An incorporated company is a legal entity created under law, distinct from its members or
shareholders. It enjoys certain characteristics that distinguish it from other business structures.
In Uganda, companies are regulated primarily by the Companies Act, 2012, which outlines the
procedures and requirements for incorporation. Below are the key features of an incorporated
company with relevant case law references:
1. Separate Legal Personality:Once a company is incorporated, it becomes a distinct legal entity,
separate from its shareholders and directors. This principle is derived from the landmark case
of Salomon v. Salomon & Co Ltd [1897] AC 22. In this case, the court established that the
company had its own legal identity distinct from Salomon, its founder.
This concept is enshrined in the Companies Act, 2012, which recognizes an incorporated
company as a "legal person" capable of owning property, entering into contracts, and suing or
being sued in its own name.
In C. O. U. Press Ltd v. I.S. Mubiru & Others [1965] E.A. 120, the court confirmed that the
company is a separate legal entity from its members, even when all the shares are held by one
person.
2. Limited Liability: In an incorporated company, the liability of shareholders is limited to the
amount unpaid on their shares (if any). This means that if the company incurs debts or is sued,
the personal assets of the shareholders are protected. This feature encourages
entrepreneurship and investment by reducing personal risk.
In Ssekaana v. The Kyambogo Company [1970] EA 171, the court reiterated that the personal
liability of shareholders is limited to their shares, and creditors cannot pursue the personal
assets of shareholders in case of corporate insolvency.
3. Perpetual Succession: An incorporated company enjoys perpetual succession, meaning the
company continues to exist despite changes in ownership or the death of shareholders or
directors. This feature ensures the company's continued existence beyond the lives of its initial
members
In Fort Hall Bakery Supply Co Ltd v. Fredrick Muigai Wangoe [1959] EA 474, the court held that
a company continues to exist until it is lawfully wound up, regardless of the death or resignation
of its shareholders or directors.
4. Transferability of Shares: In an incorporated company, shares can be freely transferred
(subject to any restrictions in the company's Articles of Association). This feature provides
liquidity to shareholders and allows the company to raise capital easily. However, in private
companies, the transfer of shares may be subject to certain restrictions to maintain control over
who becomes a shareholder.
Case Law Example: In Re Seaforth Land Ltd [1978] 1 WLR 1407, the court upheld the importance
of the right to transfer shares, recognizing it as an integral part of company law.
5. Capacity to Own Property: Since an incorporated company is a legal person, it can own
property in its own name. This distinguishes it from partnerships or sole proprietorships, where
property is usually owned by the business owners personally.
Ugandan Example: The Companies Act, 2012, specifically grants companies the right to own
assets, enter contracts, and acquire liabilities in their own name.
6. Ability to Sue and Be Sued: An incorporated company can sue or be sued in its own name.
This is another advantage of being a distinct legal entity. Any legal disputes involving the
company do not necessarily affect the personal lives or assets of its shareholders or directors.
Relevant Case Law: In Buganda Bottling Company Ltd v. Rwanika [1967] EA 514, the court ruled
that a company, as a legal entity, could sue or be sued in its corporate name, highlighting its
legal distinction from its members.
7. Corporate Governance Structure
Incorporated companies have a formal structure of governance, usually involving a board of
directors and shareholders. Directors manage the company's day-to-day operations, while
shareholders exercise control over key decisions through general meetings.
Authority: Under the Companies Act, 2012, directors owe fiduciary duties to the company and
are expected to act in its best interest. Failure to do so can lead to personal liability, as seen in
Re City Equitable Fire Insurance Co Ltd [1925] Ch 407, where directors were held accountable
for mismanagement.
8. Taxation: An incorporated company is taxed separately from its shareholders. Companies are
subject to corporate income tax under the Income Tax Act, while shareholders are taxed on
dividends they receive. This creates a distinction in taxation compared to unincorporated
businesses like partnerships.
Conclusion
Incorporation provides companies with several legal benefits, such as limited liability, perpetual
succession, and a separate legal personality. These features promote business continuity,
facilitate investment, and offer a level of protection to business owners. Uganda’s Companies
Act, 2012, together with judicial precedents, reinforces these principles, making incorporation a
favored business structure for larger and more complex enterprises.
