new in regime in insolvency that embodies corporate rescue as the norm.

19.   Formation of a company

Form for registration of a company

The Act now provides in Section 18 that a company shall be registered by filling in the particulars contained in the registration form in the second schedule (new) to this Act and on filing it, the registrar shall register the company and assign to it a registration number, if the registrar is satisfied that the applicant has complied with the Act. On registration of the company, the registrar shall issue a certificate signed by him or her that the company is incorporated and in the case of a limited liability company, that the company is limited.

Section 19 deals with registration of memorandum and articles of a company. It provides that the memorandum and the articles, if any, shall be delivered to the registrar and he or she shall retain and register them and shall assign a registration number to each company so registered.

It is a requirement that a company shall indicate its registration number on all its official documents.

a)     New

Sections 37, 38 and 39 are new. The provide for the power of the registrar to require a company to abandon a misleading name, prohibition on trading under a misleading name and improper use of the word “limited” or its imitation respectively. In the repealed Act, what was emphasized was the power of the registrar to reject a confusing name when a search is conducted for formation of a company.

b)      The formation of a company has also changed. A form for registration is provided for in the 2^nd schedule on page 201 of the Act. It contains provisions for the place of business, proposed share capital, address of the business, nature of the business and signature of the subscribers with space for a passport size photo.

This tends to indicate that in such a case, there may not be a need to file the form for registered business office, statement of nominal capital as before separately. However currently, the practice is till to file all documents required under Cap 110.

20.  Alteration of  the memorandum which could have been contained in articles

Section 24 of Cap 110 and Section 44 of Act 1 of 2012 both provide for such alteration. However, the new Act provides that such alterations must be confirmed by the Registrar while the repealed Act provided for confirmation by court.

21.   A company’s capacity not limited by its memorandum (the indoor management rule)

Section 51of Act 1 of 2012 provides that the validity of an act by a company shall not be called into question on the ground of lack of capacity by reason of anything contained in the company’s memorandum. This reflects the indoor management rule at common law. This is a new provision in the Act.

22.  The doctrine of 'ultra vires' has been repealed by the new Act. The Act ( section 51) also provides that any act done by the company shall not be called into question on the ground of lack of capacity or by reason of anything contained in the Companies Memorandum.  It however provides an avenue for the members of the company to nevertheless bring proceedings to restrain a company from engaging in an action beyond the companies' capacity.

23.  The Company, Directors and members powers

S.51 (2) also provides that a member of the company may bring proceedings to restrain the doing of an act which but for subsection (1) would be beyond the company’s capacity except if the act is done in the fulfillment of a legal obligation arising from a previous act of a company. Subsection (1) provides that the power of the board of directors to bind the company or authorise others to do so in favour of a person dealing with the company in good faith shall not be limited by the company’s memorandum.

Directors are further mandated to observe limitations on the memorandum and ratification of their acts requires a special resolution by the company. Section 52(4) also provides for the restraint of directors in particular by a member from doing ultravires acts in similar terms as Section 51(2).

The above provisions offer more protection to the unsuspecting public who deal with director in good faith while also giving members power to question directors’ acts in management. These, in my humble submission, restate some common law provisions of minority suits and exceptions to the rule in Foss Vs Harbottle in cases of ultravires actions by directors.

24.  Power of the board to bind the company not limited by the memorandum

Section 52(1) also provides for the power of the board of directors to bind a company in favour of a person dealing with the company in good faith and such power shall not be limited by the memorandum. This too, is a new provision.

25.   Party not bound to inquire into company memorandum

Section 53 is also a new provision. It provides that a party to a transaction with a company is not bound to inquire whether it is permitted by the company‘s memorandum or as to any limitation on the powers of the board of directors to bind the company or authorize others to do so.

26.  Documents executed

Section 37 of Cap 110 and section 59 of Act 1 of 2012 provide that a director, secretary or other authorized official may authenticate a document of the company. However, Section 55 of Act 1 of 2012 is completely new and goes further to provide that a document executed either by a secretary and director or two directors on behalf of a company shall have effect as a common seal of the company.

It is my opinion that in such cases, the absence of a company seal is immaterial and the company is bound where either pair of the two signatures is present.

The capital markets authority is defined in section 2 as the Capital Markets Authority established by the Capital Markets Authority Act. Section 60 of the Companies Act No. provides too that a prospectus shall not be issued by a company until such prospectus has been approved by the Capital Markets Authority (CMA) and only after this can the registrar can go ahead to register it. It is also worth noting that the form and content of the prospectus in Act Cap.110 have been transferred to the Capital Markets Authority Act and the Regulations made there under. One must therefore look to the Capital Markets Authority Act which is streamlined to regulate all matters relating to prospectus requirements.

27.  Re-registering a public company

I also note that the new Act provides for a more comprehensive and chronological change from a private company to a public company in section 24 to 27 of the Act. Cap 110 had no such provisions except for formation of a public company as a new company and not merely re-registering one.

28.  Director’s duties

Act 1 of 2012 has codified a number of common law principles. With the exception of lifting of the corporate veil in the event of fraud by the directors of the company, the duties of directors to include the duty to act in a manner that promotes the success of the business of the company; exercise a degree of skill and care as a reasonable person would do looking after their own business and act in good faith in the interests of the company as a whole. Their mandate extends to  treating all shareholders equally; avoiding conflicts of interest; declaring any conflicts of interest; not making personal profits at the company's expense; not accepting benefits that will compromise him or her from third parties; and ensure compliance with this Act and any other law.  It is my opinion that some of these go beyond what was provided for by common law especially in being required to treat shareholders equally.

29.  Director’s qualification

Section 186(1) of the Companies Act Cap.110 provides that the minimum age of appointment of a director is twenty one years old. However, Section 196 of the Companies Act No.1 of 2012 reduces the same to eighteen years.

30.  Grounds of disqualification of directors

The grounds for disqualification from acting as a director have also been further extended to embody failure to comply with filing statutory returns under Section 199(1) (c) of the Act.

31.   Transfer of shares in single member company

Under Section 87 of the New Act, a single member company may transfer or allot shares on -the death of the single member; or

-by operation of law; or

-by a single member company converting into a private company not being a single member company.

a)In case of death of single member, the company may either be wound up or be converted into a private company not being a single member company. There is a requirement thereafter that;

(a) the nominee director shall transfer the shares in the name of the legal heirs of the single member within thirty days;

(b) the company shall pass a special resolution for change of status from single member company to private company not being a single member company and alter its articles accordingly within thirty days of transfer of shares; and

 (c) the members shall appoint or elect one or more additional directors in accordance with this Act and within fifteen days of date of passing of the special resolution and notify the appointment to the registrar.

(b) In case of operation of the law the company is mandated to;

(a)    transfer the shares, within seven days, in the name of relevant persons to give effect to the order of the court or any other authority;

(b)   pass a special resolution for change of status from single member company to private company and alter its articles accordingly within thirty days of transfer of shares; and

(c) appoint additional director or directors in accordance with this Act within fifteen days of date of passing of the special resolution and notify the appointment in the prescribed form within fourteen days of date after the appointment.

There is a further requirement that the persons becoming members due to transfer or transmission or further allotment of shares referred to above as the case may be, shall pass a special resolution to make alterations in articles and appoint one or more additional directors.

(c)Where a company transfers shares or makes a further allotment of shares, the company is mandated to pass a special resolution for change of status from single member company to private company and alter its articles accordingly within thirty days of transfer of shares or further allotment of shares. Thereafter the company shall appoint and elect one or more additional directors within fifteen days of date of passing of the special resolution and notify the appointment to the registrar. Under subsection (6), where a single member company converts into a private company pursuant to subsection (1), it shall file a notice in writing, with the registrar within sixty days from the date of passing of special resolution.

32.   Annual General Meeting.

Under Section 131 of the Companies Act Cap.110 it is mandatory for all companies to hold an annual general meeting. It provides, “Every company shall in each year hold a general meeting as its annual general meeting in addition to any other meetings in that year…”However, Section 138 of the Companies Act No.1 of 2012 solely makes this mandatory for public companies. Subsection (2) provides that “A private company may at the requisition of a member hold an annual general meeting.” It can be concluded that private companies can therefore dispense with the holding of an annual general meeting.

In conclusion it can be safely stated that Act 1 of 2012 ushers in fundamental changes hitherto unseen in Uganda’s commercial sector that were long due. What remains to be seen is the effectiveness of these provisions and its effect on corporations.

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[1] Report: 2012 Investment Climate Statement – Uganda- Bureau of Economic and Business Affairs, June 2012. http://www.state.gov/e/eb/rls/othr/ics/2012/191256.htm accessed on the 17th day of Oct, 2013

[2] Uganda Law Reform Commission, 2011 pg 9

[3] ibid

[4] David Rupiny “Govt To Register One-person Businesses As Companies” http://ugandaradionetwork.com/a/story.php?s=43082 accessed on the 17^th day October,of 2013

[5] ibid

[6] fraud, agency, group enterprises, trusts, enemy, tax, the companies legislation